item 14 exhibits financial statement schedule reports form 8k documents filed part report 1 consolidated financial statements consolidated financial statements required filed annual report form 10k listed page hereof incorporated herein reference corresponding page number 2000 annual report shareholders 2 financial statement schedule financial statement schedule required annual report form 10k listed page hereof required schedule appears pages hereof 3 exhibits 241 powers attorney included signature page 991 opinion pricewaterhousecoopers llp respect selected financial data incorporated reference part ii item 6 hereof incorporated reference corresponding exhibit registrant’s registration statement form s1 33374449 incorporated reference corresponding exhibit registrant’s registration statement form s1 33375213 incorporated reference corresponding exhibit registrant’s annual report form 10k fiscal year ended november 26 1999 exhibit management contract compensatory plan arrangement b reports form 8k september 11 2000 filed current report form 8k attaching press release announcing agreement combine slk llc september 19 2000 filed current report form 8k reporting net earnings fiscal third quarter ended august 25 2000 november 15 2000 filed current report form 8k reporting closing combination slk llc january 16 2001 amended form 8k include pro forma historical financial statements required form 8k december 19 2000 filed current report form 8k reporting net earnings fiscal fourth quarter ending november 24 2000 goldman sachs group inc index financial statements financial statement schedule items 14a1 14a2 specifically incorporated elsewhere herein reference certain portions following unaudited items management’s discussion analysis 26 45 ii supplemental financial information quarterly results iii supplemental financial information common stock price range iv supplemental financial information selected financial data schedules listed omitted absence conditions required information included consolidated financial statements notes thereto 2000 annual report shareholders information incorporated herein reference report independent accountants directors shareholders goldman sachs group inc audits consolidated financial statements referred report dated january 19 2001 appearing 2000 annual report shareholders goldman sachs group inc subsidiaries report consolidated financial statements incorporated reference annual report form 10k also included audit financial statement schedule listed page form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp new york new york january 19 2001 schedule goldman sachs group inc condensed statements earnings parent company accompanying notes integral part condensed financial statements schedule goldman sachs group inc condensed statements financial condition parent company accompanying notes integral part condensed financial statements schedule goldman sachs group inc condensed statements cash flows parent company supplemental disclosures cash payments interest approximated related expense fiscal years presented payments income taxes 123 billion year ended november 2000 immaterial years ended november 1999 november 1998 noncash activities connection firm’s conversion corporate form 1999 junior subordinated debentures 371 million issued retired limited partners exchange partnership interests common stock issued connection business combinations 341 billion 245 million years ended november 2000 november 1999 respectively accompanying notes integral part condensed financial statements schedule goldman sachs group inc note condensed financial statements parent company note 1 significant accounting policies basis presentation condensed unconsolidated financial statements goldman sachs group inc read conjunction consolidated financial statements goldman sachs group inc subsidiaries notes thereto incorporated reference form 10k investments subsidiaries accounted using equity method condensed unconsolidated financial statements prepared accordance generally accepted accounting principles require management make estimates assumptions regarding investment valuations outcome pending litigation matters affect condensed unconsolidated financial statements related disclosures estimates assumptions based judgment available information consequently actual results could materially different estimates certain reclassifications made prior years’ financial statements conform fiscal year 2000 presentation note 2 restricted stock units total restricted stock units outstanding november 2000 november 1999 follows 1 includes restricted stock units granted employees subsequent november 2000 part yearend compensation fiscal 2000 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized goldman sachs group inc david viniar name david viniar title chief financial officer date february 16 2001 ii1 power attorney know persons presents person whose signature appears constitutes appoints john thain robert j katz gregory k palm david viniar esta e stecher severally true lawful attorneyinfact power substitution resubstitution sign name place stead capacities things execute instruments attorney may deem necessary advisable securities exchange act 1934 rules regulations requirements us securities exchange commission connection annual report form 10k amendments hereto fully intents purposes might could person hereby ratifies confirms said attorneysinfact agents acting alone substitute substitutes may lawfully cause done virtue hereof pursuant requirements securities exchange act 1934 report signed behalf registrant capacities dates indicated ii2item 14 exhibits financial statement schedule reports form 8k documents filed part report 1 consolidated financial statements consolidated financial statements required filed annual report form 10k listed page hereof incorporated herein reference corresponding page number 2001 annual report shareholders 2 financial statement schedule financial statement schedule required annual report form 10k listed page hereof required schedule appears pages hereof 3 exhibits incorporated reference corresponding exhibit registrant’s registration statement form s1 33374449 incorporated reference corresponding exhibit registrant’s registration statement form s1 33375213 exhibit management contract compensatory plan arrangement b reports form 8k september 26 2001 filed current report form 8k reporting earnings fiscal third quarter ended august 31 2001 december 20 2001 filed current report form 8k reporting earnings fiscal fourth quarter ended november 30 2001 goldman sachs group inc index financial statements financial statement schedule items 14a1 14a2 specifically incorporated elsewhere herein reference certain portions following unaudited items schedules listed omitted absence conditions required information included consolidated financial statements notes thereto 2001 annual report shareholders information incorporated herein reference report independent accountants directors shareholders goldman sachs group inc audits consolidated financial statements referred report dated january 28 2002 appearing 2001 annual report shareholders goldman sachs group inc subsidiaries report consolidated financial statements incorporated reference annual report form 10k also included audit financial statement schedule listed page form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp new york new york january 28 2002 schedule goldman sachs group inc condensed statements earnings parent company accompanying notes integral part condensed financial statements schedule goldman sachs group inc condensed statements financial condition parent company accompanying notes integral part condensed financial statements schedule goldman sachs group inc condensed statements cash flows parent company supplemental disclosures cash payments interest approximated related expense fiscal years presented payments income taxes 545 million 123 billion years ended november 2001 november 2000 respectively immaterial year ended november 1999 noncash activities value common stock issued connection business combinations 223 million 341 billion 245 million years ended november 2001 november 2000 november 1999 respectively stockbased compensation expense included subsidiary net earnings 766 million 130 billion 294 billion years ended november 2001 november 2000 november 1999 respectively connection firm’s conversion corporate form 1999 junior subordinated debentures 371 million issued retired limited partners exchange partnership interests accompanying notes integral part condensed financial statements schedule goldman sachs group inc notes condensed financial statements parent company note 1 significant accounting policies basis presentation condensed unconsolidated financial statements goldman sachs group inc read conjunction consolidated financial statements goldman sachs group inc subsidiaries notes thereto incorporated reference form 10k investments subsidiaries accounted using equity method condensed unconsolidated financial statements prepared accordance accounting principles generally accepted united states america require management make estimates assumptions regarding investment valuations outcome pending litigation matters affect condensed unconsolidated financial statements related disclosures estimates assumptions based judgment available information consequently actual results could materially different estimates certain reclassifications made prior years’ financial statements conform current year presentation financial instruments financial instruments owned including principal investments carried fair value amounts approximate fair value related unrealized gains losses recognized condensed statements earnings fair value based generally listed market prices broker dealer price quotations prices readily determinable liquidating position reasonably expected affect market prices fair value based either internal valuation models management’s estimate amounts could realized current market conditions assuming orderly liquidation reasonable period time fair value readily determinable principal investments initially recorded cost downward adjustments made management determines realizable value less carrying value affiliate financings consolidated unsecured financing goldman sachs raised parent company goldman sachs group inc parent company lends necessary funds subsidiaries affiliates represented “receivables affiliates” “subordinated loan receivables affiliates” condensed statements financial condition intercompany exposure managed generally requiring intercompany loans maturities equal shorter maturities aggregate borrowings parent company policy ensures subsidiaries’ obligations parent company generally mature advance parent company’s thirdparty longterm borrowings addition many subsidiaries affiliates pledge collateral cover intercompany borrowings equity investments subsidiaries generally funded equity capital interest income largely generated loans made affiliates income taxes income taxes accounted accordance sfas 109 “accounting income taxes” requires recognition tax benefits expenses temporary differences financial reporting tax bases assets liabilities tax assets liabilities presented component “other assets” “other liabilities accrued expenses” respectively condensed statements financial condition note 2 restricted stock units total restricted stock units outstanding years ended november 2001 november 2000 november 1999 follows 1 includes restricted stock units granted connection combination slk restricted stock units granted employees subsequent year end part yearend compensation signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized goldman sachs group inc david viniar name david viniar title chief financial officer date february 22 2002 ii1 power attorney know persons presents person whose signature appears constitutes appoints john thain gregory k palm david viniar esta e stecher severally true lawful attorneyinfact power substitution resubstitution sign name place stead capacities things execute instruments attorney may deem necessary advisable securities exchange act 1934 rules regulations requirements us securities exchange commission connection annual report form 10k amendments hereto fully intents purposes might could person hereby ratifies confirms said attorneysinfact agents acting alone substitute substitutes may lawfully cause done virtue hereof pursuant requirements securities exchange act 1934 report signed behalf registrant capacities dates indicated ii2item 14 controls procedures within 90day period prior filing report evaluation carried supervision participation goldman sachs’ management including chief executive officer chief financial officer effectiveness design operation disclosure controls procedures defined rule 13a14c securities exchange act 1934 based upon evaluation chief executive officer chief financial officer concluded design operation disclosure controls procedures effective significant changes made internal controls factors could significantly affect controls subsequent date evaluation part iv item 15item 14 principal accountant fees services information regarding principal accountant fees services set forth caption “ratification selection independent auditors fees paid independent auditors” page 29 2004 proxy statement information incorporated herein reference part iv item 15item 14 principal accountant fees services information regarding principal accountant fees services 2005 proxy statement incorporated herein reference part iv item 15item 14 principal accountant fees services information regarding principal accountant fees services 2006 proxy statement incorporated herein reference part iv item 15item 14 principal accountant fees services information regarding principal accountant fees services 2007 proxy statement incorporated herein reference part iv item 15item 14 principal accountant fees services information regarding principal accountant fees services 2010 proxy statement incorporated herein reference part iv item 15item 14 principal accountant fees services information regarding principal accountant fees services 2011 proxy statement incorporated herein reference part iv item 15item 14 principal accountant fees services information regarding principal accountant fees services 2012 proxy statement incorporated herein reference goldman sachs 2011 form 10k part iv item 15item 14 principal accountant fees services information regarding principal accountant fees services 2013 proxy statement incorporated herein reference goldman sachs group inc subsidiaries part iv item 15item 14 principal accountant fees services information regarding principal accountant fees services 2014 proxy statement incorporated herein reference goldman sachs group inc subsidiaries part iv item 15item 14 principal accounting fees services information regarding principal accounting fees services 2015 proxy statement incorporated herein reference goldman sachs group inc subsidiaries part iv item 15item 14 principal accounting fees services information regarding principal accounting fees services 2019 proxy statement incorporated form 10k reference part iv item 15item 14 principal accounting fees services information regarding principal accounting fees services 2020 proxy statement incorporated form 10k reference part iv item 15item 14 principal accountant fees services information regarding principal accountant fees services 2021 proxy statement incorporated form 10k reference part iv item 15item 14 exhibits financial statement schedule reports form 8k documents filed part report 1 consolidated financial statements consolidated financial statements required filed annual report form 10k listed page hereof incorporated herein reference corresponding page number 1999 annual report shareholders 2 financial statement schedule financial statement schedule required annual report form 10k listed page hereof required schedule appears pages hereof 3 exhibits 21 plan incorporation 22 agreement plan merger goldman sachs corporation goldman sachs group inc 23 agreement plan merger goldman sachs group lp goldman sachs group inc incorporated reference corresponding exhibit registrant’s registration statement form s1 33374449 incorporated reference corresponding exhibit registrant’s registration statement form s1 33375213 incorporated reference corresponding exhibit registrant’s registration statement form s1 33390677 exhibit management contract compensatory plan arrangement b reports form 8k current report form 8k dated november 18 1999 filed securities exchange commission connection establishment date registrant’s 2000 annual meeting shareholders goldman sachs group inc index financial statements financial statement schedule items 14a1 14a2 page reference 1999 annual report form 10k shareholders consolidated financial statements report independent accountants consolidated statements earnings consolidated statements financial condition consolidated statements changes stockholders’ equity partners’ capital consolidated statements cash flows consolidated statements comprehensive income notes consolidated financial statements 52 73 financial statements schedule condensed financial information registrant parent company report independent accountants condensed statements earnings condensed statements financial condition condensed statements cash flows note condensed financial statements specifically incorporated elsewhere herein reference certain portions following unaudited items schedules listed omitted absence conditions required information included consolidated financial statements notes thereto 1999 annual report shareholders information incorporated herein reference report independent accountants directors shareholders goldman sachs group inc audits consolidated financial statements referred report dated january 21 2000 appearing 1999 annual report shareholders goldman sachs group inc subsidiaries report consolidated financial statements incorporated reference annual report form 10k also included audit financial statement schedule listed item 14a2 form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp new york new york january 21 2000 schedule goldman sachs group inc condensed statements earnings parent company accompanying note integral part condensed financial statements schedule goldman sachs group inc condensed statements financial condition parent company accompanying note integral part condensed financial statements schedule goldman sachs group inc condensed statements cash flows parent company supplemental disclosures cash payments interest approximated related expense fiscal years presented payments income taxes immaterial noncash activities receivables affiliates includes 294 billion stockbased compensation awards granted employees affiliated entities connection firm’s conversion corporate form junior subordinated debentures 371 million issued retired limited partners exchange partnership interests common stock issued connection acquisition 245 million 1999 accompanying note integral part condensed financial statements schedule goldman sachs group inc note condensed financial statements parent company note 1 significant accounting policies basis presentation condensed unconsolidated financial statements goldman sachs group inc read conjunction consolidated financial statements goldman sachs group inc subsidiaries notes thereto incorporated reference form 10k investments subsidiaries accounted using equity method condensed unconsolidated financial statements prepared accordance generally accepted accounting principles require management make estimates assumptions regarding investment valuations outcome pending litigation matters affect condensed unconsolidated financial statements related disclosures estimates assumptions based judgment available information consequently actual results could materially different estimates signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized goldman sachs group inc david viniar name david viniar title chief financial officer date february 11 2000 ii1 power attorney know persons presents person whose signature appears constitutes appoints john thain robert j katz gregory k palm david viniar severally true lawful attorneyinfact power substitution resubstitution sign name place stead capacities things execute instruments attorney may deem necessary advisable securities exchange act 1934 rules regulations requirements us securities exchange commission connection annual report form 10k amendments hereto fully intents purposes might could person hereby ratifies confirms said attorneysinfact agents acting alone substitute substitutes may lawfully cause done virtue hereof pursuant requirements securities exchange act 1934 report signed behalf registrant capacities dates indicated ii2item 14 principal accounting fees services information regarding principal accounting fees services 2016 proxy statement incorporated herein reference goldman sachs group inc subsidiaries part iv item 15item 14 principal accounting fees services information regarding principal accounting fees services 2017 proxy statement incorporated herein reference part iv item 15item 14 principal accounting fees services information regarding principal accounting fees services 2018 proxy statement incorporated form 10k reference goldman sachs group inc subsidiaries part iv item 15item 14 principal accountant fees services information regarding principal accountant fees services 2008 proxy statement incorporated herein reference part iv item 15item 14 principal accountant fees services information regarding principal accountant fees services 2009 proxy statement incorporated herein reference part iv item 15 item 7 management’s discussion analysis financial condition results operations management’s discussion analysis financial condition results operations set forth caption “management’s discussion analysis” pages 26 45 2000 annual report shareholders incorporated herein reference information read conjunction consolidated financial statements notes thereto incorporated reference item 8 annual report form 10k item 7aitem 7 management’s discussion analysis financial condition results operations management’s discussion analysis financial condition results operations set forth caption “management’s discussion analysis” pages 26 45 2001 annual report shareholders incorporated herein reference information read conjunction consolidated financial statements notes thereto incorporated reference item 8 annual report form 10k item 7aitem 7 management’s discussion analysis financial condition results operations management’s discussion analysis financial condition results operations set forth caption “management’s discussion analysis” pages 30 59 2002 annual report shareholders incorporated herein reference information read conjunction consolidated financial statements notes thereto incorporated reference item 8 annual report form 10k item 7aitem 7 management’s discussion analysis financial condition results operations management’s discussion analysis financial condition results operations set forth caption “management’s discussion analysis” pages 32 66 2003 annual report shareholders incorporated herein reference information read conjunction consolidated financial statements notes thereto incorporated reference item 8 annual report form 10k item 7anannannannanitem 7 form 10k item 8 financial statements supplementary data index management’s report internal control financial reporting management goldman sachs group inc together consolidated subsidiaries firm responsible establishing maintaining adequate internal control financial reporting firm’s internal control financial reporting process designed supervision firm’s principal executive principal financial officers provide reasonable assurance regarding reliability financial reporting preparation firm’s financial statements external reporting purposes accordance us generally accepted accounting principles end firm’s 2010 fiscal year management conducted assessment firm’s internal control financial reporting based framework established internal control integrated framework issued committee sponsoring organizations treadway commission coso based assessment management determined firm’s internal control financial reporting december 31 2010 effective internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets provide reasonable assurances transactions recorded necessary permit preparation financial statements accordance us generally accepted accounting principles receipts expenditures made accordance authorizations management directors firm provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition firm’s assets could material effect financial statements firm’s internal control financial reporting december 31 2010 audited pricewaterhousecoopers llp independent registered public accounting firm stated report appearing page 99 expresses unqualified opinion effectiveness firm’s internal control financial reporting december 31 2010 report independent registered public accounting firm board directors shareholders goldman sachs group inc opinion consolidated financial statements listed accompanying index present fairly material respects financial position goldman sachs group inc subsidiaries company december 31 2010 december 31 2009 results operations cash flows fiscal years ended december 31 2010 december 31 2009 november 28 2008 onemonth period ended december 26 2008 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2010 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing page 98 responsibility express opinions financial statements company’s internal control financial reporting based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp new york new york february 28 2011 goldman sachs group inc subsidiaries consolidated statements earnings see page 105 consolidated financial statements one month ended december 2008 accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements financial condition accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements changes shareholders’ equity 1 connection becoming bank holding company firm required change fiscal yearend november december beginning year ended december 2009 december 27 2008 2 relates primarily repurchases common stock brokerdealer subsidiary facilitate customer transactions ordinary course business shares withheld satisfy withholding tax requirements accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements cash flows supplemental disclosures cash payments interest net capitalized interest 674 billion 732 billion 3237 billion years ended december 2010 december 2009 november 2008 respectively cash payments income taxes net refunds 448 billion 478 billion 347 billion years ended december 2010 december 2009 november 2008 respectively noncash activities firm assumed 90 million 16 million 790 million debt connection business acquisitions years ended december 2010 december 2009 november 2008 respectively addition first quarter 2010 firm recorded increase approximately 3 billion assets primarily financial instruments owned fair value liabilities primarily unsecured shortterm borrowings liabilities upon adoption accounting standards update asu 200917 “consolidations topic 810 improvements financial reporting enterprises involved variable interest entities” see page 105 consolidated financial statements one month ended december 2008 accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements comprehensive income see page 105 consolidated financial statements one month ended december 2008 accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated financial statements one month ended december 2008 consolidated statement earnings one month ended december 2008 1 rounded nearest penny exact dividend amount 04666666 per common share reflective fourmonth period december 2008 march 2009 due change firm’s fiscal yearend consolidated statement comprehensive loss one month ended december consolidated statement cash flows one month ended december 2008 supplemental disclosures cash payments interest net capitalized interest 459 million one month ended december 2008 cash payments income taxes net refunds 171 million one month ended december 2008 accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries notes consolidated financial statements note 1 description business goldman sachs group inc group inc delaware corporation together consolidated subsidiaries collectively firm leading global investment banking securities investment management firm provides wide range financial services substantial diversified client base includes corporations financial institutions governments highnetworth individuals founded 1869 firm headquartered new york maintains offices major financial centers around world fourth quarter 2010 consistent management’s view firm’s activities firm reorganized three previous business segments four new business segments investment banking institutional client services investing lending investment management prior periods presented comparable basis investment banking firm provides broad range investment banking services diverse group corporations financial institutions investment funds governments services include advisory assignments respect mergers acquisitions divestitures corporate defense activities risk management restructurings spinoffs debt equity underwriting public offerings private placements well derivative transactions directly related activities institutional client services firm facilitates client transactions makes markets fixed income equity currency commodity products primarily institutional clients corporates financial institutions investment funds governments firm also makes markets clears client transactions major stock options futures exchanges worldwide provides financing securities lending prime brokerage services institutional clients investing lending firm invests originates loans provide financing clients investments loans typically longerterm nature firm makes investments directly indirectly funds firm manages debt securities loans public private equity securities real estate consolidated investment entities power generation facilities investment management firm provides investment management services offers investment products primarily separately managed accounts commingled vehicles mutual funds private investment funds across major asset classes diverse set institutional individual clients firm also offers wealth advisory services including portfolio management financial counseling brokerage transaction services highnetworth individuals families note 2 basis presentation consolidated financial statements prepared accordance accounting principles generally accepted united states us gaap include accounts group inc entities firm controlling financial interest intercompany transactions balances eliminated connection becoming bank holding company firm required change fiscal yearend november december change firm’s fiscal yearend resulted onemonth transition period began november 29 2008 ended december 26 2008 april 2009 board approved change firm’s fiscal yearend last friday december 31 fiscal 2009 began december 27 2008 ended december 31 2009 references 2010 2009 2008 unless specifically stated otherwise refer firm’s fiscal years ended dates context requires december 31 2010 december 31 2009 november 28 2008 respectively reference future year refers fiscal year ending december 31 year references december 2008 unless specifically stated otherwise refer firm’s fiscal one month ended date context requires december 26 2008 certain reclassifications made previously reported amounts conform current presentation goldman sachs group inc subsidiaries notes consolidated financial statements continued note 3 significant accounting policies firm’s significant accounting policies include measure fair value assets liabilities accounting goodwill identifiable intangible assets consolidate entity see notes 5 8 policies fair value measurements note 13 policies goodwill identifiable intangible assets note 11 policies consolidation accounting significant accounting policies either discussed included following footnotes consolidation firm consolidates entities firm controlling financial interest firm determines whether controlling financial interest entity first evaluating whether entity voting interest entity variable interest entity voting interest entities voting interest entities total equity investment risk sufficient enable entity finance activities independently ii equity holders power direct activities entity significantly impact economic performance obligation absorb losses entity right receive residual returns entity usual condition controlling financial interest voting interest entity ownership majority voting interest firm majority voting interest voting interest entity consolidated variable interest entities vie entity lacks one characteristics voting interest entity firm controlling financial interest vie firm variable interest interests provide power direct activities vie significantly impact vie’s economic performance ii obligation absorb losses vie right receive benefits vie could potentially significant vie see note 11 information vies equitymethod investments firm controlling financial interest entity exert significant influence entity’s operating financial policies investment accounted either equity method accounting ii fair value electing fair value option available us gaap significant influence generally exists firm owns 20 50 entity’s common stock insubstance common stock general firm accounts investments acquired subsequent november 24 2006 fair value option became available fair value certain cases firm applies equity method accounting new investments strategic nature closely related firm’s principal business activities firm significant degree involvement cash flows operations investee costbenefit considerations less significant see note 12 information equitymethod investments goldman sachs group inc subsidiaries notes consolidated financial statements continued investment funds firm formed numerous investment funds thirdparty investors funds typically organized limited partnerships limited liability companies firm acts general partner manager generally firm hold majority economic interests funds usually voting interest entities generally consolidated thirdparty investors typically rights terminate funds remove firm general partner manager investments funds included “financial instruments owned fair value” see notes 6 18 22 information investments funds use estimates preparation consolidated financial statements requires management make certain estimates assumptions important relate fair value measurements accounting goodwill identifiable intangible assets provision losses may arise litigation regulatory proceedings tax audits estimates assumptions based best available information actual results could materially different revenue recognition financial assets financial liabilities fair value financial instruments owned fair value financial instruments sold yet purchased fair value recorded fair value either fair value option accordance us gaap addition firm elected account certain financial assets financial liabilities fair value electing fair value option fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date financial assets marked bid prices financial liabilities marked offer prices fair value measurements include transaction costs fair value gains losses generally included “market making” positions institutional client services “other principal transactions” positions investing lending see notes 5 8 information fair value measurements investment banking fees financial advisory assignments underwriting revenues recognized earnings services related underlying transaction completed terms assignment expenses associated transactions deferred related revenue recognized assignment otherwise concluded expenses associated financial advisory assignments recorded noncompensation expenses net client reimbursements underwriting revenues presented net related expenses investment management firm earns management fees incentive fees investment management services management fees calculated percentage net asset value invested capital commitments recognized period related service provided incentive fees calculated percentage fund’s separately managed account’s return excess return specified benchmark performance target incentive fees generally based investment performance 12month period life fund fees based performance 12month period subject adjustment prior end measurement period fees based investment performance life fund future investment underperformance may require fees previously distributed firm returned fund incentive fees recognized material contingencies resolved management incentive fee revenues included “investment management” revenues commissions fees firm earns “commissions fees” executing clearing client transactions stock options futures markets commissions fees recognized day trade executed transfers assets transfers assets accounted sales firm relinquished control assets transferred transfers assets accounted sales related gains losses recognized net revenues assets liabilities arise firm’s continuing involvement transferred assets measured fair value transfers assets accounted sales assets remain “financial instruments owned fair value” transfer accounted collateralized financing related interest expense recognized life transaction see note 9 information transfers assets accounted collateralized financings note 10 information transfers assets accounted sales goldman sachs group inc subsidiaries notes consolidated financial statements continued receivables customers counterparties receivables customers counterparties generally consist collateralized receivables primarily customer margin loans related client transactions certain firm’s receivables customers counterparties accounted fair value fair value option changes fair value generally included “market making” revenues see note 8 information fair values receivables customers counterparties accounted fair value accounted amortized cost net estimated uncollectible amounts generally approximates fair value interest receivables customers counterparties recognized life transaction included “interest income” insurance activities certain firm’s insurance reinsurance contracts accounted fair value fair value option changes fair value included “market making” revenues see note 8 information fair values insurance reinsurance contracts revenues variable annuity life insurance reinsurance contracts accounted fair value generally consist fees assessed contract holder account balances mortality charges policy administration fees surrender charges revenues recognized earnings period services provided included “market making” revenues interest credited variable annuity life insurance reinsurance contract account balances changes reserves recognized “other expenses” premiums earned underwriting property catastrophe reinsurance recognized earnings coverage period net premiums ceded cost reinsurance included “market making” revenues expenses liabilities related property catastrophe reinsurance claims including estimates losses incurred reported included “other expenses” foreign currency translation assets liabilities denominated nonus currencies translated rates exchange prevailing date consolidated statements financial condition revenues expenses translated average rates exchange period foreign currency remeasurement gains losses transactions nonfunctional currencies recognized earnings gains losses translation financial statements nonus operation functional currency us dollar included net hedges taxes consolidated statements comprehensive income cash equivalents firm defines cash equivalents highly liquid overnight deposits held ordinary course business december 2010 december 2009 “cash equivalents” included 575 billion 445 billion respectively cash due banks 3404 billion 3384 billion respectively interestbearing deposits banks goldman sachs group inc subsidiaries notes consolidated financial statements continued recent accounting developments transfers financial assets interests variable interest entities accounting standards codification asc 860 810 june 2009 fasb issued amended accounting principles changed accounting securitizations vies principles codified asu 200916 “transfers servicing topic 860 accounting transfers financial assets” asu 200917 “consolidations topic 810 improvements financial reporting enterprises involved variable interest entities” december 2009 asu 200916 eliminates concept qualifying specialpurpose entity qspe changes requirements derecognizing financial assets requires additional disclosures transfers financial assets including securitization transactions continuing involvement transferred financial assets asu 200917 changes accounting requires additional disclosures vies asu 200917 determination whether consolidate vie based power direct activities vie significantly impact vie’s economic performance together either obligation absorb losses right receive benefits could significant vie well vie’s purpose design asu 200917 also requires entities previously classified qspes evaluated consolidation disclosure vies asu nos 200916 200917 effective fiscal years beginning november 15 2009 february 2010 fasb issued asu 201010 “consolidations topic 810 amendments certain investment funds” defers requirements asu 200917 certain interests investment funds certain similar entities firm adopted amendments january 1 2010 reassessed whether primary beneficiary vies variable interests including vies formerly qspes date adoption resulted increase firm’s total assets approximately 3 billion march 31 2010 principally “financial instruments owned fair value” addition “other assets” increased 545 million march 31 2010 corresponding decrease “financial instruments owned fair value” result consolidation entity holds intangible assets see note 13 information intangible assets upon adoption firm elected fair value option eligible assets liabilities newly consolidated vies except vies financial assets financial liabilities accounted either fair value manner approximates fair value us gaap ii vies election would caused volatility earnings result using different measurement attributes financial instruments nonfinancial assets adoption material impact firm’s results operations cash flows improving disclosures fair value measurements asc 820 january 2010 fasb issued asu 201006 “fair value measurements disclosures topic 820 improving disclosures fair value measurements” asu 201006 provides amended disclosure requirements related fair value measurements certain disclosure requirements effective firm beginning first quarter 2010 others effective financial statements issued reporting periods beginning december 15 2010 since amended principles require additional disclosures concerning fair value measurements adoption affect firm’s financial condition results operations cash flows goldman sachs group inc subsidiaries notes consolidated financial statements continued note 4 financial instruments owned fair value financial instruments sold yet purchased fair value financial instruments owned fair value financial instruments sold yet purchased fair value accounted fair value either fair value option accordance us gaap see note 8 information fair value option table presents firm’s financial instruments owned fair value including pledged collateral financial instruments sold yet purchased fair value financial instruments owned fair value included 367 billion 386 billion december 2010 december 2009 respectively securities accounted availableforsale substantially held firm’s insurance subsidiaries 1 net cash collateral received posted credit support agreements reported netbycounterparty basis legal right setoff exists enforceable netting agreement 2 includes 406 billion 431 billion december 2010 december 2009 respectively money market instruments held william street funding corporation funding corp support william street credit extension program see note 18 information william street credit extension program 3 consists acquired portfolios distressed loans primarily backed commercial residential real estate 4 includes fair value unfunded commitments extend credit fair value partially funded commitments primarily included “financial instruments owned fair value” goldman sachs group inc subsidiaries notes consolidated financial statements continued gains losses market making principal transactions table presents major product type firm’s “market making” “other principal transactions” revenues gainslosses primarily related firm’s financial instruments owned fair value financial instruments sold yet purchased fair value including derivative nonderivative financial instruments gainslosses exclude related interest income interest expense see note 23 information interest income interest expense gainslosses table representative manner firm manages business activities many firm’s market making client facilitation investing lending strategies utilize financial instruments across various product types accordingly gains losses one product type frequently offset gains losses product types example firm’s longerterm derivatives sensitive changes interest rates may economically hedged interest rate swaps similarly significant portion firm’s cash instruments derivatives exposure foreign currencies may economically hedged foreign currency contracts note 5 fair value measurements fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date financial assets marked bid prices financial liabilities marked offer prices fair value measurements include transaction costs best evidence fair value quoted price active market listed prices quotations available fair value determined reference prices similar instruments quoted prices recent transactions less active markets internally developed models primarily use inputs marketbased independently sourced parameters including limited interest rates volatilities equity debt prices foreign exchange rates commodities prices credit curves us gaap threelevel fair value hierarchy disclosure fair value measurements fair value hierarchy prioritizes inputs valuation techniques used measure fair value giving highest priority level 1 inputs lowest priority level 3 inputs financial instrument’s level fair value hierarchy based lowest level input significant fair value measurement fair value hierarchy follows level 1 inputs unadjusted quoted prices active markets firm access measurement date identical unrestricted assets liabilities level 2 inputs valuation techniques observable either directly indirectly level 3 one inputs valuation techniques significant unobservable see notes 6 7 information fair value measurements cash instruments derivatives respectively fair value certain level 2 level 3 financial assets financial liabilities may include valuation adjustments counterparty firm’s credit quality transfer restrictions large andor concentrated positions illiquidity bidoffer inputs see notes 6 7 information valuation adjustments goldman sachs group inc subsidiaries notes consolidated financial statements continued level 3 financial assets summarized financial assets financial liabilities level tables present level within fair value hierarchy financial instruments owned fair value financial instruments sold yet purchased fair value financial assets financial liabilities accounted fair value fair value option see notes 6 7 information assets liabilities included cash instruments derivatives respectively valuation methodologies inputs see note 8 valuation methodologies inputs financial assets financial liabilities accounted fair value fair value option 1 principally consists us department treasury us treasury securities money market instruments well insurance separate account assets measured fair value 2 principally consists securities borrowed resale agreements underlying securities segregated satisfy certain regulatory requirements 3 represents cash collateral impact netting across levels fair value hierarchy netting among positions classified level included level 4 level 3 liabilities 63 total financial liabilities fair value goldman sachs group inc subsidiaries notes consolidated financial statements continued 1 principally consists us treasury securities money market instruments well insurance separate account assets measured fair value 2 principally consists securities borrowed resale agreements underlying securities segregated satisfy certain regulatory requirements 3 represents cash collateral impact netting across levels fair value hierarchy netting among positions classified level included level 4 level 3 liabilities 66 total financial liabilities fair value goldman sachs group inc subsidiaries notes consolidated financial statements continued level 3 unrealized gainslosses cash instruments level 3 cash instruments frequently economically hedged level 1 level 2 cash instruments andor level 1 level 2 level 3 derivatives accordingly gains losses reported level 3 partially offset gains losses attributable level 1 level 2 cash instruments andor level 1 level 2 level 3 derivatives gains losses level 3 derivatives considered context following • derivative level 1 andor level 2 inputs classified level 3 entirety least one significant level 3 input • one significant level 3 input entire gain loss adjusting observable inputs ie level 1 level 2 inputs classified level 3 • gains losses reported level 3 resulting changes level 1 level 2 inputs frequently offset gains losses attributable level 1 level 2 derivatives andor level 1 level 2 level 3 cash instruments table presents unrealized gainslosses level 3 financial assets financial liabilities fair value still held periodend see notes 6 7 information level 3 cash instruments derivatives respectively see note 8 information financial assets financial liabilities fair value fair value option goldman sachs group inc subsidiaries notes consolidated financial statements continued gains losses table include year ended december 2010 • net unrealized gain cash instruments 167 billion primarily consisting unrealized gains private equity investments bank loans bridge loans corporate debt securities prices generally corroborated sales partial sales similar assets asset classes period • net unrealized gain derivatives 518 billion primarily attributable lower interest rates level 2 inputs underlying certain credit derivatives unrealized gains substantially offset unrealized losses currency interest rate credit derivatives categorized level 2 economically hedge level 3 derivatives year ended december 2009 • net unrealized loss cash instruments 431 billion primarily consisting unrealized losses private equity investments real estate fund investments loans securities backed commercial real estate reflecting weakness markets less liquid asset classes • net unrealized loss derivatives 102 billion primarily attributable tighter credit spreads underlying instruments increases underlying equity index prices losses partially offset increases commodities prices inputs level 2 observable inputs year ended november 2008 • net unrealized loss cash instruments 1236 billion primarily consisting unrealized losses loans securities backed commercial real estate certain bank loans bridge loans private equity investments real estate fund investments • net unrealized gain derivatives 558 billion primarily attributable changes observable credit spreads level 2 inputs underlying instruments one month ended december 2008 • net unrealized loss cash instruments 319 billion primarily consisting unrealized losses certain bank loans bridge loans private equity investments real estate fund investments loans securities backed commercial real estate losses december 2008 reflected weakness global credit equity markets • net unrealized loss derivatives 210 million primarily attributable changes observable prices underlying instruments level 2 inputs level 3 rollforward financial asset financial liability transferred level 3 reporting period entire gain loss period included level 3 transfers levels recognized beginning reporting period occur accordingly tables include gains losses reported level 3 prior periods financial instruments transferred level 3 prior end period see notes 6 7 information cash instruments derivatives included level 3 respectively see note 8 financial assets financial liabilities fair value fair value option goldman sachs group inc subsidiaries notes consolidated financial statements continued tables present changes fair value financial assets financial liabilities categorized level 3 end period 1 aggregate amounts include approximately 186 billion 126 billion reported “noninterest revenues” “market making” “other principal transactions” “interest income” respectively consolidated statement earnings year ended december 2010 2 substantially reported “noninterest revenues” “market making” “other principal transactions” consolidated statement earnings 3 principally resulted changes level 2 inputs significant transfers level 3 year ended december 2010 principally due consolidation certain vies upon adoption asu 200917 january 1 2010 included • unsecured shortterm borrowings net transfer level 3 134 billion principally due consolidation certain vies • unsecured longterm borrowings net transfer level 3 125 billion principally due consolidation certain vies caused firm’s borrowings vies become intercompany borrowings eliminated consolidation substantially borrowings level 3 • liabilities accrued expenses net transfer level 3 587 million principally due increase subordinated liabilities issued certain consolidated vies goldman sachs group inc subsidiaries notes consolidated financial statements continued 1 aggregate amounts include approximately 469 billion 164 billion reported “noninterest revenues” “market making” “other principal transactions” “interest income” respectively consolidated statements earnings year ended december 2009 2 substantially reported “noninterest revenues” “market making” “other principal transactions” consolidated statement earnings 3 principally resulted changes level 2 inputs significant transfers level 3 year ended december 2009 included • secured financings unsecured shortterm borrowings unsecured longterm borrowings net transfer 273 billion transfer 403 billion transfer 173 billion respectively principally due transfers level 3 unsecured shortterm borrowings level 3 secured financings level 3 unsecured longterm borrowings related changes terms certain borrowings • liabilities accrued expenses net transfer level 3 953 million principally due transfers certain insurance contracts level 2 due reduced transparency mortality curve valuation inputs result less observable trading activity goldman sachs group inc subsidiaries notes consolidated financial statements continued note 6 cash instruments cash instruments include us government federal agency obligations nonus government obligations bank loans bridge loans corporate debt securities equities convertible debentures nonderivative financial instruments owned financial instruments sold yet purchased see types cash instruments included level fair value hierarchy valuation techniques significant inputs used determine fair values see note 5 overview firm’s fair value measurement policies fair value hierarchy level 1 cash instruments level 1 cash instruments include us government obligations nonus government obligations actively traded listed equities certain money market instruments valued using quoted prices identical unrestricted instruments active markets firm defines active markets equity instruments based average daily trading volume absolute terms relative market capitalization instrument firm defines active markets debt instruments based average daily trading volume number days trading activity fair value level 1 instrument calculated quantity held multiplied quoted market price us gaap prohibits valuation adjustments applied level 1 instruments even situations firm holds large position sale could impact quoted price level 2 cash instruments level 2 cash instruments include commercial paper certificates deposit time deposits government agency obligations corporate debt securities commodities certain mortgagebacked loans securities certain bank loans bridge loans less liquid publicly listed equities certain state municipal obligations certain money market instruments lending commitments valuations level 2 cash instruments verified quoted prices recent trading activity identical similar instruments broker dealer quotations alternative pricing sources reasonable levels price transparency consideration given nature quotations eg indicative firm relationship recent market activity prices provided alternative pricing sources valuation adjustments typically made level 2 cash instruments cash instrument subject transfer restrictions andor ii premiums discounts market participant would require arrive fair value valuation adjustments generally based market evidence level 3 cash instruments level 3 cash instruments one significant valuation inputs observable absent evidence contrary level 3 cash instruments initially valued transaction price considered best initial estimate fair value subsequently firm uses methodologies determine fair value vary based type instrument valuation inputs assumptions changed corroborated substantive observable evidence including values realized sales level 3 assets table presents valuation techniques nature significant inputs generally used determine fair values class level 3 cash instrument goldman sachs group inc subsidiaries notes consolidated financial statements continued goldman sachs group inc subsidiaries notes consolidated financial statements continued cash instruments level tables present level within fair value hierarchy cash instrument assets liabilities fair value cash instrument assets liabilities included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” respectively 1 includes 212 million 565 million collateralized debt obligations cdos backed real estate level 2 level 3 respectively 2 includes 368 million 107 billion cdos collateralized loan obligations clos backed corporate obligations level 2 level 3 respectively 3 consists publicly listed equity securities includes firm’s 759 billion investment ordinary shares industrial commercial bank china limited transferred level 2 upon expiration transfer restrictions april 2010 4 substantially consists restricted less liquid publicly listed securities 5 includes 1003 billion private equity investments 874 million real estate investments 156 million convertible debentures 6 includes 35 million cdos clos backed corporate obligations level 3 7 substantially consists publicly listed equity securities goldman sachs group inc subsidiaries notes consolidated financial statements continued 1 includes 291 million 311 million cdos clos backed real estate level 2 level 3 respectively 2 includes 338 million 741 million cdos clos backed corporate obligations level 2 level 3 respectively 3 substantially consists publicly listed equity securities 4 substantially consists less liquid publicly listed securities 5 includes 1056 billion private equity investments 123 billion real estate investments 79 million convertible debentures 6 includes 45 million cdos clos backed corporate obligations level 3 goldman sachs group inc subsidiaries notes consolidated financial statements continued level 3 rollforward cash instrument transferred level 3 reporting period entire gain loss period included level 3 transfers levels reported beginning reporting period occur accordingly tables include gains losses reported level 3 prior periods cash instruments transferred level 3 prior end period tables present changes fair value cash instrument assets liabilities categorized level 3 end period goldman sachs group inc subsidiaries notes consolidated financial statements continued significant transfers level 3 year ended december 2010 included • loans securities backed commercial real estate net transfer level 3 844 million principally due transfers level 2 certain loans due improved transparency market prices result partial sales • corporate debt securities net transfer level 3 573 million principally due reduction financial instruments result consolidation vie holds intangible assets • debt obligations net transfer level 3 861 million principally due reduction financial instruments result consolidation vie holds real estate assets included “other assets” • equities convertible debentures net transfer level 3 631 million principally due transfers level 2 certain private equity investments due improved transparency market prices result partial sales initial public offerings significant transfers level 3 year ended december 2009 included • loan portfolios net transfer level 3 155 billion principally due deconsolidation certain loan portfolios firm bear economic exposure • equities convertible debentures net transfer level 3 978 million principally due transfers level 2 certain private equity investments due improved transparency market prices used value financial instruments goldman sachs group inc subsidiaries notes consolidated financial statements continued investments funds calculate net asset value per share cash instruments fair value include investments funds valued based net asset value per share nav investment fund firm uses nav measure fair value fund investments fund investment readily determinable fair value ii nav investment fund calculated manner consistent measurement principles investment company accounting including measurement underlying investments fair value firm’s investments funds calculate nav primarily consist investments firmsponsored funds firm coinvests thirdparty investors private equity private debt real estate funds primarily closedend funds firm’s investments eligible redemption distributions received funds underlying assets liquidated estimated substantially underlying assets existing funds liquidated next 10 years firm’s investments hedge funds generally redeemable quarterly basis 91 days notice subject maximum redemption level 25 firm’s initial investments quarterend table presents fair value firm’s investments unfunded commitments funds calculate nav 1 funds primarily invest broad range industries worldwide variety situations including leveraged buyouts recapitalizations growth investments 2 funds generally invest loans fixed income instruments focused providing private highyield capital mid largesized leveraged management buyout transactions recapitalizations financings refinancings acquisitions restructurings private equity firms private family companies corporate issuers 3 funds primarily multidisciplinary hedge funds employ fundamental bottomup investment approach across various asset classes strategies including longshort equity credit convertibles risk arbitragespecial situations capital structure arbitrage 4 funds invest globally primarily real estate companies loan portfolios debt recapitalizations direct property goldman sachs group inc subsidiaries notes consolidated financial statements continued note 7 derivatives hedging activities derivative activities derivatives instruments derive value underlying asset prices indices reference rates inputs combination factors derivatives may privately negotiated contracts usually referred overthecounter otc derivatives may listed traded exchange exchangetraded marketmaking market maker firm enters derivative transactions clients market participants provide liquidity facilitate transfer hedging risk capacity firm typically acts principal consequently required commit capital provide execution market maker essential maintain inventory financial instruments sufficient meet expected client market demands risk management firm also enters derivatives actively manage risk exposures arise marketmaking investing lending activities derivative cash instruments addition firm may enter derivatives designated hedges us gaap derivatives used manage foreign currency exposure net investment certain nonus operations manage interest rate exposure certain fixedrate unsecured longterm shortterm borrowings certificates deposit firm enters various types derivatives including • futures forwards contracts commit counterparties purchase sell financial instruments commodities currencies future • swaps contracts require counterparties exchange cash flows currency interest payment streams amounts exchanged based specific terms contract reference specified rates financial instruments commodities currencies indices • options contracts option purchaser right obligation purchase sell option writer financial instruments commodities currencies within defined time period specified price derivatives accounted fair value net cash collateral received posted credit support agreements derivatives reported netbycounterparty basis ie net payable receivable derivative assets liabilities given counterparty legal right setoff exists enforceable netting agreement derivative assets liabilities included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” respectively substantially gains losses derivatives designated hedges us gaap included “market making” “other principal transactions” goldman sachs group inc subsidiaries notes consolidated financial statements continued table presents fair value exchangetraded otc derivatives netbycounterparty basis table presents fair value number derivative contracts major product type gross basis gross fair values table exclude effects netting enforceable netting agreements netting cash collateral received posted credit support agreements therefore representative firm’s exposure 1 represents netting receivable balances payable balances counterparty enforceable netting agreements 2 represents netting cash collateral received posted counterparty basis credit support agreements goldman sachs group inc subsidiaries notes consolidated financial statements continued valuation techniques derivatives see note 5 overview firm’s fair value measurement policies fair value hierarchy level 1 derivatives exchangetraded derivatives fall within level 1 actively traded valued quoted market price level 2 derivatives level 2 derivatives include exchangetraded derivatives actively traded otc derivatives significant valuation inputs corroborated market evidence level 2 exchangetraded derivatives valued using models calibrate marketclearing levels otc derivatives inputs valuations level 2 otc derivatives verified marketclearing transactions broker dealer quotations alternative pricing sources reasonable levels price transparency consideration given nature quotations eg indicative firm relationship recent market activity prices provided alternative pricing sources models used selection particular model value otc derivative depends contractual terms specific risks inherent instrument well availability pricing information market valuation models require variety inputs including contractual terms market prices yield curves credit curves measures volatility prepayment rates loss severity rates correlations inputs otc derivatives trade liquid markets model selection involve significant management judgment outputs models calibrated marketclearing levels price transparency otc derivatives generally characterized product type interest rate general prices inputs used value interest rate derivatives transparent even longdated contracts interest rate swaps options denominated currencies leading industrialized nations characterized high trading volumes tight bidoffer spreads interest rate derivatives reference indices inflation index shape yield curve eg 10year swap rate vs 2year swap rate complex therefore less transparent prices inputs generally observable credit price transparency credit default swaps including single names baskets credits varies market underlying reference entity obligation credit default swaps reference indices large corporates major sovereigns generally exhibit price transparency credit default swaps underliers price transparency varies based credit rating cost borrowing underlying reference obligations availability underlying reference obligations delivery upon default issuer credit default swaps reference loans assetbacked securities emerging market debt instruments tend less transparent reference corporate bonds addition complex credit derivatives sensitive correlation two underlying reference obligations generally less price transparency currency prices currency derivatives based exchange rates leading industrialized nations including longer tenors generally transparent primary difference transparency developed emerging market currency derivatives emerging markets tend observable contracts shorter tenors commodity derivatives include transactions referenced energy eg oil natural gas metals eg precious base soft commodities eg agricultural price transparency varies based underlying commodity delivery location tenor product quality eg diesel fuel compared unleaded gasoline general price transparency commodity derivatives greater contracts shorter tenors contracts closely aligned major andor benchmark commodity indices goldman sachs group inc subsidiaries notes consolidated financial statements continued equity price transparency equity derivatives varies market underlier options indices common stock corporates included major equity indices exhibit price transparency exchangetraded otc equity derivatives generally observable market prices except contracts long tenors reference prices differ significantly current market prices complex equity derivatives sensitive correlation two individual stocks generally less price transparency liquidity essential observability product types transaction volumes decline previously transparent prices inputs may become unobservable conversely even highly structured products may times trading volumes large enough provide observability prices inputs level 3 derivatives level 3 otc derivatives valued using models utilize observable level 1 andor level 2 inputs well unobservable level 3 inputs • majority firm’s interest rate currency derivatives classified within level 3 significant unobservable inputs correlations certain currencies interest rates eg correlation japanese yen foreign exchange rates us dollar interest rates • credit derivatives classified within level 3 significant level 3 inputs include longdated credit funding spreads well certain correlation inputs required value credit mortgage derivatives eg likelihood default underlying reference obligations relative one another • level 3 equity derivatives significant level 3 inputs generally include equity volatility inputs options longdated andor strike prices differ significantly current market prices addition valuation certain structured trades requires use level 3 inputs correlation price performance two individual stocks • level 3 commodity derivatives significant level 3 inputs include volatilities options strike prices differ significantly current market prices certain products product quality aligned benchmark indices subsequent initial valuation level 3 otc derivative firm updates level 1 level 2 inputs reflect observable market changes resulting gains losses recorded level 3 level 3 inputs changed corroborated evidence similar market transactions thirdparty pricing services andor broker dealer quotations empirical market data circumstances firm cannot verify model value reference market transactions possible different valuation model could produce materially different estimate fair value goldman sachs group inc subsidiaries notes consolidated financial statements continued valuation adjustments valuation adjustments integral determining fair value derivatives used adjust midmarket valuations produced derivative pricing models appropriate exit price valuation adjustments incorporate bidoffer spreads cost liquidity large illiquid positions credit valuation adjustments cva account credit risk inherent derivative portfolios marketbased inputs generally used calibrating valuation adjustments marketclearing levels addition derivatives include significant unobservable inputs firm makes model exit price adjustments account valuation uncertainty present transaction fair value derivatives level tables present fair value derivatives gross basis level major product type gross fair values tables exclude effects netting enforceable netting agreements netting cash received posted credit support agreements across levels fair value hierarchy therefore representative firm’s exposure 1 represents netting receivable balances payable balances counterparty enforceable netting agreements 2 represents netting cash collateral received posted counterparty basis credit support agreements 3 represents netting receivable balances payable balances counterparty across levels fair value hierarchy enforceable netting agreements goldman sachs group inc subsidiaries notes consolidated financial statements continued 1 represents netting receivable balances payable balances counterparty enforceable netting agreements 2 represents netting cash collateral received posted counterparty basis credit support agreements 3 represents netting receivable balances payable balances counterparty across levels fair value hierarchy enforceable netting agreements goldman sachs group inc subsidiaries notes consolidated financial statements continued level 3 rollforward derivative transferred level 3 reporting period entire gain loss period included level 3 transfers levels reported beginning reporting period occur accordingly table include gains losses reported level 3 prior periods derivatives transferred level 3 prior end period table presents changes fair value derivatives categorized level 3 end period 1 primarily attributable lower interest rates level 2 inputs underlying certain credit derivatives unrealized gains substantially offset unrealized losses currency interest rate credit derivatives categorized level 2 economically hedge level 3 derivatives significant transfers level 3 year ended december 2010 included • interest rates net currencies net transfer level 3 306 million 539 million respectively principally due reduced transparency correlation inputs used value financial instruments • credit net transfer level 3 106 billion principally due improved transparency correlation inputs used value certain mortgage derivatives significant transfers level 3 year ended december 2009 impact credit spreads derivatives ongoing basis firm realizes gains losses relating changes credit risk derivatives changes credit mitigants sale unwind contracts net gainloss attributable impact changes credit exposure credit spreads derivatives 68 million 572 million 137 million 188 million years ended december 2010 december 2009 november 2008 one month ended december 2008 respectively bifurcated embedded derivatives table presents derivatives primarily equity interest rate products bifurcated related borrowings derivatives recorded fair value included “unsecured shortterm borrowings” “unsecured longterm borrowings” see note 8 information goldman sachs group inc subsidiaries notes consolidated financial statements continued otc derivatives following tables present fair values otc derivative assets liabilities tenor product type following tables tenor based expected duration mortgagerelated credit derivatives generally remaining contractual maturity derivatives 1 represents netting receivable balances payable balances counterparty across product types within tenor category enforceable netting agreements receivable payable balances counterparty product type tenor category netted within product type tenor category 2 represents netting receivable balances payable balances counterparty across tenor categories enforceable netting agreements 3 represents netting cash collateral received posted counterparty basis credit support agreements goldman sachs group inc subsidiaries notes consolidated financial statements continued 1 represents netting receivable balances payable balances counterparty across product types within tenor category enforceable netting agreements receivable payable balances counterparty product type tenor category netted within product type tenor category 2 represents netting receivable balances payable balances counterparty across tenor categories enforceable netting agreements 3 represents netting cash collateral received posted counterparty basis credit support agreements goldman sachs group inc subsidiaries notes consolidated financial statements continued derivatives creditrelated contingent features certain firm’s derivatives transacted bilateral agreements counterparties may require firm post collateral terminate transactions based changes firm’s credit ratings table presents aggregate fair value net derivative liabilities agreements excluding application collateral posted reduce liabilities related aggregate fair value assets posted collateral additional collateral termination payments could called reporting date counterparties event onenotch twonotch downgrade firm’s credit ratings credit derivatives firm enters broad array credit derivatives locations around world facilitate client transactions manage credit risk associated marketmaking investing lending activities credit derivatives actively managed based firm’s net risk position credit derivatives individually negotiated contracts various settlement payment conventions credit events include failure pay bankruptcy acceleration indebtedness restructuring repudiation dissolution reference entity credit default swaps singlename credit default swaps protect buyer loss principal one bonds loans mortgages reference obligations event issuer reference entity reference obligations suffers credit event buyer protection pays initial periodic premium seller receives protection period contract credit event defined contract seller protection makes payments buyer protection however credit event occurs seller protection required make payment calculated accordance terms contract buyer protection credit indices baskets tranches credit derivatives may reference basket singlename credit default swaps broadbased index credit event occurs one underlying reference obligations protection seller pays protection buyer payment typically prorata portion transaction’s total notional amount based underlying defaulted reference obligation certain transactions credit risk basket index separated various portions tranches different levels subordination junior tranches cover initial defaults losses exceed notional amount junior tranches excess loss covered next senior tranche capital structure total return swaps total return swap transfers risks relating economic performance reference obligation protection buyer protection seller typically protection buyer receives protection seller floatingrate interest protection reduction fair value reference obligation return protection seller receives cash flows associated reference obligation plus increase fair value reference obligation goldman sachs group inc subsidiaries notes consolidated financial statements continued credit options credit option writer assumes obligation purchase sell reference obligation specified price credit spread option purchaser buys right obligation sell reference obligation purchase option writer payments credit options depend either particular credit spread price reference obligation firm economically hedges exposure written credit derivatives primarily entering offsetting purchased credit derivatives identical underlyings substantially firm’s purchased credit derivative transactions financial institutions subject stringent collateral thresholds addition upon occurrence specified trigger event firm may take possession reference obligations underlying particular written credit derivative consequently may upon liquidation reference obligations recover amounts underlying reference obligations event default december 2010 written purchased credit derivatives total gross notional amounts 205 trillion 219 trillion respectively total net notional purchased protection 14063 billion december 2009 written purchased credit derivatives total gross notional amounts 254 trillion 271 trillion respectively total net notional purchased protection 16413 billion table presents certain information credit derivatives table • fair values exclude effects netting enforceable netting agreements netting cash received posted credit support agreements therefore representative firm’s exposure • tenor based expected duration mortgagerelated credit derivatives remaining contractual maturity credit derivatives • credit spread underlying together tenor contract indicators paymentperformance risk firm less likely pay otherwise required perform credit spread tenor lower 1 offsetting purchased credit derivatives represent notional amount purchased credit derivatives extent economically hedge written credit derivatives identical underlyings 2 comprised purchased protection excess amount written protection identical underlyings purchased protection underlyings firm written protection goldman sachs group inc subsidiaries notes consolidated financial statements continued hedge accounting firm applies hedge accounting certain interest rate swaps used manage interest rate exposure certain fixedrate unsecured longterm shortterm borrowings certain fixedrate certificates deposit ii certain foreign currency forward contracts foreign currencydenominated debt used manage foreign currency exposures firm’s net investment certain nonus operations qualify hedge accounting derivative hedge must highly effective reducing risk exposure hedged additionally firm must formally document hedging relationship inception test hedging relationship least quarterly basis ensure derivative hedge continues highly effective life hedging relationship interest rate hedges firm designates certain interest rate swaps fair value hedges interest rate swaps hedge changes fair value attributable relevant benchmark interest rate eg london interbank offered rate libor effectively converting substantial portion fixedrate obligations floatingrate obligations firm applies “longhaul method” assessing effectiveness fair value hedging relationships achieving offsetting changes fair values hedging instrument risk hedged ie interest rate risk three months ended march 2010 firm changed method prospectively retrospectively assessing effectiveness fair value hedging relationships dollaroffset method nonstatistical method regression analysis statistical method interest rate swap considered highly effective offsetting changes fair value attributable changes hedged risk regression analysis results coefficient determination 80 greater slope 80 125 dollaroffset method compared change fair value hedging instrument change fair value hedged item excluding effect passage time prospective dollaroffset assessment used scenario analyses test hedge effectiveness simulations numerous parallel slope shifts relevant yield curve parallel shifts changed interest rate maturities identical amounts slope shifts changed curvature yield curve prospective assessment response simulated yield curve shifts retrospective assessment hedging relationship considered effective fair value hedging instrument hedged item changed inversely within range 80 125 qualifying fair value hedges gains losses derivatives included “interest expense” change fair value hedged item attributable risk hedged reported adjustment carrying value subsequently amortized interest expense remaining life gains losses resulting hedge ineffectiveness included “interest expense” see note 23 information interest income interest expense years ended december 2010 december 2009 one month ended december 2008 gainloss recognized interest rate derivatives accounted hedges 162 billion 1007 billion 359 billion respectively related gainloss recognized hedged borrowings bank deposits 345 billion 995 billion 353 billion respectively hedge ineffectiveness recognized derivatives year ended december 2010 loss 184 billion loss consisted primarily amortization prepaid credit spreads material year ended december 2009 one month ended december 2008 gainloss excluded assessment hedge effectiveness material year ended december 2010 one month ended december 2008 loss 123 billion year ended december 2009 goldman sachs group inc subsidiaries notes consolidated financial statements continued net investment hedges firm seeks reduce impact fluctuations foreign exchange rates net investment certain nonus operations use foreign currency forward contracts foreign currencydenominated debt foreign currency forward contracts designated hedges effectiveness hedge assessed based overall changes fair value forward contracts ie based changes forward rates foreign currencydenominated debt designated hedge effectiveness hedge assessed based changes spot rates qualifying net investment hedges gains losses hedging instruments extent effective included consolidated statements comprehensive income table presents gainslosses net investment hedging gainslosses included “currency translation adjustment net tax” consolidated statements comprehensive incomeloss gainloss related ineffectiveness gainloss reclassified earnings accumulated comprehensive income material years ended december 2010 december 2009 one month ended december 2008 december 2010 december 2009 firm designated 388 billion 338 billion respectively foreign currencydenominated debt included “unsecured longterm borrowings” “unsecured shortterm borrowings” hedges net investments nonus subsidiaries note 8 fair value option financial assets financial liabilities fair value addition cash derivative instruments included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” firm elected account certain financial assets financial liabilities fair value fair value option primary reasons electing fair value option • reflect economic events earnings timely basis • mitigate volatility earnings using different measurement attributes eg transfers financial instruments owned accounted financings recorded fair value whereas related secured financing would recorded accrual basis absent electing fair value option • address simplification costbenefit considerations eg accounting hybrid financial instruments fair value entirety versus bifurcation embedded derivatives hedge accounting debt hosts hybrid financial instruments contain bifurcatable embedded derivatives require settlement physical delivery nonfinancial assets eg physical commodities firm elects bifurcate embedded derivative associated debt derivative accounted fair value host contract accounted amortized cost adjusted effective portion fair value hedges firm elect bifurcate entire hybrid financial instrument accounted fair value fair value option goldman sachs group inc subsidiaries notes consolidated financial statements continued financial assets financial liabilities accounted fair value fair value option include • resale repurchase agreements • securities borrowed loaned within fixed income currency commodities client execution • certain secured financings primarily transfers assets accounted financings rather sales debt raised firm’s william street credit extension program certain nonrecourse financings • certain unsecured shortterm borrowings consisting promissory notes commercial paper certain hybrid financial instruments • certain unsecured longterm borrowings including prepaid commodity transactions certain hybrid financial instruments • certain receivables customers counterparties including certain margin loans transfers assets accounted secured loans rather purchases prepaid variable share forwards • certain insurance reinsurance contract assets liabilities certain guarantees • certain deposits issued firm’s bank subsidiaries well securities held goldman sachs bank usa gs bank usa • certain subordinated liabilities issued consolidated vies • general investments acquired november 24 2006 fair value option became available firm significant influence investee would otherwise apply equity method accounting financial assets financial liabilities fair value generally valued based discounted cash flow techniques incorporate inputs reasonable levels price transparency generally classified level 2 inputs observable valuation adjustments may made counterparty firm’s credit quality significant inputs category financial assets financial liabilities fair value follows resale repurchase agreements securities borrowed loaned significant inputs valuation resale repurchase agreements securities borrowed loaned amount timing expected future cash flows interest rates collateral funding spreads see note 9 information secured financings significant inputs valuation secured financings fair value amount timing expected future cash flows interest rates fair value collateral delivered firm determined using amount timing expected future cash flows market yields recovery assumptions frequency additional collateral calls credit spreads firm see note 9 information unsecured shortterm longterm borrowings significant inputs valuation unsecured shortterm longterm borrowings fair value amount timing expected future cash flows interest rates credit spreads firm well commodity prices case prepaid commodity transactions certain hybrid financial instruments equity prices inflation rates index levels see notes 15 16 information receivables customers counterparties significant inputs valuation certain receivables customers counterparties commodity prices interest rates amount timing expected future cash flows insurance reinsurance contracts insurance reinsurance contracts fair value included “receivables customers counterparties” “other liabilities accrued expenses” contracts valued using market transactions market evidence possible including marketbased inputs models calibration marketclearing transactions alternative pricing sources reasonable levels price transparency significant level 2 inputs typically include interest rates inflation risk significant level 3 inputs typically include mortality funding benefit assumptions unobservable inputs valuation model significant fair value measurement instrument classified level 3 goldman sachs group inc subsidiaries notes consolidated financial statements continued deposits significant inputs valuation deposits interest rates gains losses financial assets financial liabilities fair value “fair value option” columns table present gains losses recognized result firm electing apply fair value option certain financial assets financial liabilities gains losses included “market making” “other principal transactions” revenues amounts table exclude contractual interest included “interest income” “interest expense” instruments hybrid financial instruments see note 23 information interest income interest expense table also excludes gains losses related financial instruments owned fair value financial instruments sold yet purchased fair value included “other” columns table • gains losses embedded derivative component hybrid financial instruments included unsecured shortterm borrowings unsecured longterm borrowings gains losses would recognized us gaap even firm elected account entire hybrid instrument fair value • gains losses secured financings related transfers assets accounted financings rather sales gains losses offset gains losses related instruments included “financial instruments owned fair value” “receivables customers counterparties” • gains losses receivables customers counterparties related transfers assets accounted receivables rather purchases gains losses offset gains losses related financial instruments included “other secured financings” • gains losses subordinated liabilities issued consolidated vies gains losses offset gains losses financial assets held consolidated vies 1 primarily consists gainslosses certain transfers accounted receivables rather purchases certain reinsurance contracts 2 primarily consists gainslosses certain insurance reinsurance contracts 3 primarily consists gainslosses resale repurchase agreements securities borrowed loaned deposits goldman sachs group inc subsidiaries notes consolidated financial statements continued excluding gains losses instruments accounted fair value option described “market making” “other principal transactions” consolidated statements earnings primarily represents gains losses “financial instruments owned fair value” “financial instruments sold yet purchased fair value” loans lending commitments table presents difference aggregate fair value aggregate contractual principal amount loans longterm receivables fair value option elected 1 aggregate contractual principal exceeds related fair value primarily firm regularly purchases loans distressed loans values significantly contractual principal amounts december 2010 december 2009 fair value unfunded lending commitments fair value option elected liability 126 billion 879 million respectively related total contractual amount lending commitments 5120 billion 4405 billion respectively longterm debt instruments aggregate contractual principal amount longterm debt instruments principal nonprincipal protected fair value option elected exceeded related fair value 701 million 752 million december 2010 december 2009 respectively amounts 349 million 672 million december 2010 december 2009 respectively related unsecured longterm borrowings remainder related longterm secured financings impact credit spreads loans lending commitments net gainslosses attributable changes instrumentspecific credit spreads loans lending commitments fair value option elected 185 billion 165 billion 461 billion 206 billion years ended december 2010 december 2009 november 2008 one month ended december 2008 respectively changes fair value floatingrate loans lending commitments attributable changes instrumentspecific credit spreads fixedrate loans lending commitments firm allocates changes fair value interest raterelated changes credit spreadrelated changes based changes interest rates impact credit spreads borrowings table presents net gainslosses attributable impact changes firm’s credit spreads borrowings fair value option elected firm calculates fair value borrowings discounting future cash flows rate incorporates firm’s credit spreads goldman sachs group inc subsidiaries notes consolidated financial statements continued note 9 collateralized agreements financings collateralized agreements securities purchased agreements resell resale agreements reverse repurchase agreements securities borrowed collateralized financings securities sold agreements repurchase agreements securities loaned secured financings firm enters transactions order among things facilitate client activities invest excess cash acquire securities cover short positions finance certain firm activities collateralized agreements financings presented netbycounterparty basis legal right setoff exists interest collateralized agreements collateralized financings recognized life transaction included “interest income” “interest expense” respectively see note 23 information interest income interest expense table presents carrying value resale repurchase agreements securities borrowed loaned transactions 1 resale repurchase agreements carried fair value fair value option see note 8 information valuation techniques significant inputs used determine fair value 2 december 2010 december 2009 4882 billion 6633 billion securities borrowed 151 billion 619 billion securities loaned fair value respectively resale repurchase agreements resale agreement transaction firm purchases financial instruments seller typically exchange cash simultaneously enters agreement resell substantially financial instruments seller stated price plus accrued interest future date repurchase agreement transaction firm sells financial instruments buyer typically exchange cash simultaneously enters agreement repurchase substantially financial instruments buyer stated price plus accrued interest future date financial instruments purchased sold resale repurchase agreements typically include us government federal agency investmentgrade sovereign obligations firm receives financial instruments purchased resale agreements makes delivery financial instruments sold repurchase agreements monitors market value financial instruments daily basis delivers obtains additional collateral due changes market value financial instruments appropriate resale agreements firm typically requires delivery collateral fair value approximately equal carrying value relevant assets consolidated statements financial condition even though repurchase resale agreements involve legal transfer ownership financial instruments accounted financing arrangements require financial instruments repurchased resold maturity agreement however “repos maturity” accounted sales repo maturity transaction firm transfers security little default risk agreement repurchase security maturity date repurchase agreement matches maturity date underlying security therefore firm effectively longer repurchase obligation relinquished control underlying security accordingly accounts transaction sale firm transactions outstanding december 2010 december 2009 goldman sachs group inc subsidiaries notes consolidated financial statements continued securities borrowed loaned transactions securities borrowed transaction firm borrows securities counterparty exchange cash firm returns securities counterparty returns cash interest generally paid periodically life transaction securities loaned transaction firm lends securities counterparty typically exchange cash securities letter credit counterparty returns securities firm returns cash securities posted collateral interest generally paid periodically life transaction firm receives securities borrowed makes delivery securities loaned monitors market value securities daily basis delivers obtains additional collateral due changes market value securities appropriate securities borrowed transactions firm typically requires delivery collateral fair value approximately equal carrying value securities borrowed transaction securities borrowed loaned within fixed income currency commodities client execution recorded fair value fair value option securities borrowed loaned within securities services recorded based amount cash collateral advanced received plus accrued interest arrangements generally terminated demand exhibit little sensitivity changes interest rates december 2010 december 2009 firm 1286 billion 395 billion respectively securities received resale agreements securities borrowed transactions segregated satisfy certain regulatory requirements securities included “cash securities segregated regulatory purposes” secured financings addition repurchase agreements securities lending transactions firm funds certain assets use secured financings pledges financial instruments assets collateral transactions secured financings consist • debt raised firm’s william street credit extension program • liabilities consolidated vies • transfers assets accounted financings rather sales primarily collateralized central bank financings pledged commodities bank loans mortgage whole loans • structured financing arrangements secured financings include arrangements nonrecourse december 2010 december 2009 nonrecourse secured financings 842 billion 1063 billion respectively firm elected apply fair value option following secured financings use fair value eliminates noneconomic volatility earnings would arise using different measurement attributes • debt raised firm’s william street credit extension program • transfers assets accounted financings rather sales • certain nonrecourse financings see note 8 information secured financings accounted fair value secured financings recorded fair value recorded based amount cash received plus accrued interest generally approximates fair value goldman sachs group inc subsidiaries notes consolidated financial statements continued table presents information secured financings table • shortterm secured financings include financings maturing within one year financial statement date financings redeemable within one year financial statement date option holder • longterm secured financings repayable prior maturity option firm reflected contractual maturity dates • longterm secured financings redeemable prior maturity option holder reflected dates options become exercisable 1 weighted average interest rates exclude secured financings fair value include effect hedging activities see note 7 information hedging activities 2 includes 832 billion 951 billion related transfers assets accounted financings rather sales december 2010 december 2009 respectively financings collateralized financial assets included “financial instruments owned fair value” 853 billion 978 billion december 2010 december 2009 respectively 3 includes 2563 billion 1589 billion secured financings collateralized financial instruments owned 1014 billion 236 billion secured financings collateralized financial instruments received collateral repledged december 2010 december 2009 respectively 4 primarily real estate cash table presents secured financings maturity aggregate contractual principal amount secured financings longterm fair value option elected exceeded related fair value 352 million 80 million december 2010 december 2009 respectively collateral received pledged firm receives financial instruments eg us government federal agency sovereign corporate obligations well equities convertible debentures collateral primarily connection resale agreements securities borrowed derivative transactions customer margin loans goldman sachs group inc subsidiaries notes consolidated financial statements continued many cases firm permitted deliver repledge financial instruments entering repurchase agreements securities lending agreements secured financings collateralizing derivative transactions meeting firm customer settlement requirements table presents financial instruments fair value received collateral available delivered repledged delivered repledged firm also pledges certain financial instruments owned fair value connection repurchase agreements securities lending agreements secured financings assets primarily real estate cash connection secured financings counterparties may right deliver repledge table presents information assets pledged firm note 10 securitization activities firm securitizes residential commercial mortgages corporate bonds loans types financial assets selling assets securitization vehicles eg trusts corporate entities limited liability companies acts underwriter beneficial interests sold investors firm’s residential mortgage securitizations substantially connection government agency securitizations beneficial interests issued securitization entities debt equity securities give investors rights receive portions specified cash inflows securitization vehicle include senior subordinated shares principal interest andor cash inflows proceeds sale beneficial interests used pay transferor financial assets sold securitization vehicle purchase securities serve collateral firm accounts securitization sale relinquished control transferred assets prior securitization firm accounts assets pending transfer fair value therefore typically recognize gains losses upon transfer assets net revenues underwriting activities recognized connection sales underlying beneficial interests investors transfers assets accounted sales assets remain “financial instruments owned fair value” transfer accounted collateralized financing related interest expense recognized life transaction see notes 9 23 information collateralized financings interest expense respectively firm generally receives cash exchange transferred assets may also continuing involvement transferred assets including beneficial interests securitized financial assets primarily form senior subordinated securities servicing rights firm retains time securitization firm may also purchase senior subordinated securities issued securitization vehicles typically vies connection secondary marketmaking activities goldman sachs group inc subsidiaries notes consolidated financial statements continued beneficial interests firm’s continuing involvement securitization vehicles accounted fair value included “financial instruments owned fair value” generally classified level 2 fair value hierarchy see notes 5 8 information fair value measurements table presents amount financial assets securitized cash flows received retained interests securitization entities firm continuing involvement year ended november 2008 firm securitized 1446 billion financial assets including 667 billion residential mortgages 773 million commercial mortgages 701 billion financial assets primarily connection clos year ended november 2008 cash flows received retained interests 505 million one month ended december 2008 firm securitized 604 million financial assets firm continuing involvement including 557 million residential mortgages 47 million financial assets one month ended december 2008 cash flows received retained interests 26 million table presents firm’s continuing involvement nonconsolidated securitization entities firm sold assets well total outstanding principal amount transferred assets firm continuing involvement table • outstanding principal amount presented purpose providing information size securitization entities firm continuing involvement representative firm’s risk loss • retained purchased interests firm’s risk loss limited fair value interests • purchased interests represent senior subordinated interests purchased connection secondary marketmaking activities securitization entities firm also holds retained interests 1 includes 764 billion outstanding principal amount 16 million fair value retained interests december 2010 related securitization entities firm’s continuing involvement retained servicing variable interest goldman sachs group inc subsidiaries notes consolidated financial statements continued addition interests table firm continuing involvement form derivative transactions guarantees certain nonconsolidated vies carrying value derivatives guarantees net liability 98 million 87 million december 2010 december 2009 respectively notional amounts derivatives guarantees included maximum exposure loss nonconsolidated vie tables note 11 table presents weighted average key economic assumptions used measuring fair value retained interests sensitivity fair value immediate adverse changes 10 20 assumptions 1 due nature current fair value certain retained interests weighted average assumptions constant prepayment discount rates related sensitivity adverse changes meaningful december 2010 december 2009 firm’s maximum exposure adverse changes value interests carrying value 62 million 93 million december 2010 december 2009 respectively 2 constant prepayment rate included positions constant prepayment rate key assumption determination fair value 3 majority mortgagebacked retained interests us government agencyissued collateralized mortgage obligations anticipated credit loss remainder retained interests expected credit loss assumptions reflected discount rate preceding table give effect offsetting benefit financial instruments held mitigate risks inherent retained interests changes fair value based adverse variation assumptions generally cannot extrapolated relationship change assumptions change fair value usually linear addition impact change particular assumption preceding table calculated independently changes assumption practice simultaneous changes assumptions might magnify counteract sensitivities disclosed goldman sachs group inc subsidiaries notes consolidated financial statements continued note 11 variable interest entities vies generally finance purchase assets issuing debt equity securities either collateralized indexed assets held vie debt equity securities issued vie may include tranches varying levels subordination firm’s involvement vies includes securitization financial assets described note 10 investments loans types vies described see note 10 additional information securitization activities including definition beneficial interests see note 3 firm’s consolidation policies including definition vie firm principally involved vies following business activities mortgagebacked vies corporate cdo clo vies firm sells residential commercial mortgage loans securities mortgagebacked vies corporate bonds loans corporate cdo clo vies may retain beneficial interests assets sold vies firm purchases sells beneficial interests issued mortgagebacked corporate cdo clo vies connection marketmaking activities addition firm may enter derivatives certain vies primarily interest rate swaps typically variable interests firm generally enters derivatives counterparties mitigate risk derivatives vies certain mortgagebacked corporate cdo clo vies usually referred synthetic cdos creditlinked note vies synthetically create exposure beneficial interests issue entering credit derivatives rather purchasing underlying assets credit derivatives may reference single asset index portfoliobasket assets indices see note 7 information credit derivatives vies use funds sale beneficial interests premiums received credit derivative counterparties purchase securities serve collateralize beneficial interest holders andor credit derivative counterparty vies may enter derivatives primarily interest rate swaps typically variable interests firm may counterparty derivatives vies generally enters derivatives counterparties mitigate risk real estate creditrelated investing vies firm purchases equity debt securities issued makes loans vies hold real estate performing nonperforming debt distressed loans equity securities assetbacked vies firm structures vies issue notes clients purchases sells beneficial interests issued assetbacked vies connection marketmaking activities addition firm may enter derivatives certain assetbacked vies primarily total return swaps collateral assets held vies firm pays vie return due note holders receives return collateral assets owned vie firm generally removed total return swap counterparty firm generally enters derivatives counterparties mitigate risk derivatives vies firm typically sell assets assetbacked vies structures powerrelated vies firm purchases debt equity securities issued may provide guarantees vies hold powerrelated assets firm typically sell assets enter derivatives vies investment funds firm purchases equity securities issued may provide guarantees certain investment funds manages firm typically sell assets enter derivatives vies principalprotected note vies firm structures vies issue principalprotected notes clients vies portfolios assets principally exposure hedge funds substantially principal protection notes issued vies provided asset portfolio rebalancing required terms notes firm enters total return swaps vies firm pays vie return due principalprotected note holders receives return assets owned vie firm may enter derivatives counterparties mitigate risk derivatives enters vies firm also obtains funding vies consolidated firm upon adoption changes us gaap january 1 2010 see “recent accounting developments” note 3 information goldman sachs group inc subsidiaries notes consolidated financial statements continued municipal bond securitizations firm sells municipal securities vies issue shortterm qualifying taxexempt securities firm consolidates vies owns residual interests allows firm make decisions significantly impact economic performance vies vie consolidation analysis variable interest vie investment eg debt equity securities interest eg derivatives loans lending commitments vie absorb portions vie’s expected losses receive portions vie’s expected residual returns firm’s variable interests vies include senior subordinated debt residential commercial mortgagebacked assetbacked securitization entities cdos clos loans lending commitments limited general partnership interests preferred common equity derivatives may include foreign currency equity andor credit risk guarantees certain fees firm receives investment funds certain interest rate foreign currency credit derivatives firm enters vies variable interests create rather absorb risk enterprise controlling financial interest vie known primary beneficiary consolidates vie firm determines whether primary beneficiary vie performing analysis principally considers • variable interest holder power direct activities vie significantly impact vie’s economic performance • variable interest holder obligation absorb losses right receive benefits vie could potentially significant vie • vie’s purpose design including risks vie designed create pass variable interest holders • vie’s capital structure • terms vie variable interest holders parties involved vie • related party relationships firm reassesses initial evaluation whether entity vie certain reconsideration events occur firm reassesses determination whether primary beneficiary vie ongoing basis based current facts circumstances nonconsolidated vies firm’s exposure obligations vies generally limited interests entities certain instances firm provides guarantees including derivative guarantees vies holders variable interests vies tables present information nonconsolidated vies firm holds variable interests nonconsolidated vies aggregated based principal business activity nature firm’s variable interests take different forms described rows maximum exposure loss tables • maximum exposure loss excludes benefit offsetting financial instruments held mitigate risks associated variable interests • retained purchased interests loans investments maximum exposure loss carrying value interests • commitments guarantees derivatives maximum exposure loss notional amount represent anticipated losses also reduced unrealized losses already recorded result maximum exposure loss exceeds liabilities recorded commitments guarantees derivatives provided vies december 2010 table includes nonconsolidated vies firm holds variable interests firm sold assets continuing involvement december 2010 formerly considered qspes prior changes us gaap january 1 2010 see “recent accounting developments” note 3 information carrying values firm’s variable interests nonconsolidated vies included consolidated statement financial condition follows • substantially assets liabilities held firm related mortgagebacked corporate cdo clo assetbacked vies investment funds included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” respectively • assets liabilities held firm related real estate creditrelated investing vies primarily included “financial instruments owned fair value” “payables customers counterparties” “other liabilities accrued expenses” respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued • assets liabilities held firm related powerrelated vies primarily included “other assets” “other liabilities accrued expenses” respectively 1 aggregate amounts include 452 billion 466 billion december 2010 december 2009 respectively related guarantees derivative transactions vies firm transferred assets 2 assets vie maximum exposure loss include 614 billion 325 billion respectively related cdos backed mortgage obligations december 2010 3 assets vie carrying value liabilities maximum exposure loss exclude 397 billion associated guarantees related firm’s performance borrowings vies recorded liabilities substantially 136 billion liabilities relate additional borrowings vies goldman sachs group inc subsidiaries notes consolidated financial statements continued consolidated vies tables present carrying amount classification assets liabilities consolidated vies excluding benefit offsetting financial instruments held mitigate risks associated firm’s variable interests consolidated vies aggregated based principal business activity assets liabilities presented net intercompany eliminations majority assets principalprotected notes vies intercompany eliminated consolidation substantially assets consolidated vies used settle obligations vie december 2010 table excludes vies firm holds majority voting interest vie meets definition business ii vie’s assets used purposes settlement obligations december 2009 prior changes us gaap table excludes vies firm holds majority voting interest unless activities vie primarily related securitization assetbacked financings singlelessee leasing arrangements increase total assets consolidated vies december 2009 december 2010 primarily related vies required disclosed accordance asu 200917 required disclosed previous us gaap ii vies consolidated firm upon adoption changes us gaap see “recent accounting developments” note 3 information liabilities real estate creditrelated investing vies cdos mortgagebacked assetbacked vies recourse general credit firm goldman sachs group inc subsidiaries notes consolidated financial statements continued note 12 assets generally less liquid nonfinancial assets table presents assets type 1 net accumulated depreciation amortization 787 billion 728 billion december 2010 december 2009 respectively 2 see note 13 information goodwill identifiable intangible assets 3 see note 26 information income taxes 4 excludes investments 377 billion 295 billion accounted fair value fair value option december 2010 december 2009 respectively included “financial instruments owned fair value” see note 8 information property leasehold improvements equipment property leasehold improvements equipment included 644 billion 590 billion december 2010 december 2009 respectively related property leasehold improvements equipment firm uses connection operations remainder held investment entities including vies consolidated firm substantially property equipment depreciated straightline basis useful life asset leasehold improvements amortized straightline basis useful life improvement term lease whichever shorter certain costs software developed obtained internal use capitalized amortized straightline basis useful life software goldman sachs group inc subsidiaries notes consolidated financial statements continued property leasehold improvements equipment tested impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable firm’s policy impairment testing property leasehold improvements equipment used identifiable intangible assets finite lives see note 13 information note 13 goodwill identifiable intangible assets tables present operating segment carrying values goodwill identifiable intangible assets included “other assets” goodwill cost acquired companies excess fair value identifiable net assets acquisition date reorganization firm’s segments 2010 resulted reallocation assets including goodwill liabilities across reporting units see note 27 information segments goodwill tested annually impairment frequently events occur circumstances change indicate impairment may exist goodwill impairment test consists two steps • first step compares fair value reporting unit estimated net book value including goodwill identified intangible assets reporting unit’s fair value exceeds estimated net book value goodwill impaired • estimated fair value reporting unit less estimated net book value second step goodwill impairment test performed measure amount impairment loss impairment loss equal excess carrying amount goodwill fair value goodwill tested impairment fourth quarter 2010 impairment identified estimate fair value reporting unit relative value residual income valuation techniques used firm believes market participants would use techniques value firm’s reporting units relative value techniques apply average observable pricetoearnings multiples comparable competitors certain reporting units’ net earnings reporting units fair value estimated using pricetobook multiples based residual income techniques compare excess reporting unit returns equity firm’s cost equity capital longterm stable growth period net book value reporting unit reflects estimated amount shareholders’ equity required support activities reporting unit goldman sachs group inc subsidiaries notes consolidated financial statements continued identifiable intangible assets table presents gross carrying amount accumulated amortization net carrying amount identifiable intangible assets weighted average remaining lives 1 represents television broadcast royalties held vie consolidated upon adoption asu 200917 2 primarily includes commodityrelated customer contracts relationships permits access rights acquired first quarter 2010 3 represents value business acquired related firm’s insurance businesses goldman sachs group inc subsidiaries notes consolidated financial statements continued substantially firm’s identifiable intangible assets considered finite lives amortized estimated lives case insurance contracts proportion estimated gross profits premium revenues amortization expense identifiable intangible assets included “depreciation amortization” table presents amortization expense identifiable intangible assets periods presented estimated future amortization expense 2015 identifiable intangible assets december 2010 1 includes impairment loss 305 million firm’s nyse dmm rights identifiable intangible assets tested recoverability whenever events changes circumstances indicate asset’s asset group’s carrying value may recoverable recoverability test necessary carrying value asset group compared total undiscounted cash flows expected received remaining useful life disposition asset group • total undiscounted cash flows exceeds carrying value asset group impaired • total undiscounted cash flows less carrying value asset group fully recoverable impairment loss recognized difference carrying amount asset group estimated fair value fourth quarter 2010 result continuing weak operating results firm’s nyse dmm business firm tested nyse dmm rights impairment accordance asc 360 carrying value firm’s nyse dmm rights exceeded projected undiscounted cash flows estimated remaining useful life firm’s nyse dmm rights firm determined rights impaired firm recorded impairment loss 305 million included “depreciation amortization” firm’s institutional client services segment fourth quarter 2010 impairment loss represented excess carrying value firm’s nyse dmm rights estimated fair value firm estimated fair value level 3 measurement using relative value analysis incorporated comparison another dmm portfolio transacted third parties goldman sachs group inc subsidiaries notes consolidated financial statements continued note 14 deposits tables present deposits held us nonus offices maturities time deposits substantially us deposits held gs bank usa interestbearing substantially nonus deposits held goldman sachs bank europe plc gs bank europe interestbearing 1 includes 106 million greater 100000 13 million matures within three months 4 million matures within three six months 32 million matures within six twelve months 57 million matures twelve months 2 substantially greater 100000 note 15 shortterm borrowings shortterm borrowings comprised following see note 9 information secured financings unsecured shortterm borrowings include portion unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holder firm accounts promissory notes commercial paper certain hybrid financial instruments fair value fair value option see note 8 information unsecured shortterm borrowings accounted fair value shortterm borrowings recorded fair value recorded based amount cash received plus accrued interest amounts approximate fair value due shortterm nature obligations goldman sachs group inc subsidiaries notes consolidated financial statements continued table presents unsecured shortterm borrowings 1 includes 1043 billion 173 billion december 2010 december 2009 respectively issued group inc guaranteed federal deposit insurance corporation fdic temporary liquidity guarantee program tlgp 2 includes 2446 billion 1705 billion december 2010 december 2009 respectively issued group inc 3 weighted average interest rates borrowings include effect hedging activities exclude financial instruments accounted fair value fair value option see note 7 information hedging activities note 16 longterm borrowings longterm borrowings comprised following see note 9 information secured financings table presents unsecured longterm borrowings extending 2060 consisting principally senior borrowings 1 interest rates us dollardenominated debt ranged 020 1004 weighted average rate 552 025 1004 weighted average rate 535 december 2010 december 2009 respectively interest rates nonus dollardenominated debt ranged 085 1485 weighted average rate 465 080 1300 weighted average rate 449 december 2010 december 2009 respectively 2 floating interest rates generally based libor federal funds target rate equitylinked indexed instruments included floatingrate obligations 3 includes 858 billion 1903 billion december 2010 december 2009 respectively issued group inc guaranteed fdic tlgp goldman sachs group inc subsidiaries notes consolidated financial statements continued table presents unsecured longterm borrowings maturity date table • unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holder included unsecured shortterm borrowings • unsecured longterm borrowings repayable prior maturity option firm reflected contractual maturity dates • unsecured longterm borrowings redeemable prior maturity option holder reflected dates options become exercisable aggregate contractual principal amount unsecured longterm borrowings principal nonprincipal protected fair value option elected exceeded related fair value 349 million 672 million december 2010 december 2009 respectively 1 amount includes increase 886 billion carrying amount certain unsecured longterm borrowings related hedge accounting amounts related carrying value unsecured longterm borrowings associated effect hedge accounting year maturity follows 532 million 2012 750 million 2013 839 million 2014 382 million 2015 636 billion 2016 thereafter firm designates certain derivatives fair value hedges effectively convert substantial portion fixedrate unsecured longterm borrowings accounted fair value floatingrate obligations accordingly excluding cumulative impact changes firm’s credit spreads carrying value unsecured longterm borrowings approximated fair value december 2010 december 2009 unsecured longterm borrowings firm elect fair value option cumulative impact due changes firm’s credit spreads would reduction carrying value total unsecured longterm borrowings less 1 december 2010 december 2009 see note 7 information hedging activities table presents unsecured longterm borrowings giving effect hedging activities converted substantial portion fixedrate obligations floatingrate obligations 1 weighted average interest rates aggregate amounts 190 569 related fixedrate obligations 174 related floatingrate obligations 142 549 related fixedrate obligations 132 related floatingrate obligations december 2010 december 2009 respectively rates exclude financial instruments accounted fair value fair value option goldman sachs group inc subsidiaries notes consolidated financial statements continued subordinated borrowings unsecured longterm borrowings include subordinated debt junior subordinated debt junior subordinated debt junior right payment subordinated borrowings junior senior borrowings december 2010 december 2009 subordinated debt maturities ranging 2012 2038 2017 2038 respectively table presents subordinated borrowings 1 weighted average interest rate giving effect fair value hedges used convert fixedrate obligations floatingrate obligations see note 7 information hedging activities see information interest rates junior subordinated debt 2 december 2010 par amount carrying amount include 1381 billion 1644 billion respectively subordinated debt issued group inc december 2009 par amount carrying amount include 1378 billion 1530 billion respectively subordinated debt issued group inc junior subordinated debt junior subordinated debt issued apex trusts 2007 group inc issued total 225 billion remarketable junior subordinated debt goldman sachs capital ii goldman sachs capital iii apex trusts delaware statutory trusts apex trusts issued 225 billion guaranteed perpetual normal automatic preferred enhanced capital securities apex third parties de minimis amount common securities group inc group inc also entered contracts apex trusts sell 225 billion group inc perpetual noncumulative preferred stock purchase contracts apex trusts wholly owned finance subsidiaries firm regulatory legal purposes consolidated accounting purposes firm accounted stock purchase contracts equity instruments accordingly recorded cost stock purchase contracts reduction additional paidin capital see note 19 information preferred stock group inc issue connection stock purchase contracts firm pays interest semiannually 175 billion junior subordinated debt issued goldman sachs capital ii fixed annual rate 559 debt matures june 1 2043 firm pays interest quarterly 500 million junior subordinated debt issued goldman sachs capital iii rate per annum equal threemonth libor plus 057 debt matures september 1 2043 addition firm makes contract payments rate 020 per annum stock purchase contracts held apex trusts firm right defer payments junior subordinated debt stock purchase contracts subject limitations therefore cause payment apex deferred extension period firm permitted among things pay dividends make certain repurchases common preferred stock goldman sachs group inc subsidiaries notes consolidated financial statements continued connection apex issuance firm covenanted favor certain debtholders initially currently holders group inc’s 6345 junior subordinated debentures due february 15 2034 subject certain exceptions firm would redeem purchase group inc’s junior subordinated debt issued apex trusts prior applicable stock purchase date ii apex shares group inc’s perpetual noncumulative preferred stock series e series e preferred stock perpetual noncumulative preferred stock series f series f preferred stock prior date ten years applicable stock purchase date unless applicable redemption purchase price exceed maximum amount determined reference aggregate amount net cash proceeds firm received sale qualifying equity securities 180day period preceding redemption purchase junior subordinated debt issued connection trust preferred securities group inc issued 284 billion junior subordinated debentures 2004 goldman sachs capital trust delaware statutory trust issued 275 billion guaranteed preferred beneficial interests third parties 85 million common beneficial interests group inc used proceeds issuances purchase junior subordinated debentures group inc trust wholly owned finance subsidiary firm regulatory legal purposes consolidated accounting purposes firm pays interest semiannually debentures annual rate 6345 debentures mature february 15 2034 coupon rate payment dates applicable beneficial interests interest rate payment dates debentures firm right time defer payment interest debentures therefore cause payment trust’s preferred beneficial interests deferred case ten consecutive semiannual periods extension period firm permitted among things pay dividends make certain repurchases common stock trust permitted pay distributions common beneficial interests held group inc unless dividends payable preferred beneficial interests paid full goldman sachs group inc subsidiaries notes consolidated financial statements continued note 17 liabilities accrued expenses table presents liabilities accrued expenses type 1 includes 593 million 598 million related consolidated investment funds december 2010 december 2009 respectively 2 see note 26 information income taxes 3 includes 909 million related entities consolidated upon adoption asu 200917 table presents insurancerelated liabilities type separate account liabilities supported separate account assets representing segregated contract holder funds variable annuity life insurance contracts separate account assets included “cash securities segregated regulatory purposes” liabilities future benefits unpaid claims include liabilities arising reinsurance provided firm insurers firm receivable 126 billion 129 billion december 2010 december 2009 respectively related reinsurance contracts reported “receivables customers counterparties” addition firm ceded risks reinsurers related certain liabilities future benefits unpaid claims receivable 839 million 870 million december 2010 december 2009 respectively related reinsurance contracts reported “receivables customers counterparties” contracts cede risks reinsurers relieve firm obligations contract holders liabilities future benefits unpaid claims include 205 billion 184 billion carried fair value fair value option december 2010 december 2009 respectively reserves guaranteed minimum death income benefits represent liability expected value guaranteed benefits excess projected annuity account balances reserves based total payments expected made less total fees expected assessed life contract goldman sachs group inc subsidiaries notes consolidated financial statements continued note 18 commitments contingencies guarantees commitments table presents firm’s commitments 1 commitments extend credit presented net amounts syndicated third parties 2 agreements generally settle within three business days 3 consists commitments letters credit issued various banks firm provides counterparties lieu securities cash satisfy various collateral margin deposit requirements commitments extend credit firm’s commitments extend credit agreements lend fixed termination dates depend satisfaction contractual conditions borrowing total commitment amount necessarily reflect actual future cash flows firm may syndicate substantial portions commitments expire unused reduced cancelled counterparty’s request firm generally accounts commitments extend credit fair value losses generally recorded net fees “other principal transactions” commercial lending firm’s commercial lending commitments generally extended connection contingent acquisition financing types corporate lending well commercial real estate financing commitments extended contingent acquisition financing often intended shortterm nature borrowers often seek replace funding sources william street credit extension program substantially commitments provided william street credit extension program investmentgrade corporate borrowers commitments program principally extended william street commitment corporation commitment corp consolidated wholly owned subsidiary gs bank usa gs bank usa subsidiaries gs bank usa commitments extended commitment corp supported part funding raised william street funding corporation funding corp another consolidated wholly owned subsidiary gs bank usa assets liabilities commitment corp funding corp legally separated assets liabilities firm assets commitment corp funding corp available respective shareholders claims respective creditors paid addition affiliate either commitment corp funding corp except limited cases expressly agreed writing responsible obligation either entity goldman sachs group inc subsidiaries notes consolidated financial statements continued sumitomo mitsui financial group inc smfg provides firm credit loss protection generally limited 95 first loss firm realizes approved loan commitments maximum approximately 950 million respect william street commitments addition subject satisfaction certain conditions upon firm’s request smfg provide protection 70 additional losses commitments maximum 113 billion 375 million protection provided december 2010 december 2009 firm also uses financial instruments mitigate credit risks related certain william street commitments covered smfg warehouse financing firm provides financing clients warehouse financial assets arrangements secured warehoused assets primarily consisting residential commercial mortgages contingent forward starting resale securities borrowing agreementsforward starting repurchase securities lending agreements firm enters resale securities borrowing agreements repurchase securities lending agreements settle future date firm also enters commitments provide contingent financing clients resale agreements firm’s funding commitments depends satisfaction contractual conditions resale agreement commitments expire unused investment commitments firm’s investment commitments consist commitments invest private equity real estate assets directly funds firm raises manages commitments include 197 billion 246 billion december 2010 december 2009 respectively related real estate private investments 912 billion 1078 billion december 2010 december 2009 respectively related corporate private investments amounts 1010 billion 1138 billion december 2010 december 2009 respectively relate commitments invest funds managed firm funded market value date investment leases firm contractual obligations longterm noncancelable lease agreements principally office space expiring various dates 2069 certain agreements subject periodic escalation provisions increases real estate taxes charges table presents future minimum rental payments net minimum sublease rentals rent charged operating expense years ended december 2010 december 2009 december 2008 508 million 434 million 438 million respectively operating leases include office space held excess current requirements rent expense relating space held growth included “occupancy” consolidated statements earnings firm records liability based fair value remaining lease rentals reduced potential existing sublease rentals leases firm ceased using space management concluded firm derive future economic benefits costs terminate lease end term recognized measured fair value termination goldman sachs group inc subsidiaries notes consolidated financial statements continued contingencies legal proceedings see note 30 information legal proceedings including certain mortgagerelated matters certain mortgagerelated contingencies multiple areas focus regulators governmental agencies others within mortgage market may impact originators issuers servicers investors remains significant uncertainty surrounding nature extent potential exposure participants market • representations warranties firm significant originator residential mortgage loans firm purchase loans originated others generally received loanlevel representations type described originators period 2005 2008 firm sold approximately 10 billion loans governmentsponsored enterprises approximately 11 billion loans third parties addition firm transferred loans trusts mortgage securitization vehicles december 2010 outstanding balance loans transferred trusts mortgage securitization vehicles period 2005 2008 approximately 49 billion amount reflects paydowns cumulative losses approximately 76 billion 14 billion cumulative losses small number goldman sachsissued securitizations outstanding principal balance 739 million total paydowns cumulative losses 132 billion 410 million cumulative losses structured credit protection obtained monoline insurers connection sales loans securitizations firm provided loan level representations type described andor assigned loan level representations party firm purchased loans loan level representations made connection sale securitization mortgage loans varied among transactions generally detailed representations applicable loan portfolio addressed matters relating property borrower note representations generally included limited following certain attributes borrower’s financial status ii loantovalue ratios owner occupancy status certain characteristics property iii lien position iv fact loan originated compliance law v completeness loan documentation date repurchase claims actual repurchases residential mortgage loans based upon alleged breaches representations significant mainly involved governmentsponsored enterprises year ended december 2010 firm incurred immaterial loss repurchase less 50 million loans december 2010 outstanding repurchase claims material ultimately firm’s exposure claims repurchase residential mortgage loans based alleged breaches representations depend number factors including following extent claims actually made ii extent underlying breaches representations give rise valid claims repurchase iii case loans originated others extent firm could held liable firm’s ability pursue collect claims parties made representations firm iv macroeconomic factors including developments residential real estate market v legal regulatory developments based upon large number defaults residential mortgages including sold securitized firm potential increasing claims repurchases however firm position make meaningful estimate exposure time • foreclosure mortgage loan servicing practices procedures firm received number requests information regulators agencies including state attorneys general banking regulators part industrywide focus practices lenders servicers connection foreclosure proceedings aspects mortgage loan servicing practices procedures requests seek information foreclosure servicing protocols activities litton loan servicing lp litton firm’s residential mortgage servicing subsidiary deviations therefrom firm cooperating requests reviewing goldman sachs group inc subsidiaries notes consolidated financial statements continued litton’s practices area inquiries may result imposition fines regulatory action litton temporarily suspended evictions foreclosure real estate owned sales number states including judicial foreclosure procedures litton recently resumed activities date filing firm aware foreclosures underlying foreclosure decision warranted december 2010 value firm’s mortgage servicing rights material impact value would material firm similarly time firm expect suspension evictions foreclosure real estate owned sales lead material increase mortgage servicingrelated advances guaranteed minimum death income benefits connection insurance business firm contingently liable provide guaranteed minimum death income benefits certain contract holders established reserve related 611 billion 635 billion contract holder account balances december 2010 december 2009 respectively benefits weighted average attained age contract holders 69 years 68 years december 2010 december 2009 respectively net amount risk representing guaranteed minimum death income benefits excess contract holder account balances 160 billion 196 billion december 2010 december 2009 respectively see note 17 information insurance liabilities guarantees firm enters various derivatives meet definition guarantee us gaap including written equity commodity put options written currency contracts interest rate caps floors swaptions disclosures derivatives required may cash settled firm basis conclude probable counterparties held underlying instruments inception contract firm concluded conditions met certain large internationally active commercial investment bank counterparties certain counterparties accordingly firm included contracts table firm capacity agency lender indemnifies securities lending customers losses incurred event borrowers return securities collateral held insufficient cover market value securities borrowed ordinary course business firm provides financial guarantees obligations third parties eg standby letters credit guarantees enable clients complete transactions fundrelated guarantees represent obligations make payments beneficiaries guaranteed party fails fulfill obligation contractual arrangement beneficiary table presents certain information derivatives meet definition guarantee certain guarantees maximum payout table based notional amount contract therefore represent anticipated losses see note 7 information credit derivatives meet definition guarantee included derivatives accounted fair value carrying value considered best indication paymentperformance risk individual contracts however carrying values exclude effect legal right setoff may exist enforceable netting agreement effect netting cash collateral posted credit support agreements goldman sachs group inc subsidiaries notes consolidated financial statements continued 1 derivatives risk managed together derivatives meet definition guarantee therefore amounts reflect firm’s overall risk related derivative activities 2 collateral held lenders connection securities lending indemnifications 2821 billion december 2010 contractual nature arrangements requires firm obtain collateral market value exceeds value securities lent borrower minimal performance risk associated guarantees 3 financial guarantees excludes certain commitments issue standby letters credit included “commitments extend credit” see table “commitments” summary firm’s commitments december 2009 carrying value net liability related derivative guarantees financial guarantees 722 billion 207 million respectively guarantees securities issued trusts firm established trusts including goldman sachs capital ii iii entities limited purpose issuing securities third parties lending proceeds firm entering contractual arrangements firm third parties related purpose firm consolidate entities see note 16 information transactions involving goldman sachs capital ii iii firm effectively provides full unconditional guarantee securities issued entities timely payment firm amounts due entities borrowing preferred stock related contractual arrangements sufficient cover payments due securities issued entities management believes unlikely circumstances occur nonperformance part paying agents service providers would make necessary firm make payments related entities required terms borrowing preferred stock related contractual arrangements connection certain expenses incurred entities indemnities guarantees service providers ordinary course business firm indemnifies guarantees certain service providers clearing custody agents trustees administrators specified potential losses connection acting agent providing services firm affiliates firm also indemnifies clients potential losses incurred event specified thirdparty service providers including subcustodians thirdparty brokers improperly execute transactions addition firm member payment clearing settlement networks well securities exchanges around world may require firm meet obligations networks exchanges event member defaults connection prime brokerage clearing businesses firm agrees clear settle behalf clients transactions entered brokerage firms firm’s obligations respect transactions secured assets client’s account well proceeds received transactions cleared settled firm behalf client connection joint venture investments firm may issue loan guarantees may liable event fraud misappropriation environmental liabilities certain matters involving borrower goldman sachs group inc subsidiaries notes consolidated financial statements continued firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements material liabilities related guarantees indemnifications recognized consolidated statements financial condition december 2010 december 2009 representations warranties indemnifications firm provides representations warranties counterparties connection variety commercial transactions occasionally indemnifies potential losses caused breach representations warranties firm may also provide indemnifications protecting changes adverse application certain us tax laws connection ordinarycourse transactions securities issuances borrowings derivatives addition firm may provide indemnifications counterparties protect event additional taxes owed payments withheld due either change adverse application certain nonus tax laws indemnifications generally standard contractual terms entered ordinary course business generally stated notional amounts included indemnifications contingencies triggering obligation indemnify expected occur firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements material liabilities related arrangements recognized consolidated statements financial condition december 2010 december 2009 guarantees subsidiaries group inc fully unconditionally guarantees securities issued gs finance corp wholly owned finance subsidiary firm group inc guaranteed payment obligations goldman sachs co gsco gs bank usa gs bank europe goldman sachs execution clearing lp gsec subject certain exceptions november 2008 firm contributed subsidiaries gs bank usa group inc agreed guarantee certain losses including creditrelated losses relating assets held contributed entities connection guarantee group inc also agreed pledge gs bank usa certain collateral including interests subsidiaries illiquid assets addition group inc guarantees many obligations consolidated subsidiaries transactionbytransaction basis negotiated counterparties group inc unable develop estimate maximum payout subsidiary guarantees however guaranteed obligations also obligations consolidated subsidiaries included table group inc’s liabilities guarantor separately disclosed goldman sachs group inc subsidiaries notes consolidated financial statements continued note 19 shareholders’ equity common equity dividends declared per common share 140 2010 105 2009 140 2008 january 18 2011 group inc declared dividend 035 per common share paid march 30 2011 common shareholders record march 2 2011 december 15 2008 board declared dividend 04666666 per common share paid march 26 2009 common shareholders record february 24 2009 dividend 04666666 per common share reflective fourmonth period december 2008 march 2009 due change firm’s fiscal yearend 2010 2009 firm repurchased 253 million 19578 shares common stock average cost per share 16448 8083 total cost 416 billion 2 million respectively addition satisfy minimum statutory employee tax withholding requirements related delivery common stock underlying restricted stock units rsus firm cancelled 62 million 112 million rsus total value 972 million 863 million 2010 2009 respectively firm’s share repurchase program intended substantially offset increases share count time resulting employee sharebased compensation help maintain appropriate level common equity repurchase program effected primarily regular openmarket purchases amounts timing determined primarily firm’s issuance shares resulting employee sharebased compensation well current projected capital position ie comparisons firm’s desired level capital actual level capital may also influenced general market conditions prevailing price trading volumes firm’s common stock repurchase firm’s common stock requires approval board governors federal reserve system federal reserve board preferred equity table presents perpetual preferred stock issued outstanding goldman sachs group inc subsidiaries notes consolidated financial statements continued share noncumulative series preferred stock series b preferred stock series c preferred stock series preferred stock issued outstanding par value 001 liquidation preference 25000 represented 1000 depositary shares redeemable firm’s option subject approval federal reserve board redemption price equal 25000 plus declared unpaid dividends share 10 cumulative perpetual preferred stock series g series g preferred stock issued outstanding par value 001 liquidation preference 100000 redeemable firm’s option subject approval federal reserve board redemption price equal 110000 plus accrued unpaid dividends connection issuance series g preferred stock firm issued fiveyear warrant purchase 435 million shares common stock exercise price 11500 per share warrant exercisable time october 1 2013 number shares common stock underlying warrant exercise price subject adjustment certain dilutive events series preferred stock pari passu preference firm’s common stock liquidation dividends series preferred stock declared payable quarterly arrears firm’s ability declare pay dividends purchase redeem otherwise acquire common stock subject certain restrictions event firm fails pay set aside full dividends preferred stock latest completed dividend period 2007 board authorized 175001 shares series e preferred stock 50001 shares series f preferred stock connection apex trusts see note 16 information stock purchase contracts apex trusts group inc issue relevant stock purchase dates june 1 2013 september 1 2013 series e series f preferred stock respectively one share series e series f preferred stock goldman sachs capital ii iii respectively 100000 principal amount subordinated debt held trusts issued share series e series f preferred stock par value 001 liquidation preference 100000 per share dividends series e preferred stock declared payable semiannually fixed annual rate 579 stock issued prior june 1 2012 quarterly thereafter rate per annum equal greater threemonth libor plus 077 ii 400 dividends series f preferred stock declared payable quarterly rate per annum equal threemonth libor plus 077 stock issued prior september 1 2012 quarterly thereafter rate per annum equal greater threemonth libor plus 077 ii 400 preferred stock may redeemed option firm stock purchase dates day thereafter subject approval federal reserve board certain covenant restrictions governing firm’s ability redeem purchase preferred stock without issuing common stock instruments equitylike characteristics june 2009 group inc repurchased us treasury 100 million shares company’s fixed rate cumulative perpetual preferred stock series h series h preferred stock issued us treasury pursuant us treasury’s tarp capital purchase program repurchase resulted onetime preferred dividend 426 million included consolidated statement earnings year ended december 2009 onetime preferred dividend represented difference carrying value redemption value series h preferred stock connection issuance series h preferred stock october 2008 firm issued 10year warrant us treasury purchase 122 million shares common stock exercise price 12290 per share firm repurchased warrant full july 2009 11 billion amount recorded reduction additional paidin capital january 18 2011 group inc declared dividends 23958 38750 25556 per share series preferred stock series b preferred stock series c preferred stock series preferred stock respectively paid february 10 2011 preferred shareholders record january 26 2011 addition group inc declared dividend 2500 per share series g preferred stock paid february 10 2011 preferred shareholders record january 26 2011 goldman sachs group inc subsidiaries notes consolidated financial statements continued table presents preferred dividends declared preferred stock 1 amounts year ended december 2009 exclude onetime preferred dividend 426 million related repurchase tarp series h preferred stock second quarter 2009 well 44 million accrued dividends paid repurchase series h preferred stock accumulated comprehensive incomeloss table presents accumulated comprehensive incomeloss type 1 substantially consists net unrealized gains availableforsale securities held firm’s insurance subsidiaries december 2010 december 2009 goldman sachs group inc subsidiaries notes consolidated financial statements continued note 20 regulation capital adequacy federal reserve board primary regulator group inc bank holding company financial holding company us bank holding company act 1956 bank holding company firm subject consolidated regulatory capital requirements computed accordance federal reserve board’s capital adequacy regulations currently applicable bank holding companies basel 1 capital requirements based capital accord basel committee banking supervision basel committee expressed capital ratios compare measures capital riskweighted assets rwas firm’s bank depository institution subsidiaries including gs bank usa subject similar capital requirements federal reserve board’s capital adequacy requirements regulatory framework prompt corrective action applicable gs bank usa firm bank depository institution subsidiaries must meet specific capital requirements involve quantitative measures assets liabilities certain offbalancesheet items calculated regulatory reporting practices firm bank depository institution subsidiaries’ capital amounts well gs bank usa’s prompt corrective action classification also subject qualitative judgments regulators components risk weightings factors many firm’s subsidiaries including gsco firm’s brokerdealer subsidiaries subject separate regulation capital requirements described group inc federal reserve board regulations require bank holding companies maintain minimum tier 1 capital ratio 4 minimum total capital ratio 8 required minimum tier 1 capital ratio total capital ratio order considered “wellcapitalized” bank holding company federal reserve board guidelines 6 10 respectively bank holding companies may expected maintain ratios well minimum levels depending particular condition risk profile growth plans minimum tier 1 leverage ratio 3 bank holding companies received highest supervisory rating federal reserve board guidelines implemented federal reserve board’s riskbased capital measure market risk bank holding companies must minimum tier 1 leverage ratio 4 table presents information regarding group inc’s regulatory capital ratios rwas federal reserve board’s riskbased capital guidelines calculated based amount market risk credit risk rwas market risk determined reference firm’s valueatrisk var models supplemented measures capture risks reflected var models credit risk onbalance sheet assets based balance sheet value offbalance sheet exposures including otc derivatives commitments credit equivalent amount calculated based notional amount trade assets amounts assigned risk weight depending among things whether counterparty sovereign bank qualifying securities firm entity collateral held depending nature collateral tier 1 leverage ratio defined tier 1 capital basel 1 divided average adjusted total assets includes adjustments disallowed goodwill intangible assets carrying value equity investments nonfinancial companies subject deductions tier 1 capital goldman sachs group inc subsidiaries notes consolidated financial statements continued regulatory reform firm currently working implement requirements set federal reserve board’s capital adequacy guidelines bank holding companies internalratingsbased advanced measurement approaches based advanced approaches revised framework international convergence capital measurement capital standards issued basel committee applicable group inc bank holding company basel 2 us banking regulators incorporated basel 2 framework existing riskbased capital requirements requiring internationally active banking organizations group inc transition basel 2 following successful completion parallel run addition basel committee undertaken program substantial revisions capital guidelines particular changes “basel 25” guidelines result increased capital requirements market risk additionally basel 3 guidelines issued basel committee december 2010 revise definition tier 1 capital introduce tier 1 common equity regulatory metric set new minimum capital ratios including new “capital conservation buffer” must composed exclusively tier 1 common equity addition capital ratios introduce tier 1 leverage ratio within international guidelines first time make substantial revisions computation riskweighted assets credit exposures implementation new requirements expected take place extended transition period starting end 2011 basel 25 end 2012 basel 3 although us federal banking agencies issued proposed rules intended implement certain aspects basel 25 guidelines yet addressed aspects guidelines basel 3 changes addition basel committee us banking regulators implementing doddfrank act indicated impose stringent capital standards systemically important financial institutions although criteria treatment systemically important financial institution yet determined probable apply firm therefore regulations ultimately applicable firm may substantially different published date doddfrank wall street reform consumer protection act doddfrank act subject firm firmwide level leverage riskbased capital requirements apply depository institutions directs banking regulators impose additional capital requirements disclosed federal reserve board required begin implementing new leverage riskbased capital regulation january 2012 consequence changes tier 1 capital treatment firm’s junior subordinated debt issued trusts firm’s cumulative preferred stock phased threeyear period beginning january 1 2013 interaction doddfrank act basel committee’s proposed changes adds uncertainty firm’s future capital requirements number governmental entities regulators including us treasury european union uk’s financial services authority fsa also proposed announced changes result increased capital requirements financial institutions consequence developments firm expects minimum capital ratios required maintained federal reserve board regulations increased changes prescribed calculation methodology expected result higher rwas lower capital ratios currently computed capital requirements several firm’s subsidiaries also impacted future various proposals basel committee doddfrank act governmental entities regulators goldman sachs group inc subsidiaries notes consolidated financial statements continued bank subsidiaries gs bank usa fdicinsured new york statechartered bank member federal reserve system fdic regulated federal reserve board new york state banking department subject minimum capital requirements described calculated manner similar applicable bank holding companies gs bank usa computes capital ratios accordance regulatory capital guidelines currently applicable state member banks based basel 1 implemented federal reserve board purposes assessing adequacy capital order considered “wellcapitalized” depository institution federal reserve board guidelines gs bank usa must maintain tier 1 capital ratio least 6 total capital ratio least 10 tier 1 leverage ratio least 5 november 2008 firm contributed subsidiaries gs bank usa connection contribution gs bank usa agreed federal reserve board minimum capital ratios excess “wellcapitalized” levels accordingly period time gs bank usa expected maintain tier 1 capital ratio least 8 total capital ratio least 11 tier 1 leverage ratio least 6 table presents information regarding gs bank usa’s regulatory capital ratios basel 1 implemented federal reserve board effective january 18 2011 upon receiving regulatory approval gs bank usa declared dividend 100 billion group inc conjunction approval dividend gs bank usa also received approval repay 400 billion subordinated debt group inc dividend subordinated debt repayments took place february 1 2011 would reduced gs bank usa’s tier 1 total capital ratios december 2010 10 51 respectively gs bank usa currently working implement basel 2 framework similar firm’s requirement bank holding company gs bank usa required transition basel 2 following successful completion parallel run addition capital requirements gs bank usa expected impacted changes basel committee’s capital guidelines doddfrank act outlined deposits gs bank usa insured fdic extent provided law federal reserve board requires depository institutions maintain cash reserves federal reserve bank amount deposited firm’s depository institution subsidiaries held federal reserve bank approximately 2812 billion 2743 billion december 2010 december 2009 respectively exceeded required reserve amounts 2745 billion 2586 billion december 2010 december 2009 respectively gs bank europe wholly owned credit institution regulated central bank ireland subject minimum capital requirements december 2010 december 2009 gs bank usa gs bank europe compliance regulatory capital requirements transactions gs bank usa subsidiaries group inc subsidiaries affiliates generally subsidiaries gs bank usa regulated federal reserve board regulations generally limit types amounts transactions including loans borrowings gs bank usa may take place generally require transactions arm’slength basis brokerdealer subsidiaries firm’s us regulated brokerdealer subsidiaries include gsco gsec gsco gsec registered us brokerdealers futures commission merchants subject regulatory capital requirements including imposed sec commodity futures trading commission chicago mercantile exchange financial industry regulatory authority inc finra national futures association rule 15c31 sec rule 117 commodity futures trading commission specify uniform minimum net capital requirements defined registrants also effectively require significant part registrants’ assets kept relatively liquid form gsco gsec elected compute minimum capital requirements accordance “alternative net capital requirement” permitted rule 15c31 goldman sachs group inc subsidiaries notes consolidated financial statements continued december 2010 gsco regulatory net capital defined rule 15c31 1114 billion exceeded amount required 921 billion december 2010 gsec regulatory net capital defined rule 15c31 196 billion exceeded amount required 183 billion addition alternative minimum net capital requirements gsco also required hold tentative net capital excess 1 billion net capital excess 500 million accordance market credit risk standards appendix e rule 15c31 gsco also required notify sec event tentative net capital less 5 billion december 2010 december 2009 gsco tentative net capital net capital excess minimum notification requirements insurance subsidiaries firm us insurance subsidiaries subject state insurance regulation oversight states domiciled states licensed addition certain firm’s insurance subsidiaries outside us regulated fsa certain regulated bermuda monetary authority firm’s insurance subsidiaries compliance regulatory capital requirements december 2010 december 2009 nonus regulated subsidiaries firm’s principal nonus regulated subsidiaries include goldman sachs international gsi goldman sachs japan co ltd gsjcl gsi firm’s regulated uk brokerdealer subject capital requirements fsa gsjcl firm’s regulated japanese brokerdealer subject capital requirements imposed japan’s financial services agency december 2010 december 2009 gsi gsjcl compliance local capital adequacy requirements certain nonus subsidiaries firm also subject capital adequacy requirements promulgated authorities countries operate december 2010 december 2009 subsidiaries compliance local capital adequacy requirements restrictions payments regulatory requirements referred restrict group inc’s ability withdraw capital regulated subsidiaries december 2010 december 2009 approximately 2470 billion 2349 billion respectively net assets regulated subsidiaries restricted payment dividends group inc addition limitations payment dividends imposed federal state laws federal reserve board fdic new york state banking department authority prohibit limit payment dividends banking organizations supervise including gs bank usa relevant regulator’s opinion payment dividend would constitute unsafe unsound practice light financial condition banking organization goldman sachs group inc subsidiaries notes consolidated financial statements continued note 21 earnings per common share eps basic eps calculated dividing net earnings applicable common shareholders weighted average number common shares outstanding common shares outstanding includes common stock rsus future service required condition delivery underlying common stock diluted eps includes determinants basic eps addition reflects dilutive effect common stock deliverable stock warrants options rsus future service required condition delivery underlying common stock first quarter fiscal 2009 firm adopted amended accounting principles related determining whether instruments granted sharebased payment transactions participating securities accordingly firm treats unvested sharebased payment awards nonforfeitable rights dividends dividend equivalents separate class securities calculating eps table presents computations basic diluted eps diluted eps computations table include antidilutive effect follows table unvested sharebased payment awards nonforfeitable rights dividends dividend equivalents treated separate class securities calculating eps impact applying methodology reduction basic eps 008 006 years ended december 2010 december 2009 respectively increase basic diluted loss per common share 003 one month ended december 2008 eps year ended november 2008 restated due immateriality goldman sachs group inc subsidiaries notes consolidated financial statements continued note 22 transactions affiliated funds firm formed numerous nonconsolidated investment funds thirdparty investors firm generally acts investment manager funds entitled receive management fees certain cases advisory fees incentive fees funds additionally firm invests alongside thirdparty investors certain funds tables present fees earned affiliated funds fees receivable affiliated funds aggregate carrying value firm’s interests affiliated funds firm provided voluntary financial support certain funds experienced significant reductions capital liquidity limited access debt markets financial crisis december 2010 firm exposure funds form loans guarantees 253 million primarily related certain real estate funds addition december 2010 firm outstanding commitments extend credit funds 160 million firm may provide additional voluntary financial support funds experience significant financial distress however amounts expected material firm ordinary course business firm may also engage activities funds including among others securities lending trade execution market making custody acquisition bridge financing see note 18 firm’s investment commitments related funds goldman sachs group inc subsidiaries notes consolidated financial statements continued note 23 interest income interest expense interest income recorded accrual basis based contractual interest rates table presents sources interest income interest expense 1 primarily includes interest income customer debit balances interestearning assets 2 includes interest unsecured borrowings secured financings 3 primarily includes interest expense customer credit balances interestbearing liabilities goldman sachs group inc subsidiaries notes consolidated financial statements continued note 24 employee benefit plans firm sponsors various pension plans certain postretirement benefit plans primarily healthcare life insurance firm also provides certain benefits former inactive employees prior retirement defined benefit pension plans postretirement plans employees certain nonus subsidiaries participate various defined benefit pension plans generally provide benefits based years credited service percentage employee’s eligible compensation firm maintains defined benefit pension plan uk employees april 2008 uk defined benefit plan closed new participants continue accrue benefits existing participants plans material impact firm’s consolidated results operations firm also maintains defined benefit pension plan substantially us employees hired prior november 1 2003 november 2004 plan closed new participants frozen existing participants would accrue additional benefits addition firm maintains unfunded postretirement benefit plans provide medical life insurance eligible retirees dependents covered programs plans material impact firm’s consolidated results operations firm recognizes funded status defined benefit pension postretirement plans measured difference fair value plan assets benefit obligation consolidated statements financial condition december 2010 “other assets” “other liabilities accrued expenses” included 164 million related overfunded pension plan 641 million respectively related plans december 2009 “other liabilities accrued expenses” included 769 million related plans defined contribution plans firm contributes employersponsored us nonus defined contribution plans firm’s contribution plans 193 million 178 million 208 million years ended december 2010 december 2009 november 2008 respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued note 25 employee incentive plans cost employee services received exchange sharebased award generally measured based grantdate fair value award sharebased awards require future service ie vested awards including awards granted retirementeligible employees expensed immediately sharebased employee awards require future service amortized relevant service period expected forfeitures included determining sharebased employee compensation expense firm pays cash dividend equivalents outstanding rsus dividend equivalents paid rsus generally charged retained earnings dividend equivalents paid rsus expected forfeited included compensation expense first quarter fiscal 2009 firm adopted amended accounting principles related income tax benefits dividends sharebased payment awards amended principles require tax benefit related dividend equivalents paid rsus accounted increase additional paidin capital previously firm accounted tax benefit reduction income tax expense certain cases primarily related death employee conflicted employment outlined applicable award agreements firm may cash settle sharebased compensation awards accounted equity instruments additional paidin capital adjusted extent difference current value award grantdate value award stock incentive plan firm sponsors stock incentive plan goldman sachs amended restated stock incentive plan sip provides grants incentive stock options nonqualified stock options stock appreciation rights dividend equivalent rights restricted stock rsus awards performance conditions sharebased awards second quarter 2003 sip approved firm’s shareholders effective grants april 1 2003 sip amended restated effective december 31 2008 total number shares common stock may delivered pursuant awards granted sip end 2008 fiscal year could exceed 250 million shares total number shares common stock may delivered awards granted sip 2009 fiscal year fiscal year thereafter cannot exceed 5 issued outstanding shares common stock determined last day immediately preceding fiscal year increased number shares available awards previous years covered awards granted years december 2010 december 2009 1392 million 1406 million shares respectively available grant sip restricted stock units firm issues rsus employees sip primarily connection yearend compensation acquisitions rsus valued based closing price underlying shares date grant taking account liquidity discount applicable postvesting transfer restrictions yearend rsus generally vest deliver outlined applicable rsu agreements employee rsu agreements generally provide vesting accelerated certain circumstances retirement death extended absence delivery underlying shares common stock conditioned grantees satisfying certain vesting requirements outlined award agreements table presents activity related rsus goldman sachs group inc subsidiaries notes consolidated financial statements continued 1 weighted average grantdate fair value rsus granted years ended december 2010 december 2009 november 2008 one month ended december 2008 13264 15131 15431 6760 respectively fair value rsus granted year ended december 2010 one month ended december 2008 includes liquidity discount 132 143 respectively reflect postvesting transfer restrictions 4 years 2 aggregate fair value awards vested years ended december 2010 december 2009 november 2008 one month ended december 2008 407 billion 218 billion 103 billion 41 million respectively 3 includes rsus cash settled january 2011 firm granted employees 153 million yearend rsus 84 million rsus require future service condition delivery awards subject additional conditions outlined award agreements generally shares underlying awards net required withholding tax deliver threeyear period subject postvesting transfer restrictions january 2016 grants included table stock options stock options generally vest outlined applicable stock option agreement options granted february 2010 generally become exercisable onethird installments january 2011 january 2012 january 2013 expire february 2014 employee stock option agreements provide vesting accelerated certain circumstances retirement death extended absence general options granted prior february 2010 expire tenth anniversary grant date although may subject earlier termination cancellation certain circumstances accordance terms sip applicable stock option agreement dilutive effect firm’s outstanding stock options included “average common shares outstanding diluted” consolidated statements earnings see note 21 information eps table presents activity related stock options total intrinsic value options exercised years ended december 2010 december 2009 november 2008 one month ended december 2008 510 million 484 million 433 million 1 million respectively table presents options outstanding goldman sachs group inc subsidiaries notes consolidated financial statements continued weighted average fair value options granted year ended december 2010 one month ended december 2008 3758 1408 per option respectively table presents primary weighted average assumptions used estimate fair value grant date based blackscholes optionpricing model common stock underlying options granted one month ended december 2008 subject transfer restrictions january 2014 value common stock underlying options granted one month ended december 2008 reflects liquidity discount 267 result transfer restrictions liquidity discount based firm’s predetermined written liquidity discount policy consistently applied financial instruments transfer restrictions table presents sharebased compensation related tax benefit 1 represents tax benefitprovision recognized additional paidin capital stock options exercised delivery common stock underlying rsus december 2010 150 billion total unrecognized compensation cost related nonvested sharebased compensation arrangements cost expected recognized weighted average period 161 years goldman sachs group inc subsidiaries notes consolidated financial statements continued note 26 income taxes provision income taxes income taxes provided using asset liability method deferred tax assets liabilities recognized temporary differences financial reporting tax bases assets liabilities firm reports interest expense related income tax matters “provision taxes” consolidated statements earnings income tax penalties “other expenses” tables present components provisionbenefit taxes reconciliation us federal statutory income tax rate firm’s effective income tax rate 1 primarily includes effect sec settlement 550 million substantially nondeductible 2 primarily includes effect liability increase result adopting amended principles related accounting uncertainty income taxes goldman sachs group inc subsidiaries notes consolidated financial statements continued deferred income taxes deferred income taxes reflect net tax effects temporary differences financial reporting tax bases assets liabilities temporary differences result taxable deductible amounts future years measured using tax rates laws effect differences expected reverse valuation allowances established reduce deferred tax assets amount likely realized tax assets liabilities presented component “other assets” “other liabilities accrued expenses” respectively see notes 12 17 information table presents significant components deferred tax assets liabilities 1 relates primarily ability utilize losses various tax jurisdictions 2 netting within tax jurisdictions 3 relates depreciation amortization firm recorded deferred tax assets 250 million 184 million december 2010 december 2009 respectively connection us federal state local foreign net operating loss carryforwards firm also recorded valuation allowance 42 million 46 million december 2010 december 2009 respectively related net operating loss carryforwards december 2010 us federal state local foreign net operating loss carryforwards 341 million 154 billion 240 million respectively utilized us federal net operating loss carryforward begin expire 2016 state local net operating loss carryforwards begin expire 2012 foreign net operating loss carryforwards carried forward indefinitely firm foreign tax credit carryforwards 11 million 277 million december 2010 december 2009 respectively firm recorded related net deferred income tax asset 5 million 271 million december 2010 december 2009 respectively carryforwards begin expire 2013 firm capital loss carryforwards 12 million 99 million december 2010 december 2009 respectively firm recorded related net deferred income tax asset 2 million 35 million december 2010 december 2009 respectively carryforwards expire 2014 2010 2009 valuation allowance decreased 24 million 19 million respectively primarily due utilization losses previously considered likely expire unused goldman sachs group inc subsidiaries notes consolidated financial statements continued firm permanently reinvests eligible earnings certain foreign subsidiaries accordingly accrue us income taxes would arise earnings repatriated december 2010 december 2009 policy resulted unrecognized net deferred tax liability 267 billion 234 billion respectively attributable reinvested earnings 1770 billion 1621 billion respectively firm adopted amended principles related accounting uncertainty income taxes december 1 2007 recorded transition adjustment resulting reduction 201 million beginning retained earnings unrecognized tax benefits firm recognizes tax positions financial statements likely position sustained examination relevant taxing authority based technical merits position meets standard measured largest amount benefit likely realized settlement liability established differences positions taken tax return amounts recognized financial statements table presents changes liability unrecognized tax benefits recorded “other liabilities accrued expenses” see note 17 information 1 included “other assets” see note 12 2 recognized net tax benefit would reduce firm’s effective income tax rate 3 includes 175 million recorded one month ended december 2008 goldman sachs group inc subsidiaries notes consolidated financial statements continued december 2010 december 2009 accrued liability interest expense related income tax matters income tax penalties 213 million 194 million respectively firm recognized 28 million 62 million 37 million 3 million interest income tax penalties years ended december 2010 december 2009 november 2008 one month ended december 2008 respectively reasonably possible unrecognized tax benefits could change significantly twelve months subsequent december 2010 due potential audit settlements time possible estimate change impact firm’s effective tax rate next twelve months regulatory tax examinations firm subject examination us internal revenue service irs taxing authorities jurisdictions firm significant business operations united kingdom japan hong kong korea various states new york tax years examination vary jurisdiction firm believes 2011 certain audits reasonable possibility completed firm expect completion audits material impact firm’s financial condition may material operating results particular period depending part operating results period table presents earliest tax years remain subject examination major jurisdiction 1 irs examination fiscal 2005 2006 2007 began 2008 irs examination fiscal 2003 2004 completed liabilities years yet final 2 new york state city examination fiscal 2004 2005 2006 began 2008 3 japan national tax agency examination fiscal 2005 2009 began first quarter 2010 years subsequent remain open examination taxing authorities firm believes liability unrecognized tax benefits established adequate relation potential additional assessments note 27 business segments fourth quarter 2010 firm reorganized three previous reportable business segments four new reportable business segments investment banking institutional client services investing lending investment management prior periods presented comparable basis presentation reporting segments certain firm’s business lines aggregated similar economic characteristics similar following areas nature services provide ii methods distribution iii types clients serve iv regulatory environments operate cost drivers firm taken whole compensation headcount levels business activity broadly similar firm’s business segments compensation benefits expenses firm’s segments reflect among factors overall performance firm well performance individual businesses consequently pretax margins one segment firm’s business may significantly affected performance firm’s business segments firm allocates revenues expenses among four reportable business segments due integrated nature segments estimates judgments made allocating certain revenue expense items transactions segments based specific criteria approximate thirdparty rates total operating expenses include corporate items allocated individual business segments allocation process based manner management views business firm goldman sachs group inc subsidiaries notes consolidated financial statements continued segment information presented table prepared according following methodologies • revenues expenses directly associated segment included determining pretax earnings • net revenues firm’s segments include allocations interest income interest expense specific securities commodities positions relation cash generated funding requirements underlying positions net interest included segment net revenues consistent way management assesses segment performance • overhead expenses directly allocable specific segments allocated ratably based direct segment expenses management believes following information provides reasonable representation segment’s contribution consolidated pretax earningsloss total assets 1 includes 111 million 36 million 61 million 2 million years ended december 2010 december 2009 november 2008 one month ended december 2008 respectively realized gainslosses securities held firm’s insurance subsidiaries accounted availableforsale goldman sachs group inc subsidiaries notes consolidated financial statements continued operating expenses table include following expenses allocated firm’s segments • charitable contributions 345 million 810 million years ended december 2010 december 2009 respectively • net provisions number litigation regulatory proceedings 682 million 104 million 4 million 68 million years ended december 2010 december 2009 november 2008 one month ended december 2008 respectively • real estaterelated exit costs 28 million 61 million 80 million years ended december 2010 december 2009 november 2008 respectively table presents amounts net interest income included net revenues table presents amounts depreciation amortization expense included pretax earnings 1 includes real estaterelated exit costs 1 million 5 million years ended december 2010 december 2009 respectively allocated firm’s segments goldman sachs group inc subsidiaries notes consolidated financial statements continued geographic information due highly integrated nature international financial markets firm manages businesses based profitability enterprise whole methodology allocating profitability geographic regions dependent estimates management judgment significant portion firm’s activities require crossborder coordination order facilitate needs firm’s clients geographic results generally allocated follows • investment banking location client investment banking team • institutional client services fixed income currency commodities client execution equities excluding securities services location marketmaking desk securities services location primary market underlying security • investing lending investing location investment lending location client • investment management location sales team table presents total net revenues pretax earnings net earnings firm geographic region allocated based methodology referred well percentage total net revenues pretax earnings excluding corporate net earnings excluding corporate geographic region 1 substantially relates us 2 emea europe middle east africa pretax earnings net earnings include impact uk bank payroll tax year ended december 2010 3 consists net provisions number litigation regulatory proceedings 682 million 104 million 4 million 68 million years ended december 2010 december 2009 november 2008 one month ended december 2008 respectively charitable contributions 345 million 810 million years ended december 2010 december 2009 respectively real estaterelated exit costs 28 million 61 million 80 million years ended december 2010 december 2009 november 2008 respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued note 28 credit concentrations credit concentrations may arise market making client facilitation investing underwriting lending collateralized transactions may impacted changes economic industry political factors firm seeks mitigate credit risk actively monitoring exposures obtaining collateral counterparties deemed appropriate firm’s activities expose many different industries counterparties firm routinely executes high volume transactions asset managers investment funds commercial banks brokers dealers clearing houses exchanges results significant credit concentrations ordinary course business firm may also subject concentration credit risk particular counterparty borrower issuer including sovereign issuers particular clearing house exchange table presents credit concentrations assets held firm december 2010 december 2009 firm credit exposure counterparty exceeded 2 total assets 1 included “financial instruments owned fair value” “cash securities segregated regulatory purposes” 2 principally consisting securities issued governments united kingdom japan france december 2010 united kingdom japan december 2009 table presents collateral posted firm counterparties resale agreements securities borrowed transactions including “cash securities segregated regulatory purposes” see note 9 information collateralized agreements financings 1 principally consisting securities issued governments france germany december 2010 germany united kingdom japan december 2009 goldman sachs group inc subsidiaries notes consolidated financial statements continued note 29 parent company group inc condensed statements earnings group inc condensed statements financial condition group inc condensed statements cash flows supplemental disclosures cash payments thirdparty interest net capitalized interest 307 billion 277 billion 718 billion 248 million years ended december 2010 december 2009 november 2008 one month ended december 2008 respectively cash payments income taxes net refunds 205 billion 277 billion 991 million 1 million years ended december 2010 december 2009 november 2008 one month ended december 2008 respectively 1 includes 782 billion 657 billion fair value december 2010 december 2009 respectively 2 includes 1344 billion 1367 billion fair value december 2010 december 2009 respectively 3 unsecured longterm borrowings subsidiaries maturity date 306 million 2012 200 million 2013 119 million 2014 94 million 2015 281 million 2016thereafter goldman sachs group inc subsidiaries notes consolidated financial statements continued note 30 legal proceedings firm involved number judicial regulatory arbitration proceedings including described concerning matters arising connection conduct firm’s businesses many proceedings preliminary stages many cases seek indeterminate amount damages respect matters described management estimated upper end range reasonably possible loss equal amount money damages claimed applicable ii amount securities firm sold cases involving underwritings firm sued purchasers indemnified party firm believes pay judgment iii cases purchasers demanding firm repurchase securities price purchasers paid securities less estimated value december 2010 relevant securities december 2010 firm estimated aggregate amount reasonably possible losses matters approximately 34 billion asc 450 event “reasonably possible” “the chance future event events occurring remote less likely” event “remote” “the chance future event events occurring slight” thus references upper end range reasonably possible loss cases firm able estimate range reasonably possible loss mean upper end range loss cases firm believes risk loss slight amounts reserved matters significant compared upper end range reasonably possible loss management unable estimate range reasonably possible loss cases described damages specified proceedings early stages ii uncertainty likelihood class certified ultimate size class iii uncertainty outcome pending appeals motions iv significant factual issues resolved andor v novel legal issues presented however cases management believe based currently available information outcomes proceedings material adverse effect firm’s financial condition though outcomes could material firm’s operating results particular period depending part upon operating results period ipo process matters group inc gsco among numerous financial services companies named defendants variety lawsuits alleging improprieties process companies participated underwriting public offerings recent years gsco together underwriters certain offerings well issuers certain officers directors named defendant number related lawsuits filed us district court southern district new york alleging among things prospectuses offerings violated federal securities laws failing disclose existence alleged arrangements tying allocations certain offerings higher customer brokerage commission rates well purchase orders aftermarket alleged arrangements resulted market manipulation october 5 2009 district court approved settlement agreement entered parties firm paid settlement fund full amount gsco would contribute proposed settlement october 23 2009 certain objectors filed petition us court appeals second circuit seeking review district court’s certification class purposes settlement various objectors appealed certain aspects settlement’s approval certain appeals withdrawn december 8 2010 january 14 2011 february 3 2011 plaintiffs moved dismiss remaining appeals gsco among numerous underwriting firms named defendants number complaints filed commencing october 3 2007 us district court western district washington alleging violations section 16 exchange act connection offerings securities 15 issuers 1999 2000 complaints generally assert underwriters together issuer’s directors officers principal shareholders entered purported agreements tie allocations offerings increased brokerage commissions aftermarket purchase orders complaints allege based upon purported agreements underwriters violated reporting provisions subject shortswing profit recovery section 16 exchange act district court granted defendants’ motions dismiss decision dated march 12 2009 december 2 2010 appellate court affirmed part reversed part upholding dismissal goldman sachs group inc subsidiaries notes consolidated financial statements continued seven actions gsco defendant remanding remaining eight actions gsco defendant consideration bases dismissal december 16 2010 underwriters plaintiff filed petitions rehearing andor rehearing en banc denied january 18 2011 issuance mandate stayed permit parties seek supreme court review gsco named defendant action commenced may 15 2002 new york supreme court new york county official committee unsecured creditors behalf etoys inc alleging firm intentionally underpriced etoys inc’s initial public offering action seeks among things unspecified compensatory damages resulting alleged lower amount offering proceeds court granted gsco’s motion dismiss five claims plaintiff appealed dismissal five claims gsco appealed denial motion remaining claim new york appellate division first department affirmed part reversed part lower court’s ruling firm’s motion dismiss permitting claims proceed except claim fraud appellate court granted leave replead new york court appeals affirmed part reversed part dismissing claims breach contract professional malpractice unjust enrichment permitting claims breach fiduciary duty fraud continue remand lower court gsco moved dismiss surviving claims alternative summary judgment motion denied decision dated march 21 2006 court subsequently permitted plaintiff amend complaint november 8 2010 gsco’s motion summary judgment granted lower court plaintiff appealed group inc certain affiliates together various underwriters certain offerings received subpoenas requests documents information various governmental agencies selfregulatory organizations connection investigations relating public offering process goldman sachs cooperated investigations world online litigation march 2001 dutch shareholders association initiated legal proceedings unspecified amount damages gsi others amsterdam district court connection initial public offering world online march 2000 alleging misstatements omissions offering materials market artificially inflated improper public statements stabilization activities goldman sachs abn amro rothschild served joint global coordinators approximately 29 billion offering gsi underwrote 20268846 shares gsco underwrote 6756282 shares total offering price approximately 116 billion district court rejected claims gsi abn amro found world online liable amount determined appeal netherlands court appeals affirmed part reversed part decision district court holding certain alleged disclosure deficiencies actionable gsi abn amro appeal netherlands supreme court november 27 2009 affirmed rulings court appeals except found certain additional aspects offering materials actionable held gsi abn amro could potentially held responsible certain public statements press releases world online former ceo november 18 2010 parties reached settlement principle subject documentation pursuant gsi contribute 48 million settlement fund firm reserved full amount gsi’s proposed contribution settlement research matters gsco one several investment firms named defendants substantively identical purported class actions filed us district court southern district new york alleging violations federal securities laws connection research coverage certain issuers seeking compensatory damages one action relating coverage rsl communications inc commenced july 15 2003 parties entered settlement agreement august 23 2010 received final court approval february 23 2011 settlement agreement gsco paid approximately 338 million group inc gsco named defendants purported class action filed july 18 2003 behalf purchasers group inc stock july 1 1999 may 7 2002 complaint us district court southern district new york alleged defendants breached fiduciary duties violated federal securities laws connection firm’s research activities sought among things unspecified compensatory damages andor rescission july 12 2010 parties entered settlement agreement pursuant settlement goldman sachs group inc subsidiaries notes consolidated financial statements continued funded firm’s insurers settlement received court approval december 15 2010 become final group inc certain affiliates subject number investigations reviews various governmental regulatory bodies selfregulatory organizations relating research practices including communications among research analysts sales trading personnel clients goldman sachs cooperating investigations reviews adelphia communications fraudulent conveyance litigation gsco among numerous entities named defendants two adversary proceedings commenced us bankruptcy court southern district new york one july 6 2003 creditors committee second july 31 2003 equity committee adelphia communications inc proceedings consolidated single amended complaint filed adelphia recovery trust october 31 2007 complaint seeks among things recover fraudulent conveyances payments made allegedly adelphia communications inc affiliates certain brokerage firms including approximately 629 million allegedly paid gsco respect margin calls made ordinary course business accounts owned members family formerly controlled adelphia communications inc decision dated june 15 2009 district court required plaintiff amend complaint specify source margin payments gsco decision dated july 30 2009 district court held sufficiency amended claim would determined summary judgment stage march 2 2010 gsco moved summary judgment specialist matters spear leeds kellogg specialists llc slks certain affiliates received requests information various governmental agencies selfregulatory organizations part industrywide investigation relating activities floor specialists recent years goldman sachs cooperated requests march 30 2004 certain specialist firms nyse including slks without admitting denying allegations entered final global settlement sec nyse covering certain activities years 1999 2003 slks settlement involves among things findings sec nyse slks violated certain federal securities laws nyse rules cases failed supervise certain individual specialists connection trades allegedly disadvantaged customer orders ii cease desist order slks iii censure slks iv slks’ agreement pay aggregate 453 million disgorgement penalty used compensate customers v certain undertakings respect slks’ systems procedures vi slks’ retention independent consultant review evaluate certain slks’ compliance systems policies procedures comparable findings made sanctions imposed settlements specialist firms settlement resolve related private civil actions slks firms regulatory investigations involving individuals conduct exchanges slks spear leeds kellogg lp group inc among numerous defendants named purported class actions brought beginning october 2003 behalf investors us district court southern district new york alleging violations federal securities laws state common law connection nyse floor specialist activities actions consolidated seek unspecified compensatory damages restitution disgorgement behalf purchasers sellers unspecified securities october 17 1998 october 15 2003 decision dated march 14 2009 district court granted plaintiffs’ motion class certification defendants’ petition us court appeals second circuit seeking review certification ruling denied order dated october 1 2009 specialist defendants’ petition rehearing andor rehearing en banc denied february 24 2010 goldman sachs group inc subsidiaries notes consolidated financial statements continued treasury matters gsco named defendant purported class action filed march 10 2004 us district court northern district illinois behalf holders short positions 30year us treasury futures options morning october 31 2001 complaint alleges firm purchased 30year bonds futures prior forthcoming treasury refunding announcement morning based nonpublic information announcement purchases increased costs covering short positions complaint also names defendants washington dcbased political consultant allegedly source information former gsco economist allegedly received information another company one employees also allegedly received traded information prior public announcement complaint alleges violations federal commodities antitrust laws well illinois statutory common law seeks among things unspecified damages including treble damages antitrust laws district court dismissed antitrust illinois state law claims permitted federal commodities law claims proceed plaintiff’s motion class certification denied decision dated august 22 2008 gsco moved summary judgment district court granted motion insofar claim relates trading treasury bonds october 13 2009 parties filed offer judgment notice acceptance respect plaintiff’s individual claim december 11 2009 plaintiff purported appeal respect district court’s prior denial class certification gsco moved dismiss appeal january 25 2010 order dated april 13 2010 us court appeals seventh circuit ruled gsco’s motion would entertained together merits appeal mutual fund matters gsco certain mutual fund affiliates received subpoenas requests information various governmental agencies selfregulatory organizations including sec part industrywide investigation relating practices mutual funds customers gsco affiliates cooperated requests refco securities litigation gsco lead underwriters august 2005 initial public offering 265 million shares common stock refco inc among defendants various putative class actions filed us district court southern district new york beginning october 2005 investors refco inc response certain publicly reported events culminated october 17 2005 filing refco inc certain affiliates protection us bankruptcy laws actions consolidated allege violations disclosure requirements federal securities laws seek compensatory damages addition underwriters consolidated complaint names defendants refco inc certain affiliates certain officers directors refco inc thomas h lee partners lp held majority refco inc’s equity certain funds manages grant thornton refco inc’s outside auditor bawag psk bank fur arbeit und wirtschaft und osterreichische postsparkasse aktiengesellschaft bawag lead plaintiffs entered settlement bawag approved following certain amendments june 29 2007 gsco underwrote 5639200 shares common stock price 22 per share total offering price approximately 124 million april 20 2010 certain underwriting defendants including gsco entered settlement action pursuant contribute 495 million settlement fund settlement received court approval october 27 2010 become final gsco together underwriters refco inc initial public offering received requests information various governmental agencies selfregulatory organizations gsco cooperated requests fannie mae litigation gsco added defendant amended complaint filed august 14 2006 purported class action pending us district court district columbia complaint asserts violations federal securities laws generally arising allegations concerning fannie mae’s accounting practices connection certain fannie maesponsored remic transactions allegedly arranged gsco complaint specify dollar amount damages defendants include fannie mae certain past present officers directors accountants decision dated may 8 2007 goldman sachs group inc subsidiaries notes consolidated financial statements continued district court granted gsco’s motion dismiss claim time appeal begin run disposition claims defendants beginning september 2006 group inc andor gsco named defendants four fannie mae shareholder derivative actions us district court district columbia complaints generally allege goldman sachs defendants aided abetted breach fiduciary duty fannie mae’s directors officers connection certain fannie maesponsored remic transactions one complaints also asserts breach contract claim complaints also name defendants certain former officers directors fannie mae well outside accounting firm complaints seek inter alia unspecified damages goldman sachs defendants dismissed without prejudice first filed actions remaining claims action dismissed failure make demand fannie mae’s board directors dismissal affirmed appeal district court dismissed remaining three actions july 28 2010 plaintiffs filed motions reconsideration denied october 22 2010 revised notices appeal actions compensationrelated litigation january 17 2008 group inc board executive officers members management committee named defendants purported shareholder derivative action us district court eastern district new york predicting firm’s 2008 proxy statement violate federal securities laws undervaluing certain stock option awards alleging senior management received excessive compensation 2007 complaint seeks among things injunction distribution 2008 proxy statement voiding election directors absence injunction equitable accounting allegedly excessive compensation january 25 2008 plaintiff moved preliminary injunction prevent 2008 proxy statement using options valuations plaintiff alleges incorrect require amendment sec form 4s filed certain executive officers named complaint reflect stock option valuations alleged plaintiff’s motion preliminary injunction denied plaintiff’s appeal denial dismissed february 13 2009 plaintiff filed amended complaint added purported direct ie nonderivative claims based substantially theory plaintiff filed amended complaint march 24 2010 defendants’ motion dismiss amended complaint granted september 30 2010 october 22 2010 plaintiff filed notice appeal dismissal complaint march 24 2009 plaintiff filed action new york supreme court new york county group inc directors certain senior executives alleging violation delaware statutory common law connection substantively similar allegations regarding stock option awards april 14 2009 group inc removed action us district court southern district new york moved transfer district court judge presiding actions described section dismiss action transferred consent us district court eastern district new york defendants moved dismiss april 23 2009 july 10 2009 plaintiff moved remand action state court motion granted july 29 2010 january 7 2011 plaintiff filed amended complaint purported shareholder derivative actions commenced new york supreme court new york county delaware court chancery beginning december 14 2009 alleging board breached fiduciary duties connection setting compensation levels year 2009 levels excessive complaints name defendants group inc board certain senior executives complaints seek inter alia unspecified damages restitution certain compensation paid order requiring firm adopt corporate reforms actions new york state court april 8 2010 plaintiffs filed motion indicating longer intend pursue claims seeking award attorney’s fees connection bringing suit defendants opposed actions brought delaware court chancery defendants moved dismiss march 9 2010 plaintiffs amended complaint april 28 2010 include among things allegations included sec’s action described “mortgagerelated matters” section defendants moved dismiss amended complaint may 12 2010 lieu responding defendants’ motion plaintiffs moved december 8 2010 permission file goldman sachs group inc subsidiaries notes consolidated financial statements continued amended complaint defendants opposed court granted plaintiffs’ motion amend january 19 2011 defendants moved dismiss second amended complaint february 4 2011 group inc certain affiliates subject number investigations reviews various governmental agencies selfregulatory organizations regarding firm’s compensation processes firm cooperating investigations reviews mortgagerelated matters april 16 2010 sec brought action sec action us federal securities laws us district court southern district new york gsco fabrice tourre one employees connection cdo offering made early 2007 abacus 2007ac1 transaction alleging defendants made materially false misleading statements investors seeking among things unspecified monetary penalties investigations gsco finra gsi uk financial services authority fsa subsequently initiated group inc certain affiliates received requests information regulators regarding cdo offerings including abacus 2007ac1 transaction related matters july 14 2010 gsco entered consent agreement sec settling claims made gsco sec action sec settlement pursuant gsco paid 550 million disgorgement civil penalties approved us district court southern district new york july 20 2010 september 9 2010 fsa announced settlement gsi pursuant fsa found gsi violated certain fsa principles failing provide notification sec wells notice issued mr tourre worked abacus 2007ac1 transaction subsequently transferred gsi became registered fsa ii procedures controls ensure gsi’s compliance department would alerted various aspects sec investigation position determine whether aspects reportable fsa assessed fine £175 million november 9 2010 finra announced settlement gsco relating gsco’s failure file form u4 updates within 30 days learning receipt wells notices mr tourre another employee well deficiencies firm’s systems controls filings finra assessed fine 650000 gsco agreed undertake review remediation applicable systems controls january 6 2011 aca financial guaranty corp filed action gsco respect abacus 2007ac1 transaction new york supreme court new york county complaint includes allegations fraudulent inducement fraudulent concealment unjust enrichment seeks least 30 million compensatory damages least 90 million punitive damages unspecified disgorgement since april 22 2010 number putative shareholder derivative actions filed new york supreme court new york county us district court southern district new york group inc board certain officers employees group inc affiliates connection mortgagerelated matters 2004 2007 including abacus 2007ac1 transaction cdo offerings derivative complaints generally include allegations breach fiduciary duty corporate waste abuse control mismanagement unjust enrichment misappropriation information securities fraud insider trading challenge accuracy adequacy group inc’s disclosure derivative complaints seek among things declaratory relief unspecified compensatory damages restitution certain corporate governance reforms new york supreme court consolidated two actions pending court certain plaintiffs federal court cases moved consolidate actions appoint lead plaintiff lead counsel addition described “compensationrelated litigation” section plaintiffs compensationrelated delaware court chancery actions amended complaint assert among things allegations similar derivative claims referred defendants moved dismiss amended complaint plaintiffs sought permission amend court granted january 19 2011 defendants moved dismiss second amended complaint february 4 2011 goldman sachs group inc subsidiaries notes consolidated financial statements continued since april 23 2010 board received letters shareholders demanding board take action address alleged misconduct gsco board certain officers employees group inc affiliates demands generally allege misconduct connection abacus 2007ac1 transaction alleged failure group inc adequately disclose sec investigation led sec action group inc’s 2009 compensation practices demands include letter group inc shareholder previously made demand board investigate take action connection auction products matters expanded demand address foregoing matters board previously rejected demands relating auction products matters addition beginning april 26 2010 number purported securities law class actions filed us district court southern district new york challenging adequacy group inc’s public disclosure among things firm’s activities cdo market sec investigation led sec action purported class action complaints name defendants group inc certain officers employees group inc affiliates generally allege violations sections 10b 20a exchange act seek unspecified damages june 25 2010 certain shareholders groups shareholders moved consolidate actions appoint lead plaintiffs lead counsel gsco goldman sachs mortgage company gs mortgage securities corp three current former goldman sachs employees defendants putative class action commenced december 11 2008 us district court southern district new york brought behalf purchasers various mortgage passthrough certificates assetbacked certificates issued various securitization trusts 2007 underwritten gsco second amended complaint generally alleges registration statement prospectus supplements certificates violated federal securities laws seeks unspecified compensatory damages rescission recessionary damages defendants’ motion dismiss second amended complaint granted january 28 2010 leave replead certain claims march 31 2010 plaintiff filed third amended complaint relating two offerings defendants moved dismiss june 22 2010 motion dismiss denied plaintiff’s section 12a2 claims september 22 2010 granted plaintiff’s section 11 claims october 15 2010 plaintiff’s motion reconsideration denied november 17 2010 december 9 2010 plaintiff filed motion entry final judgment certification interlocutory appeal plaintiff’s section 11 claims denied january 11 2011 june 3 2010 another investor unsuccessfully sought intervene action filed separate putative class action asserting substantively similar allegations relating additional offering pursuant 2007 registration statement defendants moved dismiss separate action november 1 2010 gsco underwrote approximately 951 million principal amount certificates purchasers offerings issue complaint excluding offerings claims dismissed group inc gsco goldman sachs mortgage company gs mortgage securities corp among defendants separate putative class action commenced february 6 2009 us district court southern district new york brought behalf purchasers various mortgage passthrough certificates assetbacked certificates issued various securitization trusts 2006 underwritten gsco defendants include three current former goldman sachs employees various rating agencies second amended complaint generally alleges registration statement prospectus supplements certificates violated federal securities laws seeks unspecified compensatory rescissionary damages defendants moved dismiss second amended complaint january 12 2011 district court granted motion dismiss respect offerings plaintiff purchased securities denied motion dismiss respect single offering plaintiff allegedly purchased securities gsco underwrote approximately 698 million principal amount certificates purchasers offerings issue complaint excluding offerings claims dismissed september 30 2010 putative class action filed us district court southern district new york gsco group inc two former gsco employees behalf investors notes issued 2006 2007 two synthetic cdos hudson mezzanine 20061 20062 goldman sachs group inc subsidiaries notes consolidated financial statements continued complaint amended february 4 2011 asserts federal securities law common law claims seeks unspecified compensatory punitive damages various alleged purchasers counterparties involved transactions relating mortgage passthrough certificates cdos mortgagerelated products including federal home loan banks seattle chicago indianapolis charles schwab corporation cambridge place investment management inc basis yield alpha fund master landesbank badenwürttemberg among others filed complaints state federal court firm affiliates generally alleging offering documents securities purchased contained untrue statements material facts material omissions generally seeking rescission damages certain complaints also name firms defendants additionally national credit union administration ncua stated intends pursue similar claims behalf certain credit unions acts conservator firm ncua entered agreement tolling relevant statutes limitation number entities threatened assert claims firm connection various mortgagerelated offerings firm entered agreements number entities toll relevant statute limitations firm estimates based currently available information aggregate cumulative losses experienced plaintiffs respect securities issue active cases brought firm purchasers seeking rescission mortgagerelated securities approximately 457 million december 2010 amount calculated aggregate amount initial purchase price securities allegedly purchased plaintiffs exceeds estimated december 2010 value securities estimate include potential ncua claims purchasers mortgagerelated offerings actually brought claims firm also received requests information regulators relating mortgagerelated securitization process subprime mortgages cdos synthetic mortgagerelated products particular transactions servicing foreclosure activities cooperating requests firm expects subject additional putative shareholder derivative actions purported class actions rescission “put back” claims litigation additional investor shareholder demands additional regulatory investigations actions respect mortgagerelated offerings loan sales cdos servicing foreclosure activities see note 18 information regarding mortgagerelated contingencies gsco along numerous financial institutions defendant action brought city cleveland alleging defendants’ activities connection securitizations subprime mortgages created “public nuisance” cleveland action pending us district court northern district ohio complaint seeks among things unspecified compensatory damages district court granted defendants’ motion dismiss decision dated may 15 2009 city appealed may 18 2009 appellate court affirmed complaint’s dismissal decision dated july 27 2010 october 14 2010 denied city’s petition rehearing en banc january 12 2011 city filed petition writ certiorari us supreme court auction products matters august 21 2008 gsco entered settlement principle office attorney general state new york illinois securities department behalf north american securities administrators association regarding auction rate securities agreement goldman sachs agreed among things offer repurchase par outstanding auction rate securities private wealth management clients purchased firm prior february 11 2008 exception auction rate securities auctions clearing ii continue work issuers interested parties including regulatory governmental entities expeditiously provide liquidity solutions institutional investors iii pay 225 million fine settlement subject definitive documentation approval various states june 2 2009 gsco entered assurance discontinuance new york state attorney general march 19 2010 gsco entered administrative consent order illinois secretary state securities department conducted investigation behalf states new york gsco entered similar consent orders states process remaining states august 28 2008 putative shareholder derivative action filed us district court southern district new york naming defendants group inc board certain senior officers complaint alleges generally board breached goldman sachs group inc subsidiaries notes consolidated financial statements continued fiduciary duties committed mismanagement connection oversight auction rate securities marketing trading operations certain individual defendants engaged insider selling shares group inc firm’s public filings false misleading violation federal securities laws failing accurately disclose alleged practices involving auction rate securities complaint seeks damages injunctive declaratory relief restitution order requiring firm adopt corporate reforms may 19 2009 district court granted defendants’ motion dismiss july 20 2009 denied plaintiffs’ motion reconsideration following dismissal shareholder derivative action named plaintiff action sent board letter demanding board investigate allegations set forth complaint board ultimately rejected demand september 4 2008 group inc named defendant together numerous financial services firms two complaints filed us district court southern district new york alleging defendants engaged conspiracy manipulate auction securities market violation federal antitrust laws actions filed respectively behalf putative classes issuers investors auction rate securities seek among things treble damages unspecified amount defendants’ motion dismiss granted january 26 2010 march 1 2010 plaintiffs filed notice appeal dismissal complaints private equitysponsored acquisitions litigation group inc “gs capital partners” among numerous private equity firms investment banks named defendants federal antitrust action filed us district court district massachusetts december 2007 amended complaint generally alleges defendants colluded limit competition bidding private equitysponsored acquisitions public companies thereby resulting lower prevailing bids extension less consideration shareholders companies violation section 1 us sherman antitrust act common law complaint seeks among things treble damages unspecified amount defendants moved dismiss august 27 2008 district court dismissed claims relating certain transactions subject releases part settlement shareholder actions challenging transactions order dated december 15 2008 otherwise denied motion dismiss april 26 2010 plaintiffs moved leave proceed second phase discovery encompassing additional transactions august 18 2010 court permitted discovery eight additional transactions plaintiffs filed fourth amended complaint october 7 2010 defendants filed motion dismiss certain aspects fourth amended complaint october 21 2010 court granted motion january 13 2011 washington mutual securities litigation gsco among numerous underwriters named defendants putative securities class action amended complaint filed august 5 2008 us district court western district washington underwriters plaintiffs allege offering documents connection various securities offerings washington mutual inc failed describe accurately company’s exposure mortgagerelated activities violation disclosure requirements federal securities laws defendants include past present directors officers washington mutual company’s former outside auditors numerous underwriters decision dated may 15 2009 district court granted part denied part underwriter defendants’ motion dismiss leave replead june 15 2009 plaintiffs filed amended complaint decision dated october 27 2009 federal district court granted denied part underwriters’ motion dismiss october 12 2010 court granted class certification except one transaction december 1 2010 defendants moved partial judgment pleadings two offerings decision dated january 28 2011 district court denied defendants’ motion partial judgment pleadings gsco underwrote approximately 520 million principal amount securities purchasers offerings issue complaint excluding offerings claims dismissed september 25 2008 fdic took primary banking operations washington mutual inc sold september 27 2008 washington mutual inc filed chapter 11 bankruptcy us bankruptcy court delaware goldman sachs group inc subsidiaries notes consolidated financial statements continued indymac passthrough certificates litigation gsco among numerous underwriters named defendants putative securities class action filed may 14 2009 us district court southern district new york underwriters plaintiffs allege offering documents connection various securitizations mortgagerelated assets violated disclosure requirements federal securities laws defendants include indymacrelated entities formed connection securitizations underwriters offerings certain ratings agencies evaluated credit quality securities certain former officers directors indymac affiliates november 2 2009 underwriters moved dismiss complaint motion granted part february 17 2010 extent dismissing claims based offerings plaintiff purchased court reserved judgment aspects motion decision dated june 21 2010 district court formally dismissed claims relating offerings named plaintiff purchased certificates including offerings underwritten gsco granted denied defendants’ motions dismiss various respects may 17 2010 four additional investors filed motion seeking intervene order assert claims based additional offerings including two underwritten gsco july 6 2010 another additional investor filed motion intervene order assert claims based additional offerings none underwritten gsco underwrote approximately 751 million principal amount securities purchasers offerings issue may 2010 motion intervene july 11 2008 indymac bank placed fdic receivership july 31 2008 indymac bancorp inc filed chapter 7 bankruptcy us bankruptcy court los angeles california employmentrelated matters may 27 2010 putative class action filed us district court southern district new york several contingent technology workers employees thirdparty vendors plaintiffs seeking overtime pay alleged hours worked excess 40 per work week complaint alleges plaintiffs de facto employees gsco responsible overtime pay federal state overtime laws complaint seeks class action status unspecified damages september 15 2010 putative class action filed us district southern district new york three former female employees alleging group inc gsco systematically discriminated female employees respect compensation promotion assignments mentoring performance evaluations complaint alleges class consisting female employees employed specified levels group inc gsco since july 2002 asserts claims federal new york city discrimination laws complaint seeks class action status injunctive relief unspecified amounts compensatory punitive damages november 22 2010 group inc gsco filed motion stay claims one named plaintiffs compel individual arbitration individual based arbitration provision contained employment agreement group inc individual transactions hellenic republic greece group inc certain affiliates subject number investigations reviews various governmental regulatory bodies selfregulatory organizations connection firm’s transactions hellenic republic greece including financing swap transactions goldman sachs cooperating investigations reviews sales trading clearance practices group inc certain affiliates subject number investigations reviews various governmental regulatory bodies selfregulatory organizations relating sales trading clearance corporate government securities financial products including compliance sec’s short sale rule algorithmic quantitative trading futures trading securities lending practices trading credit derivative instruments commodities trading effectiveness insider trading controls internal information barriers goldman sachs cooperating investigations reviews goldman sachs group inc subsidiaries notes consolidated financial statements continued municipal securities matters group inc certain affiliates subject number investigations reviews various governmental regulatory bodies selfregulatory organizations relating transactions involving municipal securities including wallcross procedures conflict interest disclosure respect state municipal clients trading municipal derivative instruments connection municipal offerings political contribution rules possible impact credit default swap transactions municipal issuers goldman sachs cooperating investigations reviews group inc goldman sachs mitsui marine derivative products lp gsmmdp gs bank usa among numerous financial services firms named defendants numerous substantially identical individual antitrust actions filed beginning november 12 2009 coordinated related antitrust class action litigation individual actions goldman sachs affiliate named pretrial proceedings us district court southern district new york plaintiffs include individual california municipal entities three new york nonprofit entities april 26 2010 goldman sachs defendants’ motion dismiss complaints filed several individual california municipal plaintiffs denied complaints group inc gsmmdp gs bank usa generally allege goldman sachs defendants participated conspiracy arrange bids fix prices divide market derivatives used municipalities refinancing hedging transactions 1992 2008 complaints assert claims federal antitrust laws either california’s cartwright act new york’s donnelly act seek among things treble damages antitrust laws unspecified amount injunctive relief financial crisisrelated matters group inc certain affiliates subject number investigations reviews various governmental regulatory bodies selfregulatory organizations relating 2008 financial crisis including establishment unwind credit default swaps goldman sachs american international group inc aig transactions securities aig bear stearns companies inc lehman brothers holdings inc firms goldman sachs cooperating investigations reviews supplemental financial information quarterly results unaudited following represents firm’s unaudited quarterly results fiscal years ended december 2010 december 2009 quarterly results prepared accordance generally accepted accounting principles reflect adjustments opinion management necessary fair statement results adjustments normal recurring nature 1 timing magnitude changes firm’s discretionary compensation accruals significant effect results given quarter supplemental financial information common stock price range table presents high low sales prices per share firm’s common stock february 11 2011 12165 holders record firm’s common stock february 11 2011 last reported sales price firm’s common stock new york stock exchange 16666 per share supplemental financial information selected financial data 1 book value per common share based common shares outstanding including rsus granted employees future service requirements 5469 million 5427 million 4854 million 4390 million 4501 million 4859 million december 2010 december 2009 november 2008 november 2007 november 2006 december 2008 respectively 2 includes employees consultants temporary staff 3 substantially assets management valued calendar monthend 4 primarily includes hedge funds private equity real estate currencies commodities asset allocation strategies 5 rounded nearest penny exact dividend amount 04666666 per common share reflective fourmonth period december 2008 march 2009 due change firm’s fiscal yearend supplemental financial information statistical disclosures distribution assets liabilities shareholders’ equity table presents summary consolidated average balances interest rates supplemental financial information 1 consists cash financial instruments including equity securities convertible debentures 2 derivative instruments commodities included noninterestearning assets noninterestbearing liabilities 3 primarily consists cash securities segregated regulatory purposes certain receivables customers counterparties 4 consists shortterm secured financings unsecured shortterm borrowings excluding commercial paper 5 interest rates include effects interest rate swaps accounted hedges 6 consists longterm secured financings unsecured longterm borrowings 7 primarily consists certain payables customers counterparties 8 assets liabilities interest attributed us nonus based location legal entity assets liabilities held supplemental financial information changes net interest income volume rate analysis table presents analysis effect net interest income volume rate changes analysis changes due volumerate variance allocated volume supplemental financial information availableforsale securities portfolio table presents fair value availableforsale securities supplemental financial information table presents fair value amortized cost weighted average yields availableforsale securities contractual maturity yields calculated weighted average basis supplemental financial information deposits table presents summary firm’s interestbearing deposits 1 amounts available withdrawal upon short notice generally within seven days ratios table presents selected financial ratios 1 based net earnings applicable common shareholders divided average monthly common shareholders’ equity 2 based net earnings divided average monthly total shareholders’ equity supplemental financial information shortterm borrowed funds table presents summary firm’s securities loaned securities sold agreements repurchase shortterm borrowings generally mature within one year financial statement date include borrowings redeemable option holder within one year financial statement date 1 includes shortterm secured financings 2453 billion 1293 billion 2123 billion december 2010 december 2009 november 2008 respectively 2 december 2010 december 2009 november 2008 weighted average interest rates include effects hedging supplemental financial information crossborder outstandings crossborder outstandings based upon federal financial institutions examination council’s ffiec regulatory guidelines reporting crossborder risk claims include cash receivables securities purchased agreements resell securities borrowed cash financial instruments exclude derivative instruments commitments securities purchased agreements resell securities borrowed presented based domicile counterparty without reduction related securities collateral held tables present crossborder outstandings country crossborder outstandings exceed 075 consolidated assets accordance ffiec guidelines item 9 changes disagreements accountants accounting financial disclosure changes disagreements accountants accounting financial disclosure last two fiscal years item 9a controls procedures end period covered report evaluation carried goldman sachs’ management participation chief executive officer chief financial officer effectiveness disclosure controls procedures defined rule 13a15e exchange act based upon evaluation chief executive officer chief financial officer concluded disclosure controls procedures effective end period covered report addition change internal control financial reporting defined rule 13a15f exchange act occurred fourth quarter fiscal year ended december 31 2010 materially affected reasonably likely materially affect internal control financial reporting management’s report internal control financial reporting report independent registered public accounting firm set forth part ii item 8 form 10k item 9b information applicable part iii item 10 directors executive officers corporate governance information relating executive officers included pages 32 33 form 10k information relating directors including audit committee audit committee financial experts procedures shareholders recommend director nominees executive officers definitive proxy statement 2011 annual meeting shareholders held may 6 2011 filed within 120 days end fiscal year ended december 31 2010 2011 proxy statement incorporated herein reference information relating code business conduct ethics applies senior financial officers defined code included part item 1 form 10k item 11 executive compensation information relating executive officer director compensation committee board directors 2011 proxy statement incorporated herein reference item 12 security ownership certain beneficial owners management related stockholder matters information relating security ownership certain beneficial owners common stock information relating security ownership management 2011 proxy statement incorporated herein reference following table provides information december 31 2010 last day fiscal 2010 regarding securities issued exercise outstanding stock options pursuant outstanding restricted stock units performancebased awards securities remaining available issuance equity compensation plans effect fiscal 2010 1 goldman sachs amended restated stock incentive plan sip approved shareholders goldman sachs 2003 annual meeting shareholders successor plan goldman sachs 1999 stock incentive plan 1999 plan approved shareholders immediately prior initial public offering may 1999 additional awards granted since approval sip 2 includes 55247865 shares common stock may issued upon exercise outstanding options ii 60780875 shares may issued pursuant outstanding restricted stock units iii 69063 shares may issued pursuant outstanding performancebased units granted sip awards subject vesting conditions extent set forth respective award agreements underlying shares delivered net required tax withholding 3 weightedaverage exercise price relates options described footnote 2 shares underlying restricted stock units performancebased units deliverable without payment consideration therefore awards taken account calculating weightedaverage exercise price 4 represents shares remaining issued sip excluding shares reflected second column total number shares common stock may delivered pursuant awards granted sip end 2008 fiscal year could exceed 250 million shares total number shares common stock may delivered pursuant awards granted sip 2009 fiscal year fiscal year thereafter cannot exceed 5 issued outstanding shares common stock determined last day immediately preceding fiscal year increased number shares available awards previous years covered awards granted years shares remaining issued 1999 plan reflected second column item 13 certain relationships related transactions director independence information regarding certain relationships related transactions director independence 2011 proxy statement incorporated herein reference item 14 principal accountant fees services information regarding principal accountant fees services 2011 proxy statement incorporated herein reference part iv item 15 exhibits financial statement schedules documents filed part report 1 consolidated financial statements consolidated financial statements required filed form 10k included part ii item 8 hereof 2 exhibits  exhibit management contract compensatory plan arrangement information furnished filed purposes sections 11 12 securities act 1933 section 18 securities exchange act 1934 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized goldman sachs group inc david viniar name david viniar title chief financial officer date february 28 2011 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated ii1 ii2item 7 management’s discussion analysis financial condition results operations index goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis introduction goldman sachs group inc group inc leading global investment banking securities investment management firm provides wide range financial services substantial diversified client base includes corporations financial institutions governments highnetworth individuals founded 1869 firm headquartered new york maintains offices major financial centers around world report activities four business segments investment banking institutional client services investing lending investment management see “results operations” information business segments use terms “goldman sachs” “the firm” “we” “us” “our” mean group inc delaware corporation consolidated subsidiaries references “this form 10k” annual report form 10k year ended december 31 2011 references 2011 2010 2009 refer years ended dates context requires december 31 2011 december 31 2010 december 31 2009 respectively reference future year refers year ending december 31 year certain reclassifications made previously reported amounts conform current presentation discussion analysis financial condition results operations included information may constitute “forwardlooking statements” within meaning safe harbor provisions us private securities litigation reform act 1995 forwardlooking statements historical facts instead represent beliefs regarding future events many nature inherently uncertain outside control information includes statements historical information statements current condition may relate future plans objectives results among things may also include statements objectives effectiveness risk management liquidity policies statements trends growth opportunities businesses statements future status activities reporting us nonus banking financial regulation statements investment banking transaction backlog identifying statements manner alerting possibility actual results financial condition may differ possibly materially anticipated results financial condition indicated forwardlooking statements important factors could cause actual results financial condition differ indicated forwardlooking statements include among others discussed “certain risk factors may affect businesses” well “risk factors” part item 1a form 10k “cautionary statement pursuant us private securities litigation reform act 1995” part item 1 form 10k goldman sachs group inc subsidiaries management’s discussion analysis executive overview firm generated net earnings 444 billion 2011 compared 835 billion 1339 billion 2010 2009 respectively diluted earnings per common share 451 year ended december 2011 compared 1318 1 year ended december 2010 2213 year ended december 2009 return average common shareholders’ equity roe 2 37 2011 compared 115 1 2010 225 2009 2011 redeemed 50000 shares 10 cumulative perpetual preferred stock series g series g preferred stock held berkshire hathaway inc certain subsidiaries collectively berkshire hathaway excluding impact 164 billion preferred dividend related redemption diluted earnings per common share 746 3 roe 59 3 2011 book value per common share 13031 tangible book value per common share 4 11972 december 2011 approximately 1 higher compared end 2010 year firm repurchased 470 million shares common stock total cost 604 billion tier 1 capital ratio basel 1 138 tier 1 common ratio basel 1 5 121 december 2011 versus 2010 firm generated net revenues 2881 billion 2011 results reflected significantly lower net revenues investing lending institutional client services well lower net revenues investment banking compared 2010 net revenues investment management essentially unchanged compared 2010 overview net revenues business segments provided investment banking decrease investment banking primarily reflected lower net revenues underwriting business net revenues equity underwriting significantly lower 2010 principally due decline industrywide activity net revenues debt underwriting essentially unchanged compared 2010 net revenues financial advisory decreased slightly compared 2010 institutional client services decrease institutional client services compared 2010 reflected significantly lower net revenues fixed income currency commodities client execution although activity levels fixed income currency commodities client execution 2011 generally consistent 2010 levels results solid first quarter 2011 environment remainder 2011 characterized broad market concerns uncertainty resulting volatile markets significantly wider credit spreads contributed difficult marketmaking conditions led reductions risk us clients result conditions net revenues across franchise lower including significant declines mortgages credit products compared 2010 net revenues equities slightly higher compared 2010 2011 average volatility levels increased equity prices europe asia declined significantly particularly third quarter increase net revenues reflected higher commissions fees primarily due higher transaction volumes particularly third quarter 2011 addition net revenues securities services increased compared 2010 reflecting impact higher average customer balances equities client execution net revenues lower 2010 primarily reflecting significantly lower net revenues shares goldman sachs 2011 form 10k 1 excluding impact 465 million related uk bank payroll tax 550 million related sec settlement 305 million impairment new york stock exchange nyse designated market maker dmm rights diluted earnings per common share 1522 roe 131 2010 believe presenting 2010 results excluding impact items meaningful increases comparability periodtoperiod results diluted earnings per common share roe excluding items nongaap measures may comparable similar nongaap measures used companies see “results operations financial overview” information calculation diluted earnings per common share roe excluding impact items 2 see “results operations financial overview” information calculation roe 3 believe presenting 2011 results excluding impact 164 billion preferred dividend related redemption series g preferred stock calculated difference carrying value redemption value preferred stock meaningful increases comparability periodtoperiod results diluted earnings per common share roe excluding item nongaap measures may comparable similar nongaap measures used companies see “results operations financial overview” information calculation diluted earnings per common share roe excluding impact dividend 4 tangible book value per common share nongaap measure may comparable similar nongaap measures used companies see “equity capital metrics” information calculation tangible book value per common share 5 tier 1 common ratio nongaap measure may comparable similar nongaap measures used companies see “equity capital consolidated regulatory capital ratios” information tier 1 common ratio goldman sachs group inc subsidiaries management’s discussion analysis investing lending net revenues investing lending 214 billion 754 billion 2011 2010 respectively results 2011 included loss 517 million investment ordinary shares industrial commercial bank china limited icbc net gains 112 billion investments equities primarily private equity positions partially offset losses public equities addition investing lending included net revenues 96 million debt securities loans amount includes approximately 1 billion unrealized losses related relationship lending activities including effect hedges offset net interest income net gains debt securities loans results 2011 also included net revenues 144 billion principally related consolidated entities held investment purposes investment management net revenues investment management essentially unchanged compared 2010 primarily due higher management fees reflecting favorable changes mix assets management offset lower incentive fees year assets management decreased 12 billion 828 billion reflecting net outflows 17 billion partially offset net market appreciation 5 billion net outflows primarily reflected outflows fixed income equity assets partially offset inflows money market assets 2010 versus 2009 firm generated net revenues 3916 billion 2010 despite challenging operating environment results reflected significantly lower net revenues institutional client services slightly lower net revenues investment banking compared 2009 decreases partially offset significantly higher net revenues investing lending higher net revenues investment management overview net revenues business segments provided investment banking decrease investment banking reflected lower net revenues underwriting business partially offset higher net revenues financial advisory decline underwriting reflected lower net revenues equity underwriting principally due decline client activity comparison 2009 included significant capitalraising activity financial institution clients net revenues debt underwriting essentially unchanged compared 2009 increase financial advisory primarily reflected increase client activity institutional client services decrease institutional client services reflected significantly lower net revenues fixed income currency commodities client execution lesser extent equities 2010 fixed income currency commodities client execution operated challenging environment characterized lower client activity levels reflected broad market concerns including european sovereign debt risk uncertainty regulatory reform well tighter bidoffer spreads decrease net revenues compared particularly strong 2009 primarily reflected significantly lower results interest rate products credit products commodities lesser extent currencies decreases partially offset higher net revenues mortgages 2009 included approximately 1 billion losses related commercial mortgage loans decline equities compared 2009 primarily reflected significantly lower net revenues equities client execution principally due significantly lower results derivatives shares commissions fees also lower 2009 primarily reflecting lower client activity levels addition securities services net revenues significantly lower compared 2009 primarily reflecting tighter securities lending spreads principally due impact changes composition customer balances partially offset impact higher average customer balances 2010 although equity markets volatile first half year equity prices generally improved volatility levels declined second half year goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis investing lending net revenues investing lending 754 billion 286 billion 2010 2009 respectively 2010 increase global equity markets tighter credit spreads provided favorable backdrop investing lending business results investing lending 2010 included gain 747 million investment ordinary shares icbc net gain 269 billion investments equities net gain 260 billion debt securities loans net revenues 151 billion principally related consolidated entities held investment purposes investment management increase investment management primarily reflected higher incentive fees across alternative investment products management fees also increased reflecting favorable changes mix assets management well impact appreciation value client assets 2010 assets management decreased 4 840 billion primarily reflecting outflows money market assets consistent industry trends business nature produce predictable earnings results given period materially affected conditions global financial markets economic conditions generally factors discussion factors may affect future operating results see “certain risk factors may affect businesses” well “risk factors” part item 1a form 10k goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis business environment global economic growth generally moderated 2011 real gross domestic product gdp grew major economies emerging markets slower pace 2010 certain unfavorable market conditions emerged 2010 continued year including concerns european sovereign debt risk uncertainty regarding financial regulatory reform additional concerns emerged first half year affected businesses included political unrest middle east earthquake tsunami japan inflation emerging markets second half year concerns european sovereign debt risk impact european banking system intensified concerns us growth uncertainty regarding us federal debt ceiling emerged contributing higher volatility levels significantly lower global equity prices significantly wider corporate credit spreads prompted us federal reserve european central bank announce easing measures order stimulate economic growth us alleviate concerns europe industrywide completed announced mergers acquisitions volumes increased compared 2010 declined second half year industrywide equity equityrelated offerings industrywide debt offerings decreased compared 2010 including significant declines second half year discussion market conditions affect businesses see “certain risk factors may affect businesses” well “risk factors” part item 1a form 10k global 2011 real gdp growth declined major economies emerging markets slowdown economic growth primarily reflected slower growth domestic demand compared 2010 international trade continued grow strongly 2011 unemployment levels declined slightly compared 2010 although rate unemployment remained elevated economies 2011 us federal reserve bank england bank japan left interest rates unchanged european central bank increased reduced interest rate year ending year unchanged compared 2010 addition people’s bank china increased oneyear benchmark lending rate year price crude oil increased 2011 us dollar strengthened euro essentially unchanged british pound weakened japanese yen united states united states real gdp increased 17 2011 compared increase 30 2010 growth moderated primarily reflecting decline government spending reduced growth exports although business investment consumer expenditure increased business consumer confidence declined year primarily reflecting increased global economic concerns uncertainties addition residential investment remained weak measures core inflation increased year low levels growth industrial production decreased primarily reflecting impact supplychain disruptions associated japan earlier year unemployment rate declined slightly year although remained high us federal reserve maintained federal funds rate target range zero 025 year addition us federal reserve concluded quantitative easing measures included purchase significant amounts us treasury debt announced easing measures extending duration us treasury debt holds yield 10year us treasury note fell 141 basis points 2011 189 equity markets dow jones industrial average increased 6 nasdaq composite index decreased 2 sp 500 index ended year essentially unchanged goldman sachs group inc subsidiaries management’s discussion analysis europe real gdp euro area economies increased estimated 16 2011 compared increase 18 2010 growth moderated slightly primarily reflecting reduced growth consumer expenditure exports although fixed investment increased surveys business consumer confidence deteriorated course year measures core inflation increased year low levels concerns fiscal challenges several euro area economies intensified year weighing economic growth economies risk appetite broadly addition concerns european sovereign debt risk contributed higher market volatility funding pressures european central bank governments euro area took range policy measures address issues european central bank increased main refinancing operations rate 25 basis points second third quarters reversed increases fourth quarter rate ended year 100 unchanged compared end 2010 united kingdom real gdp increased 08 2011 compared increase 21 2010 bank england maintained official bank rate 050 year longterm government bond yields generally declined year although longterm government bond yields certain euro area economies increased significantly addition spreads german bond yields euro area economies widened year euro depreciated 3 british pound essentially unchanged us dollar euro stoxx 50 index cac 40 index declined 17 dax index ftse 100 index decreased 15 6 respectively compared end 2010 asia japan real gdp decreased 09 2011 compared increase 44 2010 net exports business investment declined year due economic impact earthquake tsunami first quarter measures inflation remained negative 2011 bank japan maintained target overnight call rate range zero 010 yield 10year japanese government bonds fell 14 basis points 099 japanese yen appreciated 5 us dollar nikkei 225 index decreased 17 year china real gdp increased 92 2011 compared increase 104 2010 growth moderated primarily reflecting slowdown net exports fixed investment growth although consumer spending increased measures inflation increased significantly 2011 reflecting impact higher food energy prices decreased towards end year people’s bank china raised oneyear benchmark lending rate 75 basis points 656 increased reserve requirement ratio 250 basis points year addition chinese yuan appreciated 4 us dollar shanghai composite index decreased 22 2011 india real gdp increased estimated 69 2011 compared increase 85 2010 growth moderated primarily reflecting slowdown consumer expenditure fixed investment growth rate wholesale inflation remained elevated levels decreased year indian rupee depreciated 19 us dollar equity markets hong kong india declined significantly equity markets south korea ended year lower markets brazil real gdp increased estimated 30 2011 compared increase 75 2010 growth moderated primarily reflecting slowdown investment consumer expenditure growth brazilian real weakened us dollar brazilian equity prices ended year significantly lower compared end 2010 russia real gdp increased estimated 42 2011 compared increase 40 2010 growth driven increase domestic demand particularly second half year russian ruble weakened us dollar russian equity prices ended year significantly lower compared end 2010 goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis critical accounting policies fair value fair value hierarchy financial instruments owned fair value financial instruments sold yet purchased fair value ie inventory well certain financial assets financial liabilities reflected consolidated statements financial condition fair value ie markedtomarket related gains losses generally recognized consolidated statements earnings use fair value measure financial instruments fundamental risk management practices critical accounting policy fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date determining fair value hierarchy us generally accepted accounting principles us gaap gives highest priority unadjusted quoted prices active markets identical unrestricted assets liabilities level 1 inputs ii next priority inputs level 1 inputs observable either directly indirectly level 2 inputs iii lowest priority inputs cannot observed market activity level 3 inputs assets liabilities classified entirety based lowest level input significant fair value measurement fair values substantially financial assets financial liabilities based observable prices inputs classified levels 1 2 hierarchy certain level 2 level 3 financial assets financial liabilities may require appropriate valuation adjustments market participant would require arrive fair value factors counterparty firm’s credit quality funding risk transfer restrictions liquidity bidoffer spreads valuation adjustments generally based market evidence instruments categorized within level 3 fair value hierarchy represent approximately 5 firm’s total assets require one significant inputs observable absent evidence contrary instruments classified within level 3 fair value hierarchy initially valued transaction price considered best initial estimate fair value subsequent transaction date use methodologies determine fair value vary based type instrument estimating fair value level 3 financial instruments requires judgments made judgments include  determining appropriate valuation methodology andor model type level 3 financial instrument  determining model inputs based evaluation relevant empirical market data including prices evidenced market transactions interest rates credit spreads volatilities correlations  determining appropriate valuation adjustments related illiquidity counterparty credit quality regardless methodology valuation inputs assumptions changed corroborated substantive evidence controls valuation financial instruments market makers investment professionals revenueproducing units responsible pricing financial instruments control infrastructure independent revenueproducing units fundamental ensuring financial instruments appropriately valued marketclearing levels event difference opinion situations estimating fair value financial instruments requires judgment eg calibration market comparables trade comparison described final valuation decision made senior managers control support functions independent revenueproducing units independent control support functions independent price verification critical ensuring financial instruments properly valued goldman sachs group inc subsidiaries management’s discussion analysis price verification objective price verification informed independent opinion regard valuation financial instruments review instruments one significant inputs cannot corroborated external market data classified within level 3 fair value hierarchy price verification strategies utilized independent control support functions include  trade comparison analysis trade data internal external available used determine relevant pricing inputs valuations  external price comparison valuations prices compared pricing data obtained third parties eg broker dealers markit bloomberg idc trace data obtained various sources compared ensure consistency validity broker dealer quotations thirdparty pricing vendors used valuation price verification greater priority generally given executable quotations  calibration market comparables marketbased transactions used corroborate valuation positions similar characteristics risks components  relative value analyses marketbased transactions analyzed determine similarity measured terms risk liquidity return one instrument relative another given instrument one maturity relative another  collateral analyses margin disputes derivatives examined investigated determine impact valuations  execution trades appropriate trading desks instructed execute trades order provide evidence marketclearing levels  backtesting valuations corroborated comparison values realized upon sales see notes 5 8 consolidated financial statements part ii item 8 form 10k information fair value measurements review net revenues independent control support functions ensure adherence pricing policy combination daily procedures including explanation attribution net revenues based underlying factors process independently validate net revenues identify resolve potential fair value trade booking issues timely basis ensure risks properly categorized quantified review valuation models quantitative professionals within market risk management department market risk management perform independent model approval process incorporates review diverse set model trade parameters across broad range values including extreme andor improbable conditions order critically evaluate  model’s suitability valuation risk management particular instrument type  model’s accuracy reflecting characteristics related product significant risks  suitability properties numerical algorithms incorporated model  model’s consistency models similar products  model’s sensitivity input parameters assumptions new changed models reviewed approved models evaluated reapproved annually assess impact changes product market developments pricing theories goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis level 3 financial assets fair value table presents financial assets measured fair value amount assets classified within level 3 fair value hierarchy total level 3 financial assets 4794 billion 4538 billion december 2011 december 2010 respectively see notes 5 8 consolidated financial statements part ii item 8 form 10k information changes level 3 financial assets fair value measurements goldman sachs group inc subsidiaries management’s discussion analysis goodwill identifiable intangible assets goodwill cost acquired companies excess fair value net assets including identifiable intangible assets acquisition date goodwill assessed annually impairment frequently events occur circumstances change indicate impairment may exist first assessing qualitative factors determine whether likely fair value reporting unit less carrying amount results qualitative assessment conclusive quantitative goodwill impairment test performed comparing estimated fair value reporting unit estimated net book value derive fair value based valuation techniques believe market participants would use ie observable pricetoearnings multiples pricetobook multiples derive net book value estimating amount shareholders’ equity required support activities reporting unit estimating fair value reporting units requires management make judgments critical inputs include projected earnings ii estimated longterm growth rates iii cost equity second half 2011 consistent decline stock prices broader financial services sector stock price declined throughout period market capitalization book value accordingly performed quantitative impairment test fourth quarter 2011 determined goodwill impaired estimated fair value reporting units hold substantially goodwill significantly exceeded estimated carrying values believe appropriate consider market capitalization among factors indicator fair value reasonable period time current economic market conditions persist prolonged period weakness business environment financial markets earnings may adversely affected could result impairment goodwill future addition significant changes critical inputs goodwill impairment test eg cost equity could cause estimated fair value reporting units decline could result impairment goodwill future see note 3 consolidated financial statements part ii item 8 form 10k information amendments accounting guidance goodwill impairment testing note 13 consolidated financial statements part ii item 8 form 10k carrying value goodwill identifiable intangible assets amortize identifiable intangible assets estimated lives ii based economic usage iii proportion estimated gross profits premium revenues identifiable intangible assets tested impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable impairment loss generally calculated difference estimated fair value carrying value asset group recognized sum estimated undiscounted cash flows relating asset group less corresponding carrying value see note 13 consolidated financial statements part ii item 8 form 10k carrying value estimated remaining lives identifiable intangible assets major asset class impairments identifiable intangible assets prolonged period market weakness could adversely impact businesses impair value identifiable intangible assets addition certain events could indicate potential impairment identifiable intangible assets including decreases revenues commodityrelated customer contracts relationships ii decreases cash receipts television broadcast royalties iii adverse action assessment regulator iv adverse actual experience contracts variable annuity life insurance business management judgment required evaluate whether indications potential impairment occurred test intangibles impairment required goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis use estimates use generally accepted accounting principles requires management make certain estimates assumptions addition estimates make connection fair value measurements accounting goodwill identifiable intangible assets use estimates assumptions also important determining provisions losses may arise litigation regulatory proceedings tax audits estimate provide potential losses may arise litigation regulatory proceedings extent losses probable reasonably estimated accounting income taxes estimate provide potential liabilities may arise tax audits extent uncertain tax positions fail meet recognition standard fasb accounting standards codification 740 see note 24 consolidated financial statements part ii item 8 form 10k information accounting income taxes significant judgment required making estimates final liabilities may ultimately materially different total estimated liability respect litigation regulatory proceedings determined casebycase basis represents estimate probable losses considering among factors progress case proceeding experience others similar cases proceedings opinions views legal counsel see notes 18 27 consolidated financial statements part ii item 8 form 10k information certain judicial regulatory legal proceedings goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis results operations composition net revenues varied time financial markets scope operations changed composition net revenues also vary shorter term due fluctuations us global economic market conditions see “certain risk factors may affect businesses” “risk factors” part item 1a form 10k discussion impact economic market conditions results operations financial overview table presents overview financial results 1 roe computed dividing net earnings applicable common shareholders average monthly common shareholders’ equity table presents average common shareholders’ equity 2 believe presenting results excluding impact 164 billion series g preferred stock dividend meaningful increases comparability periodtoperiod results diluted earnings per common share roe excluding item nongaap measures may comparable similar nongaap measures used companies tables present calculation net earnings applicable common shareholders diluted earnings per common share average common shareholders’ equity excluding impact dividend goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis 3 believe presenting results excluding impact uk bank payroll tax sec settlement nyse dmm rights impairment meaningful increases comparability periodtoperiod results diluted earnings per common share roe excluding items nongaap measures may comparable similar nongaap measures used companies tables present calculation net earnings applicable common shareholders diluted earnings per common share average common shareholders’ equity excluding impact items goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis net revenues 2011 versus 2010 net revenues 2881 billion 2011 26 lower 2010 reflecting significantly lower net revenues investing lending institutional client services well lower net revenues investment banking net revenues investment management essentially unchanged compared 2010 versus 2009 net revenues 3916 billion 2010 13 lower 2009 reflecting significantly lower net revenues institutional client services slightly lower net revenues investment banking decreases partially offset significantly higher net revenues investing lending higher net revenues investment management net interest income 2011 versus 2010 net interest income 519 billion 2011 6 lower 2010 decrease compared 2010 primarily due higher interest expense related longterm borrowings higher dividend expense related financial instruments sold yet purchased partially offset increase interest income higher yielding collateralized agreements 2010 versus 2009 net interest income 550 billion 2010 26 lower 2009 decrease compared 2009 primarily due lower average fixed income assets notably us federal agency obligations higher interest expense related longterm borrowings tighter securities lending spreads noninterest revenues investment banking investment banking revenues reflected operating environment generally characterized significant declines industrywide underwriting mergers acquisitions activity levels second half 2011 declines reflected increased concerns regarding weakened state global economies including heightened european sovereign debt risk contributed significant widening credit spreads sharp increase volatility levels significant decline global equity markets second half 2011 concerns continue equity markets decline resulting lower levels client activity revenues investment banking would likely continue negatively impacted 2011 versus 2010 investment banking revenues consolidated statement earnings 436 billion 2011 9 lower 2010 primarily reflecting lower revenues underwriting business revenues equity underwriting significantly lower 2010 principally due decline industrywide activity revenues debt underwriting essentially unchanged compared 2010 revenues financial advisory decreased slightly compared 2010 versus 2009 investment banking revenues consolidated statement earnings 481 billion 2010 3 lower 2009 reflecting lower revenues underwriting business partially offset higher revenues financial advisory decline underwriting reflected lower revenues equity underwriting principally due decline client activity comparison 2009 included significant capitalraising activity financial institution clients revenues debt underwriting essentially unchanged compared 2009 revenues financial advisory increased compared 2009 primarily reflecting increase client activity investment management first half 2011 investment management revenues reflected operating environment generally characterized improved asset prices shift investor assets away money markets favor asset classes potentially higher risk returns however second half 2011 asset prices declined particularly equities part driven increased uncertainty regarding global economic outlook declining asset prices economic uncertainty contributed investors shifting assets away asset classes potentially higher risk returns asset classes lower risk returns asset prices continue decline investors continue favor lower risk asset classes withdraw assets investment management revenues would likely continue negatively impacted 2011 versus 2010 investment management revenues consolidated statement earnings 469 billion 2011 essentially unchanged compared 2010 primarily due higher management fees reflecting favorable changes mix assets management offset lower incentive fees goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis 2010 versus 2009 investment management revenues consolidated statement earnings 467 billion 2010 10 higher 2009 primarily reflecting higher incentive fees across alternative investment products management fees also increased reflecting favorable changes mix assets management well impact appreciation value client assets commissions fees broad market concerns uncertainties emerged 2010 including concerns european sovereign debt risk weakened state global economies heightened 2011 concerns uncertainties resulted increase average volatility levels significantly lower equity prices europe asia particularly third quarter 2011 macro challenges year resulted volatile markets contributed higher transaction volumes fees concerns uncertainties continue result lower transaction volumes commissions fees would likely negatively impacted 2011 versus 2010 commissions fees consolidated statement earnings 377 billion 2011 6 higher 2010 reflecting higher transaction volumes particularly third quarter 2011 versus 2009 commissions fees consolidated statement earnings 357 billion 2010 7 lower 2009 primarily reflecting lower client activity levels market making 2011 marketmaking revenues negatively impacted increased concerns regarding weakened state global economies including heightened european sovereign debt risk impact european banking system global financial institutions conditions also impacted expectations economic prospects us reflected equity debt markets broadly addition downgrade credit ratings us government federal agencies many financial institutions second half 2011 contributed uncertainty markets concerns well broad market concerns uncertainty financial regulatory reform continued negative impact marketmaking revenues 2011 concerns continue marketmaking conditions remain challenging marketmaking revenues would likely continue negatively impacted 2011 versus 2010 marketmaking revenues consolidated statement earnings 929 billion 2011 32 lower 2010 although activity levels 2011 generally consistent 2010 levels results solid first quarter 2011 environment remainder 2011 characterized broad market concerns uncertainty resulting volatile markets significantly wider credit spreads contributed difficult marketmaking conditions led reductions risk us clients result conditions revenues across major marketmaking activities lower 2011 compared 2010 versus 2009 marketmaking revenues consolidated statement earnings 1368 billion 2010 38 lower 2009 2010 marketmaking revenues negatively impacted lower client activity levels reflected broad market concerns including european sovereign debt risk uncertainty regulatory reform well tighter bidoffer spreads decrease revenues compared particularly strong 2009 primarily reflected lower results across major marketmaking activities decreases partially offset higher revenues mortgages 2009 included significant losses related commercial mortgage loans principal transactions 2011 principal transactions results reflected operating environment characterized significant decline equity markets europe asia unfavorable credit markets negatively impacted increased concerns regarding weakened state global economies including heightened european sovereign debt risk equity markets decline credit spreads widen principal transactions revenues would likely continue negatively impacted goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis 2011 versus 2010 principal transactions revenues consolidated statements earnings 151 billion 693 billion 2011 2010 respectively results 2011 included loss investment ordinary shares icbc net gains investments equities primarily private equity positions partially offset losses public equities addition revenues principal transactions included net losses debt securities loans primarily reflecting approximately 1 billion unrealized losses related relationship lending activities including effect hedges partially offset net gains debt securities loans results 2011 also included revenues related consolidated entities held investment purposes 2010 versus 2009 principal transactions revenues consolidated statements earnings 693 billion 262 billion 2010 2009 respectively 2010 increase global equity markets tighter credit spreads provided favorable backdrop principal transactions revenues results 2010 included gain investment ordinary shares icbc net gains investments equities net gains debt securities loans revenues related consolidated entities held investment purposes results 2009 included gain investment ordinary shares icbc net gains debt securities loans revenues related consolidated entities held investment purposes partially offset net losses investments equities 2009 continued weakness commercial real estate markets negatively impacted results operating expenses operating expenses primarily influenced compensation headcount levels business activity compensation benefits includes salaries discretionary compensation amortization equity awards items benefits discretionary compensation significantly impacted among factors level net revenues prevailing labor markets business mix structure sharebased compensation programs external environment context difficult economic financial conditions firm launched initiative second quarter 2011 identify areas operate efficiently reduce operating expenses targeted approximately 14 billion annual run rate compensation noncompensation reductions continue monitor expense run rate closely make adjustments needed goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis table presents operating expenses total staff 1 revenues related insurance activities included “market making” consolidated statements earnings 2 includes employees consultants temporary staff 3 compensation benefits noncompensation expenses related consolidated entities held investment purposes included respective line items consolidated statements earnings consolidated entities held investment purposes entities held strictly capital appreciation defined exit strategy engaged activities closely related principal businesses 2011 versus 2010 operating expenses 2264 billion 2011 14 lower 2010 compensation benefits expenses 1222 billion 2011 21 decline compared 1538 billion 2010 ratio compensation net revenues 2011 424 compared 393 1 excludes impact uk bank payroll tax 2010 operating expenses 2010 included 465 million related uk bank payroll tax total staff decreased 7 2011 total staff including consolidated entities held investment purposes decreased 10 2011 1 believe presenting ratio compensation benefits net revenues excluding impact 465 million uk bank payroll tax meaningful excluding increases comparability periodtoperiod results ratio compensation benefits net revenues excluding impact item nongaap measure may comparable similar nongaap measures used companies table presents calculation ratio compensation benefits net revenues including excluding impact item goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis noncompensation expenses 1042 billion 2011 essentially unchanged compared 2010 noncompensation expenses 2011 included higher brokerage clearing exchange distribution fees increased reserves related insurance business higher market development expenses compared 2010 increases offset lower expenses 2011 decrease expenses primarily reflected lower net provisions litigation regulatory proceedings 2010 included 550 million related settlement sec addition noncompensation expenses 2011 included impairment charges approximately 440 million primarily related consolidated investments litton loan servicing lp charitable contributions 163 million 2011 primarily including 78 million goldman sachs gives donoradvised fund 25 million goldman sachs foundation compensation reduced fund charitable contribution goldman sachs gives 78 million contribution addition prior year contributions made goldman sachs gives firm asks participating managing directors make recommendations regarding potential charitable recipients contribution 2010 versus 2009 operating expenses 2627 billion 2010 4 higher 2009 compensation benefits expenses 1538 billion 2010 5 decline compared 1619 billion 2009 due lower net revenues ratio compensation benefits net revenues 2010 393 excludes impact 465 million uk bank payroll tax compared 358 2009 total staff increased 10 2010 total staff including consolidated entities held investment purposes increased 7 2010 united kingdom enacted legislation imposed nondeductible 50 tax certain financial institutions respect discretionary bonuses excess £25000 awarded arrangements made december 9 2009 april 5 2010 “relevant banking employees” operating expenses 2010 included 465 million related tax noncompensation expenses 1043 billion 2010 14 higher 2009 increase primarily attributable impact net provisions litigation regulatory proceedings 682 million including 550 million related settlement sec impairment nyse dmm rights 305 million 2010 remainder increase compared 2009 generally reflected higher professional fees market development expenses occupancy expenses increases partially offset impact significantly higher real estate impairment charges 2009 related consolidated entities held investment purposes well higher charitable contributions 2009 real estate impairment charges measured based discounted cash flow analyses included investing lending segment reflected weakness commercial real estate markets charitable contributions approximately 420 million 2010 primarily including 25 million goldman sachs foundation 320 million goldman sachs gives donoradvised fund compensation reduced fund charitable contribution goldman sachs gives goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis provision taxes effective income tax rate 2011 280 352 2010 excluding impact 465 million uk bank payroll tax 550 million sec settlement substantially nondeductible effective income tax rate 2010 327 1 decrease 327 280 primarily due increase permanent benefits percentage earnings mix effective income tax rate 2010 327 1 essentially unchanged effective income tax rate 2009 325 december 2010 rules related deferral us tax certain nonrepatriated active financing income extended retroactively january 1 2010 december 31 2011 rules extended expiration may materially increase effective income tax rate beginning 2013 1 believe presenting effective income tax rate 2010 excluding impact uk bank payroll tax sec settlement substantially nondeductible meaningful excluding items increases comparability periodtoperiod results effective income tax rate excluding impact items nongaap measure may comparable similar nongaap measures used companies table presents calculation effective income tax rate excluding impact amounts goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis segment operating results table presents net revenues operating expenses pretax earnings segments operating expenses table include following expenses allocated segments  net provisions number litigation regulatory proceedings 175 million 682 million 104 million years ended december 2011 december 2010 december 2009 respectively  charitable contributions 103 million 345 million 810 million years ended december 2011 december 2010 december 2009 respectively  real estaterelated exit costs 14 million 28 million 61 million years ended december 2011 december 2010 december 2009 respectively net revenues segments include allocations interest income interest expense specific securities commodities positions relation cash generated funding requirements underlying positions see note 25 consolidated financial statements part ii item 8 form 10k information business segments cost drivers goldman sachs taken whole compensation headcount levels business activity broadly similar business segments compensation benefits expenses within segments reflect among factors overall performance goldman sachs well performance individual businesses consequently pretax margins one segment business may significantly affected performance business segments discussion segment operating results follows goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis investment banking investment banking segment comprised financial advisory includes advisory assignments respect mergers acquisitions divestitures corporate defense activities risk management restructurings spinoffs derivative transactions directly related client advisory assignments underwriting includes public offerings private placements wide range securities loans financial instruments derivative transactions directly related client underwriting activities table presents operating results investment banking segment table presents financial advisory underwriting transaction volumes 1 source thomson reuters announced completed mergers acquisitions volumes based full credit advisors transaction equity equityrelated offerings debt offerings based full credit single book managers equal credit joint book managers transaction volumes may indicative net revenues given period addition transaction volumes prior periods may vary amounts previously reported due subsequent withdrawal change value transaction 2 includes rule 144a public common stock offerings convertible offerings rights offerings 3 includes nonconvertible preferred stock mortgagebacked securities assetbacked securities taxable municipal debt includes publicly registered rule 144a issues excludes leveraged loans 2011 versus 2010 net revenues investment banking 436 billion 2011 9 lower 2010 net revenues financial advisory 199 billion 4 lower 2010 net revenues underwriting business 237 billion 14 lower 2010 reflecting significantly lower net revenues equity underwriting principally due decline industrywide activity net revenues debt underwriting essentially unchanged compared 2010 investment banking operated environment generally characterized significant declines industrywide underwriting mergers acquisitions activity levels second half 2011 declines reflected increased concerns regarding weakened state global economies including heightened european sovereign debt risk contributed significant widening credit spreads sharp increase volatility levels significant decline global equity markets second half 2011 concerns continue equity markets decline resulting lower levels client activity net revenues investment banking would likely continue negatively impacted investment banking transaction backlog increased compared end 2010 increase compared end 2010 due increase potential equity underwriting transactions primarily reflecting increase client mandates underwrite initial public offerings estimated net revenues potential debt underwriting transactions decreased slightly compared end 2010 estimated net revenues potential advisory transactions essentially unchanged compared end 2010 goldman sachs group inc subsidiaries management’s discussion analysis investment banking transaction backlog represents estimate future net revenues investment banking transactions believe future revenue realization likely believe changes investment banking transaction backlog may useful indicator client activity levels long term impact net revenues however timeframe completion corresponding revenue recognition transactions backlog varies based nature assignment certain transactions may remain backlog longer periods time others may enter leave within reporting period addition transaction backlog subject certain limitations assumptions likelihood individual client transactions occur future transactions may cancelled modified transactions included estimate may also occur operating expenses 296 billion 2011 16 lower 2010 due decreased compensation benefits expenses primarily resulting lower net revenues pretax earnings 139 billion 2011 7 higher 2010 versus 2009 net revenues investment banking 481 billion 2010 3 lower 2009 net revenues financial advisory 206 billion 9 higher 2009 primarily reflecting increase client activity net revenues underwriting business 275 billion 11 lower 2009 reflecting lower net revenues equity underwriting principally due decline client activity comparison 2009 included significant capitalraising activity financial institution clients net revenues debt underwriting essentially unchanged compared 2009 2010 investment banking operated environment generally characterized continuation low levels industrywide mergers acquisitions activity reflecting heightened uncertainty regarding global economic outlook although certain additional unfavorable market conditions emerged first half 2010 including lower equity prices wider corporate credit spreads interest rates remained low throughout year underwriting activity improved second half year global equity prices recovered corporate credit spreads narrowed investment banking transaction backlog decreased compared end 2009 decrease compared end 2009 reflected decline estimated net revenues potential debt equity underwriting transactions primarily related client mandates underwrite leveraged finance transactions common stock offerings decrease partially offset increase estimated net revenues potential advisory transactions operating expenses 351 billion 2010 essentially unchanged 2009 pretax earnings 130 billion 2010 14 lower 2009 institutional client services institutional client services segment comprised fixed income currency commodities client execution includes client execution activities related making markets interest rate products credit products mortgages currencies commodities generate marketmaking revenues activities three ways  large highly liquid markets us treasury bills large capitalization sp 500 stocks certain mortgage passthrough certificates execute high volume transactions clients modest spreads fees  less liquid markets midcap corporate bonds growth market currencies certain nonagency mortgagebacked securities execute transactions clients spreads fees generally somewhat larger  also structure execute transactions involving customized tailormade products address clients’ risk exposures investment objectives complex needs jet fuel hedge airline given focus mortgage market mortgage activities described activities mortgages include commercial mortgagerelated securities loans derivatives residential mortgagerelated securities loans derivatives including us government agencyissued collateralized mortgage obligations prime subprime alta securities loans assetbacked securities loans derivatives goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis buy hold sell long short mortgage positions primarily market making clients inventory therefore changes based client demands generally held shortterm periods see notes 18 27 consolidated financial statements part ii item 8 form 10k information exposure mortgage repurchase requests mortgage rescissions mortgagerelated litigation equities includes client execution activities related making markets equity products well commissions fees executing clearing institutional client transactions major stock options futures exchanges worldwide equities also includes securities services business provides financing securities lending prime brokerage services institutional clients including hedge funds mutual funds pension funds foundations generates revenues primarily form interest rate spreads fees revenues related insurance activities table presents operating results institutional client services segment 2011 versus 2010 net revenues institutional client services 1728 billion 2011 21 lower 2010 net revenues fixed income currency commodities client execution 902 billion 2011 34 lower 2010 although activity levels 2011 generally consistent 2010 levels results solid first quarter 2011 environment remainder 2011 characterized broad market concerns uncertainty resulting volatile markets significantly wider credit spreads contributed difficult marketmaking conditions led reductions risk us clients result conditions net revenues across franchise lower including significant declines mortgages credit products compared 2010 net revenues equities 826 billion 2011 2 higher 2010 2011 average volatility levels increased equity prices europe asia declined significantly particularly third quarter increase net revenues reflected higher commissions fees primarily due higher transaction volumes particularly third quarter 2011 addition net revenues securities services increased compared 2010 reflecting impact higher average customer balances equities client execution net revenues lower 2010 primarily reflecting significantly lower net revenues shares net gain attributable impact changes credit spreads borrowings fair value option elected 596 million 198 million 2011 2010 respectively institutional client services operated environment generally characterized increased concerns regarding weakened state global economies including heightened european sovereign debt risk impact european banking system global financial institutions conditions also impacted expectations economic prospects us reflected equity debt markets broadly addition downgrade credit ratings us government federal agencies many financial institutions second half 2011 contributed uncertainty markets concerns well broad market concerns uncertainty financial regulatory reform continued negative impact net revenues 2011 concerns continue marketmaking conditions remain challenging net revenues fixed income currency commodities client execution equities would likely continue negatively impacted operating expenses 1270 billion 2011 11 lower 2010 due decreased compensation benefits expenses primarily resulting lower net revenues impact uk bank payroll tax 2010 well impairment nyse dmm rights 305 million 2010 decreases partially offset higher brokerage clearing exchange distribution fees principally reflecting higher transaction volumes equities pretax earnings 458 billion 2011 39 lower 2010 goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis 2010 versus 2009 net revenues institutional client services 2180 billion 2010 33 lower 2009 net revenues fixed income currency commodities client execution 1371 billion 2010 37 lower particularly strong 2009 2010 fixed income currency commodities client execution operated challenging environment characterized lower client activity levels reflected broad market concerns including european sovereign debt risk uncertainty regulatory reform well tighter bidoffer spreads decrease net revenues compared 2009 primarily reflected significantly lower results interest rate products credit products commodities lesser extent currencies decreases partially offset higher net revenues mortgages 2009 included approximately 1 billion losses related commercial mortgage loans net revenues equities 809 billion 2010 25 lower 2009 primarily reflecting significantly lower net revenues equities client execution principally due significantly lower results derivatives shares commissions fees also lower 2009 primarily reflecting lower client activity levels addition securities services net revenues significantly lower compared 2009 primarily reflecting tighter securities lending spreads principally due impact changes composition customer balances partially offset impact higher average customer balances 2010 although equity markets volatile first half year equity prices generally improved volatility levels declined second half year net gainloss attributable impact changes credit spreads borrowings fair value option elected 198 million 110 billion 2010 2009 respectively results institutional client services 2010 negatively impacted general decrease client activity levels strong levels seen 2009 certain unfavorable conditions emerged second quarter 2010 made environment challenging businesses resulting lower client activity levels conditions included broad market concerns european sovereign debt risk uncertainty regarding financial regulatory reform sharply higher equity volatility levels lower global equity prices wider corporate credit spreads second half 2010 conditions reversed equity volatility levels decreased global equity prices recovered corporate credit spreads narrowed commercial real estate asset prices began improve however lower client activity levels reflecting broad market concerns including european sovereign debt risk uncertainty regulatory reform continued negatively impact results addition bidoffer spreads remained tight relative 2009 financial markets continued stabilize availability funding improved volatility levels corporate credit spreads commodity prices declined operating expenses 1429 billion 2010 4 higher 2009 due impact uk bank payroll tax well impairment nyse dmm rights 305 million increases partially offset lower compensation benefits expenses resulting lower levels discretionary compensation pretax earnings 751 billion 2010 61 lower 2009 investing lending investing lending includes investing activities origination loans provide financing clients investments loans typically longerterm nature make investments directly indirectly funds manage debt securities loans public private equity securities real estate consolidated investment entities power generation facilities table presents operating results investing lending segment 1 primarily includes net revenues related consolidated entities held investment purposes goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis 2011 versus 2010 net revenues investing lending 214 billion 754 billion 2011 2010 respectively 2011 investing lending results reflected operating environment characterized significant decline equity markets europe asia unfavorable credit markets negatively impacted increased concerns regarding weakened state global economies including heightened european sovereign debt risk results 2011 included loss 517 million investment ordinary shares icbc net gains 112 billion investments equities primarily private equity positions partially offset losses public equities addition investing lending included net revenues 96 million debt securities loans amount includes approximately 1 billion unrealized losses related relationship lending activities including effect hedges offset net interest income net gains debt securities loans results 2011 also included net revenues 144 billion principally related consolidated entities held investment purposes equity markets decline credit spreads widen net revenues investing lending would likely continue negatively impacted operating expenses 267 billion 2011 20 lower 2010 due decreased compensation benefits expenses primarily resulting lower net revenues decrease partially offset impact impairment charges related consolidated investments 2011 pretax loss 531 million 2011 compared pretax earnings 418 billion 2010 versus 2009 net revenues investing lending 754 billion 286 billion 2010 2009 respectively results 2010 included gain 747 million investment ordinary shares icbc net gain 269 billion investments equities net gain 260 billion debt securities loans net revenues 151 billion principally related consolidated entities held investment purposes net gain investments equities primarily driven increase global equity markets resulted appreciation public private equity positions provided favorable conditions initial public offerings net gains net interest debt securities loans primarily reflected impact tighter credit spreads favorable credit markets year provided favorable conditions borrowers refinance results 2009 included gain 158 billion investment ordinary shares icbc net gain 105 billion debt securities loans net revenues 832 million principally related consolidated entities held investment purposes partially offset net loss 596 million investments equities 2009 continued weakness commercial real estate markets negatively impacted results operating expenses 336 billion 2010 5 lower 2009 due impact significantly higher real estate impairment charges 2009 related consolidated entities held investment purposes well decreased compensation benefits expenses resulting lower levels discretionary compensation pretax earnings 418 billion 2010 compared pretax loss 660 million 2009 investment management investment management provides investment management services offers investment products primarily separately managed accounts commingled vehicles mutual funds private investment funds across major asset classes diverse set institutional individual clients investment management also offers wealth advisory services including portfolio management financial counseling brokerage transaction services highnetworth individuals families assets management typically generate fees percentage net asset value vary asset class affected investment performance well asset inflows redemptions certain circumstances also entitled receive incentive fees based percentage fund’s return exceeds specified benchmark performance targets incentive fees recognized material contingencies resolved goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis table presents operating results investment management segment assets management include client assets earn fee managing assets discretionary basis includes net assets mutual funds hedge funds private equity funds including real estate funds separately managed accounts institutional individual investors assets management include selfdirected assets clients including brokerage accounts interestbearing deposits held bank depository institution subsidiaries tables present assets management asset class summary changes assets management 1 primarily includes hedge funds private equity real estate currencies commodities asset allocation strategies 1 includes 6 billion asset inflows connection acquisitions goldman sachs australia pty ltd gs australia formerly goldman sachs partners australia group holdings pty ltd benchmark asset management company private limited 2011 versus 2010 net revenues investment management 503 billion 2011 essentially unchanged compared 2010 primarily due higher management fees reflecting favorable changes mix assets management offset lower incentive fees year assets management decreased 12 billion 828 billion reflecting net outflows 17 billion partially offset net market appreciation 5 billion net outflows primarily reflected outflows fixed income equity assets partially offset inflows money market assets first half 2011 investment management operated environment generally characterized improved asset prices shift investor assets away money markets favor asset classes potentially higher risk returns however second half 2011 asset prices declined particularly equities part driven increased uncertainty regarding global economic outlook declining asset prices economic uncertainty contributed investors shifting assets away asset classes potentially higher risk returns asset classes lower risk returns asset prices continue decline investors continue favor lower risk asset classes withdraw assets net revenues investment management would likely continue negatively impacted operating expenses 402 billion 2011 essentially unchanged compared 2010 pretax earnings 102 billion 2011 6 higher 2010 goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis 2010 versus 2009 net revenues investment management 501 billion 2010 9 higher 2009 primarily reflecting higher incentive fees across alternative investment products management fees also increased reflecting favorable changes mix assets management well impact appreciation value client assets 2010 assets management decreased 4 840 billion primarily reflecting outflows money market assets consistent industry trends 2010 investment management operated environment generally characterized continuation industry trends emerged 2009 financial markets began stabilize asset prices improved investors began shift assets away money markets favor asset classes potentially higher risk returns trend resulted favorable changes mix assets management well appreciation value client assets operating expenses 405 billion 2010 10 higher 2009 primarily reflecting increased staff levels impact growth initiatives pretax earnings 963 million 2010 3 higher 2009 geographic data see note 25 consolidated financial statements part ii item 8 form 10k summary total net revenues pretax earnings net earnings geographic region regulatory developments us doddfrank wall street reform consumer protection act doddfrank act enacted july 2010 significantly altered financial regulatory regime within operate implications doddfrank act businesses depend large extent rules adopted board governors federal reserve system federal reserve board federal deposit insurance corporation fdic sec us commodity futures trading commission cftc agencies implement legislation well development market practices structures regime established legislation implementing rules similar reforms considered regulators policy makers worldwide reforms may affect businesses expect principal areas impact regulatory reform us  doddfrank prohibition “proprietary trading” limitation sponsorship investment hedge funds private equity funds banking entities including bank holding companies referred “volcker rule”  increased regulation restrictions overthecounter otc derivatives markets transactions  increased regulatory capital requirements goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis october 2011 proposed rules implement volcker rule issued included extensive request comments proposal proposed rules highly complex many aspects volcker rule remain unclear full impact rule depend upon detailed scope prohibitions permitted activities exceptions exclusions full impact firm known certainty rules finalized many aspects volcker rule remain unclear evaluated prohibition “proprietary trading” determined businesses engage “bright line” proprietary trading likely prohibited 2011 2010 liquidated substantially principal strategies global macro proprietary trading positions addition evaluated limitations sponsorship investments hedge funds private equity funds firm earns management fees incentive fees investment management services private equity hedge funds included investment management segment firm also makes investments funds gains losses investments included investing lending segment gains losses impacted volcker rule volcker rule limitation investments hedge funds private equity funds requires firm reduce investment private equity hedge fund 3 less net asset value reduce firm’s aggregate investment funds 3 less firm’s tier 1 capital period 1999 2011 firm’s aggregate net revenues investments hedge funds private equity funds material firm’s aggregate total net revenues period continue manage existing private equity funds taking account transition periods volcker rule respect hedge funds currently plan comply volcker rule redeeming certain interests funds currently expect redeem approximately 10 certain hedge funds’ total redeemable units per quarter ten consecutive quarters beginning march 2012 ending june 2014 addition limited firm’s initial investment 3 certain new funds required doddfrank act federal reserve board fdic jointly issued rule requiring bank holding company 50 billion assets designated systemically important financial institution provide regulators annual plan rapid orderly resolution event material financial distress failure resolution plan resolution plan must among things ensure goldman sachs bank usa gs bank usa adequately protected risks arising entities regulators’ joint rule sets specific standards resolution plans including requiring detailed resolution strategy analyses company’s material entities organizational structure interconnections interdependencies management information systems among elements commenced work first resolution plan must submit regulators july 1 2012 gs bank usa also required fdic submit plan rapid orderly resolution event material financial distress failure july 1 2012 september 2011 sec proposed rules implement doddfrank act’s prohibition securitization participants’ engaging transaction would involve result material conflict interest investor securitization transaction proposed rules would except bona fide marketmaking activities riskmitigating hedging activities connection securitization activities general prohibition december 2011 federal reserve board proposed regulations designed strengthen regulation supervision large bank holding companies systemically important nonbank financial firms proposals address riskbased capital leverage requirements liquidity requirements stress tests single counterparty limits early remediation requirements designed address financial weakness early stage although many proposals mirror initiatives bank holding companies already subject full impact firm known certainty rules finalized goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis addition us federal bank regulatory agencies issued revised proposals modify market risk regulatory capital requirements banking organizations united states significant trading activities modifications designed address adjustments market risk framework announced basel committee june 2010 basel 25 well prohibition use credit ratings required doddfrank act expect federal banking agencies propose modifications capital adequacy regulations address basel 3 aspects doddfrank act including requirements global systemically important banks implemented likely changes result increased capital requirements although full impact known us federal bank regulatory agencies publish final rules doddfrank act also establishes bureau consumer financial protection broad authority regulate providers credit payment consumer financial products services bureau oversight certain products services see “businessregulation” part item 1 form 10k information balance sheet funding sources balance sheet management one important risk management disciplines ability manage size composition balance sheet asset base changes due client activity market fluctuations business opportunities size composition balance sheet reflect overall risk tolerance ii ability access stable funding sources iii amount equity capital hold although balance sheet fluctuates daytoday basis total assets adjusted assets quarterly yearend dates generally materially different occurring within reporting periods order ensure appropriate risk management seek maintain liquid balance sheet processes place dynamically manage assets liabilities include  quarterly planning  businessspecific limits  monitoring key metrics  scenario analyses quarterly planning prepare quarterly balance sheet plan combines projected total assets composition assets expected funding sources capital levels upcoming quarter objectives quarterly planning process  develop nearterm balance sheet projections taking account general state financial markets expected clientdriven firmdriven activity levels  ensure projected assets supported adequate amount tenor funding projected capital liquidity metrics within management guidelines  allow business risk managers independent control support functions objectively evaluate balance sheet limit requests business managers context firm’s overall balance sheet constraints include firm’s liability profile equity capital levels maturities plans new debt equity issuances share repurchases deposit trends secured funding transactions prepare quarterly balance sheet plan business risk managers independent control support functions meet business managers review current prior period metrics discuss expectations upcoming quarter specific metrics reviewed include asset liability size composition aged inventory limit utilization risk performance measures capital usage consolidated quarterly plan including balance sheet plans business funding capital projections projected capital liquidity metrics reviewed finance committee see “overview structure risk management” goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis businessspecific limits finance committee sets asset liability limits business aged inventory limits certain financial instruments disincentive hold inventory longer periods time limits set levels close actual operating levels order ensure prompt escalation discussion among business managers independent control support functions routine basis finance committee reviews approves balance sheet limits quarterly basis may also approve changes limits ad hoc basis response changing business needs market conditions monitoring key metrics monitor key balance sheet metrics daily business consolidated basis including asset liability size composition aged inventory limit utilization risk measures capital usage allocate assets businesses review analyze movements resulting new business activity well market fluctuations scenario analyses conduct scenario analyses determine would manage size composition balance sheet maintain appropriate funding liquidity capital positions variety situations  scenarios cover shortterm longterm time horizons using various macroeconomic firmspecific assumptions use analyses assist us developing longerterm funding plans including level unsecured debt issuances size secured funding program amount composition equity capital also consider potential future constraints limits ability grow asset base absence appropriate funding  internal capital adequacy assessment process icaap resolution recovery planning analyze would manage balance sheet duration severe crisis develop plans access funding generate liquidity andor redeploy equity capital appropriate balance sheet allocation addition preparing consolidated statement financial condition accordance us gaap prepare balance sheet generally allocates assets businesses nongaap presentation may comparable similar nongaap presentations used companies believe presenting assets basis meaningful consistent way management views manages risks associated firm’s assets better enables investors assess liquidity firm’s assets table presents summary balance sheet allocation goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis following description captions table excess liquidity cash maintain substantial excess liquidity meet broad range potential cash outflows collateral needs event stressed environment see “liquidity risk management” details composition sizing excess liquidity pool “global core excess” gce addition excess liquidity maintain operating cash balances primarily use specific currencies entities jurisdictions immediate access parent company liquidity secured client financing provide collateralized financing client positions including margin loans secured client collateral securities borrowed resale agreements primarily collateralized government obligations result client activities required segregate cash securities satisfy regulatory requirements secured client financing arrangements generally shortterm accounted fair value amounts approximate fair value include daily margin requirements mitigate counterparty credit risk institutional client services institutional client services maintain inventory positions facilitate marketmaking fixed income equity currency commodity products additionally part client marketmaking activities enter resale securities borrowing arrangements obtain securities use cover transactions clients sold securities yet purchased receivables institutional client services primarily relate securities transactions investing lending investing lending make investments originate loans provide financing clients investments loans typically longerterm nature make investments directly indirectly funds manage debt securities loans public private equity securities real estate investments assets generally less liquid nonfinancial assets including property leasehold improvements equipment goodwill identifiable intangible assets income taxrelated receivables equitymethod investments miscellaneous receivables goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis tables present reconciliation balance sheet allocation us gaap balance sheet tables total assets institutional client services investing lending represent inventory related assets amounts differ total assets business segment disclosed note 25 consolidated financial statements part ii item 8 form 10k total assets disclosed note 25 include allocations excess liquidity cash secured client financing assets 1 includes unencumbered cash us government federal agency obligations including highly liquid us federal agency mortgagebacked obligations german french japanese united kingdom government obligations goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis less liquid inventory composition seek maintain liquid balance sheet comprised assets readily sold funded secured basis however hold certain financial instruments may difficult sell fund secured basis especially times market stress focus funding assets liabilities longerterm contractual maturities reduce need refinance periods market stress table presents aggregate holdings categories financial instruments 1 includes funded commitments inventory held connection origination investing marketmaking activities 2 includes interests funds manage amounts exclude assets firm bear economic exposure 238 billion 168 billion december 2011 december 2010 respectively including assets related consolidated investment funds consolidated variable interest entities vies 3 includes interests 260 billion 473 billion december 2011 december 2010 respectively held investment funds managed goldman sachs decrease primarily related sale portion ordinary shares icbc held investment funds managed goldman sachs 4 includes interests investment funds manage see “results operations regulatory developments” information plans redeem certain interests hedge funds comply volcker rule see notes 4 6 consolidated financial statements part ii item 8 form 10k information financial instruments hold balance sheet analysis metrics december 2011 total assets consolidated statement financial condition 92323 billion increase 1189 billion december 2010 increase primarily due increase cash equivalents 1622 billion primarily due increases interestbearing deposits banks ii increase cash securities segregated regulatory purposes 1053 billion primarily due increase reserve balances held brokerdealer subsidiaries related client activity iii increase financial instruments owned fair value 725 billion primarily due increases nonus government obligations derivatives partially offset decrease commodities increases partially offset decreases collateralized agreements 1353 billion primarily due decreases client firm activity ii receivables customers counterparties 744 billion primarily due decreases client activity secured client financing december 2011 total liabilities consolidated statement financial condition 85285 billion increase 1887 billion december 2010 increase primarily due increase deposits 754 billion primarily due increases client activity ii increase payables customers counterparties 736 billion primarily due increases client activity december 2011 total securities sold agreements repurchase accounted collateralized financings 16450 billion 7 higher 3 higher daily average amount repurchase agreements quarter ended year ended december 2011 respectively december 2011 increase repurchase agreements relative daily average quarter year primarily due increases client activity end year december 2010 total securities sold agreements repurchase accounted collateralized financings 16235 billion 2 higher 10 higher daily average amount repurchase agreements quarter ended year ended december 2010 respectively december 2010 increase repurchase agreements relative daily average quarter year due increase client activity end year increase firm financing activities level repurchase agreements fluctuates within periods primarily due providing clients access highly liquid collateral us government federal agency investmentgrade sovereign obligations collateralized financing activities goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis table presents information assets unsecured longterm borrowings shareholders’ equity leverage ratios adjusted assets adjusted assets equals total assets less lowrisk collateralized assets generally associated secured client financing transactions federal funds sold excess liquidity includes financial instruments sold yet purchased fair value less derivative liabilities ii cash securities segregate regulatory purposes adjusted assets nongaap measure may comparable similar nongaap measures used companies table presents reconciliation total assets adjusted assets leverage ratio leverage ratio equals total assets divided total shareholders’ equity measures proportion equity debt firm using finance assets ratio different tier 1 leverage ratio included “equity capital consolidated regulatory capital ratios” described note 20 consolidated financial statements part ii item 8 form 10k adjusted leverage ratio adjusted leverage ratio equals adjusted assets divided total shareholders’ equity believe adjusted leverage ratio meaningful measure capital adequacy leverage ratio excludes certain lowrisk collateralized assets generally supported little capital adjusted leverage ratio nongaap measure may comparable similar nongaap measures used companies adjusted leverage ratio increased 86x december 2011 76x december 2010 adjusted assets increased total shareholders’ equity decreased primarily reflecting redemption firm’s series g preferred stock repurchase 470 million shares common stock debt equity ratio debt equity ratio equals unsecured longterm borrowings divided total shareholders’ equity funding sources primary sources funding secured financings unsecured longterm shortterm borrowings deposits seek maintain broad diversified funding sources globally raise funding number different products including  collateralized financings repurchase agreements securities loaned secured financings  longterm unsecured debt syndicated us registered offerings us registered 144a mediumterm note programs offshore mediumterm note offerings debt offerings  demand savings deposits cash sweep programs time deposits internal thirdparty broker networks  shortterm unsecured debt us nonus commercial paper promissory note issuances methods goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis generally distribute funding products sales force large diverse creditor base variety markets americas europe asia believe relationships creditors critical liquidity creditors include banks governments securities lenders pension funds insurance companies mutual funds individuals imposed various internal guidelines monitor creditor concentration across funding programs secured funding fund significant amount inventory secured basis secured funding less sensitive changes credit quality unsecured funding due nature collateral post lenders however terms availability secured funding particularly shortdated funding deteriorate rapidly difficult environment generally rely shortdated secured funding unless collateralized highly liquid securities government obligations substantially secured funding executed tenors one month greater additionally monitor counterparty concentration hold portion gce refinancing risk associated secured funding transactions seek longer terms secured funding collateralized lowerquality assets funding transactions may pose greater refinancing risk weighted average maturity secured funding excluding funding collateralized highly liquid securities eligible inclusion gce exceeded 100 days december 2011 majority secured funding securities eligible inclusion gce executed term repurchase agreements securities lending contracts also raise financing types collateralized financings secured loans notes unsecured longterm borrowings issue unsecured longterm borrowings source funding inventory assets finance portion gce issue different tenors currencies products maximize diversification investor base table presents quarterly unsecured longterm borrowings maturity profile 2017 december 2011 goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis weighted average maturity unsecured longterm borrowings december 2011 approximately eight years mitigate refinancing risk seek limit principal amount debt maturing one day week year enter interest rate swaps convert substantial portion longterm borrowings floatingrate obligations order manage exposure interest rates see note 16 consolidated financial statements part ii item 8 form 10k information unsecured longterm borrowings temporary liquidity guarantee program tlgp december 2011 853 billion senior unsecured shortterm debt outstanding guaranteed fdic tlgp mature prior june 15 2012 issued longterm debt tlgp since march 2009 program expired new issuances deposits december 2011 bank depository institution subsidiaries 4611 billion customer deposits including 1327 billion certificates deposit time deposits weighted average maturity three years 3284 billion deposits substantially cash sweep programs utilize deposits finance lending activities bank subsidiaries support potential outflows draws unfunded commitments unsecured shortterm borrowings significant portion shortterm borrowings originally longterm debt scheduled mature within one year reporting date use shortterm borrowings finance liquid assets cash management purposes primarily issue commercial paper promissory notes hybrid instruments december 2011 unsecured shortterm borrowings including current portion unsecured longterm borrowings 4904 billion see note 15 consolidated financial statements part ii item 8 form 10k information unsecured shortterm borrowings gs bank usa access funding federal reserve bank discount window rely funding liquidity planning stress testing maintain policies procedures necessary access funding test discount window borrowing procedures equity capital adequacy critical importance us principal objective conservatively capitalized terms amount composition equity base accordingly place comprehensive capital management policy serves guide determine amount composition equity capital maintain level composition equity capital determined multiple factors including consolidated regulatory capital requirements icaap may also influenced factors rating agency guidelines subsidiary capital requirements business environment conditions financial markets assessments potential future losses due adverse changes business market environments addition maintain capital plan projects sources uses capital given range business environments contingency capital plan provides framework analyzing responding actual perceived capital shortfall effective december 2011 part federal reserve board’s annual comprehensive capital analysis review us bank holding companies total consolidated assets 50 billion greater required submit annual capital plans review federal reserve board capital plans demonstrate ability bank holding company maintain capital ratios minimum regulatory capital requirements tier 1 common ratio 5 pro forma basis expected stressed scenarios purpose federal reserve board’s review ensure institutions robust forwardlooking capital planning processes account unique risks permit continued operations times economic financial stress part capital plan review federal reserve board evaluates institution’s plan make capital distributions increasing dividend payments repurchasing redeeming stock across range macroeconomic firmspecific assumptions federal reserve board began annual capital plan reviews early 2012 consolidated regulatory capital requirements determined federal reserve board described icaap incorporates internal riskbased capital assessment designed identify measure material risks associated business activities including market risk credit risk operational risk manner closely aligned risk management practices internal riskbased capital assessment supplemented results stress tests goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis december 2011 total shareholders’ equity 7038 billion consisting common shareholders’ equity 6728 billion preferred stock 310 billion december 2010 total shareholders’ equity 7736 billion consisting common shareholders’ equity 7040 billion preferred stock 696 billion addition 500 billion junior subordinated debt issued trusts qualifies equity capital regulatory certain rating agency purposes see “ consolidated regulatory capital ratios” information regarding impact regulatory developments consolidated regulatory capital federal reserve board primary regulator group inc bank holding company financial holding company us bank holding company act 1956 bank holding company subject consolidated regulatory capital requirements computed accordance federal reserve board’s capital adequacy regulations currently applicable bank holding companies based ‘basel 1’ capital accord basel committee banking supervision basel committee capital requirements expressed capital ratios compare measures capital riskweighted assets rwas see note 20 consolidated financial statements part ii item 8 form 10k additional information regarding firm’s rwas firm’s capital levels also subject qualitative judgments regulators components risk weightings factors federal reserve board regulations require bank holding companies maintain minimum tier 1 capital ratio 4 minimum total capital ratio 8 required minimum tier 1 capital ratio total capital ratio order considered “wellcapitalized” bank holding company federal reserve board guidelines 6 10 respectively bank holding companies may expected maintain ratios well minimum levels depending particular condition risk profile growth plans minimum tier 1 leverage ratio 3 bank holding companies received highest supervisory rating federal reserve board guidelines implemented federal reserve board’s riskbased capital measure market risk bank holding companies must minimum tier 1 leverage ratio 4 consolidated regulatory capital ratios table presents information regulatory capital ratios 1 principally includes equity investments nonfinancial companies cumulative change fair value unsecured borrowings attributable impact changes credit spreads disallowed deferred tax assets investments certain nonconsolidated entities 2 substantially subordinated debt qualifies tier 2 capital basel 1 purposes 3 see note 20 consolidated financial statements part ii item 8 form 10k additional information firm’s rwas tier 1 leverage ratio 4 tier 1 common ratio equals tier 1 common capital divided rwas believe tier 1 common ratio meaningful one measures investors use assess capital adequacy currently formal regulatory capital ratio measure increasing importance regulators tier 1 common ratio nongaap measure may comparable similar nongaap measures used companies tier 1 capital ratio decreased 138 december 2011 160 december 2010 tier 1 leverage ratio decreased 70 december 2011 80 december 2010 decreases reflected reduction tier 1 capital primarily due impact redemption firm’s series g preferred stock repurchase 470 million shares common stock partially offset net earnings goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis currently working implement requirements set federal reserve board’s riskbased capital standards advanced capital adequacy framework basel 2 applicable us bank holding company basel 2 based advanced approaches revised framework international convergence capital measurement capital standards issued basel committee us banking regulators incorporated basel 2 framework existing riskbased capital requirements requiring internationally active banking organizations us adopt basel 2 approved regulators required doddfrank act us banking regulators adopted rule requires large banking organizations upon adoption basel 2 continue calculate riskbased capital ratios basel 1 basel 2 tier 1 total capital ratios lower basel 1 basel 2 ratios calculated used determine whether bank meets minimum riskbased capital requirements us federal bank regulatory agencies issued revised proposals modify market risk regulatory capital requirements banking organizations united states significant trading activities modifications designed address adjustments basel 25 well prohibition use credit ratings required doddfrank act implemented likely changes result increased capital requirements market risk additionally guidelines issued basel committee december 2010 basel 3 revise definition tier 1 capital introduce tier 1 common equity regulatory metric set new minimum capital ratios including new “capital conservation buffer” must composed exclusively tier 1 common equity addition minimum capital ratios introduce tier 1 leverage ratio within international guidelines first time make substantial revisions computation rwas credit exposures implementation new requirements expected take place next several years although us federal banking agencies issued proposed rules intended implement certain aspects basel 25 guidelines yet addressed aspects guidelines basel 3 changes basel committee published final provisions assessing global systemic importance banking institutions range additional tier 1 common equity maintained banking institutions deemed globally systemically important additional capital institutions would initially range 1 25 tier 1 common equity could much 35 bank increases systemic footprint eg increasing total assets firm one 29 institutions identified financial stability board established direction leaders group 20 globally systemically important basel committee’s methodology therefore depending upon manner timing us banking regulators’ implementation basel committee’s methodology expect minimum tier 1 common ratio requirement applicable us include additional capital assessment final determination whether institution classified globally systemically important calculation required additional capital amount expected disclosed basel committee later november 2014 based data end 2013 doddfrank act subject us firmwide level leverage riskbased capital requirements apply depository institutions directs banking regulators impose additional capital requirements disclosed federal reserve board expected adopt new leverage riskbased capital regulations 2012 consequence changes tier 1 capital treatment junior subordinated debt issued trusts phased threeyear period beginning january 1 2013 interaction among doddfrank act basel committee’s proposed changes proposed announced changes governmental entities regulators adds uncertainty future capital requirements goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis see “business regulation” part item 1 form 10k note 20 consolidated financial statements part ii item 8 form 10k additional information regulatory capital ratios related regulatory requirements internal capital adequacy assessment process perform icaap objective ensuring firm appropriately capitalized relative risks business part icaap perform internal riskbased capital assessment incorporates market risk credit risk operational risk market risk calculated using valueatrisk var calculations supplemented riskbased addons include risks related rare events tail risks credit risk utilizes assumptions counterparties’ probability default size losses event default maturity counterparties’ contractual obligations us operational risk calculated based scenarios incorporating multiple types operational failures backtesting used gauge effectiveness models capturing measuring relevant risks evaluate capital adequacy based result internal riskbased capital assessment supplemented results stress tests measure firm’s performance various market conditions goal hold sufficient capital internal riskbased capital framework ensure remain adequately capitalized experiencing severe stress event assessment capital adequacy viewed tandem assessment liquidity adequacy integrated overall risk management structure governance policy framework firm attribute capital usage businesses based upon internal riskbased capital regulatory frameworks manage levels usage based upon balance sheet risk limits established rating agency guidelines credit rating agencies assign credit ratings obligations group inc directly issues guarantees substantially firm’s senior unsecured obligations goldman sachs co gsco goldman sachs international gsi assigned long shortterm issuer ratings certain credit rating agencies gs bank usa also assigned longterm issuer ratings well ratings longterm shortterm bank deposits addition credit rating agencies assigned ratings debt obligations certain subsidiaries group inc level composition equity capital among many factors considered determining credit ratings agency definition eligible capital methodology evaluating capital adequacy assessments generally based combination factors rather single calculation see “liquidity risk management credit ratings” information credit ratings group inc gsco gsi gs bank usa subsidiary capital requirements many subsidiaries including gs bank usa brokerdealer subsidiaries subject separate regulation capital requirements jurisdictions throughout world purposes assessing adequacy capital gs bank usa established icaap similar used group inc gs bank usa’s capital levels prompt corrective action classification subject qualitative judgments regulators components risk weightings factors expect capital requirements several subsidiaries impacted future various developments arising basel committee doddfrank act governmental entities regulators see note 20 consolidated financial statements part ii item 8 form 10k information gs bank usa’s capital ratios basel 1 implemented federal reserve board information capital requirements regulated subsidiaries potential impact regulatory reform subsidiaries subject separate regulatory capital requirements may hold capital satisfy local tax guidelines rating agency requirements entities assigned credit ratings internal policies including policies concerning minimum amount capital subsidiary hold based underlying level risk certain instances group inc may limited ability access capital held certain subsidiaries result regulatory tax constraints december 2011 december 2010 group inc’s equity investment subsidiaries 6770 billion 7130 billion respectively compared total shareholders’ equity 7038 billion 7736 billion respectively goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis group inc guaranteed payment obligations gsco gs bank usa goldman sachs bank europe plc goldman sachs execution clearing lp gsec subject certain exceptions november 2008 group inc contributed subsidiaries gs bank usa group inc agreed guarantee certain losses including creditrelated losses relating assets held contributed entities connection guarantee group inc also agreed pledge gs bank usa certain collateral including interests subsidiaries illiquid assets capital invested nonus subsidiaries generally exposed foreign exchange risk substantially managed combination derivatives nonus denominated debt contingency capital plan contingency capital plan provides framework analyzing responding perceived actual capital deficiency including limited identification drivers capital deficiency well mitigants potential actions outlines appropriate communication procedures follow crisis period including internal dissemination information well ensuring timely communication external stakeholders equity capital management objective maintain sufficient level optimal composition equity capital principally manage capital issuances repurchases common stock may also time issue repurchase preferred stock junior subordinated debt issued trusts subordinated debt forms capital business conditions warrant subject regulatory approvals manage capital requirements principally setting limits balance sheet assets andor limits risk case consolidated business levels attribute capital usage businesses based upon internal riskbased capital regulatory frameworks manage levels usage based upon balance sheet risk limits established preferred stock 2011 redeemed 50000 shares series g preferred stock held berkshire hathaway stated redemption price 550 billion 110000 per share plus accrued unpaid dividends connection redemption recognized preferred dividend 164 billion calculated difference carrying value redemption value preferred stock included consolidated statement earnings 2011 berkshire hathaway continues hold fiveyear warrant issued october 2008 purchase 435 million shares common stock exercise price 11500 per share repurchase program seek use share repurchase program help maintain appropriate level common equity substantially offset increases share count time resulting employee sharebased compensation repurchase program effected primarily regular openmarket purchases amounts timing determined primarily current projected capital positions ie comparisons desired level composition capital actual level composition capital issuance shares resulting employee sharebased compensation may also influenced general market conditions prevailing price trading volumes common stock december 2011 share repurchase program approved board directors group inc board repurchase 635 million additional shares common stock however repurchases subject approval federal reserve board see “market registrant’s common equity related stockholder matters issuer purchases equity securities” part ii item 5 note 19 consolidated financial statements part ii item 8 form 10k additional information repurchase program see notes 16 19 consolidated financial statements part ii item 8 form 10k information preferred stock junior subordinated debt issued trusts subordinated debt goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis capital metrics table presents information shareholders’ equity book value per common share tangible common shareholders’ equity tangible common shareholders’ equity equals total shareholders’ equity less preferred stock goodwill identifiable intangible assets believe tangible common shareholders’ equity meaningful measure investors use assess capital adequacy tangible common shareholders’ equity nongaap measure may comparable similar nongaap measures used companies table presents reconciliation total shareholders’ equity tangible common shareholders’ equity book value tangible book value per common share book value tangible book value per common share based common shares outstanding including restricted stock units granted employees future service requirements 5163 million 5469 million december 2011 december 2010 respectively believe tangible book value per common share tangible common shareholders’ equity divided common shares outstanding meaningful measure investors use assess capital adequacy tangible book value per common share nongaap measure may comparable similar nongaap measures used companies offbalancesheet arrangements contractual obligations offbalancesheet arrangements various types offbalancesheet arrangements enter ordinary course business involvement arrangements take many different forms including  purchasing retaining residual interests special purpose entities mortgagebacked assetbacked securitization vehicles  holding senior subordinated debt interests limited general partnerships preferred common stock nonconsolidated vehicles  entering interest rate foreign currency equity commodity credit derivatives including total return swaps  entering operating leases  providing guarantees indemnifications loan commitments letters credit representations warranties enter arrangements variety business purposes including securitizations securitization vehicles purchase mortgages corporate bonds types financial assets critical functioning several significant investor markets including mortgagebacked assetbacked securities markets since offer investors access specific cash flows risks created securitization process also enter arrangements underwrite client securitization transactions provide secondary market liquidity make investments performing nonperforming debt equity real estate assets provide investors creditlinked assetrepackaged notes receive provide letters credit satisfy margin requirements facilitate clearance settlement process goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis financial interests derivative transactions nonconsolidated entities accounted fair value manner financial instruments except cases apply equity method accounting table presents discussion various offbalancesheet arrangements may found part ii items 7 8 form 10k addition see note 3 consolidated financial statements part ii item 8 form 10k discussion consolidation policies goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis contractual obligations certain contractual obligations require us make future cash payments contractual obligations include unsecured longterm borrowings secured longterm financings time deposits contractual interest payments insurance agreements included consolidated statement financial condition obligations make future cash payments also include certain offbalancesheet contractual obligations purchase obligations minimum rental payments noncancelable leases commitments guarantees table presents contractual obligations commitments guarantees december 2011 1 excludes 483 billion time deposits maturing within one year 2 aggregate contractual principal amount secured longterm financings fair value option elected primarily consisting transfers financial assets accounted financings rather sales certain nonrecourse financings exceeded related fair value 239 million 3 includes 1084 billion related interest rate hedges certain unsecured longterm borrowings addition aggregate contractual principal amount unsecured longterm borrowings principal nonprincipal protected fair value option elected exceeded related fair value 693 million 4 represents estimated future interest payments related unsecured longterm borrowings secured longterm financings time deposits based applicable interest rates december 2011 includes stated coupons structured notes 5 represents estimated undiscounted payments related future benefits unpaid claims arising policies associated insurance activities excluding separate accounts estimated recoveries reinsurance contracts goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis table  obligations maturing within one year financial statement date redeemable within one year financial statement date option holder excluded treated shortterm obligations  obligations repayable prior maturity option reflected contractual maturity dates obligations redeemable prior maturity option holders reflected dates options become exercisable  amounts included table necessarily reflect actual future cash flow requirements arrangements commitments guarantees represent notional amounts may expire unused reduced cancelled counterparty’s request  due uncertainty timing amounts ultimately paid liability unrecognized tax benefits excluded see note 24 consolidated financial statements part ii item 8 form 10k information unrecognized tax benefits see notes 15 18 consolidated financial statements part ii item 8 form 10k information shortterm borrowings commitments guarantees december 2011 unsecured longterm borrowings 17355 billion maturities extending 2061 consisted principally senior borrowings see note 16 consolidated financial statements part ii item 8 form 10k information unsecured longterm borrowings december 2011 future minimum rental payments net minimum sublease rentals noncancelable leases 326 billion lease commitments principally office space expire various dates 2069 certain agreements subject periodic escalation provisions increases real estate taxes charges see note 18 consolidated financial statements part ii item 8 form 10k information leases occupancy expenses include costs associated office space held excess current requirements excess space cost charged earnings incurred held potential growth replace currently occupied space may exit future regularly evaluate current future space capacity relation current projected staffing levels year ended december 2011 total occupancy expenses space held excess current requirements 85 million includes costs related transition new headquarters new york city addition year ended december 2011 incurred exit costs 14 million related office space may incur exit costs future extent reduce space capacity ii commit occupy new properties locations operate consequently dispose existing space held potential growth exit costs may material results operations given period overview structure risk management overview believe effective risk management primary importance success firm accordingly comprehensive risk management processes monitor evaluate manage risks assume conducting activities include market credit liquidity operational legal regulatory reputational risk exposures risk management framework built around three core components governance processes people governance risk management governance starts board plays important role reviewing approving risk management policies practices directly risk committee consists independent directors board also receives periodic updates firmwide risks independent control support functions next senior levels firm leaders experienced risk managers sophisticated detailed understanding risks take senior managers lead participate riskoriented committees leaders independent control support functions including internal audit compliance controllers credit risk management human capital management legal market risk management operations operational risk management tax technology treasury goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis firm’s governance structure provides protocol responsibility decisionmaking risk management issues ensures implementation decisions make extensive use riskrelated committees meet regularly serve important means facilitate foster ongoing discussions identify manage mitigate risks maintain strong communication risk culture collaboration decisionmaking among revenueproducing units independent control support functions committees senior management believe first line defense managing risk rests managers revenueproducing units dedicate extensive resources independent control support functions order ensure strong oversight structure appropriate segregation duties processes maintain various processes procedures critical components risk management first foremost daily discipline marking substantially firm’s inventory current market levels goldman sachs carries inventory fair value changes valuation reflected immediately risk management systems net revenues believe discipline one effective tools assessing managing risk provides transparent realistic insight financial exposures also apply rigorous framework limits control risk across multiple transactions products businesses markets includes setting credit market risk limits variety levels monitoring limits daily basis limits typically set levels periodically exceeded rather levels reflect maximum risk appetite fosters ongoing dialogue risk among revenueproducing units independent control support functions committees senior management well rapid escalation riskrelated matters see “market risk management” “credit risk management” information risk limits active management positions another important process proactive mitigation market credit exposures minimizes risk required take outsized actions periods stress also focus rigor effectiveness firm’s risk systems goal risk management technology get right information right people right time requires systems comprehensive reliable timely devote significant time resources risk management technology ensure consistently provides us complete accurate timely information people even best technology serves tool helping make informed decisions real time risks taking ultimately effective risk management requires people interpret risk data ongoing timely basis adjust risk positions accordingly revenueproducing units independent control support functions experience professionals understanding nuances limitations risk measure guide firm assessing exposures maintaining within prudent levels structure ultimate oversight risk responsibility firm’s board oversees risk directly risk committee within firm series committees specific risk management mandates oversight decisionmaking responsibilities risk management activities committee membership generally consists senior managers revenueproducing units independent control support functions established procedures committees ensure appropriate information barriers place primary risk committees also additional subcommittees working groups described addition committees riskoriented committees provide oversight different businesses activities products regions legal entities membership firm’s risk committees reviewed regularly updated reflect changes responsibilities committee members accordingly length time members serve respective committees varies determined committee chairs based responsibilities members within firm addition independent control support functions report chief financial officer general counsel chief administrative officer case internal audit committee board responsible daytoday oversight risk discussed greater detail following sections goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis chart presents overview risk management governance structure highlighting oversight board key riskrelated committees independence control support functions management committee management committee oversees global activities firm including firm’s independent control support functions provides oversight directly authority delegated committees established committee comprised senior leaders firm chaired firm’s chief executive officer management committee established various committees delegated authority chairperson management committee appoints chairpersons committees members management committee also members firmwide divisional regional committees following committees principally involved firmwide risk management firmwide client business standards committee firmwide client business standards committee assesses makes determinations regarding business standards practices reputational risk management client relationships client service chaired firm’s president chief operating officer reports management committee also responsibility overseeing implementation recommendations business standards committee established following two riskrelated committees report goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis  firmwide new activity committee firmwide new activity committee responsible reviewing new activities establishing process identify review previously approved activities significant changed complexity andor structure present different reputational suitability concerns time consider whether activities remain appropriate committee cochaired firm’s head operationschief operating officer europe middle east africa chief administrative officer investment management division appointed firmwide client business standards committee chairperson  firmwide suitability committee firmwide suitability committee responsible setting standards policies product transaction client suitability providing forum consistency across divisions regions products suitability assessments committee also reviews suitability matters escalated firm committees committee cochaired firm’s international general counsel cohead investment management division appointed firmwide client business standards committee firmwide risk committee firmwide risk committee responsible ongoing monitoring control firm’s global financial risks direct delegated authority firmwide risk committee approves firmwide product divisional businesslevel limits market credit risks approves sovereign credit risk limits reviews results stress tests scenario analyses committee cochaired firm’s chief financial officer senior managing director firm’s executive office reports management committee following four committees report firmwide risk committee responsible appointing chairperson committees  securities division risk committee securities division risk committee sets market risk limits subject overall firmwide risk limits fixed income currency commodities client execution equities client execution businesses based number risk measures including var stress tests scenario analyses inventory levels committee chaired chief risk officer securities division  credit policy committee credit policy committee establishes reviews broad credit policies parameters implemented credit risk management department credit risk management committee chaired firm’s chief credit officer  operational risk committee operational risk committee provides oversight ongoing development implementation operational risk policies framework methodologies monitors effectiveness operational risk management committee chaired managing director credit risk management  finance committee finance committee oversight firmwide liquidity size composition balance sheet capital base credit ratings committee regularly reviews liquidity balance sheet funding position capitalization makes adjustments light current events risks exposures regulatory requirements committee also responsible reviewing approving balance sheet limits size gce committee cochaired firm’s chief financial officer firm’s global treasurer following committees report jointly firmwide risk committee firmwide client business standards committee  firmwide commitments committee firmwide commitments committee reviews firm’s underwriting distribution activities respect equity equityrelated product offerings sets maintains policies procedures designed ensure legal reputational regulatory business standards maintained global basis addition reviewing specific transactions committee periodically conducts general strategic reviews sectors products establishes policies connection transaction practices committee cochaired global cohead financial institutions group investment banking head mergers acquisitions europe middle east africa asia pacific investment banking appointed firmwide client business standards committee chairperson goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis  firmwide capital committee firmwide capital committee provides approval oversight debtrelated underwriting transactions including related commitments firm’s capital committee aims ensure business reputational standards underwritings capital commitments maintained global basis committee cochaired firm’s global treasurer head credit finance europe middle east africa appointed firmwide risk committee chairpersons investment management division risk committee investment management division risk committee responsible ongoing monitoring control global market counterparty credit liquidity risks associated activities investment management businesses head investment management division risk management chair committee investment management division risk committee reports firm’s chief risk officer liquidity risk management liquidity critical importance financial institutions recent failures financial institutions occurred large part due insufficient liquidity accordingly firm place comprehensive conservative set liquidity funding policies address firmspecific broader industry market liquidity events principal objective able fund firm enable core businesses continue generate revenues even adverse circumstances manage liquidity risk according following principles excess liquidity maintain substantial excess liquidity meet broad range potential cash outflows collateral needs stressed environment assetliability management assess anticipated holding periods assets expected liquidity stressed environment manage maturities diversity funding across markets products counterparties seek maintain liabilities appropriate tenor relative asset base contingency funding plan maintain contingency funding plan provide framework analyzing responding liquidity crisis situation periods market stress framework sets forth plan action fund normal business activity emergency stress situations principles discussed detail excess liquidity important liquidity policy prefund estimated potential cash needs liquidity crisis hold excess liquidity form unencumbered highly liquid securities cash believe securities held global core excess would readily convertible cash matter days liquidation entering repurchase agreements maturities reverse repurchase agreements cash would allow us meet immediate obligations without needing sell assets depend additional funding creditsensitive markets december 2011 december 2010 fair value securities certain overnight cash deposits included gce totaled 17158 billion 17478 billion respectively based results internal liquidity risk model discussed well consideration factors including limited qualitative assessment condition financial markets firm believe liquidity position december 2011 appropriate table presents fair value securities certain overnight cash deposits included gce goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis us dollardenominated excess composed unencumbered us government federal agency obligations including highly liquid us federal agency mortgagebacked obligations eligible collateral federal reserve open market operations ii certain overnight us dollar cash deposits nonus dollardenominated excess composed unencumbered german french japanese united kingdom government obligations certain overnight cash deposits highly liquid currencies strictly limit excess liquidity narrowly defined list securities cash highly liquid even difficult funding environment include potential sources excess liquidity lowerquality unencumbered securities committed credit facilities gce table presents fair value gce asset class gce held group inc major brokerdealer bank subsidiaries presented table gce reflects following principles  first days weeks liquidity crisis critical company’s survival  focus must maintained potential cash collateral outflows disruptions financing flows businesses diverse liquidity needs determined many factors including market movements collateral requirements client commitments change dramatically difficult funding environment  liquidity crisis creditsensitive funding including unsecured debt types secured financing agreements may unavailable terms eg interest rates collateral provisions tenor availability types secured financing may change  result policy prefund liquidity estimate may needed crisis hold unencumbered securities larger debt balances businesses would otherwise require believe liquidity stronger greater balances highly liquid unencumbered securities even though increases total assets funding costs believe gce provides us resilient source funds would available advance potential cash collateral outflows gives us significant flexibility managing difficult funding environment order determine appropriate size gce use internal liquidity model referred modeled liquidity outflow captures quantifies firm’s liquidity risks also consider factors including limited qualitative assessment condition financial markets firm distribute gce across subsidiaries asset types clearing agents provide us sufficient operating liquidity ensure timely settlement major markets even difficult funding environment maintain gce enable us meet current potential liquidity requirements parent company group inc major brokerdealer bank subsidiaries modeled liquidity outflow incorporates consolidated requirement well standalone requirement major brokerdealer bank subsidiaries liquidity held directly subsidiaries intended use subsidiary meet liquidity requirements assumed available group inc unless legally provided ii additional regulatory tax restrictions hold portion gce directly group inc support consolidated requirements accounted major subsidiaries addition gce maintain operating cash balances several operating entities primarily use specific currencies entities jurisdictions immediate access parent company liquidity goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis addition gce significant amount unencumbered cash financial instruments including government obligations highgrade money market securities corporate obligations marginable equities loans cash deposits included gce fair value assets averaged 8332 billion 7298 billion years ended december 2011 december 2010 respectively consider assets liquid enough eligible gce liquidity pool therefore conservatively assume generate liquidity assets modeled liquidity outflow modeled liquidity outflow modeled liquidity outflow based scenario includes marketwide stress firmspecific stress characterized following qualitative elements  global recession default mediumsized sovereign low consumer corporate confidence general financial instability  severely challenged market environment material declines equity markets widening credit spreads  damaging followon impacts financial institutions leading failure large bank  firmspecific crisis potentially triggered material losses reputational damage litigation executive departure andor ratings downgrade following critical modeling parameters modeled liquidity outflow  liquidity needs 30day scenario  twonotch downgrade firm’s longterm senior unsecured credit ratings  combination contractual outflows upcoming maturities unsecured debt contingent outflows eg actions though contractually required may deem necessary crisis assume contingent outflows occur within initial days weeks crisis  issuance equity unsecured debt  support government funding facilities although access various central bank funding programs assume reliance source funding liquidity crisis  diversification benefit across liquidity risks assume liquidity risks additive  maintenance normal business levels assume asset liquidation gce modeled liquidity outflow calculated reported senior management daily basis regularly refine model reflect changes market economic conditions firm’s business mix potential contractual contingent cash collateral outflows covered modeled liquidity outflow include unsecured funding  contractual upcoming maturities unsecured longterm debt commercial paper promissory notes unsecured funding products assume unable issue new unsecured debt rollover maturing debt  contingent repurchases outstanding longterm debt commercial paper hybrid financial instruments ordinary course business market maker deposits  contractual upcoming maturities term deposits assume unable raise new term deposits rollover maturing term deposits  contingent withdrawals bank deposits contractual maturity withdrawal assumptions reflect among factors type deposit whether deposit insured uninsured firm’s relationship depositor secured funding  contractual portion upcoming contractual maturities secured funding due either inability refinance ability refinance wider haircuts ie terms require us post additional collateral assumptions reflect among factors quality underlying collateral counterparty concentration  contingent decline value financial assets pledged collateral financing transactions would necessitate additional collateral postings transactions goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis otc derivatives  contingent collateral postings counterparties due adverse changes value otc derivatives  contingent outflows cash collateral related otc derivatives including impact trade terminations collateral substitutions collateral disputes collateral calls termination payments required twonotch downgrade credit ratings collateral called counterparties available exchangetraded derivatives  contingent variation margin postings required due adverse changes value outstanding exchangetraded derivatives  contingent increase initial margin guaranty fund requirements derivative clearing houses customer cash securities  contingent liquidity outflows associated prime brokerage business including withdrawals customer credit balances reduction customer short positions serve funding source long positions unfunded commitments  contingent draws unfunded commitments draw assumptions reflect among things type commitment counterparty  upcoming large cash outflows tax payments assetliability management liquidity risk management policies designed ensure sufficient amount financing even funding markets experience persistent stress seek maintain longdated diversified funding profile taking consideration characteristics liquidity profile assets approach assetliability management includes  conservatively managing overall characteristics funding book focus maintaining longterm diversified sources funding excess current requirements see “balance sheet funding sources funding sources” additional details  actively managing monitoring asset base particular focus liquidity holding period ability fund assets secured basis enables us determine appropriate funding products tenors less liquid assets difficult fund therefore require funding longer tenor see “balance sheet funding sources balance sheet management” detail balance sheet management process  raising secured unsecured financing sufficiently longer term anticipated holding period assets reduces risk liabilities come due advance ability generate liquidity sale assets maintain highly liquid balance sheet holding period certain assets may materially shorter contractual maturity dates goal sufficient total capital unsecured longterm borrowings plus total shareholders’ equity avoid reliance asset sales gce however recognize orderly asset sales may prudent necessary severe persistent liquidity crisis target amount total capital based internal funding model incorporates following longterm financing requirements  portion financial instruments owned fair value funded secured basis  goodwill identifiable intangible assets property leasehold improvements equipment illiquid assets  derivative margin collateral requirements  anticipated draws unfunded loan commitments  regulatory requirements hold capital forms financing excess would otherwise hold regulated subsidiaries goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis subsidiary funding policies majority unsecured funding raised group inc lends necessary funds subsidiaries regulated meet asset financing liquidity capital requirements addition group inc provides regulated subsidiaries necessary capital meet regulatory requirements benefits approach subsidiary funding enhanced control greater flexibility meet funding requirements subsidiaries funding also raised subsidiary level variety products including secured funding unsecured borrowings deposits intercompany funding policies assume unless legally provided subsidiary’s funds securities freely available parent company subsidiaries particular many subsidiaries subject laws authorize regulatory bodies block reduce flow funds subsidiaries group inc regulatory action kind could impede access funds group inc needs make payments obligations accordingly assume capital provided regulated subsidiaries available group inc subsidiaries financing provided regulated subsidiaries available maturity financing group inc provided substantial amounts equity subordinated indebtedness directly indirectly regulated subsidiaries example december 2011 group inc 2816 billion equity subordinated indebtedness invested gsco principal us registered brokerdealer 2843 billion invested gsi regulated uk brokerdealer 267 billion invested gsec us registered brokerdealer 428 billion invested goldman sachs japan co ltd regulated japanese brokerdealer 1923 billion invested gs bank usa regulated new york statechartered bank group inc also provided directly indirectly 8483 billion unsubordinated loans 612 billion collateral entities substantially gsco gsi december 2011 addition december 2011 group inc significant amounts capital invested loans regulated subsidiaries contingency funding plan goldman sachs contingency funding plan sets plan action would use fund business activity crisis situations periods market stress contingency funding plan outlines list potential risk factors key reports metrics reviewed ongoing basis assist assessing severity managing liquidity crisis andor market dislocation contingency funding plan also describes detail firm’s potential responses assessments indicate firm entered liquidity crisis include prefunding estimate potential cash collateral needs well utilizing secondary sources liquidity mitigants action items address specific risks may arise also described assigned individuals responsible execution contingency funding plan identifies key groups individuals foster effective coordination control distribution information critical management crisis period market stress contingency funding plan also details responsibilities groups individuals include making disseminating key decisions coordinating contingency activities throughout duration crisis period market stress implementing liquidity maintenance activities managing internal external communication goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis credit ratings table presents unsecured credit ratings excluding debt guaranteed fdic tlgp outlook 1 trust preferred securities issued goldman sachs capital 2 includes group inc’s noncumulative preferred stock normal automatic preferred enhanced capital securities apex issued goldman sachs capital ii goldman sachs capital iii 3 gs bank usa assigned rating longterm bank deposits shortterm bank deposits longterm issuer 4 gsco assigned rating shortterm issuer longterm issuer 5 gs bank usa assigned rating aa3 longterm bank deposits p1 shortterm bank deposits aa3 longterm issuer 6 gsco assigned rating a1 shortterm issuer longterm issuer 7 gsi assigned rating a1 shortterm issuer longterm issuer 8 applies longterm shortterm ratings 9 applies longterm issuer default ratings 10 applies longterm ratings 11 applies issuer rating fourth quarter 2011 revising global rating methodology banks standard poor’s ratings services lowered group inc’s ratings longterm debt shortterm debt a1 a2 subordinated debt bbb trust preferred bbb bb preferred stock bbb bb retained outlook “negative” addition part global review financial institutions fitch inc lowered group inc’s ratings longterm debt shortterm debt subordinated debt trust preferred bbb preferred stock bbb retained outlook “stable” february 10 2012 standard poor’s ratings services assigned gs bank usa rating a1 shortterm issuer longterm issuer february 15 2012 moody’s investors service placed long shortterm debt ratings group inc review downgrade part global review financial institutions rely shortterm longterm debt capital markets fund significant portion daytoday operations cost availability debt financing influenced credit ratings credit ratings also important competing certain markets otc derivatives seek engage longerterm transactions see “certain risk factors may affect businesses” “risk factors” part item 1a form 10k discussion risks associated reduction credit ratings believe credit ratings primarily based credit rating agencies’ assessment  liquidity market credit operational risk management practices  level variability earnings  capital base  franchise reputation management  corporate governance  external operating environment including assumed level government support goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis allocate portion gce ensure would able make additional collateral termination payments may required event twonotch reduction longterm credit ratings well collateral called counterparties available table presents additional collateral termination payments could called reporting date counterparties event onenotch twonotch downgrade credit ratings basel committee banking supervision’s international framework liquidity risk measurement standards monitoring calls imposition liquidity coverage ratio designed ensure banking entity maintains adequate level unencumbered highquality liquid assets based expected cash outflows acute liquidity stress scenario net stable funding ratio designed promote medium longterm funding assets activities banking entities oneyear time horizon liquidity coverage ratio expected introduced requirement january 1 2015 net stable funding ratio expected introduced requirement january 1 2018 principles behind new framework broadly consistent current liquidity management framework possible implementation standards could impact liquidity funding requirements practices cash flows global financial institution cash flows complex bear little relation net earnings net assets consequently believe traditional cash flow analysis less meaningful evaluating liquidity position excess liquidity assetliability management policies described cash flow analysis may however helpful highlighting certain macro trends strategic initiatives businesses year ended december 2011 cash equivalents increased 1622 billion 5601 billion end 2011 generated 2313 billion net cash operating investing activities used net cash 691 billion financing activities primarily repurchases series g preferred stock common stock partially offset increase bank deposits year ended december 2010 cash equivalents increased 150 billion 3979 billion end 2010 generated 784 billion net cash financing activities primarily net proceeds issuances shortterm secured financings used net cash 634 billion operating investing activities primarily fund increase securities purchased agreements resell increase cash securities segregated regulatory purposes partially offset cash generated decrease securities borrowed year ended december 2009 cash equivalents increased 2449 billion 3829 billion end 2009 generated 4888 billion net cash operating activities used net cash 2439 billion investing financing activities primarily net repayments unsecured secured shortterm borrowings repurchases series h preferred stock related common stock warrant us treasury partially offset increase bank deposits issuance common stock goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis market risk management overview market risk loss value inventory due changes market prices hold inventory primarily market making clients investing lending activities inventory therefore changes based client demands investment opportunities inventory accounted fair value therefore fluctuates daily basis categories market risk include following  interest rate risk results exposures changes level slope curvature yield curves volatilities interest rates mortgage prepayment speeds credit spreads  equity price risk results exposures changes prices volatilities individual equities baskets equities equity indices  currency rate risk results exposures changes spot prices forward prices volatilities currency rates  commodity price risk results exposures changes spot prices forward prices volatilities commodities electricity natural gas crude oil petroleum products precious base metals market risk management process manage market risk diversifying exposures controlling position sizes establishing economic hedges related securities derivatives includes  accurate timely exposure information incorporating multiple risk metrics  dynamic limit setting framework  constant communication among revenueproducing units risk managers senior management market risk management independent revenueproducing units reports firm’s chief risk officer primary responsibility assessing monitoring managing market risk firm monitor control risks strong firmwide oversight independent control support functions across firm’s global businesses managers revenueproducing units accountable managing risk within prescribed limits managers indepth knowledge positions markets instruments available hedge exposures managers revenueproducing units market risk management discuss market information positions estimated risk loss scenarios ongoing basis risk measures market risk management produces risk measures monitors market risk limits set firm’s risk committees measures reflect extensive range scenarios results aggregated trading desk business firmwide levels use variety risk measures estimate size potential losses moderate extreme market moves shortterm longterm time horizons risk measures used shorterterm periods include var sensitivity metrics longerterm horizons primary risk measures stress tests risk reports detail key risks drivers changes desk business distributed daily senior management revenueproducing units independent control support functions systems made significant investment technology monitor market risk including  independent calculation var stress measures  risk measures calculated individual position levels  attribution risk measures individual risk factors position  ability report many different views risk measures eg desk business product type legal entity  ability produce ad hoc analyses timely manner goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis valueatrisk var potential loss value inventory positions due adverse market movements defined time horizon specified confidence level typically employ oneday time horizon 95 confidence level var model captures risks including interest rates equity prices currency rates commodity prices var facilitates comparison across portfolios different risk characteristics var also captures diversification aggregated risk firmwide level aware inherent limitations var therefore use variety risk measures market risk management process inherent limitations var include  var estimate potential losses longer time horizons moves may extreme  var take account relative liquidity different risk positions  previous moves market risk factors may produce accurate predictions future market moves calculating var use historical simulations full valuation approximately 70000 market factors historical data used var calculation weighted give greater importance recent observations reflect current asset volatilities improves accuracy estimates potential loss result even inventory positions unchanged var would increase increasing market volatility vice versa given reliance historical data var effective estimating risk exposures markets sudden fundamental changes shifts market conditions evaluate accuracy var model daily backtesting ie comparing daily trading net revenues var measure calculated prior business day firmwide level businesses major regulated subsidiaries var measure include  positions best measured monitored using sensitivity measures  impact changes counterparty credit spreads derivatives well changes credit spreads unsecured borrowings fair value option elected stress testing use stress testing examine risks specific portfolios well potential impact significant risk exposures across firm use variety scenarios calculate potential loss wide range market moves firm’s portfolios scenarios include default single corporate sovereign entities impact move single risk factor across positions eg equity prices credit spreads combination two risk factors unlike var measures implied probability calculated specified confidence level generally implied probability stress test scenarios occur instead stress tests used model moderate extreme moves underlying market factors estimating potential loss generally assume positions cannot reduced hedged although experience demonstrates generally able stress test scenarios conducted regular basis part firm’s routine risk management process ad hoc basis response market events concerns stress testing important part firm’s risk management process allows us highlight potential loss concentrations undertake riskreward analysis assess mitigate risk positions limits use risk limits various levels firm including firmwide product business govern risk appetite controlling size exposures market risk limits reviewed frequently amended permanent temporary basis reflect changing market conditions business conditions tolerance risk firmwide risk committee sets market risk limits firmwide product levels securities division risk committee sets sublimits marketmaking investing activities business level purpose firmwide limits assist senior management controlling firm’s overall risk profile sublimits set desired maximum amount exposure may managed particular business daytoday basis without additional levels senior management approval effectively leaving daytoday trading decisions individual desk managers traders accordingly sublimits management tool designed ensure appropriate escalation rather establish maximum risk tolerance sublimits also distribute risk among various businesses manner consistent level activity client demand taking account relative performance area goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis market risk limits monitored daily market risk management responsible identifying escalating timely basis instances limits exceeded businesslevel limits set securities division risk committee subject scrutiny limit escalation policy firmwide limits risk limit exceeded eg due changes market conditions increased volatilities changes correlations reported appropriate risk committee discussion takes place relevant desk managers either risk position reduced risk limit temporarily permanently increased metrics analyze var firmwide level variety detailed levels including risk category business region tables present average daily var yearend var risk category average daily var 1 equals difference total var sum vars four risk categories effect arises four market risk categories perfectly correlated average daily var decreased 113 million 2011 134 million 2010 primarily reflecting decreases equity prices currency rates categories principally due reduced exposures decreases partially offset decrease diversification benefit across risk categories average daily var decreased 134 million 2010 218 million 2009 principally due decrease interest rates category primarily due reduced exposures lower levels volatility tighter spreads yearend var high low var 1 equals difference total var sum vars four risk categories effect arises four market risk categories perfectly correlated daily var decreased 99 million december 2011 111 million december 2010 primarily reflecting decreases equity prices currency rates categories principally due reduced exposures decreases partially offset increase interest rates category primarily due higher levels volatility wider credit spreads year ended december 2011 firmwide var risk limit exceeded one occasion resolved temporary increase firmwide var risk limit subsequently made permanent due higher levels volatility firmwide var risk limit previously reduced one occasion 2011 reflecting lower risk utilization market environment year ended december 2010 firmwide var risk limit exceeded one occasion order facilitate client transaction resolved reduction risk position following day separately year ended december 2010 firmwide var risk limit reduced one occasion reflecting lower risk utilization goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis chart reflects var last four quarters chart presents frequency distribution daily trading net revenues substantially inventory positions included var year ended december 2011 daily trading net revenues compared var calculated end prior business day firm incurred trading losses single day excess 95 oneday var ie var exception three occasions 2011 two occasions 2010 goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis periods firm significantly positive net revenue days net revenue loss days expect fewer var exceptions normal conditions business model generally produces positive net revenues periods franchise revenues adversely affected generally loss days resulting var exceptions addition var backtesting performed total daily marketmaking revenues including bidoffer net revenues likely positive nature sensitivity measures certain portfolios individual positions included var appropriate risk measure market risk positions determined estimating potential reduction net revenues 10 decline underlying asset value table presents market risk positions included var measures reflect diversification benefits across asset categories therefore aggregated 1 excludes thirdparty interests held investment funds managed goldman sachs 2 relates private restricted public equity securities including interests firmsponsored funds invest corporate equities real estate interests firmsponsored hedge funds 3 relates corporate bank debt loans backed commercial residential real estate corporate debt including acquired portfolios distressed loans interests firmsponsored funds invest corporate mezzanine senior debt instruments var excludes impact changes counterparty credit spreads derivatives well changes credit spreads unsecured borrowings fair value option elected estimated sensitivity one basis point increase credit spreads counterparty derivatives 4 million gain december 2011 addition estimated sensitivity one basis point increase credit spreads unsecured borrowings fair value option elected 7 million gain including hedges december 2011 however actual net impact change credit spreads also affected liquidity duration convexity sensitivity linear changes yields unsecured borrowings fair value option elected well relative performance hedges undertaken firm engages insurance activities reinsure purchase portfolios insurance risk pension liabilities risks associated activities include limited equity interest rate reinvestment mortality risk firm mitigates risks associated insurance activities use reinsurance hedging certain assets associated firm’s insurance activities included var addition positions included var held 486 billion securities accounted availableforsale december 2011 substantially support firm’s insurance subsidiaries december 2011 availableforsale securities primarily consisted 181 billion corporate debt securities average yield 5 majority mature five years 142 billion mortgage assetbacked loans securities average yield 10 majority mature ten years 662 million us government federal agency obligations average yield 3 majority mature ten years december 2010 held 367 billion securities accounted availableforsale primarily consisting 169 billion corporate debt securities average yield 6 majority mature five years 670 million mortgage assetbacked loans securities average yield 11 mature ten years 637 million us government federal agency obligations average yield 4 majority mature ten years addition december 2011 december 2010 commitments held loans william street credit extension program december 2010 also held money market instruments program see note 18 consolidated financial statements part ii item 8 form 10k information william street credit extension program additionally make investments accounted equity method also make direct investments real estate included “other assets” consolidated statements financial condition direct investments real estate accounted cost less accumulated depreciation see note 12 consolidated financial statements part ii item 8 form 10k information “other assets” goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis credit risk management overview credit risk represents potential loss due default deterioration credit quality counterparty eg otc derivatives counterparty borrower issuer securities instruments hold exposure credit risk comes mostly client transactions otc derivatives loans lending commitments credit risk also comes cash placed banks securities financing transactions ie resale repurchase agreements securities borrowing lending activities receivables brokers dealers clearing organizations customers counterparties credit risk management independent revenueproducing units reports firm’s chief risk officer primary responsibility assessing monitoring managing credit risk firm credit policy committee firmwide risk committee establish review credit policies parameters addition hold positions give rise credit risk eg bonds held inventory secondary bank loans credit risks captured component market risk measures monitored managed market risk management consistent inventory positions policies authorized firmwide risk committee credit policy committee prescribe level formal approval required firm assume credit exposure counterparty across product areas taking account enforceable netting provisions collateral credit risk mitigants credit risk management process effective management credit risk requires accurate timely information high level communication knowledge customers countries industries products process managing credit risk includes  approving transactions setting communicating credit exposure limits  monitoring compliance established credit exposure limits  assessing likelihood counterparty default payment obligations  measuring firm’s current potential credit exposure losses resulting counterparty default  reporting credit exposures senior management board regulators  use credit risk mitigants including collateral hedging  communication collaboration independent control support functions operations legal compliance part risk assessment process credit risk management performs credit reviews include initial ongoing analyses counterparties credit review independent judgment capacity willingness counterparty meet financial obligations substantially credit exposures core process annual counterparty review counterparty review written analysis counterparty’s business profile financial strength resulting internal credit rating represents probability default financial obligations firm determination internal credit ratings incorporates assumptions respect counterparty’s future business performance nature outlook counterparty’s industry economic environment senior personnel within credit risk management expertise specific industries inspect approve credit reviews internal credit ratings global credit risk management systems capture credit exposure individual counterparties aggregate basis counterparties subsidiaries economic groups systems also provide management comprehensive information aggregate credit risk product internal credit rating industry country region risk measures limits measure credit risk based potential loss event nonpayment counterparty derivatives securities financing transactions primary measure potential exposure estimate future exposure could arise life transaction based market movements within specified confidence level potential exposure takes account netting collateral arrangements loans lending commitments primary measure function notional amount position also monitor credit risk terms current exposure amount presently owed firm taking account applicable netting collateral goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis use credit limits various levels counterparty economic group industry country control size credit exposures limits counterparties economic groups reviewed regularly revised reflect changing appetites given counterparty group counterparties limits industries countries based firm’s risk tolerance designed allow regular monitoring review escalation management credit risk concentrations stress testsscenario analysis use regular stress tests calculate credit exposures including potential concentrations would result applying shocks counterparty credit ratings credit risk factors eg currency rates interest rates equity prices shocks include wide range moderate extreme market movements stress tests include shocks multiple risk factors consistent occurrence severe market economic event eg sovereign debt default unlike potential exposure calculated within specified confidence level stress test generally assumed probability events occurring run stress tests regular basis part routine risk management processes conduct tailored stress tests ad hoc basis response market developments stress tests regularly conducted jointly firm’s market liquidity risk functions risk mitigants reduce credit exposures derivatives securities financing transactions may enter netting agreements counterparties permit us offset receivables payables counterparties may also reduce credit risk counterparties entering agreements enable us obtain collateral upfront contingent basis andor terminate transactions counterparty’s credit rating falls specified level loans lending commitments typically employ variety potential risk mitigants depending credit quality borrower characteristics transaction risk mitigants include collateral provisions guarantees covenants structural seniority bank loan claims certain lending commitments provisions legal documentation allow firm adjust loan amounts pricing structure terms market conditions change type structure risk mitigants employed significantly influence degree credit risk involved loan sufficient visibility counterparty’s financial strength believe counterparty requires support parent company may obtain thirdparty guarantees counterparty’s obligations may also mitigate credit risk using credit derivatives participation agreements credit exposures firm’s credit exposures described cash equivalents cash equivalents include interestbearing noninterest bearing deposits mitigate risk credit loss place substantially deposits highly rated banks central banks otc derivatives reported netbycounterparty basis ie net payable receivable derivative assets liabilities given counterparty legal right setoff exists enforceable netting agreement derivatives accounted fair value net cash collateral received posted credit support agreements credit risk essential component fair value firm includes credit valuation adjustment cva fair value derivatives reflect counterparty credit risk described note 7 consolidated financial statements part ii item 8 form 10k cva function present value expected exposure probability counterparty default assumed recovery upon default goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis tables present distribution exposure otc derivatives tenor based expected duration mortgagerelated credit derivatives generally remaining contractual maturity derivatives effect collateral netting agreements receivable payable balances counterparty across tenor categories netted enforceable netting agreements cash collateral received netted credit support agreements receivable payable balances counterparty tenor category netted within tenor category categories shown reflect internally determined public rating agency equivalents goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis lending activities manage firm’s traditional credit origination activities including funded loans lending commitments william street credit extension program using credit risk process measures limits described lending positions including secondary trading positions riskmanaged component market risk credit exposures firm exposed credit risk receivables brokers dealers clearing organizations customers counterparties receivables brokers dealers clearing organizations primarily comprised initial margin placed clearing organizations receivables related sales securities traded yet settled receivables minimal credit risk due low probability clearing organization default shortterm nature receivables related securities settlements receivables customers counterparties generally comprised collateralized receivables related customer securities transactions minimal credit risk due value collateral received shortterm nature receivables credit exposures year ended december 2011 credit exposures increased reflecting growth lending activity otc derivatives increased cash balances credit spreads widened year ended december 2011 percentage credit exposure arising noninvestmentgrade counterparties based internally determined public rating agency equivalents essentially unchanged december 2010 counterparty defaults associated credit losses remained low levels year ended december 2011 compared prior year period tables present firm’s credit exposures related cash otc derivatives loans lending commitments associated traditional credit origination activities broken industry region internal credit rating goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis credit exposure industry credit exposure region credit exposure credit quality 1 includes approximately 10 billion 4 billion loans december 2011 december 2010 respectively approximately 61 billion 49 billion lending commitments december 2011 december 2010 respectively excludes approximately 10 billion 14 billion loans december 2011 december 2010 respectively lending commitments total notional value approximately 5 billion 3 billion december 2011 december 2010 respectively risk managed part market risk using var sensitivity measures 2 firm bears credit risk related resale agreements securities borrowed extent cash advanced counterparty exceeds value collateral received firm also credit exposure repurchase agreements securities loaned extent value securities pledged delivered counterparty transactions exceeds amount cash collateral received approximately 41 billion 31 billion december 2011 december 2010 respectively credit exposure related securities financing transactions reflecting enforceable netting agreements 3 emea europe middle east africa goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis selected country exposures 2011 continuing 2012 concerns european sovereign debt risk impact european banking system number european member states experiencing significant credit deterioration pronounced market concerns relate greece ireland italy portugal spain table presents credit exposure gross net hedges sovereigns financial institutions corporate counterparties borrowers countries addition table includes market exposure long short inventory issuer underlier located countries country risk determined location counterparty issuer underlier’s assets generate revenue country headquartered andor government whose policies affect ability repay obligations 1 includes benefit 65 billion cash us treasury securities collateral excludes nonus government corporate securities collateral 341 million 2 includes written purchased credit derivative notionals reduced fair values credit derivatives economically hedge exposure written credit derivatives entering offsetting purchased credit derivatives identical underlyings possible endeavor match tenor credit default terms hedges written credit derivatives substantially purchased credit derivatives included bought investmentgrade counterparties domiciled outside countries collateralized cash us treasury securities gross purchased written credit derivative notionals across countries singlename credit default swaps 1473 billion 1424 billion respectively including netting legally enforceable netting agreements within across countries purchased written credit derivative notionals singlename credit default swaps 211 billion 162 billion respectively notionals representative exposure exclude available netting legally enforceable netting agreements derivatives outside countries collateral received posted credit support agreements goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis information nature payout trigger events related written purchased credit protection contracts see note 7 consolidated financial statements part ii item 8 form 10k evaluate monitor effects indirect exposure countries see “liquidity risk management modeled liquidity outflow” “market risk management stress testing” “credit risk management stress testsscenario analysis” discussion january 13 2012 standard poor’s ratings services lowered sovereign debt ratings italy bbb portugal bbb bb spain aa january 27 2012 fitch inc lowered sovereign debt ratings italy spain aa february 13 2012 moody’s investors service lowered sovereign debt ratings italy a2 a3 portugal ba2 ba3 spain a1 a3 february 22 2012 fitch inc lowered sovereign debt ratings greece ccc c downgrades material effect financial condition results operations liquidity capital resources operational risk management overview operational risk loss resulting inadequate failed internal processes people systems external events exposure operational risk arises routine processing errors well extraordinary incidents major systems failures potential types loss events related internal external operational risk include  clients products business practices  execution delivery process management  business disruption system failures  employment practices workplace safety  damage physical assets  internal fraud  external fraud firm maintains comprehensive control framework designed provide wellcontrolled environment minimize operational risks firmwide operational risk committee along support regional entityspecific working groups committees provides oversight ongoing development implementation operational risk policies framework operational risk management department operational risk management risk management function independent revenueproducing units reports firm’s chief risk officer responsible developing implementing policies methodologies formalized framework operational risk management goal minimizing exposure operational risk operational risk management process managing operational risk requires timely accurate information well strong control culture seek manage operational risk  training supervision development people  active participation senior management identifying mitigating key operational risks across firm  independent control support functions monitor operational risk daily basis instituted extensive policies procedures implemented controls designed prevent occurrence operational risk events  proactive communication revenueproducing units independent control support functions  network systems throughout firm facilitate collection data used analyze assess operational risk exposure combine topdown bottomup approaches manage measure operational risk topdown perspective firm’s senior management assesses firmwide business level operational risk profiles bottomup perspective revenueproducing units independent control support functions responsible risk management daytoday basis including identifying mitigating escalating operational risks senior management operational risk framework part designed comply operational risk measurement rules basel 2 evolved based changing needs businesses regulatory guidance framework includes following practices  risk identification reporting  risk measurement  risk monitoring internal audit performs review operational risk framework including key controls processes applications annual basis ensure effectiveness framework goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis risk identification reporting core operational risk management framework risk identification reporting comprehensive data collection process including firmwide policies procedures operational risk events established policies require managers revenueproducing units independent control support functions escalate operational risk events operational risk events identified policies require events documented analyzed determine whether changes required firm’s systems andor processes mitigate risk future events addition firmwide systems capture internal operational risk event data key metrics transaction volumes statistical information performance trends use internallydeveloped operational risk management application aggregate organize information managers revenueproducing units independent control support functions analyze information evaluate operational risk exposures identify businesses activities products heightened levels operational risk also provide operational risk reports senior management risk committees board periodically risk measurement measure firm’s operational risk exposure twelvemonth time horizon using statistical modeling scenario analyses involve qualitative assessments potential frequency extent potential operational risk losses firm’s businesses operational risk measurement incorporates qualitative quantitative assessments factors including  internal external operational risk event data  assessments firm’s internal controls  evaluations complexity firm’s business activities  degree potential automation firm’s processes  new product information  legal regulatory environment  changes markets firm’s products services including diversity sophistication firm’s customers counterparties  liquidity capital markets reliability infrastructure supports capital markets results scenario analyses used monitor changes operational risk determine business lines may heightened exposure operational risk analyses ultimately used determine appropriate level operational risk capital hold risk monitoring evaluate changes operational risk profile firm businesses including changes business mix jurisdictions firm operates monitoring factors firmwide entity business level firm detective preventive internal controls designed reduce frequency severity operational risk losses probability operational risk events monitor results assessments independent internal audits internal controls recent accounting developments see note 3 consolidated financial statements part ii item 8 form 10k information recent accounting developments certain risk factors may affect businesses face variety risks substantial inherent businesses including market liquidity credit operational legal regulatory reputational risks discussion management seeks manage risks see “overview structure risk management” summary important factors could affect businesses follows discussion important factors could affect businesses financial condition results operations cash flows liquidity see “risk factors” part item 1a form 10k  businesses may continue adversely affected conditions global financial markets economic conditions generally  businesses may adversely affected declining asset values particularly true businesses net “long” positions receive fees based value assets managed receive post collateral  businesses may adversely affected disruptions credit markets including reduced access credit higher costs obtaining credit goldman sachs 2011 form 10k goldman sachs group inc subsidiaries management’s discussion analysis  marketmaking activities may affected changes levels market volatility  investment banking client execution investment management businesses adversely affected may continue adversely affected market uncertainty lack confidence among investors ceos due general declines economic activity unfavorable economic geopolitical market conditions  investment management business may affected poor investment performance investment products  may incur losses result ineffective risk management processes strategies  liquidity profitability businesses may adversely affected inability access debt capital markets sell assets reduction credit ratings increase credit spreads  conflicts interest increasing failure appropriately identify address conflicts interest could adversely affect businesses  group inc holding company dependent liquidity payments subsidiaries many subject restrictions  businesses profitability liquidity may adversely affected deterioration credit quality defaults third parties owe us money securities assets whose securities obligations hold  concentration risk increases potential significant losses marketmaking underwriting investing lending activities  financial services industry highly competitive  face enhanced risks new business initiatives lead us transact broader array clients counterparties expose us new asset classes new markets  derivative transactions delayed settlements may expose us unexpected risk potential losses  businesses may adversely affected unable hire retain qualified employees  businesses clients subject extensive pervasive regulation around world  may adversely affected increased governmental regulatory scrutiny negative publicity  failure operational systems infrastructure third parties could impair liquidity disrupt businesses result disclosure confidential information damage reputation cause losses  substantial legal liability significant regulatory action us could material adverse financial effects cause us significant reputational harm turn could seriously harm business prospects  growth electronic trading introduction new trading technology may adversely affect business may increase competition  commodities activities particularly power generation interests physical commodities activities subject us extensive regulation potential catastrophic events environmental reputational risks may expose us significant liabilities costs  conducting businesses around world subject political economic legal operational risks inherent operating many countries  may incur losses result unforeseen catastrophic events including emergence pandemic terrorist attacks natural disasters item 7aitem 7 management’s discussion analysis financial condition results operations index goldman sachs group inc subsidiaries management’s discussion analysis introduction goldman sachs group inc group inc leading global investment banking securities investment management firm provides wide range financial services substantial diversified client base includes corporations financial institutions governments highnetworth individuals founded 1869 firm headquartered new york maintains offices major financial centers around world report activities four business segments investment banking institutional client services investing lending investment management see “results operations” information business segments use terms “goldman sachs” “the firm” “we” “us” “our” mean group inc delaware corporation consolidated subsidiaries references “this form 10k” annual report form 10k year ended december 31 2012 references 2012 2011 2010 refer years ended dates context requires december 31 2012 december 31 2011 december 31 2010 respectively reference future year refers year ending december 31 year certain reclassifications made previously reported amounts conform current presentation discussion analysis financial condition results operations included information may constitute “forwardlooking statements” within meaning safe harbor provisions us private securities litigation reform act 1995 forwardlooking statements historical facts instead represent beliefs regarding future events many nature inherently uncertain outside control information includes statements historical information statements current condition may relate future plans objectives results among things may also include statements objectives effectiveness risk management liquidity policies statements trends growth opportunities businesses statements future status activities reporting us nonus banking financial regulation statements investment banking transaction backlog identifying statements manner alerting possibility actual results financial condition may differ possibly materially anticipated results financial condition indicated forwardlooking statements important factors could cause actual results financial condition differ indicated forwardlooking statements include among others discussed “certain risk factors may affect businesses” well “risk factors” part item 1a form 10k “cautionary statement pursuant us private securities litigation reform act 1995” part item 1 form 10k goldman sachs group inc subsidiaries management’s discussion analysis executive overview firm generated net earnings 748 billion 2012 compared 444 billion 835 billion 2011 2010 respectively diluted earnings per common share 1413 2012 compared 451 1 2011 1318 2 2010 return average common shareholders’ equity roe 3 107 2012 compared 37 1 2011 115 2 2010 book value per common share increased approximately 11 14467 tangible book value per common share 4 increased approximately 12 13406 compared end 2011 year firm repurchased 420 million shares common stock total cost 464 billion tier 1 capital ratio basel 1 167 tier 1 common ratio basel 1 5 145 december 2012 firm generated net revenues 3416 billion 2012 results reflected significantly higher net revenues investing lending well higher net revenues institutional client services investment banking investment management compared 2011 overview net revenues business segments provided investment banking net revenues investment banking increased compared 2011 reflecting significantly higher net revenues underwriting business due strong net revenues debt underwriting net revenues debt underwriting significantly higher compared 2011 primarily reflecting higher net revenues investmentgrade leveraged finance activity net revenues equity underwriting lower compared 2011 primarily reflecting decline industrywide initial public offerings net revenues financial advisory essentially unchanged compared 2011 institutional client services net revenues institutional client services increased compared 2011 reflecting higher net revenues fixed income currency commodities client execution increase fixed income currency commodities client execution compared 2011 reflected strong net revenues mortgages significantly higher compared 2011 addition net revenues credit products interest rate products solid higher compared 2011 increases partially offset significantly lower net revenues commodities slightly lower net revenues currencies although broad market concerns persisted 2012 fixed income currency commodities client execution operated generally improved environment characterized tighter credit spreads less challenging marketmaking conditions compared 2011 1 excluding impact preferred dividend 164 billion first quarter 2011 calculated difference carrying value redemption value preferred stock related redemption 10 cumulative perpetual preferred stock series g series g preferred stock held berkshire hathaway inc certain subsidiaries collectively berkshire hathaway diluted earnings per common share 746 roe 59 2011 believe presenting results 2011 excluding dividend meaningful increases comparability periodtoperiod results diluted earnings per common share roe excluding dividend nongaap measures may comparable similar nongaap measures used companies see “results operations financial overview” information calculation diluted earnings per common share roe excluding impact dividend 2 excluding impact 465 million related uk bank payroll tax 550 million related sec settlement 305 million impairment new york stock exchange nyse designated market maker dmm rights diluted earnings per common share 1522 roe 131 2010 believe presenting results 2010 excluding impact items meaningful increases comparability periodtoperiod results diluted earnings per common share roe excluding items nongaap measures may comparable similar nongaap measures used companies see “results operations financial overview” information calculation diluted earnings per common share roe excluding impact items 3 see “results operations financial overview” information calculation roe 4 tangible book value per common share nongaap measure may comparable similar nongaap measures used companies see “equity capital metrics” information calculation tangible book value per common share 5 tier 1 common ratio nongaap measure may comparable similar nongaap measures used companies see “equity capital consolidated regulatory capital ratios” information tier 1 common ratio goldman sachs group inc subsidiaries management’s discussion analysis net revenues equities essentially unchanged compared 2011 net revenues securities services significantly higher compared 2011 reflecting gain approximately 500 million sale hedge fund administration business addition equities client execution net revenues higher 2011 primarily reflecting significantly higher results cash products principally due increased levels client activity increases offset lower commissions fees reflecting lower market volumes 2012 equities operated environment generally characterized increase global equity prices lower volatility levels net loss attributable impact changes credit spreads borrowings fair value option elected 714 million 433 million 281 million related fixed income currency commodities client execution equities client execution respectively 2012 compared net gain 596 million 399 million 197 million related fixed income currency commodities client execution equities client execution respectively 2011 investing lending net revenues investing lending 589 billion 214 billion 2012 2011 respectively 2012 investing lending net revenues positively impacted tighter credit spreads increase global equity prices results 2012 included gain 408 million investment ordinary shares industrial commercial bank china limited icbc net gains 239 billion investments equities primarily private equities net gains net interest income 185 billion debt securities loans net revenues 124 billion principally related consolidated investment entities results 2011 included loss 517 million investment ordinary shares icbc net gains 112 billion investments equities primarily private equities partially offset losses public equities addition investing lending included net revenues 96 million debt securities loans amount includes approximately 1 billion unrealized losses related relationship lending activities including effect hedges offset net interest income net gains debt securities loans results 2011 also included net revenues 144 billion principally related consolidated investment entities investment management net revenues investment management increased compared 2011 due significantly higher incentive fees partially offset lower transaction revenues slightly lower management fees year assets supervision 1 increased 70 billion 965 billion assets management increased 26 billion 854 billion reflecting net market appreciation 44 billion primarily fixed income equity assets partially offset net outflows 18 billion net outflows assets management included outflows equity alternative investment money market assets partially offset inflows fixed income assets 2 client assets increased 44 billion 111 billion primarily due net inflows 2 principally client assets invested thirdparty managers assets related advisory relationships businesses nature produce predictable earnings results given period materially affected conditions global financial markets economic conditions generally factors discussion factors may affect future operating results see “certain risk factors may affect businesses” well “risk factors” part item 1a form 10k 1 assets supervision include assets management client assets management include client assets earn fee managing assets discretionary basis client assets include client assets invested thirdparty managers private bank deposits assets related advisory relationships earn fee advisory services discretion assets 2 includes 34 billion fixed income asset inflows connection acquisition dwight asset management company llc dwight asset management including 17 billion assets management 17 billion client assets 5 billion fixed income equity asset outflows connection liquidation goldman sachs asset management korea co ltd goldman sachs asset management korea formerly known macquarie imm investment management related assets management year ended december 2012 goldman sachs group inc subsidiaries management’s discussion analysis business environment global economic conditions generally weakened 2012 real gross domestic product gdp growth slowed major economies market sentiment affected continued broad market concerns uncertainties although positive developments helped improve market conditions developments included certain central bank actions ease monetary policy address funding risks european financial institutions addition us economy posted stable improving economic data including favorable developments unemployment housing improvements resulted tighter credit spreads higher global equity prices lower levels volatility however concerns outlook global economy continued political uncertainty particularly political debate united states surrounding fiscal cliff generally resulted client risk aversion lower activity levels also uncertainty financial regulatory reform persisted concerns weighed investment banking activity completed mergers acquisitions activity declined compared 2011 equity equityrelated underwriting activity remained low particularly initial public offerings however industrywide debt underwriting activity improved compared 2011 discussion market conditions may affect businesses see “certain risk factors may affect businesses” well “risk factors” part item 1a form 10k global 2012 real gdp growth declined advanced economies emerging markets advanced economies slowdown primarily reflected decline consumer expenditure fixed investment growth particularly europe well deceleration international trade compared 2011 emerging markets growth domestic demand weakened although contribution government spending generally positive unemployment levels declined slightly economies compared 2011 increased others particularly euro area rate unemployment continued remain elevated many advanced economies 2012 us federal reserve bank england bank japan left interest rates unchanged european central bank reduced interest rate addition people’s bank china lowered oneyear benchmark lending rate year price crude oil generally declined 2012 us dollar weakened euro british pound strengthened japanese yen united states united states real gdp increased 22 2012 compared increase 18 2011 growth supported acceleration residential investment smaller decrease state local government spending partially offset slowdown consumer spending business investment house prices housing starts increased industrial production expanded 2012 despite negative impact hurricane sandy fourth quarter business consumer confidence declined parts year primarily reflecting increased global economic concerns heightened uncertainties ended year higher compared end 2011 measures core inflation average higher compared 2011 unemployment rate declined 2012 remained elevated us federal reserve maintained federal funds rate target range zero 025 year extended program lengthen maturity us treasury debt holds addition us federal reserve announced openended program purchase us treasury securities mortgagebacked securities well commitment keep shortterm interest rates exceptionally low unemployment rate falls 65 inflation rises materially yield 10year us treasury note fell 11 basis points 2012 178 equity markets nasdaq composite index sp 500 index dow jones industrial average increased 16 13 7 respectively compared end 2011 goldman sachs group inc subsidiaries management’s discussion analysis europe euro area real gdp declined 05 2012 compared increase 15 2011 contraction principally due sharp fall domestic demand primarily reflecting downturns consumer spending fixed investment business consumer confidence declined measures core inflation increased slightly year unemployment rate increased substantially particularly spain italy negative developments reflected impact sovereign debt crisis region’s economic growth particularly first half year concerns greece’s debt situation fiscal outlook spain italy intensified address issues european central bank injected liquidity eurosystem longerterm refinancing operations ltros decreased main refinancing operations rate 25 basis points 075 announced program make outright purchases sovereign bonds secondary markets euro appreciated 2 us dollar united kingdom real gdp increased 02 2012 compared increase 09 2011 bank england maintained official bank rate 050 increased size asset purchase program british pound appreciated 4 us dollar longterm government bond yields generally declined year equity markets dax index cac 40 index euro stoxx 50 index ftse 100 index increased 29 15 14 6 respectively compared end 2011 asia japan real gdp increased 19 2012 compared decline 06 2011 fixed investment growth increased particularly public sector helped reconstruction efforts following earthquake tsunami 2011 however trade balance continued deteriorate 2012 measures inflation remained negative close zero year bank japan maintained target overnight call rate range zero 010 year increased size asset purchase program announced measures facilitate outright purchases government corporate bonds yield 10year japanese government bonds fell 20 basis points year 079 japanese yen depreciated 13 us dollar equity markets nikkei 225 index increased 23 china real gdp increased 78 2012 compared increase 93 2011 growth slowed household consumption fixed investment growth moderated addition growth industrial production declined measures inflation declined year people’s bank china lowered oneyear benchmark lending rate 56 basis points 600 reduced reserve requirement ratio 100 basis points year chinese yuan appreciated slightly us dollar equity markets shanghai composite index increased 3 india real gdp increased estimated 54 2012 compared increase 75 2011 growth decelerated primarily reflecting slowdown domestic demand growth deterioration trade balance rate wholesale inflation declined compared 2011 remained elevated indian rupee depreciated 4 us dollar equity markets bse sensex index increased 26 equity markets hong kong south korea higher hang seng index increased 23 kospi composite index increased 9 respectively compared end 2011 markets brazil real gdp increased estimated 10 2012 compared increase 27 2011 growth decelerated primarily reflecting decline private consumption growth downturn fixed investment brazilian real depreciated 9 us dollar equity markets bovespa index increased 7 compared end 2011 russia real gdp increased 34 2012 compared 43 2011 growth slowed primarily reflecting decline domestic demand growth particularly second half year russian ruble appreciated 5 us dollar equity markets micex index increased 5 compared end 2011 goldman sachs group inc subsidiaries management’s discussion analysis critical accounting policies fair value fair value hierarchy financial instruments owned fair value financial instruments sold yet purchased fair value ie inventory well certain financial assets financial liabilities reflected consolidated statements financial condition fair value ie markedtomarket related gains losses generally recognized consolidated statements earnings use fair value measure financial instruments fundamental risk management practices critical accounting policy fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date determining fair value hierarchy us generally accepted accounting principles us gaap gives highest priority unadjusted quoted prices active markets identical unrestricted assets liabilities level 1 inputs ii next priority inputs level 1 inputs observable either directly indirectly level 2 inputs iii lowest priority inputs cannot observed market activity level 3 inputs assets liabilities classified entirety based lowest level input significant fair value measurement fair values substantially financial assets financial liabilities based observable prices inputs classified levels 1 2 fair value hierarchy certain level 2 level 3 financial assets financial liabilities may require appropriate valuation adjustments market participant would require arrive fair value factors counterparty firm’s credit quality funding risk transfer restrictions liquidity bidoffer spreads valuation adjustments generally based market evidence instruments categorized within level 3 fair value hierarchy require one significant inputs observable december 2012 december 2011 level 3 assets represented 50 52 respectively firm’s total assets absent evidence contrary instruments classified within level 3 fair value hierarchy initially valued transaction price considered best initial estimate fair value subsequent transaction date use methodologies determine fair value vary based type instrument estimating fair value level 3 financial instruments requires judgments made judgments include  determining appropriate valuation methodology andor model type level 3 financial instrument  determining model inputs based evaluation relevant empirical market data including prices evidenced market transactions interest rates credit spreads volatilities correlations  determining appropriate valuation adjustments related illiquidity counterparty credit quality regardless methodology valuation inputs assumptions changed corroborated substantive evidence controls valuation financial instruments market makers investment professionals revenueproducing units responsible pricing financial instruments control infrastructure independent revenueproducing units fundamental ensuring financial instruments appropriately valued marketclearing levels event difference opinion situations estimating fair value financial instruments requires judgment eg calibration market comparables trade comparison described final valuation decision made senior managers control support functions independent revenueproducing units independent control support functions independent price verification critical ensuring financial instruments properly valued goldman sachs group inc subsidiaries management’s discussion analysis price verification financial instruments fair value levels 1 2 3 fair value hierarchy subject independent price verification process objective price verification informed independent opinion regard valuation financial instruments review instruments one significant inputs cannot corroborated external market data classified within level 3 fair value hierarchy price verification strategies utilized independent control support functions include  trade comparison analysis trade data internal external available used determine relevant pricing inputs valuations  external price comparison valuations prices compared pricing data obtained third parties eg broker dealers markit bloomberg idc trace data obtained various sources compared ensure consistency validity broker dealer quotations thirdparty pricing vendors used valuation price verification greater priority generally given executable quotations  calibration market comparables marketbased transactions used corroborate valuation positions similar characteristics risks components  relative value analyses marketbased transactions analyzed determine similarity measured terms risk liquidity return one instrument relative another given instrument one maturity relative another  collateral analyses margin disputes derivatives examined investigated determine impact valuations  execution trades appropriate trading desks instructed execute trades order provide evidence marketclearing levels  backtesting valuations corroborated comparison values realized upon sales see notes 5 8 consolidated financial statements part ii item 8 form 10k information fair value measurements review net revenues independent control support functions ensure adherence pricing policy combination daily procedures including explanation attribution net revenues based underlying factors process independently validate net revenues identify resolve potential fair value trade booking issues timely basis seek ensure risks properly categorized quantified review valuation models firm’s independent model validation group consisting quantitative professionals separate model developers performs independent model approval process incorporates review diverse set model trade parameters across broad range values including extreme andor improbable conditions order critically evaluate  model’s suitability valuation risk management particular instrument type  model’s accuracy reflecting characteristics related product significant risks  suitability calculation techniques incorporated model  model’s consistency models similar products  model’s sensitivity input parameters assumptions new changed models reviewed approved prior put use models evaluated reapproved annually assess impact changes product market developments pricing theories goldman sachs group inc subsidiaries management’s discussion analysis level 3 financial assets fair value table presents financial assets measured fair value amount assets classified within level 3 fair value hierarchy total level 3 financial assets 4710 billion 4794 billion december 2012 december 2011 respectively see notes 5 8 consolidated financial statements part ii item 8 form 10k information changes level 3 financial assets fair value measurements 1 consists assets classified held sale related reinsurance business primarily consisting securities accounted availableforsale insurance separate account assets previously included “financial instruments owned fair value” “securities segregated regulatory purposes” respectively see note 12 consolidated financial statements part ii item 8 form 10k information assets held sale goldman sachs group inc subsidiaries management’s discussion analysis goodwill identifiable intangible assets goodwill cost acquired companies excess fair value net assets including identifiable intangible assets acquisition date goodwill assessed annually impairment frequently events occur circumstances change indicate impairment may exist first assessing qualitative factors determine whether likely fair value reporting unit less carrying amount results qualitative assessment conclusive quantitative goodwill impairment test performed comparing estimated fair value reporting unit estimated net book value estimating fair value reporting units requires management make judgments critical inputs fair value estimates include projected earnings ii estimated longterm growth rates iii cost equity net book value reporting unit reflects allocation total shareholders’ equity represents estimated amount shareholders’ equity required support activities reporting unit guidelines issued basel committee banking supervision basel committee december 2010 market capitalization book value 2012 accordingly performed quantitative impairment test fourth quarter 2012 determined goodwill impaired estimated fair value reporting units hold substantially goodwill significantly exceeded estimated carrying values believe appropriate consider market capitalization among factors indicator fair value reasonable period time recent improvement market conditions continue return prolonged period weakness business environment financial markets goodwill could impaired future addition significant changes critical inputs goodwill impairment test eg cost equity could cause estimated fair value reporting units decline could result impairment goodwill future see note 13 consolidated financial statements part ii item 8 form 10k information goodwill identifiable intangible assets amortize identifiable intangible assets estimated lives ii based economic usage iii proportion estimated gross profits premium revenues identifiable intangible assets tested impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable impairment loss generally calculated difference estimated fair value carrying value asset group recognized sum estimated undiscounted cash flows relating asset group less corresponding carrying value see note 13 consolidated financial statements part ii item 8 form 10k carrying value estimated remaining lives identifiable intangible assets major asset class impairments identifiable intangible assets prolonged period market weakness could adversely impact businesses impair value identifiable intangible assets addition certain events could indicate potential impairment identifiable intangible assets including decreases revenues commodityrelated customer contracts relationships ii decreases cash receipts television broadcast royalties iii adverse action assessment regulator iv adverse actual experience contracts variable annuity life insurance business management judgment required evaluate whether indications potential impairment occurred test intangibles impairment required goldman sachs group inc subsidiaries management’s discussion analysis use estimates use generally accepted accounting principles requires management make certain estimates assumptions addition estimates make connection fair value measurements accounting goodwill identifiable intangible assets use estimates assumptions also important determining provisions losses may arise litigation regulatory proceedings tax audits estimate provide potential losses may arise litigation regulatory proceedings extent losses probable reasonably estimated accounting income taxes estimate provide potential liabilities may arise tax audits extent uncertain tax positions fail meet recognition standard fasb accounting standards codification 740 see note 24 consolidated financial statements part ii item 8 form 10k information accounting income taxes significant judgment required making estimates final liabilities may ultimately materially different total estimated liability respect litigation regulatory proceedings determined casebycase basis represents estimate probable losses considering among factors progress case proceeding experience others similar cases proceedings opinions views legal counsel see notes 18 27 consolidated financial statements part ii item 8 form 10k information certain judicial regulatory legal proceedings goldman sachs group inc subsidiaries management’s discussion analysis results operations composition net revenues varied time financial markets scope operations changed composition net revenues also vary shorter term due fluctuations us global economic market conditions see “certain risk factors may affect businesses” “risk factors” part item 1a form 10k discussion impact economic market conditions results operations financial overview table presents overview financial results 1 roe computed dividing net earnings applicable common shareholders average monthly common shareholders’ equity table presents average common shareholders’ equity 2 excluding impact preferred dividend 164 billion first quarter 2011 calculated difference carrying value redemption value preferred stock related redemption series g preferred stock diluted earnings per common share 746 roe 59 2011 believe presenting results 2011 excluding dividend meaningful increases comparability periodtoperiod results diluted earnings per common share roe excluding dividend nongaap measures may comparable similar nongaap measures used companies tables present calculation net earnings applicable common shareholders diluted earnings per common share average common shareholders’ equity excluding impact dividend goldman sachs group inc subsidiaries management’s discussion analysis 3 excluding impact 465 million related uk bank payroll tax 550 million related sec settlement 305 million impairment nyse dmm rights diluted earnings per common share 1522 roe 131 2010 believe presenting results 2010 excluding impact items meaningful increases comparability periodtoperiod results diluted earnings per common share roe excluding items nongaap measures may comparable similar nongaap measures used companies tables present calculation net earnings applicable common shareholders diluted earnings per common share average common shareholders’ equity excluding impact items goldman sachs group inc subsidiaries management’s discussion analysis net revenues 2012 versus 2011 net revenues consolidated statements earnings 3416 billion 2012 19 higher 2011 reflecting significantly higher principal transactions revenues well higher marketmaking revenues investment banking revenues investment management revenues compared 2011 increases partially offset significantly lower net interest income lower commissions fees compared 2011 versus 2010 net revenues consolidated statements earnings 2881 billion 2011 26 lower 2010 reflecting significantly lower principal transactions revenues marketmaking revenues well lower investment banking revenues net interest income decreases partially offset higher commissions fees compared 2010 investment management revenues essentially unchanged compared 2010 noninterest revenues investment banking 2012 investment banking revenues reflected operating environment generally characterized continued concerns outlook global economy political uncertainty concerns weighed investment banking activity completed mergers acquisitions activity declined compared 2011 equity equityrelated underwriting activity remained low particularly initial public offerings however industrywide debt underwriting activity improved compared 2011 credit spreads tightened interest rates remained low macroeconomic concerns continue result lower levels client activity investment banking revenues would likely negatively impacted 2012 versus 2011 investment banking revenues consolidated statements earnings 494 billion 2012 13 higher 2011 reflecting significantly higher revenues underwriting business due strong revenues debt underwriting revenues debt underwriting significantly higher compared 2011 primarily reflecting higher revenues investmentgrade leveraged finance activity revenues equity underwriting lower compared 2011 primarily reflecting decline industrywide initial public offerings revenues financial advisory essentially unchanged compared 2011 versus 2010 investment banking revenues consolidated statements earnings 436 billion 2011 9 lower 2010 primarily reflecting lower revenues underwriting business revenues equity underwriting significantly lower 2010 principally due decline industrywide activity revenues debt underwriting essentially unchanged compared 2010 revenues financial advisory decreased slightly compared 2010 investment management 2012 investment management revenues reflected operating environment generally characterized improved asset prices resulting appreciation value client assets however mix assets supervision shifted slightly asset classes typically generate higher fees asset classes typically generate lower fees compared 2011 future asset prices decline investors continue favor asset classes typically generate lower fees investors continue withdraw assets investment management revenues would likely negatively impacted addition continued concerns global economic outlook could result downward pressure assets supervision 2012 versus 2011 investment management revenues consolidated statements earnings 497 billion 2012 6 higher compared 2011 due significantly higher incentive fees partially offset slightly lower management fees 2011 versus 2010 investment management revenues consolidated statements earnings 469 billion 2011 essentially unchanged compared 2010 primarily due higher management fees reflecting favorable changes mix assets management offset lower incentive fees goldman sachs group inc subsidiaries management’s discussion analysis commissions fees although global equity prices increased 2012 commissions fees reflected operating environment characterized lower market volumes primarily due lower volatility levels concerns outlook global economy continued political uncertainty macroeconomic concerns continue result lower market volumes commissions fees would likely continue negatively impacted 2012 versus 2011 commissions fees consolidated statements earnings 316 billion 2012 16 lower 2011 reflecting lower market volumes 2011 versus 2010 commissions fees consolidated statements earnings 377 billion 2011 6 higher 2010 primarily reflecting higher market volumes particularly third quarter 2011 market making 2012 marketmaking revenues reflected operating environment generally characterized continued broad market concerns uncertainties although positive developments helped improve market conditions developments included certain central bank actions ease monetary policy address funding risks european financial institutions addition us economy posted stable improving economic data including favorable developments unemployment housing improvements resulted tighter credit spreads higher global equity prices lower levels volatility however concerns outlook global economy continued political uncertainty particularly political debate united states surrounding fiscal cliff generally resulted client risk aversion lower activity levels also uncertainty financial regulatory reform persisted concerns uncertainties continue long term marketmaking revenues would likely negatively impacted 2012 versus 2011 marketmaking revenues consolidated statements earnings 1135 billion 2012 22 higher 2011 primarily reflecting significantly higher revenues mortgages higher revenues interest rate products credit products equity cash products partially offset significantly lower revenues commodities addition marketmaking revenues included significantly higher revenues securities services compared 2011 reflecting gain approximately 500 million sale hedge fund administration business 2011 versus 2010 marketmaking revenues consolidated statements earnings 929 billion 2011 32 lower 2010 although activity levels 2011 generally consistent 2010 levels results solid first quarter 2011 environment remainder 2011 characterized broad market concerns uncertainty resulting volatile markets significantly wider credit spreads contributed difficult marketmaking conditions led reductions risk us clients result conditions revenues across major marketmaking activities lower 2011 compared 2010 principal transactions 2012 principal transactions revenues reflected operating environment characterized tighter credit spreads increase global equity prices however concerns outlook global economy uncertainty financial regulatory reform persisted equity markets decline credit spreads widen principal transactions revenues would likely negatively impacted 2012 versus 2011 principal transactions revenues consolidated statements earnings 587 billion 151 billion 2012 2011 respectively results 2012 included gain investment ordinary shares icbc net gains investments equities primarily private equities net gains debt securities loans revenues related consolidated investment entities 2011 versus 2010 principal transactions revenues consolidated statements earnings 151 billion 693 billion 2011 2010 respectively results 2011 included loss investment ordinary shares icbc net gains investments equities primarily private equities partially offset losses public equities addition revenues principal transactions included net losses debt securities loans primarily reflecting approximately 1 billion unrealized losses related relationship lending activities including effect hedges partially offset net gains debt securities loans results 2011 also included revenues related consolidated investment entities results 2010 included gain investment ordinary shares icbc net gains investments equities net gains debt securities loans revenues related consolidated investment entities goldman sachs group inc subsidiaries management’s discussion analysis net interest income 2012 versus 2011 net interest income consolidated statements earnings 388 billion 2012 25 lower 2011 decrease compared 2011 primarily due lower average yields financial instruments owned fair value collateralized agreements 2011 versus 2010 net interest income consolidated statements earnings 519 billion 2011 6 lower 2010 decrease compared 2010 primarily due higher interest expense related longterm borrowings higher dividend expense related financial instruments sold yet purchased partially offset increase interest income higher yielding collateralized agreements operating expenses operating expenses primarily influenced compensation headcount levels business activity compensation benefits includes salaries discretionary compensation amortization equity awards items benefits discretionary compensation significantly impacted among factors level net revenues overall financial performance prevailing labor markets business mix structure sharebased compensation programs external environment context difficult economic financial conditions firm launched initiative second quarter 2011 identify areas operate efficiently reduce operating expenses 2012 2011 announced targeted annual run rate compensation noncompensation reductions approximately 19 billion aggregate table presents operating expenses total staff 1 related revenues included “market making” consolidated statements earnings 2 includes employees consultants temporary staff goldman sachs group inc subsidiaries management’s discussion analysis 2012 versus 2011 operating expenses consolidated statements earnings 2296 billion 2012 essentially unchanged compared 2011 compensation benefits expenses consolidated statements earnings 1294 billion 2012 6 higher compared 1222 billion 2011 ratio compensation benefits net revenues 2012 379 compared 424 2011 total staff decreased 3 2012 noncompensation expenses consolidated statements earnings 1001 billion 2012 4 lower compared 2011 decrease compared 2011 primarily reflected impact expense reduction initiatives lower brokerage clearing exchange distribution fees lower occupancy expenses lower impairment charges decreases partially offset higher expenses increased reserves related reinsurance business increase expenses compared 2011 primarily reflected higher net provisions litigation regulatory proceedings higher charitable contributions net provisions litigation regulatory proceedings 448 million 2012 including settlement board governors federal reserve system federal reserve board regarding independent foreclosure review charitable contributions 225 million 2012 including 159 million goldman sachs gives donoradvised fund 10 million goldman sachs foundation compensation reduced fund charitable contribution goldman sachs gives firm asks participating managing directors make recommendations regarding potential charitable recipients contribution 2011 versus 2010 operating expenses consolidated statements earnings 2264 billion 2011 14 lower 2010 compensation benefits expenses consolidated statements earnings 1222 billion 2011 21 decline compared 1538 billion 2010 ratio compensation benefits net revenues 2011 424 compared 393 1 excludes impact uk bank payroll tax 2010 operating expenses 2010 included 465 million related uk bank payroll tax total staff decreased 7 2011 noncompensation expenses consolidated statements earnings 1042 billion 2011 essentially unchanged compared 2010 noncompensation expenses 2011 included higher brokerage clearing exchange distribution fees increased reserves related reinsurance business higher market development expenses compared 2010 increases offset lower expenses 2011 decrease expenses primarily reflected lower net provisions litigation regulatory proceedings 2010 included 550 million related settlement sec addition noncompensation expenses 2011 included impairment charges approximately 440 million primarily related consolidated investments litton loan servicing lp charitable contributions 163 million 2011 including 78 million goldman sachs gives 25 million goldman sachs foundation compensation reduced fund charitable contribution goldman sachs gives firm asks participating managing directors make recommendations regarding potential charitable recipients contribution 1 believe presenting ratio compensation benefits net revenues excluding impact 465 million uk bank payroll tax meaningful excluding increases comparability periodtoperiod results ratio compensation benefits net revenues excluding impact item nongaap measure may comparable similar nongaap measures used companies table presents calculation ratio compensation benefits net revenues including excluding impact item goldman sachs group inc subsidiaries management’s discussion analysis provision taxes effective income tax rate 2012 333 280 2011 increase 280 333 primarily due earnings mix decrease impact permanent benefits effective income tax rate 2011 280 352 2010 excluding impact 465 million uk bank payroll tax 550 million sec settlement substantially nondeductible effective income tax rate 2010 327 1 decrease 327 280 primarily due increase permanent benefits percentage earnings mix 1 believe presenting effective income tax rate 2010 excluding impact uk bank payroll tax sec settlement substantially nondeductible meaningful excluding items increases comparability periodtoperiod results effective income tax rate excluding impact items nongaap measure may comparable similar nongaap measures used companies table presents calculation effective income tax rate excluding impact amounts goldman sachs group inc subsidiaries management’s discussion analysis segment operating results table presents net revenues operating expenses pretax earnings segments total operating expenses table include following expenses allocated segments  charitable contributions 169 million 103 million 345 million years ended december 2012 december 2011 december 2010 respectively  real estaterelated exit costs 17 million 14 million 28 million years ended december 2012 december 2011 december 2010 respectively real estaterelated exit costs included “depreciation amortization” “occupancy” consolidated statements earnings operating expenses related net provisions litigation regulatory proceedings previously allocated segments allocated allocation consistent manner management currently views performance segments reclassifications made previously reported segment amounts conform current presentation net revenues segments include allocations interest income interest expense specific securities commodities positions relation cash generated funding requirements underlying positions see note 25 consolidated financial statements part ii item 8 form 10k information business segments cost drivers goldman sachs taken whole compensation headcount levels business activity broadly similar business segments compensation benefits expenses within segments reflect among factors overall performance goldman sachs well performance individual businesses consequently pretax margins one segment business may significantly affected performance business segments discussion segment operating results follows goldman sachs group inc subsidiaries management’s discussion analysis investment banking investment banking segment comprised financial advisory includes strategic advisory assignments respect mergers acquisitions divestitures corporate defense activities risk management restructurings spinoffs derivative transactions directly related client advisory assignments underwriting includes public offerings private placements including domestic crossborder transactions wide range securities loans financial instruments derivative transactions directly related client underwriting activities table presents operating results investment banking segment table presents financial advisory underwriting transaction volumes 1 source thomson reuters announced completed mergers acquisitions volumes based full credit advisors transaction equity equityrelated offerings debt offerings based full credit single book managers equal credit joint book managers transaction volumes may indicative net revenues given period addition transaction volumes prior periods may vary amounts previously reported due subsequent withdrawal change value transaction 2 includes rule 144a public common stock offerings convertible offerings rights offerings 3 includes nonconvertible preferred stock mortgagebacked securities assetbacked securities taxable municipal debt includes publicly registered rule 144a issues excludes leveraged loans 2012 versus 2011 net revenues investment banking 493 billion 2012 13 higher 2011 net revenues financial advisory 198 billion essentially unchanged compared 2011 net revenues underwriting business 295 billion 25 higher 2011 due strong net revenues debt underwriting net revenues debt underwriting significantly higher compared 2011 primarily reflecting higher net revenues investmentgrade leveraged finance activity net revenues equity underwriting lower compared 2011 primarily reflecting decline industrywide initial public offerings 2012 investment banking operated environment generally characterized continued concerns outlook global economy political uncertainty concerns weighed investment banking activity completed mergers acquisitions activity declined compared 2011 equity equityrelated underwriting activity remained low particularly initial public offerings however industrywide debt underwriting activity improved compared 2011 credit spreads tightened interest rates remained low macroeconomic concerns continue result lower levels client activity net revenues investment banking would likely negatively impacted investment banking transaction backlog increased compared end 2011 increase compared end 2011 due increase potential debt underwriting transactions primarily reflecting increase leveraged finance transactions increase potential advisory transactions increases partially offset decrease potential equity underwriting transactions compared end 2011 reflecting uncertainty market conditions investment banking transaction backlog represents estimate future net revenues investment banking transactions believe future revenue realization likely believe changes investment banking transaction backlog may useful indicator client activity levels long term impact net revenues however time frame completion corresponding revenue recognition transactions backlog varies based nature assignment certain transactions may remain backlog longer periods time others may enter leave within reporting period addition transaction backlog subject certain limitations assumptions likelihood individual client transactions occur future transactions may cancelled modified transactions included estimate may also occur goldman sachs group inc subsidiaries management’s discussion analysis operating expenses 333 billion 2012 11 higher 2011 due increased compensation benefits expenses primarily resulting higher net revenues pretax earnings 160 billion 2012 17 higher 2011 versus 2010 net revenues investment banking 436 billion 2011 9 lower 2010 net revenues financial advisory 199 billion 4 lower 2010 net revenues underwriting business 237 billion 14 lower 2010 reflecting significantly lower net revenues equity underwriting principally due decline industrywide activity net revenues debt underwriting essentially unchanged compared 2010 investment banking operated environment generally characterized significant declines industrywide underwriting mergers acquisitions activity levels second half 2011 declines reflected increased concerns regarding weakened state global economies including heightened european sovereign debt risk contributed significant widening credit spreads sharp increase volatility levels significant decline global equity markets second half 2011 investment banking transaction backlog increased compared end 2010 increase compared end 2010 due increase potential equity underwriting transactions primarily reflecting increase client mandates underwrite initial public offerings estimated net revenues potential debt underwriting transactions decreased slightly compared end 2010 estimated net revenues potential advisory transactions essentially unchanged compared end 2010 operating expenses 300 billion 2011 13 lower 2010 due decreased compensation benefits expenses primarily resulting lower net revenues pretax earnings 136 billion 2011 essentially unchanged compared 2010 institutional client services institutional client services segment comprised fixed income currency commodities client execution includes client execution activities related making markets interest rate products credit products mortgages currencies commodities generate marketmaking revenues activities three ways  large highly liquid markets us treasury bills certain mortgage passthrough certificates execute high volume transactions clients modest spreads fees  less liquid markets midcap corporate bonds growth market currencies certain nonagency mortgagebacked securities execute transactions clients spreads fees generally somewhat larger  also structure execute transactions involving customized tailormade products address clients’ risk exposures investment objectives complex needs jet fuel hedge airline given focus mortgage market mortgage activities described activities mortgages include commercial mortgagerelated securities loans derivatives residential mortgagerelated securities loans derivatives including us government agencyissued collateralized mortgage obligations prime subprime alta securities loans assetbacked securities loans derivatives buy hold sell long short mortgage positions primarily market making clients inventory therefore changes based client demands generally held shortterm periods see notes 18 27 consolidated financial statements part ii item 8 form 10k information exposure mortgage repurchase requests mortgage rescissions mortgagerelated litigation equities includes client execution activities related making markets equity products well commissions fees executing clearing institutional client transactions major stock options futures exchanges worldwide equities also includes securities services business provides financing securities lending prime brokerage services institutional clients including hedge funds mutual funds pension funds foundations generates revenues primarily form interest rate spreads fees revenues related reinsurance activities goldman sachs group inc subsidiaries management’s discussion analysis table presents operating results institutional client services segment 1 includes net revenues related reinsurance 108 billion 880 million 827 million years ended december 2012 december 2011 december 2010 respectively 2012 versus 2011 net revenues institutional client services 1812 billion 2012 5 higher 2011 net revenues fixed income currency commodities client execution 991 billion 2012 10 higher 2011 results reflected strong net revenues mortgages significantly higher compared 2011 addition net revenues credit products interest rate products solid higher compared 2011 increases partially offset significantly lower net revenues commodities slightly lower net revenues currencies although broad market concerns persisted 2012 fixed income currency commodities client execution operated generally improved environment characterized tighter credit spreads less challenging marketmaking conditions compared 2011 net revenues equities 821 billion 2012 essentially unchanged compared 2011 net revenues securities services significantly higher compared 2011 reflecting gain approximately 500 million sale hedge fund administration business addition equities client execution net revenues higher 2011 primarily reflecting significantly higher results cash products principally due increased levels client activity increases offset lower commissions fees reflecting lower market volumes 2012 equities operated environment generally characterized increase global equity prices lower volatility levels net loss attributable impact changes credit spreads borrowings fair value option elected 714 million 433 million 281 million related fixed income currency commodities client execution equities client execution respectively 2012 compared net gain 596 million 399 million 197 million related fixed income currency commodities client execution equities client execution respectively 2011 2012 institutional client services operated environment generally characterized continued broad market concerns uncertainties although positive developments helped improve market conditions developments included certain central bank actions ease monetary policy address funding risks european financial institutions addition us economy posted stable improving economic data including favorable developments unemployment housing improvements resulted tighter credit spreads higher global equity prices lower levels volatility however concerns outlook global economy continued political uncertainty particularly political debate united states surrounding fiscal cliff generally resulted client risk aversion lower activity levels also uncertainty financial regulatory reform persisted concerns uncertainties continue long term net revenues fixed income currency commodities client execution equities would likely negatively impacted operating expenses 1248 billion 2012 3 lower 2011 primarily due lower brokerage clearing exchange distribution fees lower impairment charges partially offset higher net provisions litigation regulatory proceedings pretax earnings 564 billion 2012 27 higher 2011 versus 2010 net revenues institutional client services 1728 billion 2011 21 lower 2010 net revenues fixed income currency commodities client execution 902 billion 2011 34 lower 2010 although activity levels 2011 generally consistent 2010 levels results solid first quarter 2011 environment remainder 2011 characterized broad market concerns uncertainty resulting volatile markets significantly wider credit spreads contributed difficult marketmaking conditions led reductions risk us clients result conditions net revenues across franchise lower including significant declines mortgages credit products compared 2010 goldman sachs group inc subsidiaries management’s discussion analysis net revenues equities 826 billion 2011 2 higher 2010 2011 average volatility levels increased equity prices europe asia declined significantly particularly third quarter increase net revenues reflected higher commissions fees primarily due higher market volumes particularly third quarter 2011 addition net revenues securities services increased compared 2010 reflecting impact higher average customer balances equities client execution net revenues lower 2010 primarily reflecting significantly lower net revenues shares net gain attributable impact changes credit spreads borrowings fair value option elected 596 million 399 million 197 million related fixed income currency commodities client execution equities client execution respectively 2011 compared net gain 198 million 188 million 10 million related fixed income currency commodities client execution equities client execution respectively 2010 institutional client services operated environment generally characterized increased concerns regarding weakened state global economies including heightened european sovereign debt risk impact european banking system global financial institutions conditions also impacted expectations economic prospects united states reflected equity debt markets broadly addition downgrade credit ratings us government federal agencies many financial institutions second half 2011 contributed uncertainty markets concerns well broad market concerns uncertainty financial regulatory reform continued negative impact net revenues 2011 operating expenses 1284 billion 2011 14 lower 2010 due decreased compensation benefits expenses primarily resulting lower net revenues lower net provisions litigation regulatory proceedings 2010 included 550 million related settlement sec impact uk bank payroll tax 2010 well impairment nyse dmm rights 305 million 2010 decreases partially offset higher brokerage clearing exchange distribution fees principally reflecting higher transaction volumes equities pretax earnings 444 billion 2011 35 lower 2010 investing lending investing lending includes investing activities origination loans provide financing clients investments loans typically longerterm nature make investments directly indirectly funds manage debt securities loans public private equity securities real estate consolidated investment entities power generation facilities table presents operating results investing lending segment 2012 versus 2011 net revenues investing lending 589 billion 214 billion 2012 2011 respectively 2012 investing lending net revenues positively impacted tighter credit spreads increase global equity prices results 2012 included gain 408 million investment ordinary shares icbc net gains 239 billion investments equities primarily private equities net gains net interest income 185 billion debt securities loans net revenues 124 billion principally related consolidated investment entities equity markets decline credit spreads widen net revenues investing lending would likely negatively impacted operating expenses 267 billion 2012 essentially unchanged compared 2011 pretax earnings 323 billion 2012 compared pretax loss 531 million 2011 goldman sachs group inc subsidiaries management’s discussion analysis 2011 versus 2010 net revenues investing lending 214 billion 754 billion 2011 2010 respectively 2011 investing lending results reflected operating environment characterized significant decline equity markets europe asia unfavorable credit markets negatively impacted increased concerns regarding weakened state global economies including heightened european sovereign debt risk results 2011 included loss 517 million investment ordinary shares icbc net gains 112 billion investments equities primarily private equities partially offset losses public equities addition investing lending included net revenues 96 million debt securities loans amount includes approximately 1 billion unrealized losses related relationship lending activities including effect hedges offset net interest income net gains debt securities loans results 2011 also included net revenues 144 billion principally related consolidated investment entities results 2010 included gain 747 million investment ordinary shares icbc net gain 269 billion investments equities net gain 260 billion debt securities loans net revenues 151 billion principally related consolidated investment entities net gain investments equities primarily driven increase global equity markets resulted appreciation public private equity positions provided favorable conditions initial public offerings net gains net interest debt securities loans primarily reflected impact tighter credit spreads favorable credit markets year provided favorable conditions borrowers refinance operating expenses 267 billion 2011 20 lower 2010 due decreased compensation benefits expenses primarily resulting lower net revenues decrease partially offset impact impairment charges related consolidated investments 2011 pretax loss 531 million 2011 compared pretax earnings 418 billion 2010 investment management investment management provides investment management services offers investment products primarily separately managed accounts commingled vehicles mutual funds private investment funds across major asset classes diverse set institutional individual clients investment management also offers wealth advisory services including portfolio management financial counseling brokerage transaction services highnetworth individuals families assets supervision include assets management client assets management include client assets earn fee managing assets discretionary basis includes net assets mutual funds hedge funds credit funds private equity funds including real estate funds separately managed accounts institutional individual investors client assets include client assets invested thirdparty managers private bank deposits assets related advisory relationships earn fee advisory services discretion assets supervision include selfdirected brokerage accounts clients assets management client assets typically generate fees percentage net asset value vary asset class affected investment performance well asset inflows redemptions certain circumstances also entitled receive incentive fees based percentage fund’s return exceeds specified benchmark performance targets incentive fees recognized material contingencies resolved table presents operating results investment management segment goldman sachs group inc subsidiaries management’s discussion analysis tables present assets supervision including assets management asset class client assets well summary changes assets supervision 1 primarily includes hedge funds credit funds private equity real estate currencies commodities asset allocation strategies 1 includes 34 billion fixed income asset inflows connection acquisition dwight asset management including 17 billion assets management 17 billion client assets 5 billion fixed income equity asset outflows connection liquidation goldman sachs asset management korea related assets management 2 includes 6 billion asset inflows across asset classes connection acquisitions goldman sachs australia pty ltd benchmark asset management company private limited 2012 versus 2011 net revenues investment management 522 billion 2012 4 higher 2011 due significantly higher incentive fees partially offset lower transaction revenues slightly lower management fees year assets supervision increased 70 billion 965 billion assets management increased 26 billion 854 billion reflecting net market appreciation 44 billion primarily fixed income equity assets partially offset net outflows 18 billion net outflows assets management included outflows equity alternative investment money market assets partially offset inflows fixed income assets client assets increased 44 billion 111 billion primarily due net inflows principally client assets invested thirdparty managers assets related advisory relationships 2012 investment management operated environment generally characterized improved asset prices resulting appreciation value client assets however mix assets supervision shifted slightly asset classes typically generate higher fees asset classes typically generate lower fees compared 2011 future asset prices decline investors continue favor asset classes typically generate lower fees investors continue withdraw assets net revenues investment management would likely negatively impacted addition continued concerns global economic outlook could result downward pressure assets supervision operating expenses 429 billion 2012 7 higher 2011 due increased compensation benefits expenses pretax earnings 928 million 2012 8 lower 2011 versus 2010 net revenues investment management 503 billion 2011 essentially unchanged compared 2010 primarily due higher management fees reflecting favorable changes mix assets management offset lower incentive fees 2011 assets supervision decreased 22 billion 895 billion assets management decreased 12 billion 828 billion reflecting net outflows 17 billion partially offset net market appreciation 5 billion net outflows assets management primarily reflected outflows fixed income equity assets partially offset inflows money market assets client assets decreased 10 billion 67 billion primarily due net outflows principally client assets invested thirdparty managers money market funds goldman sachs group inc subsidiaries management’s discussion analysis first half 2011 investment management operated environment generally characterized improved asset prices shift investor assets away money markets favor asset classes potentially higher risk returns however second half 2011 asset prices declined particularly equities part driven increased uncertainty regarding global economic outlook declining asset prices economic uncertainty contributed investors shifting assets away asset classes potentially higher risk returns asset classes lower risk returns operating expenses 402 billion 2011 2 lower 2010 pretax earnings 101 billion 2011 9 higher 2010 geographic data see note 25 consolidated financial statements part ii item 8 form 10k summary total net revenues pretax earnings net earnings geographic region regulatory developments us doddfrank wall street reform consumer protection act doddfrank act enacted july 2010 significantly altered financial regulatory regime within operate implications doddfrank act businesses depend large extent rules adopted federal reserve board federal deposit insurance corporation fdic sec us commodity futures trading commission cftc agencies implement legislation well development market practices structures regime established legislation implementing rules reforms adopted considered regulators policy makers worldwide reforms may affect businesses expect principal areas impact regulatory reform us  doddfrank prohibition “proprietary trading” limitation sponsorship investment hedge funds private equity funds banking entities including bank holding companies referred “volcker rule”  increased regulation restrictions overthecounter otc derivatives markets transactions  increased regulatory capital requirements october 2011 proposed rules implement volcker rule issued included extensive request comments proposal proposed rules highly complex many aspects volcker rule remain unclear full impact rule us depend upon detailed scope prohibitions permitted activities exceptions exclusions known certainty rules finalized market practices structures develop final rules currently companies expected required compliance july 2014 subject possible extensions goldman sachs group inc subsidiaries management’s discussion analysis many aspects volcker rule remain unclear evaluated prohibition “proprietary trading” determined businesses engage “bright line” proprietary trading likely prohibited 2011 2010 liquidated substantially principal strategies global macro proprietary trading positions addition evaluated limitations sponsorship investments hedge funds private equity funds firm earns management fees incentive fees investment management services hedge funds private equity funds included investment management segment firm also makes investments funds gains losses investments included investing lending segment gains losses impacted volcker rule volcker rule limitation investments hedge funds private equity funds requires firm reduce investment hedge fund private equity fund 3 less fund’s net asset value reduce firm’s aggregate investment funds 3 less firm’s tier 1 capital firm’s aggregate net revenues investments hedge funds private equity funds material firm’s aggregate total net revenues period 1999 2012 continue manage existing private equity funds taking account transition periods volcker rule respect hedge funds currently plan comply volcker rule redeeming certain interests funds since march 2012 redeeming approximately 10 certain hedge funds’ total redeemable units per quarter expect continue june 2014 redeemed approximately 106 billion interests hedge funds year ended december 2012 addition limited firm’s initial investment 3 certain new investments hedge funds private equity funds required doddfrank act federal reserve board fdic jointly issued rule requiring bank holding company 50 billion assets designated systemically important financial institution provide regulators annual plan rapid orderly resolution event material financial distress failure resolution plan resolution plan must among things demonstrate goldman sachs bank usa gs bank usa adequately protected risks arising entities regulators’ joint rule sets specific standards resolution plans including requiring detailed resolution strategy analyses company’s material entities organizational structure interconnections interdependencies management information systems among elements submitted resolution plan regulators june 29 2012 gs bank usa also submitted resolution plan june 29 2012 required fdic september 2011 sec proposed rules implement doddfrank act’s prohibition securitization participants’ engaging transaction would involve result material conflict interest investor securitization transaction proposed rules would except bona fide marketmaking activities riskmitigating hedging activities connection securitization activities general prohibition also affected rules adopted federal agencies pursuant doddfrank act require person organizes initiates assetbacked security transaction retain portion generally least five percent credit risk person conveys third party december 2011 federal reserve board proposed regulations designed strengthen regulation supervision large bank holding companies systemically important nonbank financial institutions proposals address among things riskbased capital leverage requirements liquidity requirements overall risk management requirements single counterparty limits early remediation requirements designed address financial weakness early stage although many proposals mirror initiatives bank holding companies already subject full impact firm known certainty rules finalized market practices structures develop final rules addition october 2012 federal reserve board issued final rules stress testing requirements certain bank holding companies including firm see “equity capital” information comprehensive capital analysis review ccar goldman sachs group inc subsidiaries management’s discussion analysis doddfrank act also contains provisions include requiring registration swap dealers major swap participants cftc securitybased swap dealers major securitybased swap participants sec clearing execution certain swaps securitybased swaps central counterparties regulated exchanges electronic facilities realtime public regulatory reporting trade information ii placing new business conduct standards requirements swap dealers major swap participants securitybased swap dealers major securitybased swap participants covering relationships counterparties internal oversight compliance structures conflict interest rules internal information barriers general tradespecific recordkeeping risk management iii establishing mandatory margin requirements trades cleared central counterparty iv position limits cap exposure derivatives certain physical commodities v entitylevel capital requirements swap dealers major swap participants securitybased swap dealers major securitybased swap participants cftc responsible issuing rules relating swaps swap dealers major swap participants sec responsible issuing rules relating securitybased swaps securitybased swap dealers major securitybased swap participants although cftc yet finalized capital regulations certain requirements including registration swap dealers realtime public trade reporting taken effect already cftc rules sec cftc finalized definitions number key terms cftc finalized number implementing rules laid series implementation deadlines 2013 covering rules business conduct standards swap dealers clearing requirements sec proposed rules impose margin capital segregation requirements securitybased swap dealers major securitybased swap participants sec also proposed rules relating registration securitybased swap dealers major securitybased swap participants trade reporting realtime reporting business conduct requirements securitybased swap dealers major securitybased swap participants registered certain subsidiaries “swap dealers” cftc rules including goldman sachs co gsco gs bank usa goldman sachs international gsi j aron company expect entities businesses broadly subject significant developing regulation regulatory oversight connection swaprelated activities similar regulations proposed adopted jurisdictions outside united states july 2012 february 2013 basel committee international organization securities commissions released consultative documents proposing margin requirements noncentrallycleared derivatives full impact various us nonus regulatory developments area known certainty rules implemented market practices structures develop final rules doddfrank act also establishes consumer financial protection bureau broad authority regulate providers credit payment consumer financial products services oversight certain products services see note 20 consolidated financial statements part ii item 8 form 10k additional information regulatory developments relate regulatory capital ratios see “business regulation” part item 1 form 10k information laws rules regulations proposed laws rules regulations apply us operations goldman sachs group inc subsidiaries management’s discussion analysis balance sheet funding sources balance sheet management one important risk management disciplines ability manage size composition balance sheet asset base changes due client activity market fluctuations business opportunities size composition balance sheet reflect overall risk tolerance ii ability access stable funding sources iii amount equity capital hold although balance sheet fluctuates daytoday basis total assets adjusted assets quarterly yearend dates generally materially different occurring within reporting periods order ensure appropriate risk management seek maintain liquid balance sheet processes place dynamically manage assets liabilities include  quarterly planning  businessspecific limits  monitoring key metrics  scenario analyses quarterly planning prepare quarterly balance sheet plan combines projected total assets composition assets expected funding sources capital levels upcoming quarter objectives quarterly planning process  develop nearterm balance sheet projections taking account general state financial markets expected business activity levels  ensure projected assets supported adequate amount tenor funding projected capital liquidity metrics within management guidelines regulatory requirements  allow business risk managers independent control support functions objectively evaluate balance sheet limit requests business managers context firm’s overall balance sheet constraints include firm’s liability profile equity capital levels maturities plans new debt equity issuances share repurchases deposit trends secured funding transactions prepare quarterly balance sheet plan business risk managers independent control support functions meet business managers review current prior period metrics discuss expectations upcoming quarter specific metrics reviewed include asset liability size composition aged inventory limit utilization risk performance measures capital usage consolidated quarterly plan including balance sheet plans business funding capital projections projected capital liquidity metrics reviewed firmwide finance committee see “overview structure risk management” overview risk management structure goldman sachs group inc subsidiaries management’s discussion analysis businessspecific limits firmwide finance committee sets asset liability limits business aged inventory limits certain financial instruments disincentive hold inventory longer periods time limits set levels close actual operating levels order ensure prompt escalation discussion among business managers independent control support functions routine basis firmwide finance committee reviews approves balance sheet limits quarterly basis may also approve changes limits ad hoc basis response changing business needs market conditions monitoring key metrics monitor key balance sheet metrics daily business consolidated basis including asset liability size composition aged inventory limit utilization risk measures capital usage allocate assets businesses review analyze movements resulting new business activity well market fluctuations scenario analyses conduct scenario analyses determine would manage size composition balance sheet maintain appropriate funding liquidity capital positions variety situations  scenarios cover shortterm longterm time horizons using various macroeconomic firmspecific assumptions use analyses assist us developing longerterm funding plans including level unsecured debt issuances size secured funding program amount composition equity capital also consider potential future constraints limits ability grow asset base absence appropriate funding  internal capital adequacy assessment process icaap ccar stress tests required conduct doddfrank act resolution recovery planning analyze would manage balance sheet risks duration severe crisis develop plans access funding generate liquidity andor redeploy issue equity capital appropriate balance sheet allocation addition preparing consolidated statements financial condition accordance us gaap prepare balance sheet generally allocates assets businesses nongaap presentation may comparable similar nongaap presentations used companies believe presenting assets basis meaningful consistent way management views manages risks associated firm’s assets better enables investors assess liquidity firm’s assets table presents summary balance sheet allocation 1 january 2013 sold approximately 45 ordinary shares icbc 2 includes assets related reinsurance business classified held sale december 2012 see note 12 consolidated financial statements part ii item 8 form 10k information goldman sachs group inc subsidiaries management’s discussion analysis following description captions table excess liquidity cash maintain substantial excess liquidity meet broad range potential cash outflows collateral needs event stressed environment see “liquidity risk management” details composition sizing excess liquidity pool “global core excess” gce addition excess liquidity maintain operating cash balances primarily use specific currencies entities jurisdictions immediate access parent company liquidity secured client financing provide collateralized financing client positions including margin loans secured client collateral securities borrowed resale agreements primarily collateralized government obligations result client activities required segregate cash securities satisfy regulatory requirements secured client financing arrangements generally shortterm accounted fair value amounts approximate fair value include daily margin requirements mitigate counterparty credit risk institutional client services institutional client services maintain inventory positions facilitate marketmaking fixed income equity currency commodity products additionally part client marketmaking activities enter resale securities borrowing arrangements obtain securities use cover transactions clients sold securities yet purchased receivables institutional client services primarily relate securities transactions investing lending investing lending make investments originate loans provide financing clients investments loans typically longerterm nature make investments directly indirectly funds manage debt securities loans public private equity securities real estate investments assets generally less liquid nonfinancial assets including property leasehold improvements equipment goodwill identifiable intangible assets income taxrelated receivables equitymethod investments assets classified held sale miscellaneous receivables goldman sachs group inc subsidiaries management’s discussion analysis tables present reconciliation balance sheet allocation us gaap balance sheet tables total assets institutional client services investing lending represent inventory related assets amounts differ total assets business segment disclosed note 25 consolidated financial statements part ii item 8 form 10k total assets disclosed note 25 include allocations excess liquidity cash secured client financing assets 1 includes unencumbered cash us government federal agency obligations including highly liquid us federal agency mortgagebacked obligations german french japanese united kingdom government obligations goldman sachs group inc subsidiaries management’s discussion analysis balance sheet analysis metrics december 2012 total assets consolidated statements financial condition 93856 billion increase 1533 billion december 2011 increase primarily due increase financial instruments owned fair value 4281 billion due increases equities convertible debentures nonus government agency obligations ii increase cash equivalents 1666 billion primarily due increases interestbearing deposits banks increases partially offset decreases securities purchased agreements resell federal funds sold 4646 billion primarily due firm client activities december 2012 total liabilities consolidated statements financial condition 86284 billion increase 999 billion december 2011 increase primarily due increase deposits 2402 billion primarily due increases client activity increase partially offset decrease financial instruments sold yet purchased fair value 1837 billion primarily due decreases derivatives us government federal agency obligations december 2012 total securities sold agreements repurchase accounted collateralized financings 17181 billion essentially unchanged 3 higher daily average amount repurchase agreements quarter ended year ended december 2012 respectively december 2012 increase repurchase agreements relative daily average year primarily due increase firm financing activities december 2011 total securities sold agreements repurchase accounted collateralized financings 16450 billion 7 higher 3 higher daily average amount repurchase agreements quarter ended year ended december 2011 respectively december 2011 increase repurchase agreements relative daily average quarter year primarily due increases client activity end year level repurchase agreements fluctuates within periods primarily due providing clients access highly liquid collateral us government federal agency investmentgrade sovereign obligations collateralized financing activities table presents information assets unsecured longterm borrowings shareholders’ equity leverage ratios adjusted assets adjusted assets equals total assets less lowrisk collateralized assets generally associated secured client financing transactions federal funds sold excess liquidity includes financial instruments sold yet purchased fair value less derivative liabilities ii cash securities segregate regulatory purposes adjusted assets nongaap measure may comparable similar nongaap measures used companies table presents reconciliation total assets adjusted assets leverage ratio leverage ratio equals total assets divided total shareholders’ equity measures proportion equity debt firm using finance assets ratio different tier 1 leverage ratio included “equity capital consolidated regulatory capital ratios” described note 20 consolidated financial statements part ii item 8 form 10k goldman sachs group inc subsidiaries management’s discussion analysis adjusted leverage ratio adjusted leverage ratio equals adjusted assets divided total shareholders’ equity believe adjusted leverage ratio meaningful measure capital adequacy leverage ratio excludes certain lowrisk collateralized assets generally supported little capital adjusted leverage ratio nongaap measure may comparable similar nongaap measures used companies adjusted leverage ratio increased 91x december 2012 86x december 2011 adjusted assets increased debt equity ratio debt equity ratio equals unsecured longterm borrowings divided total shareholders’ equity funding sources primary sources funding secured financings unsecured longterm shortterm borrowings deposits seek maintain broad diversified funding sources globally raise funding number different products including  collateralized financings repurchase agreements securities loaned secured financings  longterm unsecured debt including structured notes syndicated us registered offerings us registered 144a mediumterm note programs offshore mediumterm note offerings debt offerings  savings demand deposits deposit sweep programs time deposits internal thirdparty brokerdealers  shortterm unsecured debt us nonus commercial paper promissory note issuances methods generally distribute funding products sales force thirdparty distributors large diverse creditor base variety markets americas europe asia believe relationships creditors critical liquidity creditors include banks governments securities lenders pension funds insurance companies mutual funds individuals imposed various internal guidelines monitor creditor concentration across funding programs secured funding fund significant amount inventory secured basis secured funding less sensitive changes credit quality unsecured funding due posting collateral lenders nonetheless continually analyze refinancing risk secured funding activities taking account trade tenors maturity profiles counterparty concentrations collateral eligibility counterparty rollover probabilities seek mitigate refinancing risk executing term trades staggered maturities diversifying counterparties raising excess secured funding prefunding residual risk gce seek raise secured funding term appropriate liquidity assets financed seek longer maturities secured funding collateralized asset classes may harder fund secured basis especially times market stress substantially secured funding executed tenors one month greater assets may harder fund secured basis times market stress include certain financial instruments following categories mortgage assetbacked loans securities noninvestment grade corporate debt securities equities convertible debentures emerging market securities assets classified level 3 fair value hierarchy generally funded unsecured basis see note 6 consolidated financial statements part ii item 8 form 10k information classification financial instruments fair value hierarchy see “unsecured longterm borrowings” information use unsecured longterm borrowings source funding weighted average maturity secured funding excluding funding collateralized highly liquid securities eligible inclusion gce exceeded 100 days december 2012 majority secured funding securities eligible inclusion gce executed term repurchase agreements securities lending contracts also raise financing types collateralized financings secured loans notes gs bank usa access funding federal reserve bank discount window rely funding liquidity planning stress testing maintain policies procedures necessary access funding test discount window borrowing procedures goldman sachs group inc subsidiaries management’s discussion analysis unsecured longterm borrowings issue unsecured longterm borrowings source funding inventory assets finance portion gce issue different tenors currencies products maximize diversification investor base table presents quarterly unsecured longterm borrowings maturity profile 2018 december 2012 weighted average maturity unsecured longterm borrowings december 2012 approximately eight years mitigate refinancing risk seek limit principal amount debt maturing one day week year enter interest rate swaps convert substantial portion longterm borrowings floatingrate obligations order manage exposure interest rates see note 16 consolidated financial statements part ii item 8 form 10k information unsecured longterm borrowings temporary liquidity guarantee program tlgp remaining portion senior unsecured shortterm debt guaranteed fdic tlgp matured second quarter 2012 december 2012 borrowings guaranteed fdic tlgp outstanding program expired new issuances goldman sachs group inc subsidiaries management’s discussion analysis deposits part efforts diversify funding base deposits become meaningful share funding activities gs bank usa actively growing deposit base emphasis issuance longterm certificates deposit expanding deposit sweep program involves longterm contractual agreements several us brokerdealers sweep client cash fdicinsured deposits utilize deposits finance activities bank subsidiaries table presents sourcing deposits 1 represents deposits stated maturity 2 weighted average maturity excess three years 3 substantially overnight deposit sweep programs related private wealth management clients 4 deposits insured fdic december 2012 approximately 4277 billion unsecured shortterm borrowings significant portion shortterm borrowings originally longterm debt scheduled mature within one year reporting date use shortterm borrowings finance liquid assets cash management purposes primarily issue commercial paper promissory notes hybrid instruments december 2012 unsecured shortterm borrowings including current portion unsecured longterm borrowings 4430 billion see note 15 consolidated financial statements part ii item 8 form 10k information unsecured shortterm borrowings equity capital adequacy critical importance us objective conservatively capitalized terms amount composition equity base accordingly place comprehensive capital management policy serves guide determine amount composition equity capital maintain level composition equity capital determined multiple factors including current future consolidated regulatory capital requirements icaap ccar results stress tests may also influenced factors rating agency guidelines subsidiary capital requirements business environment conditions financial markets assessments potential future losses due adverse changes business market environments addition maintain capital plan projects sources uses capital given range business environments contingency capital plan provides framework analyzing responding actual perceived capital shortfall part federal reserve board’s annual ccar us bank holding companies total consolidated assets 50 billion greater required submit annual capital plans review federal reserve board purpose federal reserve board’s review ensure institutions robust forwardlooking capital planning processes account unique risks permit continued operations times economic financial stress federal reserve board evaluate bank holding company based whether capital necessary continue operating baseline stressed scenarios provided federal reserve part capital plan review federal reserve board evaluates institution’s plan make capital distributions increasing dividend payments repurchasing redeeming stock across range macroeconomic firmspecific assumptions addition rules adopted federal reserve board doddfrank act require us conduct stress tests semiannual basis publish summary certain results beginning march 2013 federal reserve board conduct annual stress tests expected publish summary certain results march 2013 goldman sachs group inc subsidiaries management’s discussion analysis part 2012 ccar submission federal reserve informed us object proposed capital actions first quarter 2013 including repurchase outstanding common stock increases quarterly common stock dividend submitted 2013 ccar federal reserve january 7 2013 expect publish summary results march 2013 consolidated regulatory capital requirements determined federal reserve board described icaap incorporates internal riskbased capital assessment designed identify measure material risks associated business activities including market risk credit risk operational risk manner closely aligned risk management practices internal riskbased capital assessment supplemented results stress tests december 2012 total shareholders’ equity 7572 billion consisting common shareholders’ equity 6952 billion preferred stock 620 billion december 2011 total shareholders’ equity 7038 billion consisting common shareholders’ equity 6728 billion preferred stock 310 billion addition december 2012 december 2011 273 billion 500 billion respectively junior subordinated debt issued trusts qualified equity capital regulatory certain rating agency purposes see “ consolidated regulatory capital ratios” information regarding impact regulatory developments consolidated regulatory capital federal reserve board primary regulator group inc bank holding company bank holding company act 1956 bhc act financial holding company amendments bhc act effected us grammleachbliley act 1999 bank holding company subject consolidated regulatory capital requirements computed accordance federal reserve board’s riskbased capital requirements based ‘basel 1’ capital accord basel committee capital requirements expressed capital ratios compare measures capital riskweighted assets rwas see note 20 consolidated financial statements part ii item 8 form 10k additional information regarding firm’s rwas firm’s capital levels also subject qualitative judgments regulators components risk weightings factors federal reserve board regulations require bank holding companies maintain minimum tier 1 capital ratio 4 minimum total capital ratio 8 required minimum tier 1 capital ratio total capital ratio order considered “wellcapitalized” bank holding company federal reserve board guidelines 6 10 respectively bank holding companies may expected maintain ratios well minimum levels depending particular condition risk profile growth plans minimum tier 1 leverage ratio 3 bank holding companies received highest supervisory rating federal reserve board guidelines implemented federal reserve board’s riskbased capital measure market risk bank holding companies must minimum tier 1 leverage ratio 4 goldman sachs group inc subsidiaries management’s discussion analysis consolidated regulatory capital ratios table presents information regulatory capital ratios based basel 1 implemented federal reserve board 1 primarily represents portion equity investments nonfinancial companies 2 represents cumulative change fair value unsecured borrowings attributable impact changes credit spreads net tax applicable tax rate 3 includes net unrealized gainslosses availableforsale securities net tax applicable tax rate cumulative change pension postretirement liabilities net tax applicable tax rate investments certain nonconsolidated entities 4 see note 16 consolidated financial statements part ii item 8 form 10k additional information junior subordinated debt issued trusts 5 substantially subordinated debt qualifies tier 2 capital basel 1 purposes 6 see note 20 consolidated financial statements part ii item 8 form 10k additional information firm’s tier 1 leverage ratio 7 tier 1 common ratio equals tier 1 common capital divided rwas believe tier 1 common ratio meaningful one measures investors use assess capital adequacy currently formal regulatory capital ratio measure increasing importance regulators tier 1 common ratio nongaap measure may comparable similar nongaap measures used companies tier 1 capital ratio increased 167 december 2012 138 december 2011 primarily reflecting increase common shareholders’ equity reduction market rwas reduction market rwas primarily driven lower volatilities decrease derivative exposure capital efficiency initiatives driven future basel 3 rules also reduced market rwas measured current rules changes market risk capital rules us federal bank regulatory agencies became effective january 1 2013 changes require addition several new modelbased capital requirements well increase capital requirements securitization positions designed implement new market risk framework basel committee well prohibition use external credit ratings required doddfrank act revised market risk framework significant part regulatory capital changes ultimately included basel 3 capital ratios firm’s estimated tier 1 common ratio basel 1 reflecting revised market risk regulatory capital requirements would approximately 350 basis points lower firm’s reported basel 1 tier 1 common ratio december 2012 see “business regulation” part item 1 form 10k note 20 consolidated financial statements part ii item 8 form 10k additional information regulatory capital ratios related regulatory requirements including pending proposed regulatory changes riskweighted assets rwas federal reserve board’s riskbased capital requirements calculated based amount credit risk market risk rwas credit risk reflect amounts onbalance sheet offbalance sheet exposures credit risk requirements onbalance sheet assets receivables cash generally based balance sheet value credit risk requirements securities financing transactions determined based upon positive net exposure trade include effect counterparty netting collateral applicable offbalance sheet exposures including commitments guarantees credit equivalent amount calculated based notional amount trade requirements otc derivatives based combination positive net exposure percentage notional amount trade include effect counterparty netting collateral applicable assets exposures assigned risk weight depending among things whether counterparty sovereign bank qualifying securities firm entity collateral held depending nature collateral goldman sachs group inc subsidiaries management’s discussion analysis rwas market risk comprised modeled nonmodeled risk requirements modeled risk requirements determined reference firm’s valueatrisk var model var potential loss value inventory positions due adverse market movements defined time horizon specified confidence level use single var model captures risks including interest rates equity prices currency rates commodity prices certain portfolios debt equity positions modeled rwas also reflect requirements specific risk loss position could result changes risk factors unique position regulatory var used capital requirements differ risk management var due different time horizons 10day vs 1day confidence levels 99 vs 95 well factors nonmodeled risk requirements reflect specific risk debt equity positions standardized measurement method used determine nonmodeled risk applying supervisory defined riskweighting factors positions applicable netting performed table presents information components rwas within consolidated regulatory capital ratios 1 principally includes certain commitments extend credit letters credit 2 represents resale repurchase agreements securities borrowed loaned transactions 3 principally includes receivables customers assets cash equivalents availableforsale securities 4 current regulatory capital framework explicit requirement operational risk outlined changes market risk capital rules became effective january 1 2013 require addition several new modelbased capital requirements well increase capital requirements securitization positions internal capital adequacy assessment process perform icaap objective ensuring firm appropriately capitalized relative risks business part icaap perform internal riskbased capital assessment incorporates market risk credit risk operational risk market risk calculated using var calculations supplemented riskbased addons include risks related rare events tail risks credit risk utilizes assumptions counterparties’ probability default size losses event default maturity counterparties’ contractual obligations us operational risk calculated based scenarios incorporating multiple types operational failures backtesting used gauge effectiveness models capturing measuring relevant risks evaluate capital adequacy based result internal riskbased capital assessment supplemented results stress tests measure firm’s estimated performance various market conditions goal hold sufficient capital internal riskbased capital framework ensure remain adequately capitalized experiencing severe stress event assessment capital adequacy viewed tandem assessment liquidity adequacy integrated overall risk management structure governance policy framework firm attribute capital usage businesses based upon internal riskbased capital regulatory frameworks manage levels usage based upon balance sheet risk limits established rating agency guidelines credit rating agencies assign credit ratings obligations group inc directly issues guarantees substantially firm’s senior unsecured obligations gsco gsi assigned long shortterm issuer ratings certain credit rating agencies gs bank usa also assigned longterm issuer ratings well ratings longterm shortterm bank deposits addition credit rating agencies assigned ratings debt obligations certain subsidiaries group inc goldman sachs group inc subsidiaries management’s discussion analysis level composition equity capital among many factors considered determining credit ratings agency definition eligible capital methodology evaluating capital adequacy assessments generally based combination factors rather single calculation see “liquidity risk management credit ratings” information credit ratings group inc gsco gsi gs bank usa subsidiary capital requirements many subsidiaries including gs bank usa brokerdealer subsidiaries subject separate regulation capital requirements jurisdictions operate gs bank usa subject minimum capital requirements calculated manner similar applicable bank holding companies computes capital ratios accordance regulatory capital requirements currently applicable state member banks based basel 1 implemented federal reserve board december 2012 gs bank usa’s tier 1 capital ratio basel 1 implemented federal reserve board 189 see note 20 consolidated financial statements part ii item 8 form 10k information gs bank usa’s regulatory capital ratios basel 1 implemented federal reserve board effective january 1 2013 gs bank usa also implemented revised market risk framework outlined revised market risk framework significant part regulatory capital changes ultimately included gs bank usa’s basel 3 capital ratios purposes assessing adequacy capital gs bank usa established icaap similar used group inc addition rules adopted federal reserve board doddfrank act require gs bank usa conduct stress tests annual basis publish summary certain results beginning march 2013 gs bank usa submitted annual stress results federal reserve january 7 2013 expects publish summary results march 2013 gs bank usa’s capital levels prompt corrective action classification subject qualitative judgments regulators components risk weightings factors expect capital requirements several subsidiaries likely increase future due various developments arising basel committee doddfrank act governmental entities regulators see note 20 consolidated financial statements part ii item 8 form 10k information capital requirements regulated subsidiaries potential impact regulatory reform subsidiaries subject separate regulatory capital requirements may hold capital satisfy local tax legal guidelines rating agency requirements entities assigned credit ratings internal policies including policies concerning minimum amount capital subsidiary hold based underlying level risk certain instances group inc may limited ability access capital held certain subsidiaries result regulatory tax constraints december 2012 december 2011 group inc’s equity investment subsidiaries 7332 billion 6770 billion respectively compared total shareholders’ equity 7572 billion 7038 billion respectively group inc guaranteed payment obligations gsco gs bank usa goldman sachs execution clearing lp gsec subject certain exceptions november 2008 group inc contributed subsidiaries gs bank usa group inc agreed guarantee certain losses including creditrelated losses relating assets held contributed entities connection guarantee group inc also agreed pledge gs bank usa certain collateral including interests subsidiaries illiquid assets capital invested nonus subsidiaries generally exposed foreign exchange risk substantially managed combination derivatives nonus denominated debt contingency capital plan contingency capital plan provides framework analyzing responding perceived actual capital deficiency including limited identification drivers capital deficiency well mitigants potential actions outlines appropriate communication procedures follow crisis period including internal dissemination information well ensuring timely communication external stakeholders goldman sachs group inc subsidiaries management’s discussion analysis equity capital management objective maintain sufficient level optimal composition equity capital principally manage capital issuances repurchases common stock may also time issue repurchase preferred stock junior subordinated debt issued trusts subordinated debt forms capital business conditions warrant subject approval federal reserve board manage capital requirements principally setting limits balance sheet assets andor limits risk case consolidated business levels attribute capital usage businesses based upon internal riskbased capital regulatory frameworks manage levels usage based upon balance sheet risk limits established see notes 16 19 consolidated financial statements part ii item 8 form 10k information preferred stock junior subordinated debt issued trusts subordinated debt berkshire hathaway warrant october 2008 issued berkshire hathaway warrant grants berkshire hathaway option purchase 435 million shares common stock exercise price 11500 per share october 1 2013 see note 19 consolidated financial statements part ii item 8 form 10k information series g preferred stock share repurchase program seek use share repurchase program help maintain appropriate level common equity repurchase program effected primarily regular openmarket purchases amounts timing determined primarily current projected capital positions ie comparisons desired level composition capital actual level composition capital may also influenced general market conditions prevailing price trading volumes common stock december 2012 share repurchase program approved board directors group inc board repurchase 215 million additional shares common stock however repurchases subject approval federal reserve board see “market registrant’s common equity related stockholder matters issuer purchases equity securities” part ii item 5 note 19 consolidated financial statements part ii item 8 form 10k additional information repurchase program see information annual ccar capital metrics table presents information shareholders’ equity book value per common share tangible common shareholders’ equity tangible common shareholders’ equity equals total shareholders’ equity less preferred stock goodwill identifiable intangible assets believe tangible common shareholders’ equity meaningful measure investors use assess capital adequacy tangible common shareholders’ equity nongaap measure may comparable similar nongaap measures used companies table presents reconciliation total shareholders’ equity tangible common shareholders’ equity book value tangible book value per common share book value tangible book value per common share based common shares outstanding including restricted stock units granted employees future service requirements 4805 million 5163 million december 2012 december 2011 respectively believe tangible book value per common share tangible common shareholders’ equity divided common shares outstanding meaningful measure investors use assess capital adequacy tangible book value per common share nongaap measure may comparable similar nongaap measures used companies goldman sachs group inc subsidiaries management’s discussion analysis offbalancesheet arrangements contractual obligations offbalancesheet arrangements various types offbalancesheet arrangements enter ordinary course business involvement arrangements take many different forms including  purchasing retaining residual interests special purpose entities mortgagebacked assetbacked securitization vehicles  holding senior subordinated debt interests limited general partnerships preferred common stock nonconsolidated vehicles  entering interest rate foreign currency equity commodity credit derivatives including total return swaps  entering operating leases  providing guarantees indemnifications loan commitments letters credit representations warranties enter arrangements variety business purposes including securitizations securitization vehicles purchase mortgages corporate bonds types financial assets critical functioning several significant investor markets including mortgagebacked assetbacked securities markets since offer investors access specific cash flows risks created securitization process also enter arrangements underwrite client securitization transactions provide secondary market liquidity make investments performing nonperforming debt equity real estate assets provide investors creditlinked assetrepackaged notes receive provide letters credit satisfy margin requirements facilitate clearance settlement process financial interests derivative transactions nonconsolidated entities generally accounted fair value manner financial instruments except cases apply equity method accounting table presents discussion various offbalancesheet arrangements may found part ii items 7 8 form 10k addition see note 3 consolidated financial statements part ii item 8 form 10k discussion consolidation policies goldman sachs group inc subsidiaries management’s discussion analysis contractual obligations certain contractual obligations require us make future cash payments contractual obligations include unsecured longterm borrowings secured longterm financings time deposits contractual interest payments insurance agreements included consolidated statements financial condition obligations make future cash payments also include certain offbalancesheet contractual obligations purchase obligations minimum rental payments noncancelable leases commitments guarantees table presents contractual obligations commitments guarantees december 2012 1 excludes 733 billion time deposits maturing within one year 2 aggregate contractual principal amount secured longterm financings fair value option elected primarily consisting transfers financial assets accounted financings rather sales certain nonrecourse financings exceeded related fair value 115 million 3 includes 1051 billion related interest rate hedges certain unsecured longterm borrowings addition fair value unsecured longterm borrowings principal nonprincipalprotected fair value option elected exceeded related aggregate contractual principal amount 379 million excludes 77 million unsecured longterm borrowings related reinsurance business classified held sale december 2012 see note 17 consolidated financial statements part ii item 8 form 10k information 4 represents estimated future interest payments related unsecured longterm borrowings secured longterm financings time deposits based applicable interest rates december 2012 includes stated coupons structured notes 5 represents estimated undiscounted payments related future benefits unpaid claims arising policies associated insurance activities excluding separate accounts estimated recoveries reinsurance contracts excludes 1308 billion insurance liabilities related reinsurance business classified held sale december 2012 see note 17 consolidated financial statements part ii item 8 form 10k information goldman sachs group inc subsidiaries management’s discussion analysis table  obligations maturing within one year financial statement date redeemable within one year financial statement date option holder excluded treated shortterm obligations  obligations repayable prior maturity option reflected contractual maturity dates obligations redeemable prior maturity option holders reflected dates options become exercisable  amounts included table necessarily reflect actual future cash flow requirements arrangements commitments guarantees represent notional amounts may expire unused reduced cancelled counterparty’s request  due uncertainty timing amounts ultimately paid liability unrecognized tax benefits excluded see note 24 consolidated financial statements part ii item 8 form 10k information unrecognized tax benefits see notes 15 18 consolidated financial statements part ii item 8 form 10k information shortterm borrowings commitments guarantees december 2012 unsecured longterm borrowings 16731 billion maturities extending 2061 consisted principally senior borrowings see note 16 consolidated financial statements part ii item 8 form 10k information unsecured longterm borrowings december 2012 future minimum rental payments net minimum sublease rentals noncancelable leases 319 billion lease commitments principally office space expire various dates 2069 certain agreements subject periodic escalation provisions increases real estate taxes charges see note 18 consolidated financial statements part ii item 8 form 10k information leases occupancy expenses include costs associated office space held excess current requirements excess space cost charged earnings incurred held potential growth replace currently occupied space may exit future regularly evaluate current future space capacity relation current projected staffing levels year ended december 2012 total occupancy expenses space held excess current requirements material addition year ended december 2012 incurred exit costs 17 million related office space may incur exit costs included “depreciation amortization” “occupancy” future extent reduce space capacity ii commit occupy new properties locations operate consequently dispose existing space held potential growth exit costs may material results operations given period overview structure risk management overview believe effective risk management primary importance success firm accordingly comprehensive risk management processes monitor evaluate manage risks assume conducting activities include market credit liquidity operational legal regulatory reputational risk exposures risk management framework built around three core components governance processes people governance risk management governance starts board plays important role reviewing approving risk management policies practices directly risk committee consists independent directors board also receives regular briefings firmwide risks including market risk liquidity risk credit risk operational risk independent control support functions including chief risk officer chief risk officer part review firmwide risk package regularly advises risk committee board relevant risk metrics material exposures next senior levels firm leaders experienced risk managers sophisticated detailed understanding risks take senior managers lead participate riskoriented committees leaders independent control support functions including internal audit compliance controllers credit risk management human capital management legal market risk management operations operational risk management tax technology treasury goldman sachs group inc subsidiaries management’s discussion analysis firm’s governance structure provides protocol responsibility decisionmaking risk management issues ensures implementation decisions make extensive use riskrelated committees meet regularly serve important means facilitate foster ongoing discussions identify manage mitigate risks maintain strong communication risk culture collaboration decisionmaking among revenueproducing units independent control support functions committees senior management believe first line defense managing risk rests managers revenueproducing units dedicate extensive resources independent control support functions order ensure strong oversight structure appropriate segregation duties regularly reinforce firm’s strong culture escalation accountability across divisions functions processes maintain various processes procedures critical components risk management first foremost daily discipline marking substantially firm’s inventory current market levels goldman sachs carries inventory fair value changes valuation reflected immediately risk management systems net revenues believe discipline one effective tools assessing managing risk provides transparent realistic insight financial exposures also apply rigorous framework limits control risk across multiple transactions products businesses markets includes setting credit market risk limits variety levels monitoring limits daily basis limits typically set levels periodically exceeded rather levels reflect maximum risk appetite fosters ongoing dialogue risk among revenueproducing units independent control support functions committees senior management well rapid escalation riskrelated matters see “market risk management” “credit risk management” information risk limits active management positions another important process proactive mitigation market credit exposures minimizes risk required take outsized actions periods stress also focus rigor effectiveness firm’s risk systems goal risk management technology get right information right people right time requires systems comprehensive reliable timely devote significant time resources risk management technology ensure consistently provides us complete accurate timely information people even best technology serves tool helping make informed decisions real time risks taking ultimately effective risk management requires people interpret risk data ongoing timely basis adjust risk positions accordingly revenueproducing units independent control support functions experience professionals understanding nuances limitations risk measure guide firm assessing exposures maintaining within prudent levels structure ultimate oversight risk responsibility firm’s board oversees risk directly risk committee within firm series committees specific risk management mandates oversight decisionmaking responsibilities risk management activities committee membership generally consists senior managers revenueproducing units independent control support functions established procedures committees ensure appropriate information barriers place primary risk committees also additional subcommittees working groups described addition committees riskoriented committees provide oversight different businesses activities products regions legal entities membership firm’s risk committees reviewed regularly updated reflect changes responsibilities committee members accordingly length time members serve respective committees varies determined committee chairs based responsibilities members within firm addition independent control support functions report chief financial officer general counsel chief administrative officer case internal audit committee board responsible daytoday oversight monitoring risk discussed greater detail following sections internal audit includes professionals broad range audit industry experience including risk management expertise responsible independently assessing validating key controls within risk management framework goldman sachs group inc subsidiaries management’s discussion analysis chart presents overview risk management governance structure highlighting oversight board key riskrelated committees independence control support functions management committee management committee oversees global activities firm including firm’s independent control support functions provides oversight directly authority delegated committees established committee comprised senior leaders firm chaired firm’s chief executive officer management committee established various committees delegated authority chairperson management committee appoints chairpersons committees members management committee also members firmwide divisional regional committees following committees principally involved firmwide risk management firmwide client business standards committee firmwide client business standards committee assesses makes determinations regarding business standards practices reputational risk management client relationships client service chaired firm’s president chief operating officer reports management committee also responsibility overseeing implementation recommendations business standards committee established following two riskrelated committees report goldman sachs group inc subsidiaries management’s discussion analysis  firmwide new activity committee firmwide new activity committee responsible reviewing new activities establishing process identify review previously approved activities significant changed complexity andor structure present different reputational suitability concerns time consider whether activities remain appropriate committee cochaired firm’s head operationschief operating officer europe middle east africa chief administrative officer investment management division appointed firmwide client business standards committee chairperson  firmwide suitability committee firmwide suitability committee responsible setting standards policies product transaction client suitability providing forum consistency across divisions regions products suitability assessments committee also reviews suitability matters escalated firm committees committee cochaired firm’s international general counsel cohead investment management division appointed firmwide client business standards committee chairperson firmwide risk committee firmwide risk committee globally responsible ongoing monitoring control firm’s financial risks direct delegated authority firmwide risk committee approves firmwide product divisional businesslevel limits market credit risks approves sovereign credit risk limits reviews results stress tests scenario analyses committee cochaired firm’s chief financial officer senior managing director firm’s executive office reports management committee following four committees report firmwide risk committee chairperson securities division risk committee appointed chairpersons firmwide risk committee chairpersons credit policy firmwide operational risk committees appointed firm’s chief risk officer chairpersons firmwide finance committee appointed firmwide risk committee  securities division risk committee securities division risk committee sets market risk limits subject overall firmwide risk limits securities division based number risk measures including limited var stress tests scenario analyses balance sheet levels committee chaired chief risk officer securities division  credit policy committee credit policy committee establishes reviews broad firmwide credit policies parameters implemented credit risk management department credit risk management committee chaired firm’s chief credit officer  firmwide operational risk committee firmwide operational risk committee provides oversight ongoing development implementation operational risk policies framework methodologies monitors effectiveness operational risk management committee chaired managing director credit risk management  firmwide finance committee firmwide finance committee oversight firmwide liquidity size composition balance sheet capital base credit ratings committee regularly reviews discusses liquidity balance sheet funding position capitalization context current events risks exposures regulatory requirements committee also responsible reviewing approving balance sheet limits size gce committee cochaired firm’s chief financial officer firm’s global treasurer goldman sachs group inc subsidiaries management’s discussion analysis following committees report jointly firmwide risk committee firmwide client business standards committee  firmwide commitments committee firmwide commitments committee reviews firm’s underwriting distribution activities respect equity equityrelated product offerings sets maintains policies procedures designed ensure legal reputational regulatory business standards maintained global basis addition reviewing specific transactions committee periodically conducts general strategic reviews sectors products establishes policies connection transaction practices committee cochaired firm’s senior strategy officer cohead global mergers acquisitions appointed firmwide client business standards committee chairperson  firmwide capital committee firmwide capital committee provides approval oversight debtrelated transactions including principal commitments firm’s capital committee aims ensure business reputational standards underwritings capital commitments maintained global basis committee cochaired firm’s global treasurer head credit finance europe middle east africa appointed firmwide risk committee chairpersons investment management division risk committee investment management division risk committee responsible ongoing monitoring control global market counterparty credit liquidity risks associated activities investment management businesses head investment management division risk management chair committee investment management division risk committee reports firm’s chief risk officer conflicts management conflicts interest firm’s approach dealing fundamental client relationships reputation longterm success term “conflict interest” universally accepted meaning conflicts arise many forms within business businesses responsibility identifying potential conflicts well complying firm’s policies procedures shared entire firm multilayered approach resolving conflicts addressing reputational risk firm’s senior management oversees policies related conflicts resolution firm’s senior management business selection conflicts resolution group legal department compliance division firmwide client business standards committee internal committees play roles formulation policies standards principles assist making judgments regarding appropriate resolution particular conflicts resolving potential conflicts necessarily depends facts circumstances particular situation application experienced informed judgment transaction level various people groups roles general matter business selection conflicts resolution group reviews financing advisory assignments investment banking investing lending activities firm various transaction oversight committees firmwide capital commitments suitability committees across firm also review new underwritings loans investments structured products committees work internal external lawyers compliance division evaluate address actual potential conflicts regularly assess policies procedures address conflicts interest effort conduct business accordance highest ethical standards compliance applicable laws rules regulations goldman sachs group inc subsidiaries management’s discussion analysis liquidity risk management liquidity critical importance financial institutions recent failures financial institutions occurred large part due insufficient liquidity accordingly firm place comprehensive conservative set liquidity funding policies address firmspecific broader industry market liquidity events principal objective able fund firm enable core businesses continue serve clients generate revenues even adverse circumstances manage liquidity risk according following principles excess liquidity maintain substantial excess liquidity meet broad range potential cash outflows collateral needs stressed environment assetliability management assess anticipated holding periods assets expected liquidity stressed environment manage maturities diversity funding across markets products counterparties seek maintain liabilities appropriate tenor relative asset base contingency funding plan maintain contingency funding plan provide framework analyzing responding liquidity crisis situation periods market stress framework sets forth plan action fund normal business activity emergency stress situations principles discussed detail excess liquidity important liquidity policy prefund estimated potential cash collateral needs liquidity crisis hold excess liquidity form unencumbered highly liquid securities cash believe securities held global core excess would readily convertible cash matter days liquidation entering repurchase agreements maturities reverse repurchase agreements cash would allow us meet immediate obligations without needing sell assets depend additional funding creditsensitive markets december 2012 december 2011 fair value securities certain overnight cash deposits included gce totaled 17462 billion 17158 billion respectively based results internal liquidity risk model discussed well consideration factors including limited qualitative assessment condition financial markets firm believe liquidity position december 2012 appropriate table presents fair value securities certain overnight cash deposits included gce us dollardenominated excess composed unencumbered us government federal agency obligations including highly liquid us federal agency mortgagebacked obligations eligible collateral federal reserve open market operations ii certain overnight us dollar cash deposits nonus dollardenominated excess composed unencumbered german french japanese united kingdom government obligations certain overnight cash deposits highly liquid currencies strictly limit excess liquidity narrowly defined list securities cash highly liquid even difficult funding environment include potential sources excess liquidity less liquid unencumbered securities committed credit facilities gce goldman sachs group inc subsidiaries management’s discussion analysis table presents fair value gce asset class gce held group inc major brokerdealer bank subsidiaries presented table gce reflects following principles  first days weeks liquidity crisis critical company’s survival  focus must maintained potential cash collateral outflows disruptions financing flows businesses diverse liquidity needs determined many factors including market movements collateral requirements client commitments change dramatically difficult funding environment  liquidity crisis creditsensitive funding including unsecured debt types secured financing agreements may unavailable terms eg interest rates collateral provisions tenor availability types secured financing may change  result policy prefund liquidity estimate may needed crisis hold unencumbered securities larger debt balances businesses would otherwise require believe liquidity stronger greater balances highly liquid unencumbered securities even though increases total assets funding costs believe gce provides us resilient source funds would available advance potential cash collateral outflows gives us significant flexibility managing difficult funding environment order determine appropriate size gce use internal liquidity model referred modeled liquidity outflow captures quantifies firm’s liquidity risks also consider factors including limited assessment potential intraday liquidity needs qualitative assessment condition financial markets firm distribute gce across entities asset types clearing agents provide us sufficient operating liquidity ensure timely settlement major markets even difficult funding environment maintain gce enable us meet current potential liquidity requirements parent company group inc major brokerdealer bank subsidiaries modeled liquidity outflow incorporates consolidated requirement well standalone requirement major brokerdealer bank subsidiaries liquidity held directly subsidiaries intended use subsidiary meet liquidity requirements assumed available group inc unless legally provided ii additional regulatory tax restrictions hold portion gce directly group inc support consolidated requirements accounted major subsidiaries addition gce maintain operating cash balances several operating entities primarily use specific currencies entities jurisdictions immediate access parent company liquidity addition gce significant amount unencumbered cash financial instruments including government obligations highgrade money market securities corporate obligations marginable equities loans cash deposits included gce fair value assets averaged 8709 billion 8332 billion years ended december 2012 december 2011 respectively consider assets liquid enough eligible gce liquidity pool therefore conservatively assume generate liquidity assets modeled liquidity outflow goldman sachs group inc subsidiaries management’s discussion analysis modeled liquidity outflow modeled liquidity outflow based scenario includes marketwide stress firmspecific stress characterized following qualitative elements  severely challenged market environments including low consumer corporate confidence financial political instability adverse changes market values including potential declines equity markets widening credit spreads  firmspecific crisis potentially triggered material losses reputational damage litigation executive departure andor ratings downgrade following critical modeling parameters modeled liquidity outflow  liquidity needs 30day scenario  twonotch downgrade firm’s longterm senior unsecured credit ratings  combination contractual outflows upcoming maturities unsecured debt contingent outflows eg actions though contractually required may deem necessary crisis assume contingent outflows occur within initial days weeks crisis  issuance equity unsecured debt  support government funding facilities although access various central bank funding programs assume reliance source funding liquidity crisis  maintenance normal business levels assume asset liquidation gce modeled liquidity outflow calculated reported senior management daily basis regularly refine model reflect changes market economic conditions firm’s business mix potential contractual contingent cash collateral outflows covered modeled liquidity outflow include unsecured funding  contractual upcoming maturities unsecured longterm debt commercial paper promissory notes unsecured funding products assume unable issue new unsecured debt rollover maturing debt  contingent repurchases outstanding longterm debt commercial paper hybrid financial instruments ordinary course business market maker deposits  contractual upcoming maturities term deposits assume unable raise new term deposits rollover maturing term deposits  contingent withdrawals bank deposits contractual maturity withdrawal assumptions reflect among factors type deposit whether deposit insured uninsured firm’s relationship depositor secured funding  contractual portion upcoming contractual maturities secured funding due either inability refinance ability refinance wider haircuts ie terms require us post additional collateral assumptions reflect among factors quality underlying collateral counterparty roll probabilities assessment counterparty’s likelihood continuing provide funding secured basis maturity trade counterparty concentration  contingent decline value financial assets pledged collateral financing transactions would necessitate additional collateral postings transactions goldman sachs group inc subsidiaries management’s discussion analysis otc derivatives  contingent collateral postings counterparties due adverse changes value otc derivatives  contingent outflows cash collateral related otc derivatives including impact trade terminations collateral substitutions collateral disputes collateral calls termination payments required twonotch downgrade credit ratings collateral called counterparties available exchangetraded derivatives  contingent variation margin postings required due adverse changes value outstanding exchangetraded derivatives  contingent increase initial margin guaranty fund requirements derivative clearing houses customer cash securities  contingent liquidity outflows associated prime brokerage business including withdrawals customer credit balances reduction customer short positions serve funding source long positions unfunded commitments  contingent draws unfunded commitments draw assumptions reflect among things type commitment counterparty  upcoming large cash outflows tax payments assetliability management liquidity risk management policies designed ensure sufficient amount financing even funding markets experience persistent stress seek maintain longdated diversified funding profile taking consideration characteristics liquidity profile assets approach assetliability management includes  conservatively managing overall characteristics funding book focus maintaining longterm diversified sources funding excess current requirements see “balance sheet funding sources funding sources” additional details  actively managing monitoring asset base particular focus liquidity holding period ability fund assets secured basis enables us determine appropriate funding products tenors see “balance sheet funding sources balance sheet management” detail balance sheet management process “ funding sources secured funding” detail asset classes may harder fund secured basis  raising secured unsecured financing long tenor relative liquidity profile assets reduces risk liabilities come due advance ability generate liquidity sale assets maintain highly liquid balance sheet holding period certain assets may materially shorter contractual maturity dates goal ensure firm maintains sufficient liquidity fund assets meet contractual contingent obligations normal times well periods market stress dynamic balance sheet management process see “balance sheet funding sources balance sheet management” use actual projected asset balances determine secured unsecured funding requirements funding plans reviewed approved firmwide finance committee quarterly basis addition senior managers independent control support functions regularly analyze firmwide finance committee reviews consolidated total capital position unsecured longterm borrowings plus total shareholders’ equity maintain level longterm funding sufficient meet longterm financing requirements liquidity crisis would first use gce order avoid reliance asset sales gce however recognize orderly asset sales may prudent necessary severe persistent liquidity crisis goldman sachs group inc subsidiaries management’s discussion analysis subsidiary funding policies majority unsecured funding raised group inc lends necessary funds subsidiaries regulated meet asset financing liquidity capital requirements addition group inc provides regulated subsidiaries necessary capital meet regulatory requirements benefits approach subsidiary funding enhanced control greater flexibility meet funding requirements subsidiaries funding also raised subsidiary level variety products including secured funding unsecured borrowings deposits intercompany funding policies assume unless legally provided subsidiary’s funds securities freely available parent company subsidiaries particular many subsidiaries subject laws authorize regulatory bodies block reduce flow funds subsidiaries group inc regulatory action kind could impede access funds group inc needs make payments obligations accordingly assume capital provided regulated subsidiaries available group inc subsidiaries financing provided regulated subsidiaries available maturity financing group inc provided substantial amounts equity subordinated indebtedness directly indirectly regulated subsidiaries example december 2012 group inc 2952 billion equity subordinated indebtedness invested gsco principal us registered brokerdealer 2945 billion invested gsi regulated uk brokerdealer 262 billion invested gsec us registered brokerdealer 378 billion invested goldman sachs japan co ltd regulated japanese brokerdealer 2067 billion invested gs bank usa regulated new york statechartered bank group inc also provided directly indirectly 6844 billion unsubordinated loans 1137 billion collateral entities substantially gsco gsi gs bank usa december 2012 addition december 2012 group inc significant amounts capital invested loans regulated subsidiaries contingency funding plan goldman sachs contingency funding plan sets plan action would use fund business activity crisis situations periods market stress contingency funding plan outlines list potential risk factors key reports metrics reviewed ongoing basis assist assessing severity managing liquidity crisis andor market dislocation contingency funding plan also describes detail firm’s potential responses assessments indicate firm entered liquidity crisis include prefunding estimate potential cash collateral needs well utilizing secondary sources liquidity mitigants action items address specific risks may arise also described assigned individuals responsible execution contingency funding plan identifies key groups individuals foster effective coordination control distribution information critical management crisis period market stress contingency funding plan also details responsibilities groups individuals include making disseminating key decisions coordinating contingency activities throughout duration crisis period market stress implementing liquidity maintenance activities managing internal external communication proposed liquidity framework basel committee banking supervision’s international framework liquidity risk measurement standards monitoring calls imposition liquidity coverage ratio designed ensure banking entity maintains adequate level unencumbered highquality liquid assets based expected cash outflows acute liquidity stress scenario net stable funding ratio designed promote medium longterm funding assets activities banking entities oneyear time horizon principles behind new framework broadly consistent current liquidity management framework possible implementation standards could impact liquidity funding requirements practices basel committee framework liquidity coverage ratio would introduced january 1 2015 however would phasein period whereby firms would 60 minimum 2015 would raised 10 per year reaches 100 2019 net stable funding ratio expected introduced requirement january 1 2018 goldman sachs group inc subsidiaries management’s discussion analysis credit ratings table presents unsecured credit ratings outlook group inc 1 trust preferred securities issued goldman sachs capital 2 includes senior guaranteed trust securities issued murray street investment trust vesey street investment trust 3 includes group inc’s noncumulative preferred stock apex issued goldman sachs capital ii goldman sachs capital iii 4 ratings outlook trust preferred stock stable table presents unsecured credit ratings gs bank usa gsco gsi january 24 2013 fitch inc assigned gsi rating shortterm debt longterm debt rely shortterm longterm debt capital markets fund significant portion daytoday operations cost availability debt financing influenced credit ratings credit ratings also important competing certain markets otc derivatives seek engage longerterm transactions see “certain risk factors may affect businesses” “risk factors” part item 1a form 10k discussion risks associated reduction credit ratings goldman sachs group inc subsidiaries management’s discussion analysis believe credit ratings primarily based credit rating agencies’ assessment  liquidity market credit operational risk management practices  level variability earnings  capital base  franchise reputation management  corporate governance  external operating environment including assumed level government support certain firm’s derivatives transacted bilateral agreements counterparties may require us post collateral terminate transactions based changes credit ratings assess impact bilateral agreements determining collateral termination payments would occur assuming downgrade rating agencies downgrade one rating agency depending agency’s relative ratings firm time downgrade may impact comparable impact downgrade rating agencies allocate portion gce ensure would able make additional collateral termination payments may required event twonotch reduction longterm credit ratings well collateral called counterparties available table presents additional collateral termination payments could called reporting date counterparties event onenotch twonotch downgrade credit ratings cash flows global financial institution cash flows complex bear little relation net earnings net assets consequently believe traditional cash flow analysis less meaningful evaluating liquidity position excess liquidity assetliability management policies described cash flow analysis may however helpful highlighting certain macro trends strategic initiatives businesses year ended december 2012 cash equivalents increased 1666 billion 7267 billion end 2012 generated 914 billion net cash operating investing activities generated 752 billion net cash financing activities increase bank deposits partially offset net repayments unsecured secured longterm borrowings year ended december 2011 cash equivalents increased 1622 billion 5601 billion end 2011 generated 2313 billion net cash operating investing activities used net cash 691 billion financing activities primarily repurchases series g preferred stock common stock partially offset increase bank deposits year ended december 2010 cash equivalents increased 150 billion 3979 billion end 2010 generated 784 billion net cash financing activities primarily net proceeds issuances shortterm secured financings used net cash 634 billion operating investing activities primarily fund increase securities purchased agreements resell increase cash securities segregated regulatory purposes partially offset cash generated decrease securities borrowed goldman sachs group inc subsidiaries management’s discussion analysis market risk management overview market risk loss value inventory due changes market prices hold inventory primarily market making clients investing lending activities inventory therefore changes based client demands investment opportunities inventory accounted fair value therefore fluctuates daily basis related gains losses included “market making” “other principal transactions” categories market risk include following  interest rate risk results exposures changes level slope curvature yield curves volatilities interest rates mortgage prepayment speeds credit spreads  equity price risk results exposures changes prices volatilities individual equities baskets equities equity indices  currency rate risk results exposures changes spot prices forward prices volatilities currency rates  commodity price risk results exposures changes spot prices forward prices volatilities commodities electricity natural gas crude oil petroleum products precious base metals market risk management process manage market risk diversifying exposures controlling position sizes establishing economic hedges related securities derivatives includes  accurate timely exposure information incorporating multiple risk metrics  dynamic limit setting framework  constant communication among revenueproducing units risk managers senior management market risk management independent revenueproducing units reports firm’s chief risk officer primary responsibility assessing monitoring managing market risk firm monitor control risks strong firmwide oversight independent control support functions across firm’s global businesses managers revenueproducing units accountable managing risk within prescribed limits managers indepth knowledge positions markets instruments available hedge exposures managers revenueproducing units market risk management discuss market information positions estimated risk loss scenarios ongoing basis risk measures market risk management produces risk measures monitors market risk limits set firm’s risk committees measures reflect extensive range scenarios results aggregated trading desk business firmwide levels use variety risk measures estimate size potential losses moderate extreme market moves shortterm longterm time horizons risk measures used shorterterm periods include var sensitivity metrics longerterm horizons primary risk measures stress tests risk reports detail key risks drivers changes desk business distributed daily senior management revenueproducing units independent control support functions systems made significant investment technology monitor market risk including  independent calculation var stress measures  risk measures calculated individual position levels  attribution risk measures individual risk factors position  ability report many different views risk measures eg desk business product type legal entity  ability produce ad hoc analyses timely manner goldman sachs group inc subsidiaries management’s discussion analysis valueatrisk var potential loss value inventory positions due adverse market movements defined time horizon specified confidence level typically employ oneday time horizon 95 confidence level use single var model captures risks including interest rates equity prices currency rates commodity prices var facilitates comparison across portfolios different risk characteristics var also captures diversification aggregated risk firmwide level aware inherent limitations var therefore use variety risk measures market risk management process inherent limitations var include  var estimate potential losses longer time horizons moves may extreme  var take account relative liquidity different risk positions  previous moves market risk factors may produce accurate predictions future market moves calculating var use historical simulations full valuation approximately 70000 market factors var calculated position level based simultaneously shocking relevant market risk factors position sample 5 years historical data generate scenarios var calculation historical data weighted relative importance data reduces time gives greater importance recent observations reflects current asset volatilities improves accuracy estimates potential loss result even inventory positions unchanged var would increase increasing market volatility vice versa given reliance historical data var effective estimating risk exposures markets sudden fundamental changes shifts market conditions var measure include  positions best measured monitored using sensitivity measures  impact changes counterparty credit spreads derivatives well changes credit spreads unsecured borrowings fair value option elected model review validation var model subject review validation independent model validation group least annually review includes  critical evaluation model theoretical soundness adequacy intended use  verification testing strategy utilized model developers ensure model functions intended  verification suitability calculation techniques incorporated model var model regularly reviewed enhanced order incorporate changes composition inventory positions well variations market conditions prior implementing significant changes assumptions andor model perform model validation test runs significant changes var model reviewed firm’s chief risk officer chief financial officer approved firmwide risk committee evaluate accuracy var model daily backtesting ie comparing daily trading net revenues var measure calculated prior business day firmwide level businesses major regulated subsidiaries stress testing use stress testing examine risks specific portfolios well potential impact significant risk exposures across firm use variety stress testing techniques calculate potential loss wide range market moves firm’s portfolios including sensitivity analysis scenario analysis firmwide stress tests results various stress tests analyzed together risk management purposes sensitivity analysis used quantify impact market move single risk factor across positions eg equity prices credit spreads using variety defined market shocks ranging could expected oneday time horizon could take many months occur also use sensitivity analysis quantify impact default single corporate entity captures risk large concentrated exposures goldman sachs group inc subsidiaries management’s discussion analysis scenario analysis used quantify impact specified event including event impacts multiple risk factors simultaneously example sovereign stress testing calculate potential direct exposure associated sovereign inventory well corresponding debt equity currency exposures associated nonsovereign inventory may impacted sovereign distress conducting scenario analysis typically consider number possible outcomes scenario ranging moderate severely adverse market impacts addition stress tests constructed using historical events forwardlooking hypothetical scenarios firmwide stress testing combines market credit operational liquidity risks single combined scenario firmwide stress tests primarily used assess capital adequacy part icaap process however also ensure firmwide stress testing integrated risk governance framework includes selecting appropriate scenarios use icaap process see “equity capital internal capital adequacy assessment process” information icaap process unlike var measures implied probability calculated specified confidence level generally implied probability stress test scenarios occur instead stress tests used model moderate extreme moves underlying market factors estimating potential loss generally assume positions cannot reduced hedged although experience demonstrates generally able stress test scenarios conducted regular basis part firm’s routine risk management process ad hoc basis response market events concerns stress testing important part firm’s risk management process allows us quantify exposure tail risks highlight potential loss concentrations undertake riskreward analysis assess mitigate risk positions limits use risk limits various levels firm including firmwide product business govern risk appetite controlling size exposures market risk limits set based var range stress tests relevant firm’s exposures limits reviewed frequently amended permanent temporary basis reflect changing market conditions business conditions tolerance risk firmwide risk committee sets market risk limits firmwide product levels securities division risk committee sets sublimits marketmaking investing activities business level purpose firmwide limits assist senior management controlling firm’s overall risk profile sublimits set desired maximum amount exposure may managed particular business daytoday basis without additional levels senior management approval effectively leaving daytoday trading decisions individual desk managers traders accordingly sublimits management tool designed ensure appropriate escalation rather establish maximum risk tolerance sublimits also distribute risk among various businesses manner consistent level activity client demand taking account relative performance area market risk limits monitored daily market risk management responsible identifying escalating timely basis instances limits exceeded businesslevel limits set securities division risk committee subject scrutiny limit escalation policy firmwide limits risk limit exceeded eg due changes market conditions increased volatilities changes correlations reported appropriate risk committee discussion takes place relevant desk managers either risk position reduced risk limit temporarily permanently increased goldman sachs group inc subsidiaries management’s discussion analysis metrics analyze var firmwide level variety detailed levels including risk category business region tables present risk category average daily var periodend var well high low var period diversification effect tables represents difference total var sum vars four risk categories effect arises four market risk categories perfectly correlated average daily var average daily var decreased 86 million 2012 113 million 2011 reflecting decrease interest rates category due lower levels volatility decreases commodity prices currency rates categories due reduced exposures lower levels volatility decrease equity prices category due reduced exposures decreases partially offset decrease diversification benefit across risk categories average daily var decreased 113 million 2011 134 million 2010 primarily reflecting decreases equity prices currency rates categories principally due reduced exposures decreases partially offset decrease diversification benefit across risk categories yearend var high low var daily var decreased 71 million december 2012 99 million december 2011 primarily reflecting decreases interest rates equity prices categories due lower levels volatility decreases partially offset decrease diversification benefit across risk categories year ended december 2012 firmwide var risk limit exceeded reduced one occasion due lower levels volatility year ended december 2011 firmwide var risk limit exceeded one occasion resolved temporary increase firmwide var risk limit subsequently made permanent due higher levels volatility firmwide var risk limit previously reduced one occasion 2011 reflecting lower risk utilization market environment goldman sachs group inc subsidiaries management’s discussion analysis chart reflects var last four quarters chart presents frequency distribution daily trading net revenues substantially inventory positions included var year ended december 2012 daily trading net revenues compared var calculated end prior business day trading losses incurred single day exceed 95 oneday var 2012 trading losses incurred single day exceeded 95 oneday var ie var exception three occasions 2011 periods firm significantly positive net revenue days net revenue loss days expect fewer var exceptions normal conditions business model generally produces positive net revenues periods franchise revenues adversely affected generally loss days resulting var exceptions addition var backtesting performed total daily marketmaking revenues including bidoffer net revenues likely positive nature goldman sachs group inc subsidiaries management’s discussion analysis sensitivity measures certain portfolios individual positions included var appropriate risk measure market risk positions determined estimating potential reduction net revenues 10 decline underlying asset value table presents market risk positions included var measures reflect diversification benefits across asset categories therefore aggregated 1 relates private restricted public equity securities including interests firmsponsored funds invest corporate equities real estate interests firmsponsored hedge funds 2 primarily relates interests firmsponsored funds invest corporate mezzanine senior debt instruments also includes loans backed commercial residential real estate corporate bank loans corporate debt including acquired portfolios distressed loans var excludes impact changes counterparty credit spreads derivatives well changes credit spreads unsecured borrowings fair value option elected estimated sensitivity one basis point increase credit spreads counterparty derivatives 3 million gain including hedges december 2012 addition estimated sensitivity one basis point increase credit spreads unsecured borrowings fair value option elected 7 million gain including hedges december 2012 however actual net impact change credit spreads also affected liquidity duration convexity sensitivity linear changes yields unsecured borrowings fair value option elected well relative performance hedges undertaken firm engages insurance activities reinsure purchase portfolios insurance risk pension liabilities risks associated activities include limited equity price interest rate reinvestment mortality risk firm mitigates risks associated insurance activities use reinsurance hedging certain assets associated firm’s insurance activities included var addition positions included var held 907 billion securities accounted availableforsale december 2012 support firm’s reinsurance business december 2012 availableforsale securities primarily consisted 363 billion corporate debt securities average yield 4 majority mature five years 338 billion mortgage assetbacked loans securities average yield 6 majority mature ten years 856 million us government federal agency obligations average yield 3 majority mature five years december 2012 assets classified held sale included “other assets” see note 12 consolidated financial statements part ii item 8 form 10k information assets held sale december 2011 held 486 billion securities accounted availableforsale primarily consisting 181 billion corporate debt securities average yield 5 majority mature five years 142 billion mortgage assetbacked loans securities average yield 10 majority mature ten years 662 million us government federal agency obligations average yield 3 majority mature ten years addition december 2012 december 2011 commitments held loans obtained credit loss protection sumitomo mitsui financial group inc see note 18 consolidated financial statements part ii item 8 form 10k information lending commitments december 2012 firm also 650 billion loans held investment accounted amortized cost included “receivables customers counterparties” substantially floating interest rates estimated sensitivity 100 basis point increase interest rates loans 62 million additional interest income 12month period take account potential impact increase costs fund loans see note 8 consolidated financial statements part ii item 8 form 10k information loans held investment additionally make investments accounted equity method also make direct investments real estate included “other assets” consolidated statements financial condition direct investments real estate accounted cost less accumulated depreciation see note 12 consolidated financial statements part ii item 8 form 10k information “other assets” goldman sachs group inc subsidiaries management’s discussion analysis credit risk management overview credit risk represents potential loss due default deterioration credit quality counterparty eg otc derivatives counterparty borrower issuer securities instruments hold exposure credit risk comes mostly client transactions otc derivatives loans lending commitments credit risk also comes cash placed banks securities financing transactions ie resale repurchase agreements securities borrowing lending activities receivables brokers dealers clearing organizations customers counterparties credit risk management independent revenueproducing units reports firm’s chief risk officer primary responsibility assessing monitoring managing credit risk firm credit policy committee firmwide risk committee establish review credit policies parameters addition hold positions give rise credit risk eg bonds held inventory secondary bank loans credit risks captured component market risk measures monitored managed market risk management consistent inventory positions policies authorized firmwide risk committee credit policy committee prescribe level formal approval required firm assume credit exposure counterparty across product areas taking account applicable netting provisions collateral credit risk mitigants credit risk management process effective management credit risk requires accurate timely information high level communication knowledge customers countries industries products process managing credit risk includes  approving transactions setting communicating credit exposure limits  monitoring compliance established credit exposure limits  assessing likelihood counterparty default payment obligations  measuring firm’s current potential credit exposure losses resulting counterparty default  reporting credit exposures senior management board regulators  use credit risk mitigants including collateral hedging  communication collaboration independent control support functions operations legal compliance part risk assessment process credit risk management performs credit reviews include initial ongoing analyses counterparties credit review independent judgment capacity willingness counterparty meet financial obligations substantially credit exposures core process annual counterparty review counterparty review written analysis counterparty’s business profile financial strength resulting internal credit rating represents probability default financial obligations firm determination internal credit ratings incorporates assumptions respect counterparty’s future business performance nature outlook counterparty’s industry economic environment senior personnel within credit risk management expertise specific industries inspect approve credit reviews internal credit ratings global credit risk management systems capture credit exposure individual counterparties aggregate basis counterparties subsidiaries economic groups systems also provide management comprehensive information aggregate credit risk product internal credit rating industry country region goldman sachs group inc subsidiaries management’s discussion analysis risk measures limits measure credit risk based potential loss event nonpayment counterparty derivatives securities financing transactions primary measure potential exposure estimate future exposure could arise life transaction based market movements within specified confidence level potential exposure takes account netting collateral arrangements loans lending commitments primary measure function notional amount position also monitor credit risk terms current exposure amount presently owed firm taking account applicable netting collateral use credit limits various levels counterparty economic group industry country control size credit exposures limits counterparties economic groups reviewed regularly revised reflect changing appetites given counterparty group counterparties limits industries countries based firm’s risk tolerance designed allow regular monitoring review escalation management credit risk concentrations stress testsscenario analysis use regular stress tests calculate credit exposures including potential concentrations would result applying shocks counterparty credit ratings credit risk factors eg currency rates interest rates equity prices shocks include wide range moderate extreme market movements stress tests include shocks multiple risk factors consistent occurrence severe market economic event case sovereign default estimate direct impact default sovereign credit exposures changes credit exposures arising potential market moves response default impact credit market deterioration corporate borrowers counterparties may result sovereign default unlike potential exposure calculated within specified confidence level stress test generally assumed probability events occurring run stress tests regular basis part routine risk management processes conduct tailored stress tests ad hoc basis response market developments stress tests regularly conducted jointly firm’s market liquidity risk functions risk mitigants reduce credit exposures derivatives securities financing transactions may enter netting agreements counterparties permit us offset receivables payables counterparties may also reduce credit risk counterparties entering agreements enable us obtain collateral upfront contingent basis andor terminate transactions counterparty’s credit rating falls specified level loans lending commitments depending credit quality borrower characteristics transaction employ variety potential risk mitigants risk mitigants include collateral provisions guarantees covenants structural seniority bank loan claims certain lending commitments provisions legal documentation allow firm adjust loan amounts pricing structure terms market conditions change type structure risk mitigants employed significantly influence degree credit risk involved loan sufficient visibility counterparty’s financial strength believe counterparty requires support parent company may obtain thirdparty guarantees counterparty’s obligations may also mitigate credit risk using credit derivatives participation agreements goldman sachs group inc subsidiaries management’s discussion analysis credit exposures firm’s credit exposures described cash equivalents cash equivalents include interestbearing noninterestbearing deposits mitigate risk credit loss place substantially deposits highly rated banks central banks otc derivatives reported netbycounterparty basis ie net payable receivable derivative assets liabilities given counterparty legal right setoff exists enforceable netting agreement derivatives accounted fair value net cash collateral received posted credit support agreements credit risk essential component fair value firm includes credit valuation adjustment cva fair value derivatives reflect counterparty credit risk described note 7 consolidated financial statements part ii item 8 form 10k cva function present value expected exposure probability counterparty default assumed recovery upon default tables present distribution exposure otc derivatives tenor based expected duration mortgagerelated credit derivatives generally remaining contractual maturity derivatives effect collateral netting agreements receivable payable balances counterparty across tenor categories netted enforceable netting agreements cash collateral received netted credit support agreements receivable payable balances counterparty tenor category netted within tenor category categories shown reflect internally determined public rating agency equivalents goldman sachs group inc subsidiaries management’s discussion analysis lending activities manage firm’s traditional credit origination activities including funded loans lending commitments fair value held investment loans lending commitments using credit risk process measures limits described lending positions including secondary trading positions riskmanaged component market risk credit exposures firm exposed credit risk receivables brokers dealers clearing organizations customers counterparties receivables brokers dealers clearing organizations primarily comprised initial margin placed clearing organizations receivables related sales securities traded yet settled receivables minimal credit risk due low probability clearing organization default shortterm nature receivables related securities settlements receivables customers counterparties generally comprised collateralized receivables related customer securities transactions minimal credit risk due value collateral received shortterm nature receivables credit exposures december 2012 credit exposures increased compared december 2011 reflecting increase cash loans lending commitments partially offset decrease otc derivative exposures percentage credit exposure arising noninvestmentgrade counterparties based internally determined public rating agency equivalents increased december 2011 reflecting increase loans lending commitments counterparty defaults rose slightly year ended december 2012 however estimated losses associated counterparty defaults lower compared prior year tables present firm’s credit exposures related cash otc derivatives loans lending commitments associated traditional credit origination activities broken industry region internal credit rating goldman sachs group inc subsidiaries management’s discussion analysis credit exposure industry 1 includes approximately 12 billion 10 billion loans december 2012 december 2011 respectively approximately 71 billion 61 billion lending commitments december 2012 december 2011 respectively excludes certain bank loans bridge loans certain lending commitments risk managed part market risk using var sensitivity measures 2 firm bears credit risk related resale agreements securities borrowed extent cash advanced value securities pledged delivered counterparty exceeds value collateral received firm also credit exposure repurchase agreements securities loaned extent value securities pledged delivered counterparty transactions exceeds amount cash collateral received approximately 37 billion 41 billion december 2012 december 2011 respectively credit exposure related securities financing transactions reflecting applicable netting agreements collateral 3 emea europe middle east africa goldman sachs group inc subsidiaries management’s discussion analysis selected country exposures 2011 throughout 2012 concerns european sovereign debt risk impact european banking system number european member states experiencing significant credit deterioration pronounced market concerns relate greece ireland italy portugal spain tables present credit exposure gross net hedges sovereigns financial institutions corporate counterparties borrowers countries credit exposure represents potential loss due default deterioration credit quality counterparty borrower addition tables include market exposure long short inventory issuer underlier located countries market exposure represents potential loss value inventory due changes market prices overlap credit market exposures tables country risk determined location counterparty issuer underlier’s assets generate revenue country headquartered andor government whose policies affect ability repay obligations 1 principally consists collateralized loans 2 includes benefit 66 billion cash us treasury securities collateral excludes nonus government agency obligations corporate securities collateral 357 million 3 includes written purchased credit derivative notionals reduced fair values credit derivatives goldman sachs group inc subsidiaries management’s discussion analysis 1 includes benefit 65 billion cash us treasury securities collateral excludes nonus government agency obligations corporate securities collateral 341 million 2 includes written purchased credit derivative notionals reduced fair values credit derivatives economically hedge exposure written credit derivatives entering offsetting purchased credit derivatives identical underlyings possible endeavor match tenor credit default terms hedges written credit derivatives substantially purchased credit derivatives included bought investmentgrade counterparties domiciled outside countries collateralized cash us treasury securities gross purchased written credit derivative notionals across countries singlename index credit default swaps included ‘hedges’ ‘credit derivatives’ tables 1794 billion 1686 billion respectively december 2012 1778 billion 1673 billion respectively december 2011 including netting legally enforceable netting agreements within across countries purchased written credit derivative notionals singlename index credit default swaps 260 billion 153 billion respectively december 2012 282 billion 177 billion respectively december 2011 notionals representative exposure exclude available netting legally enforceable netting agreements derivatives outside countries collateral received posted credit support agreements credit exposure ‘other’ principally consists deposits secured lending transactions secured receivables net applicable collateral december 2012 december 2011 48 billion 70 billion respectively secured lending transactions secured receivables fully collateralized information nature payout trigger events related written purchased credit protection contracts see note 7 consolidated financial statements part ii item 8 form 10k goldman sachs group inc subsidiaries management’s discussion analysis conduct stress tests intended estimate direct indirect impact might result variety possible events involving countries including sovereign defaults exit one countries euro area stress tests described “market risk management stress testing” “credit risk management stress testsscenario analysis” estimate direct impact event credit market exposures resulting shocks risk factors including limited currency rates interest rates equity prices parameters shocks vary based scenario reflected stress test also estimate indirect impact exposures arising potential market moves response event impact credit market deterioration corporate borrowers counterparties along shocks risk factors described review estimated losses produced stress tests order understand magnitude highlight potential loss concentrations assess mitigate exposures necessary euro area exit scenarios include analysis impacts exposure might result redenomination assets exiting country countries constructing stress tests scenarios requires many assumptions exposures might directly impacted resulting secondary market moves would indirectly impact exposures given multiple parameters involved scenarios losses events inherently difficult quantify may materially differ estimates order prepare market disruption might result euro area exit test operational risk management readiness capability respond redenomination event see “liquidity risk management modeled liquidity outflow” “market risk management stress testing” “credit risk management stress testsscenario analysis” discussion operational risk management overview operational risk loss resulting inadequate failed internal processes people systems external events exposure operational risk arises routine processing errors well extraordinary incidents major systems failures potential types loss events related internal external operational risk include  clients products business practices  execution delivery process management  business disruption system failures  employment practices workplace safety  damage physical assets  internal fraud  external fraud firm maintains comprehensive control framework designed provide wellcontrolled environment minimize operational risks firmwide operational risk committee along support regional entityspecific working groups committees provides oversight ongoing development implementation operational risk policies framework operational risk management department operational risk management risk management function independent revenueproducing units reports firm’s chief risk officer responsible developing implementing policies methodologies formalized framework operational risk management goal minimizing exposure operational risk goldman sachs group inc subsidiaries management’s discussion analysis operational risk management process managing operational risk requires timely accurate information well strong control culture seek manage operational risk  training supervision development people  active participation senior management identifying mitigating key operational risks across firm  independent control support functions monitor operational risk daily basis instituted extensive policies procedures implemented controls designed prevent occurrence operational risk events  proactive communication revenueproducing units independent control support functions  network systems throughout firm facilitate collection data used analyze assess operational risk exposure combine topdown bottomup approaches manage measure operational risk topdown perspective firm’s senior management assesses firmwide business level operational risk profiles bottomup perspective revenueproducing units independent control support functions responsible risk management daytoday basis including identifying mitigating escalating operational risks senior management operational risk framework part designed comply operational risk measurement rules basel 2 evolved based changing needs businesses regulatory guidance framework comprises following practices  risk identification reporting  risk measurement  risk monitoring internal audit performs review operational risk framework including key controls processes applications annual basis assess effectiveness framework risk identification reporting core operational risk management framework risk identification reporting comprehensive data collection process including firmwide policies procedures operational risk events established policies require managers revenueproducing units independent control support functions escalate operational risk events operational risk events identified policies require events documented analyzed determine whether changes required firm’s systems andor processes mitigate risk future events addition firmwide systems capture internal operational risk event data key metrics transaction volumes statistical information performance trends use internallydeveloped operational risk management application aggregate organize information managers revenueproducing units independent control support functions analyze information evaluate operational risk exposures identify businesses activities products heightened levels operational risk also provide periodic operational risk reports senior management risk committees board goldman sachs group inc subsidiaries management’s discussion analysis risk measurement measure firm’s operational risk exposure twelvemonth time horizon using statistical modeling scenario analyses involve qualitative assessments potential frequency extent potential operational risk losses firm’s businesses operational risk measurement incorporates qualitative quantitative assessments factors including  internal external operational risk event data  assessments firm’s internal controls  evaluations complexity firm’s business activities  degree potential automation firm’s processes  new product information  legal regulatory environment  changes markets firm’s products services including diversity sophistication firm’s customers counterparties  liquidity capital markets reliability infrastructure supports capital markets results scenario analyses used monitor changes operational risk determine business lines may heightened exposure operational risk analyses ultimately used determination appropriate level operational risk capital hold risk monitoring evaluate changes operational risk profile firm businesses including changes business mix jurisdictions firm operates monitoring factors noted firmwide level firm detective preventive internal controls designed reduce frequency severity operational risk losses probability operational risk events monitor results assessments independent internal audits internal controls recent accounting developments see note 3 consolidated financial statements part ii item 8 form 10k information recent accounting developments goldman sachs group inc subsidiaries management’s discussion analysis certain risk factors may affect businesses face variety risks substantial inherent businesses including market liquidity credit operational legal regulatory reputational risks discussion management seeks manage risks see “overview structure risk management” summary important factors could affect businesses follows discussion important factors could affect businesses financial condition results operations cash flows liquidity see “risk factors” part item 1a form 10k  businesses may continue adversely affected conditions global financial markets economic conditions generally  businesses may adversely affected declining asset values particularly true businesses net “long” positions receive fees based value assets managed receive post collateral  businesses may adversely affected disruptions credit markets including reduced access credit higher costs obtaining credit  marketmaking activities may affected changes levels market volatility  investment banking client execution investment management businesses adversely affected may continue adversely affected market uncertainty lack confidence among investors ceos due general declines economic activity unfavorable economic geopolitical market conditions  investment management business may affected poor investment performance investment products  may incur losses result ineffective risk management processes strategies  liquidity profitability businesses may adversely affected inability access debt capital markets sell assets reduction credit ratings increase credit spreads  conflicts interest increasing failure appropriately identify address conflicts interest could adversely affect businesses  group inc holding company dependent liquidity payments subsidiaries many subject restrictions  businesses profitability liquidity may adversely affected deterioration credit quality defaults third parties owe us money securities assets whose securities obligations hold  concentration risk increases potential significant losses marketmaking underwriting investing lending activities  financial services industry highly competitive  face enhanced risks new business initiatives lead us transact broader array clients counterparties expose us new asset classes new markets  derivative transactions delayed settlements may expose us unexpected risk potential losses  businesses may adversely affected unable hire retain qualified employees  businesses clients subject extensive pervasive regulation around world  may adversely affected increased governmental regulatory scrutiny negative publicity  failure operational systems infrastructure third parties could impair liquidity disrupt businesses result disclosure confidential information damage reputation cause losses  substantial legal liability significant regulatory action us could material adverse financial effects cause us significant reputational harm turn could seriously harm business prospects  growth electronic trading introduction new trading technology may adversely affect business may increase competition  commodities activities particularly power generation interests physical commodities activities subject us extensive regulation potential catastrophic events environmental reputational risks may expose us significant liabilities costs  conducting businesses around world subject political economic legal operational risks inherent operating many countries  may incur losses result unforeseen catastrophic events including emergence pandemic terrorist attacks extreme weather events natural disasters goldman sachs group inc subsidiaries item 7aitem 7 management’s discussion analysis financial condition results operations index goldman sachs group inc subsidiaries management’s discussion analysis introduction goldman sachs group inc group inc leading global investment banking securities investment management firm provides wide range financial services substantial diversified client base includes corporations financial institutions governments highnetworth individuals founded 1869 firm headquartered new york maintains offices major financial centers around world report activities four business segments investment banking institutional client services investing lending investment management see “results operations” information business segments use terms “goldman sachs” “the firm” “we” “us” “our” mean group inc delaware corporation consolidated subsidiaries references “the 2013 form 10k” annual report form 10k year ended december 31 2013 references 2013 2012 2011 refer years ended dates context requires december 31 2013 december 31 2012 december 31 2011 respectively reference future year refers year ending december 31 year certain reclassifications made previously reported amounts conform current presentation discussion analysis financial condition results operations included information may constitute “forwardlooking statements” within meaning safe harbor provisions us private securities litigation reform act 1995 forwardlooking statements historical facts instead represent beliefs regarding future events many nature inherently uncertain outside control information includes statements historical information statements current condition may relate future plans objectives results among things may also include statements effect changes capital leverage rules applicable banks bank holding companies impact doddfrank act businesses operations various legal proceedings mortgagerelated contingencies set forth “legal proceedings” “certain mortgagerelated contingencies” notes 27 18 respectively consolidated financial statements part ii item 8 2013 form 10k well statements results doddfrank act firm stress tests statements objectives effectiveness risk management liquidity policies statements trends growth opportunities businesses statements future status activities reporting us nonus banking financial regulation statements investment banking transaction backlog identifying statements manner alerting possibility actual results financial condition may differ possibly materially anticipated results financial condition indicated forwardlooking statements important factors could cause actual results financial condition differ indicated forwardlooking statements include among others discussed “certain risk factors may affect businesses” well “risk factors” part item 1a 2013 form 10k “cautionary statement pursuant us private securities litigation reform act 1995” part item 1 2013 form 10k goldman sachs group inc subsidiaries management’s discussion analysis executive overview firm generated net earnings 804 billion 2013 compared 748 billion 2012 444 billion 2011 diluted earnings per common share 1546 2013 compared 1413 2012 451 2011 return average common shareholders’ equity roe 1 110 2013 compared 107 2012 37 2011 book value per common share increased approximately 5 15248 tangible book value per common share 2 increased approximately 7 14311 compared end 2012 3 year firm repurchased 393 million shares common stock total cost 617 billion maintaining strong capital levels tier 1 capital ratio 167 tier 1 common ratio 4 146 december 2013 case basel also reflecting revised market risk regulatory capital requirements became effective january 1 2013 firm generated net revenues 3421 billion 2013 results reflected significantly higher net revenues investment banking well higher net revenues investing lending investment management compared 2012 increases offset lower net revenues institutional client services compared 2012 overview net revenues business segments provided investment banking net revenues investment banking increased significantly compared 2012 reflecting significantly higher net revenues underwriting due strong net revenues equity debt underwriting net revenues equity underwriting significantly higher compared 2012 reflecting increase client activity particularly initial public offerings net revenues debt underwriting significantly higher compared 2012 principally due leveraged finance activity net revenues financial advisory essentially unchanged compared 2012 institutional client services net revenues institutional client services decreased compared 2012 reflecting lower net revenues fixed income currency commodities client execution equities decrease fixed income currency commodities client execution compared 2012 reflected significantly lower net revenues interest rate products compared solid 2012 significantly lower net revenues mortgages compared strong 2012 addition net revenues currencies slightly lower net revenues credit products commodities essentially unchanged compared 2012 fixed income currency commodities client execution operated generally challenging environment much 2013 macroeconomic concerns uncertainty led challenging marketmaking conditions generally lower levels activity 1 see “results operations financial overview” information calculation roe 2 tangible book value per common share nongaap measure may comparable similar nongaap measures used companies see “equity capital metrics” information calculation tangible book value per common share 3 october 2013 berkshire hathaway inc certain subsidiaries collectively berkshire hathaway exercised full warrant purchase shares firm’s common stock required net share settlement resulted reduction approximately 3 book value per common share tangible book value per common share see “equity capital equity capital management” information berkshire hathaway warrant 4 tier 1 common ratio nongaap measure may comparable similar nongaap measures used companies see “equity capital consolidated regulatory capital ratios” information tier 1 common ratio goldman sachs group inc subsidiaries management’s discussion analysis decrease equities compared 2012 due sale americas reinsurance business 1 2013 sale hedge fund administration business 2012 net revenues equities client execution excluding net revenues americas reinsurance business higher compared 2012 including significantly higher net revenues cash products partially offset significantly lower net revenues derivatives commissions fees slightly higher compared 2012 securities services net revenues significantly lower compared 2012 primarily due sale hedge fund administration business 2012 included gain sale 494 million 2013 equities operated environment characterized significant increase global equity prices particularly japan us generally lower volatility levels net loss attributable impact changes credit spreads borrowings fair value option elected 296 million 220 million 76 million related fixed income currency commodities client execution equities client execution respectively 2013 compared net loss 714 million 433 million 281 million related fixed income currency commodities client execution equities client execution respectively 2012 investing lending net revenues investing lending increased compared 2012 reflecting significant increase net gains investments equity securities driven companyspecific events stronger corporate performance well significantly higher global equity prices addition net gains net interest income debt securities loans slightly higher net revenues related consolidated investments lower compared 2012 investment management net revenues investment management increased compared 2012 reflecting higher management fees primarily due higher average assets supervision year total assets supervision increased 77 billion 104 trillion longterm assets supervision increased 81 billion including net inflows 41 billion 2 reflecting inflows fixed income equity assets partially offset outflows alternative investment assets net market appreciation 40 billion year primarily equity assets liquidity products decreased 4 billion businesses nature produce predictable earnings results given period materially affected conditions global financial markets economic conditions generally factors discussion factors may affect future operating results see “certain risk factors may affect businesses” well “risk factors” part item 1a 2013 form 10k 1 april 2013 completed sale majority stake americas reinsurance business longer consolidate business net revenues related americas reinsurance business 317 million 2013 108 billion 2012 see note 12 consolidated financial statements part ii item 8 2013 form 10k information sale 2 fixed income flows 2013 include 10 billion assets managed firm related americas reinsurance business majority stake sold april 2013 previously excluded assets supervision assets consolidated subsidiary goldman sachs group inc subsidiaries management’s discussion analysis business environment real gross domestic product gdp although generally rising appeared remain subdued major economies market sentiment improved advanced economies supported better private sector growth prospects united states signs turnaround euro area monetary policy generally remained accommodative improvements us economy reflected favorable developments unemployment housing even though reduction fiscal spending weighed growth improvements resulted tighter credit spreads significantly higher global equity prices generally lower levels volatility however signals year us federal reserve would begin tapering asset purchase program contributed rise us interest rates challenging environment particularly emerging markets addition continued political uncertainty particularly political debate united states surrounding government shutdown potential breach debt ceiling generally resulted heightened risk aversion concerns also weighed investment banking activity industrywide mergers acquisitions activity declined compared 2012 industrywide equity underwriting activity improved industrywide debt underwriting activity remained solid discussion market conditions may affect businesses see “certain risk factors may affect businesses” well “risk factors” part item 1a 2013 form 10k global 2013 real gdp growth appeared decline many advanced economies emerging markets advanced economies slowdown primarily reflected decline fixed investment growth united states continued weakness euro area emerging markets growth domestic demand decreased current account balances worsened unemployment levels declined economies compared 2012 including united states increased others particularly euro area rate unemployment continued remain elevated many advanced economies 2013 us federal reserve bank england bank japan left policy interest rates unchanged european central bank reduced policy interest rate december 2013 us federal reserve announced would begin scale back asset purchase program 10 billion 75 billion per month us dollar weakened euro british pound strengthened significantly japanese yen united states united states real gdp increased 19 2013 compared increase 28 2012 growth decelerated back significant contraction federal government spending result sequestration well slowdown fixed investment house prices house sales housing starts increased although rise us bond yields drove mortgage interest rates higher industrial production expanded 2013 slower pace previous year although political uncertainty around federal government shutdown led temporary deterioration business consumer confidence generally improved year primarily reflecting continued improvement private sector measures inflation lower compared 2012 unemployment rate declined 2013 remained elevated us federal reserve maintained federal funds rate target range zero 025 year announced december 2013 reduction monthly program purchase us treasury securities mortgagebacked securities addition us federal reserve affirmed commitment keep shortterm interest rates exceptionally low time even unemployment rate falls 65 inflation rises materially yield 10year us treasury note rose 126 basis points 2013 304 equity markets nasdaq composite index sp 500 index dow jones industrial average increased 38 30 26 respectively 2013 goldman sachs group inc subsidiaries management’s discussion analysis europe euro area real gdp declined 04 2013 compared decrease 06 2012 contraction principally due continued weakness domestic demand primarily reflecting declines fixed investment consumer spending business consumer confidence remained low levels measures core inflation decelerated year unemployment rate remained elevated particularly italy spain political uncertainty italy debt crisis cyprus temporarily increased market volatility earlier year private sector lending conditions remained tight periphery countries address issues european central bank decreased main refinancing operations rate 50 basis points 025 adopted forward guidance future path interest rates new part monetary policy tools euro appreciated 5 us dollar united kingdom real gdp increased 18 2013 compared increase 03 2012 bank england maintained official bank rate 050 also introduced forward guidance future path interest rates contingent evolution employment inflation british pound appreciated 2 us dollar longterm government bond yields generally increased year except periphery countries yields fell equity markets dax index cac 40 index euro stoxx 50 index ftse 100 index increased 25 18 14 respectively 2013 asia japan real gdp increased 16 2013 compared increase 14 2012 growth supported significant increases private housing investment public fixed investment however trade balance continued deteriorate 2013 measures inflation turned positive year remain far bank japan’s newly adopted 2 inflation target addition bank japan new leadership introduced new program quantitative qualitative monetary easing included significant increase size mandate asset purchases well commitment targeted communication strategy bank japan also changed main operating target money market operations uncollateralized overnight call rate monetary base set increase annually approximately 6070 trillion yen yield 10year japanese government bonds fell 5 basis points year 074 japanese yen depreciated 21 us dollar equity markets nikkei 225 index increased 57 china real gdp increased 77 2013 broadly line increase previous year although impacted less supportive monetary policies tightening financial conditions measures inflation remained moderate people’s bank china kept reserve requirement ratio unchanged chinese yuan appreciated 3 us dollar equity markets shanghai composite index fell 7 india real gdp increased estimated 47 2013 compared increase 51 2012 growth decelerated primarily reflecting softening domestic demand growth slight improvements current account balance rate wholesale inflation declined compared 2012 indian rupee depreciated 12 us dollar equity markets bse sensex index increased 9 equity markets hong kong south korea slightly higher hang seng index increased 3 kospi composite index increased 1 2013 markets brazil real gdp increased estimated 22 2013 compared increase 10 2012 growth accelerated back increasing domestic demand fixed investment brazilian real depreciated 15 us dollar equity markets bovespa index decreased 15 2013 russia real gdp increased 13 2013 compared increase 34 2012 slowdown primarily reflected decline domestic demand growth contraction investment growth particularly middle year russian ruble depreciated 8 us dollar equity markets micex index increased 2 2013 goldman sachs group inc subsidiaries management’s discussion analysis critical accounting policies fair value fair value hierarchy financial instruments owned fair value financial instruments sold yet purchased fair value ie inventory well certain financial assets financial liabilities reflected consolidated statements financial condition fair value ie markedtomarket related gains losses generally recognized consolidated statements earnings use fair value measure financial instruments fundamental risk management practices critical accounting policy fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date measure certain financial assets financial liabilities portfolio ie based net exposure market andor credit risks determining fair value hierarchy us generally accepted accounting principles us gaap gives highest priority unadjusted quoted prices active markets identical unrestricted assets liabilities level 1 inputs ii next priority inputs level 1 inputs observable either directly indirectly level 2 inputs iii lowest priority inputs cannot observed market activity level 3 inputs assets liabilities classified entirety based lowest level input significant fair value measurement fair values substantially financial assets financial liabilities based observable prices inputs classified levels 1 2 fair value hierarchy certain level 2 level 3 financial assets financial liabilities may require appropriate valuation adjustments market participant would require arrive fair value factors counterparty firm’s credit quality funding risk transfer restrictions liquidity bidoffer spreads valuation adjustments generally based market evidence instruments categorized within level 3 fair value hierarchy require one significant inputs observable december 2013 december 2012 level 3 assets represented 44 50 respectively total assets absent evidence contrary instruments classified within level 3 fair value hierarchy initially valued transaction price considered best initial estimate fair value subsequent transaction date use methodologies determine fair value vary based type instrument estimating fair value level 3 financial instruments requires judgments made judgments include  determining appropriate valuation methodology andor model type level 3 financial instrument  determining model inputs based evaluation relevant empirical market data including prices evidenced market transactions interest rates credit spreads volatilities correlations  determining appropriate valuation adjustments including related illiquidity counterparty credit quality regardless methodology valuation inputs assumptions changed corroborated substantive evidence controls valuation financial instruments market makers investment professionals revenueproducing units responsible pricing financial instruments control infrastructure independent revenueproducing units fundamental ensuring financial instruments appropriately valued marketclearing levels event difference opinion situations estimating fair value financial instruments requires judgment eg calibration market comparables trade comparison described final valuation decision made senior managers control support functions independent revenueproducing units independent price verification critical ensuring financial instruments properly valued goldman sachs group inc subsidiaries management’s discussion analysis price verification financial instruments fair value levels 1 2 3 fair value hierarchy subject independent price verification process objective price verification informed independent opinion regard valuation financial instruments review instruments one significant inputs cannot corroborated external market data classified within level 3 fair value hierarchy price verification strategies utilized independent control support functions include  trade comparison analysis trade data internal external available used determine relevant pricing inputs valuations  external price comparison valuations prices compared pricing data obtained third parties eg broker dealers markit bloomberg idc trace data obtained various sources compared ensure consistency validity broker dealer quotations thirdparty pricing vendors used valuation price verification greater priority generally given executable quotations  calibration market comparables marketbased transactions used corroborate valuation positions similar characteristics risks components  relative value analyses marketbased transactions analyzed determine similarity measured terms risk liquidity return one instrument relative another given instrument one maturity relative another  collateral analyses margin calls derivatives analyzed determine implied values used corroborate valuations  execution trades appropriate trading desks instructed execute trades order provide evidence marketclearing levels  backtesting valuations corroborated comparison values realized upon sales see notes 5 8 consolidated financial statements part ii item 8 2013 form 10k information fair value measurements review net revenues independent control support functions ensure adherence pricing policy combination daily procedures including explanation attribution net revenues based underlying factors process independently validate net revenues identify resolve potential fair value trade booking issues timely basis seek ensure risks properly categorized quantified review valuation models firm’s independent model validation group consisting quantitative professionals separate model developers performs independent model approval process incorporates review diverse set model trade parameters across broad range values including extreme andor improbable conditions order critically evaluate  model’s suitability valuation risk management particular instrument type  model’s accuracy reflecting characteristics related product significant risks  suitability calculation techniques incorporated model  model’s consistency models similar products  model’s sensitivity input parameters assumptions new changed models reviewed approved prior put use models evaluated reapproved annually assess impact changes product market developments pricing theories goldman sachs group inc subsidiaries management’s discussion analysis level 3 financial assets fair value table presents financial assets measured fair value amount assets classified within level 3 fair value hierarchy total level 3 financial assets 4001 billion 4710 billion december 2013 december 2012 respectively see notes 5 8 consolidated financial statements part ii item 8 2013 form 10k information changes level 3 financial assets fair value measurements 1 december 2012 consists assets classified held sale related americas reinsurance business majority stake sold april 2013 primarily consisting securities accounted availableforsale insurance separate account assets see notes 3 12 consolidated financial statements part ii item 8 2013 form 10k information sale americas reinsurance business goldman sachs group inc subsidiaries management’s discussion analysis goodwill cost acquired companies excess fair value net assets including identifiable intangible assets acquisition date goodwill assessed annually fourth quarter impairment frequently events occur circumstances change indicate impairment may exist first assessing qualitative factors determine whether likely fair value reporting unit less carrying amount results qualitative assessment conclusive quantitative goodwill test would performed comparing estimated fair value reporting unit estimated net book value fourth quarter 2013 assessed goodwill impairment qualitative assessment required management make judgments evaluate several factors included limited macroeconomic conditions industry market considerations cost factors overall financial performance entityspecific events affecting reporting units sustained changes stock price based evaluation factors determined likely fair value reporting units exceeded respective carrying amount therefore determined goodwill impaired quantitative goodwill impairment test required experience prolonged period weakness business environment financial markets goodwill could impaired future addition significant changes critical inputs goodwill impairment test eg cost equity could cause estimated fair value reporting units decline could result impairment goodwill future see note 13 consolidated financial statements part ii item 8 2013 form 10k information goodwill identifiable intangible assets amortize identifiable intangible assets estimated lives based economic usage certain commoditiesrelated intangibles identifiable intangible assets tested impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable see note 13 consolidated financial statements part ii item 8 2013 form 10k carrying value estimated remaining lives identifiable intangible assets major asset class prolonged period market weakness significant changes regulation could adversely impact businesses impair value identifiable intangible assets addition certain events could indicate potential impairment identifiable intangible assets including weaker business performance resulting decrease customer base decreases revenues commoditiesrelated customer contracts relationships management judgment required evaluate whether indications potential impairment occurred test intangibles impairment required impairment loss generally calculated difference estimated fair value carrying value asset group recognized total estimated undiscounted cash flows relating asset group less corresponding carrying value see note 12 consolidated financial statements part ii item 8 2013 form 10k impairments identifiable intangible assets recent accounting developments see note 3 consolidated financial statements part ii item 8 2013 form 10k information recent accounting developments goldman sachs group inc subsidiaries management’s discussion analysis use estimates use generally accepted accounting principles requires management make certain estimates assumptions addition estimates make connection fair value measurements accounting goodwill identifiable intangible assets use estimates assumptions also important determining provisions losses may arise litigation regulatory proceedings tax audits estimate provide potential losses may arise litigation regulatory proceedings extent losses probable reasonably estimated addition estimate upper end range reasonably possible aggregate loss excess related reserves litigation proceedings firm believes risk loss slight see notes 18 27 consolidated financial statements part ii item 8 2013 form 10k information certain judicial regulatory legal proceedings significant judgment required making estimates final liabilities may ultimately materially different total estimated liability respect litigation regulatory proceedings determined casebycase basis represents estimate probable losses considering among factors progress case proceeding experience others similar cases proceedings opinions views legal counsel accounting income taxes estimate provide potential liabilities may arise tax audits extent uncertain tax positions fail meet recognition standard fasb accounting standards codification 740 see note 24 consolidated financial statements part ii item 8 2013 form 10k information accounting income taxes goldman sachs group inc subsidiaries management’s discussion analysis results operations composition net revenues varied time financial markets scope operations changed composition net revenues also vary shorter term due fluctuations us global economic market conditions see “certain risk factors may affect businesses” “risk factors” part item 1a 2013 form 10k discussion impact economic market conditions results operations financial overview table presents overview financial results 1 roe computed dividing net earnings applicable common shareholders average monthly common shareholders’ equity table presents average common shareholders’ equity 2 excluding impact preferred dividend 164 billion first quarter 2011 calculated difference carrying value redemption value preferred stock related redemption 10 cumulative perpetual preferred stock series g series g preferred stock held berkshire hathaway diluted earnings per common share 746 roe 59 2011 believe presenting results 2011 excluding dividend meaningful increases comparability periodtoperiod results diluted earnings per common share roe excluding dividend nongaap measures may comparable similar nongaap measures used companies tables present calculation net earnings applicable common shareholders diluted earnings per common share average common shareholders’ equity excluding impact dividend goldman sachs group inc subsidiaries management’s discussion analysis net revenues 2013 versus 2012 net revenues consolidated statements earnings 3421 billion 2013 essentially unchanged compared 2012 2013 included significantly higher investment banking revenues well higher principal transactions revenues investment management revenues addition commissions fees slightly higher compared 2012 increases offset lower marketmaking revenues lower net interest income compared 2012 versus 2011 net revenues consolidated statements earnings 3416 billion 2012 19 higher 2011 reflecting significantly higher principal transactions revenues well higher marketmaking revenues investment banking revenues investment management revenues compared 2011 increases partially offset significantly lower net interest income lower commissions fees compared 2011 noninterest revenues investment banking 2013 investment banking revenues reflected operating environment generally characterized improved industrywide equity underwriting activity particularly initial public offerings global equity prices significantly increased year addition industrywide debt underwriting activity remained solid included significantly higher leveraged finance activity interest rates remained low however ongoing macroeconomic concerns continued weigh investment banking activity industrywide mergers acquisitions activity declined compared 2012 macroeconomic concerns continue result lower levels client activity investment banking revenues would likely negatively impacted 2013 versus 2012 investment banking revenues consolidated statements earnings 600 billion 2013 22 higher 2012 reflecting significantly higher revenues underwriting due strong revenues equity debt underwriting revenues equity underwriting significantly higher compared 2012 reflecting increase client activity particularly initial public offerings revenues debt underwriting significantly higher compared 2012 principally due leveraged finance activity revenues financial advisory essentially unchanged compared 2012 versus 2011 investment banking revenues consolidated statements earnings 494 billion 2012 13 higher 2011 reflecting significantly higher revenues underwriting due strong revenues debt underwriting revenues debt underwriting significantly higher compared 2011 primarily reflecting higher revenues investmentgrade leveraged finance activity revenues equity underwriting lower compared 2011 primarily reflecting decline industrywide initial public offerings revenues financial advisory essentially unchanged compared 2011 investment management 2013 investment management revenues reflected operating environment generally characterized improved asset prices particularly equities resulting appreciation value client assets addition mix average assets supervision shifted slightly compared 2012 liquidity products longterm assets supervision primarily due growth equity fixed income assets future asset prices decline investors favor asset classes typically generate lower fees investors withdraw assets investment management revenues would likely negatively impacted addition continued concerns global economic outlook could result downward pressure assets supervision 2013 versus 2012 investment management revenues consolidated statements earnings 519 billion 2013 5 higher 2012 reflecting higher management fees primarily due higher average assets supervision 2012 versus 2011 investment management revenues consolidated statements earnings 497 billion 2012 6 higher 2011 due significantly higher incentive fees partially offset slightly lower management fees commissions fees 2013 commissions fees reflected environment characterized higher average daily volumes listed cash equities asia europe lower average daily volumes listed cash equities united states generally lower volatility levels compared 2012 market volumes decline commissions fees would likely negatively impacted 2013 versus 2012 commissions fees consolidated statements earnings 326 billion 2013 slightly higher 2012 primarily reflecting higher commissions fees asia europe 2013 average daily volumes higher asia europe lower united states compared 2012 consistent listed cash equity market volumes goldman sachs group inc subsidiaries management’s discussion analysis 2012 versus 2011 commissions fees consolidated statements earnings 316 billion 2012 16 lower 2011 reflecting lower commissions fees united states europe asia average daily volumes 2012 lower regions compared 2011 consistent listed cash equity market volumes market making “market making” comprised revenues excluding net interest client execution activities related making markets interest rate products credit products mortgages currencies commodities equity products marketmaking activities included institutional client services segment 2013 marketmaking revenues reflected challenging operating environment required continual reassessment outlook global economy uncertainty us federal reserve would begin tapering asset purchase program well constant global political risk uncertainty interspersed improvements us economy course year result clients’ risk appetite activity levels fluctuated 2013 compared 2012 activity levels generally lower global equity prices significantly increased credit spreads tightened macroeconomic concerns continue long term marketmaking revenues would likely continue negatively impacted 2013 versus 2012 marketmaking revenues consolidated statements earnings 937 billion 2013 17 lower 2012 decrease compared 2012 primarily due significantly lower revenues equity products mortgages interest rate products well lower revenues currencies decrease equity products due sale americas reinsurance business 2013 sale hedge fund administration business 2012 included gain sale 494 million lower revenues derivatives partially offset significantly higher revenues cash products compared 2012 revenues commodities higher revenues credit products essentially unchanged compared 2012 december 2013 completed sale majority stake european insurance business recognized gain 211 million 2012 versus 2011 marketmaking revenues consolidated statements earnings 1135 billion 2012 22 higher 2011 primarily reflecting significantly higher revenues mortgages higher revenues interest rate products credit products equity cash products partially offset significantly lower revenues commodities addition marketmaking revenues included significantly higher revenues securities services compared 2011 reflecting gain 494 million sale hedge fund administration business principal transactions “other principal transactions” comprised revenues excluding net interest investing activities origination loans provide financing clients addition “other principal transactions” includes revenues related consolidated investments principal transactions included investing lending segment 2013 principal transactions revenues generally reflected favorable companyspecific events strong corporate performance well impact significantly higher global equity prices tighter corporate credit spreads however concerns outlook global economy uncertainty financial regulatory reform continue impact global marketplace equity markets decline credit spreads widen principal transactions revenues would likely negatively impacted 2013 versus 2012 principal transactions revenues consolidated statements earnings 699 billion 2013 19 higher 2012 reflecting significant increase net gains investments equity securities driven companyspecific events stronger corporate performance well significantly higher global equity prices addition net gains debt securities loans slightly higher revenues related consolidated investments lower compared 2012 versus 2011 principal transactions revenues consolidated statements earnings 587 billion 2012 compared 151 billion 2011 increase compared 2011 reflected significant increase net gains investments equity securities primarily public equities principally due impact increase global equity prices 2012 equity prices europe asia declined significantly 2011 net gains equity securities included gain 2012 loss 2011 related investment ordinary shares industrial commercial bank china limited icbc increase compared 2011 also reflected significant increase net gains debt securities loans primarily due approximately 1 billion unrealized losses related relationship lending activities including effect hedges 2011 impact favorable credit environment credit spreads tightened 2012 widening 2011 increases partially offset lower revenues related consolidated investments goldman sachs group inc subsidiaries management’s discussion analysis net interest income 2013 versus 2012 net interest income consolidated statements earnings 339 billion 2013 13 lower 2012 decrease compared 2012 primarily due lower average yields financial instruments owned fair value partially offset lower interest expense financial instruments sold yet purchased fair value collateralized financings versus 2011 net interest income consolidated statements earnings 388 billion 2012 25 lower 2011 decrease compared 2011 primarily due lower average yields financial instruments owned fair value collateralized agreements see “statistical disclosures distribution assets liabilities shareholders’ equity” part ii item 8 2013 form 10k information sources net interest income operating expenses operating expenses primarily influenced compensation headcount levels business activity compensation benefits includes salaries discretionary compensation amortization equity awards items benefits discretionary compensation significantly impacted among factors level net revenues overall financial performance prevailing labor markets business mix structure sharebased compensation programs external environment table presents operating expenses total staff includes employees consultants temporary staff 1 related revenues included “market making” consolidated statements earnings goldman sachs group inc subsidiaries management’s discussion analysis 2013 versus 2012 operating expenses consolidated statements earnings 2247 billion 2013 2 lower 2012 compensation benefits expenses consolidated statements earnings 1261 billion 2013 3 lower compared 1294 billion 2012 ratio compensation benefits net revenues 2013 369 compared 379 2012 total staff increased 2 2013 noncompensation expenses consolidated statements earnings 986 billion 2013 2 lower 2012 decrease compared 2012 included decline insurance reserves reflecting sale americas reinsurance business decrease depreciation amortization expenses primarily reflecting lower impairment charges lower operating expenses related consolidated investments decreases partially offset increase expenses due higher net provisions litigation regulatory proceedings higher brokerage clearing exchange distribution fees net provisions litigation regulatory proceedings 2013 962 million primarily comprised net provisions mortgagerelated matters compared 448 million 2012 including settlement board governors federal reserve system federal reserve board regarding independent foreclosure review 2013 included charitable contribution 155 million goldman sachs gives donoradvised fund compensation reduced fund charitable contribution goldman sachs gives firm asks participating managing directors make recommendations regarding potential charitable recipients contribution 2012 versus 2011 operating expenses consolidated statements earnings 2296 billion 2012 essentially unchanged compared 2011 compensation benefits expenses consolidated statements earnings 1294 billion 2012 6 higher compared 1222 billion 2011 ratio compensation benefits net revenues 2012 379 compared 424 2011 total staff decreased 3 2012 noncompensation expenses consolidated statements earnings 1001 billion 2012 4 lower compared 2011 decrease compared 2011 primarily reflected lower brokerage clearing exchange distribution fees lower occupancy expenses decrease depreciation amortization expenses principally due lower impairment charges addition market development expenses professional fees declined compared 2011 primarily reflecting impact expense reduction initiatives decreases partially offset higher expenses increased insurance reserves related reinsurance business increase expenses compared 2011 primarily reflected higher net provisions litigation regulatory proceedings higher charitable contributions net provisions litigation regulatory proceedings 448 million 2012 including settlement federal reserve board regarding independent foreclosure review compared 175 million 2011 charitable contributions 225 million 2012 including 159 million goldman sachs gives donoradvised fund 10 million goldman sachs foundation compared 163 million 2011 including 78 million goldman sachs gives 25 million goldman sachs foundation compensation reduced fund charitable contribution goldman sachs gives firm asks participating managing directors make recommendations regarding potential charitable recipients contribution provision taxes effective income tax rate 2013 315 333 2012 decrease 333 315 primarily due determination certain nonus earnings permanently reinvested abroad effective income tax rate 2012 333 280 2011 increase 280 333 primarily due earnings mix decrease impact permanent benefits rules related deferral us tax certain nonrepatriated active financing income expired effective december 31 2013 change expected material impact financial condition results operations cash flows year ending december 2014 goldman sachs group inc subsidiaries management’s discussion analysis segment operating results table presents net revenues operating expenses pretax earningsloss segments total operating expenses table include following expenses allocated segments  charitable contributions 155 million 2013 169 million 2012 103 million 2011  real estaterelated exit costs 19 million 2013 17 million 2012 14 million 2011 real estaterelated exit costs included “depreciation amortization” “occupancy” consolidated statements earnings net revenues segments include allocations interest income interest expense specific securities commodities positions relation cash generated funding requirements underlying positions see note 25 consolidated financial statements part ii item 8 2013 form 10k information business segments cost drivers goldman sachs taken whole compensation headcount levels business activity broadly similar business segments compensation benefits expenses within segments reflect among factors overall performance goldman sachs well performance individual businesses consequently pretax margins one segment business may significantly affected performance business segments discussion segment operating results follows goldman sachs group inc subsidiaries management’s discussion analysis investment banking investment banking segment comprised financial advisory includes strategic advisory assignments respect mergers acquisitions divestitures corporate defense activities risk management restructurings spinoffs derivative transactions directly related client advisory assignments underwriting includes public offerings private placements including domestic crossborder transactions wide range securities loans financial instruments derivative transactions directly related client underwriting activities table presents operating results investment banking segment table presents financial advisory underwriting transaction volumes 1 source thomson reuters announced completed mergers acquisitions volumes based full credit advisors transaction equity equityrelated offerings debt offerings based full credit single book managers equal credit joint book managers transaction volumes may indicative net revenues given period addition transaction volumes prior periods may vary amounts previously reported due subsequent withdrawal change value transaction 2 includes rule 144a public common stock offerings convertible offerings rights offerings 3 includes nonconvertible preferred stock mortgagebacked securities assetbacked securities taxable municipal debt includes publicly registered rule 144a issues excludes leveraged loans 2013 versus 2012 net revenues investment banking 600 billion 2013 22 higher 2012 net revenues financial advisory 198 billion essentially unchanged compared 2012 net revenues underwriting 403 billion 36 higher 2012 due strong net revenues equity debt underwriting net revenues equity underwriting significantly higher compared 2012 reflecting increase client activity particularly initial public offerings net revenues debt underwriting significantly higher compared 2012 principally due leveraged finance activity 2013 investment banking operated environment generally characterized improved industrywide equity underwriting activity particularly initial public offerings global equity prices significantly increased year addition industrywide debt underwriting activity remained solid included significantly higher leveraged finance activity interest rates remained low however ongoing macroeconomic concerns continued weigh investment banking activity industrywide mergers acquisitions activity declined compared 2012 macroeconomic concerns continue result lower levels client activity net revenues investment banking would likely negatively impacted 2013 investment banking transaction backlog increased significantly due significantly higher estimated net revenues potential advisory transactions potential underwriting transactions increase underwriting reflects significantly higher estimated net revenues potential equity underwriting transactions primarily initial public offerings higher estimated net revenues potential debt underwriting transactions principally leveraged finance activity goldman sachs group inc subsidiaries management’s discussion analysis investment banking transaction backlog represents estimate future net revenues investment banking transactions believe future revenue realization likely believe changes investment banking transaction backlog may useful indicator client activity levels long term impact net revenues however time frame completion corresponding revenue recognition transactions backlog varies based nature assignment certain transactions may remain backlog longer periods time others may enter leave within reporting period addition transaction backlog subject certain limitations assumptions likelihood individual client transactions occur future transactions may cancelled modified transactions included estimate may also occur operating expenses 348 billion 2013 4 higher 2012 due increased compensation benefits expenses primarily resulting higher net revenues pretax earnings 253 billion 2013 58 higher 2012 versus 2011 net revenues investment banking 493 billion 2012 13 higher 2011 net revenues financial advisory 198 billion essentially unchanged compared 2011 net revenues underwriting 295 billion 25 higher 2011 due strong net revenues debt underwriting net revenues debt underwriting significantly higher compared 2011 primarily reflecting higher net revenues investmentgrade leveraged finance activity net revenues equity underwriting lower compared 2011 primarily reflecting decline industrywide initial public offerings 2012 investment banking operated environment generally characterized continued concerns outlook global economy political uncertainty concerns weighed investment banking activity completed mergers acquisitions activity declined compared 2011 equity equityrelated underwriting activity remained low particularly initial public offerings however industrywide debt underwriting activity improved compared 2011 credit spreads tightened interest rates remained low 2012 investment banking transaction backlog increased due increase potential debt underwriting transactions primarily reflecting increase leveraged finance transactions increase potential advisory transactions increases partially offset decrease potential equity underwriting transactions compared end 2011 reflecting uncertainty market conditions operating expenses 333 billion 2012 11 higher 2011 due increased compensation benefits expenses primarily resulting higher net revenues pretax earnings 160 billion 2012 17 higher 2011 goldman sachs group inc subsidiaries management’s discussion analysis institutional client services institutional client services segment comprised fixed income currency commodities client execution includes client execution activities related making markets interest rate products credit products mortgages currencies commodities generate marketmaking revenues activities three ways  large highly liquid markets us treasury bills certain mortgage passthrough certificates execute high volume transactions clients modest spreads fees  less liquid markets midcap corporate bonds growth market currencies certain nonagency mortgagebacked securities execute transactions clients spreads fees generally somewhat larger  also structure execute transactions involving customized tailormade products address clients’ risk exposures investment objectives complex needs jet fuel hedge airline given focus mortgage market mortgage activities described activities mortgages include commercial mortgagerelated securities loans derivatives residential mortgagerelated securities loans derivatives including us government agencyissued collateralized mortgage obligations prime subprime alta securities loans assetbacked securities loans derivatives buy hold sell long short mortgage positions primarily market making clients inventory therefore changes based client demands generally held shortterm periods see notes 18 27 consolidated financial statements part ii item 8 2013 form 10k information exposure mortgage repurchase requests mortgage rescissions mortgagerelated litigation equities includes client execution activities related making markets equity products commissions fees executing clearing institutional client transactions major stock options futures exchanges worldwide well overthecounter transactions equities also includes securities services business provides financing securities lending prime brokerage services institutional clients including hedge funds mutual funds pension funds foundations generates revenues primarily form interest rate spreads fees table presents operating results institutional client services segment 1 april 2013 completed sale majority stake americas reinsurance business longer consolidate business net revenues related americas reinsurance business 317 million 2013 108 billion 2012 880 million 2011 see note 12 consolidated financial statements part ii item 8 2013 form 10k information sale 2013 versus 2012 net revenues institutional client services 1572 billion 2013 13 lower 2012 net revenues fixed income currency commodities client execution 865 billion 2013 13 lower 2012 reflecting significantly lower net revenues interest rate products compared solid 2012 significantly lower net revenues mortgages compared strong 2012 decrease interest rate products mortgages primarily reflected impact challenging environment lower activity levels compared 2012 addition net revenues currencies slightly lower net revenues credit products commodities essentially unchanged compared 2012 december 2013 completed sale majority stake european insurance business recognized gain 211 million goldman sachs group inc subsidiaries management’s discussion analysis net revenues equities 707 billion 2013 14 lower compared 2012 due sale americas reinsurance business 1 2013 sale hedge fund administration business 2012 net revenues equities client execution excluding net revenues americas reinsurance business higher compared 2012 including significantly higher net revenues cash products partially offset significantly lower net revenues derivatives commissions fees slightly higher compared 2012 reflecting higher commissions fees asia europe partially offset lower commissions fees united states average daily volumes 2013 higher asia europe lower united states compared 2012 consistent listed cash equity market volumes securities services net revenues significantly lower compared 2012 primarily due sale hedge fund administration business 2012 included gain sale 494 million 2013 equities operated environment characterized significant increase global equity prices particularly japan us generally lower volatility levels net loss attributable impact changes credit spreads borrowings fair value option elected 296 million 220 million 76 million related fixed income currency commodities client execution equities client execution respectively 2013 compared net loss 714 million 433 million 281 million related fixed income currency commodities client execution equities client execution respectively 2012 2013 institutional client services operated challenging environment required continual reassessment outlook global economy uncertainty us federal reserve would begin tapering asset purchase program well constant global political risk uncertainty interspersed improvements us economy course year result clients’ risk appetite activity levels fluctuated 2013 compared 2012 activity levels generally lower global equity prices significantly increased credit spreads tightened macroeconomic concerns continue long term net revenues fixed income currency commodities client execution equities would likely continue negatively impacted operating expenses 1178 billion 2013 6 lower 2012 due decreased compensation benefits expenses primarily resulting lower net revenues lower expenses result sale majority stake americas reinsurance business april 2013 decreases partially offset increased net provisions litigation regulatory proceedings primarily comprised net provisions mortgagerelated matters higher brokerage clearing exchange distribution fees pretax earnings 394 billion 2013 30 lower 2012 versus 2011 net revenues institutional client services 1812 billion 2012 5 higher 2011 net revenues fixed income currency commodities client execution 991 billion 2012 10 higher 2011 results reflected strong net revenues mortgages significantly higher compared 2011 residential commercial products addition net revenues credit products interest rate products solid higher compared 2011 increase mortgages credit products interest rates primarily reflected impact improved marketmaking conditions including tighter credit spreads compared 2011 increases partially offset significantly lower net revenues commodities slightly lower net revenues currencies decrease commodities primarily reflected challenging marketmaking conditions part driven lower levels market volatility 1 april 2013 completed sale majority stake americas reinsurance business longer consolidate business net revenues related americas reinsurance business 317 million 2013 108 billion 2012 880 million 2011 see note 12 consolidated financial statements part ii item 8 2013 form 10k information sale goldman sachs group inc subsidiaries management’s discussion analysis net revenues equities 821 billion 2012 essentially unchanged compared 2011 net revenues securities services significantly higher compared 2011 reflecting gain 494 million sale hedge fund administration business addition equities client execution net revenues higher 2011 primarily reflecting significantly higher results cash products principally due increased levels client activity increases offset lower commissions fees reflecting declines united states europe asia average daily volumes 2012 lower regions compared 2011 consistent listed cash equity market volumes 2012 equities operated environment generally characterized increase global equity prices lower volatility levels net loss attributable impact changes credit spreads borrowings fair value option elected 714 million 433 million 281 million related fixed income currency commodities client execution equities client execution respectively 2012 compared net gain 596 million 399 million 197 million related fixed income currency commodities client execution equities client execution respectively 2011 2012 institutional client services operated environment generally characterized continued broad market concerns uncertainties although positive developments helped improve market conditions developments included certain central bank actions ease monetary policy address funding risks european financial institutions addition us economy posted stable improving economic data including favorable developments unemployment housing improvements resulted tighter credit spreads higher global equity prices lower levels volatility however concerns outlook global economy continued political uncertainty particularly political debate united states surrounding fiscal cliff generally resulted client risk aversion lower activity levels also uncertainty financial regulatory reform persisted operating expenses 1248 billion 2012 3 lower 2011 primarily due lower brokerage clearing exchange distribution fees lower impairment charges partially offset higher net provisions litigation regulatory proceedings pretax earnings 564 billion 2012 27 higher 2011 investing lending investing lending includes investing activities origination loans provide financing clients investments consolidated loans typically longerterm nature make investments directly indirectly funds manage debt securities loans public private equity securities real estate entities table presents operating results investing lending segment 2013 versus 2012 net revenues investing lending 702 billion 2013 19 higher 2012 reflecting significant increase net gains investments equity securities driven companyspecific events stronger corporate performance well significantly higher global equity prices addition net gains net interest income debt securities loans slightly higher net revenues related consolidated investments lower compared 2012 equity markets decline credit spreads widen net revenues investing lending would likely negatively impacted operating expenses 268 billion 2013 essentially unchanged compared 2012 operating expenses 2013 included lower impairment charges lower operating expenses related consolidated investments partially offset increased compensation benefits expenses due higher net revenues compared 2012 pretax earnings 433 billion 2013 34 higher 2012 goldman sachs group inc subsidiaries management’s discussion analysis 2012 versus 2011 net revenues investing lending 589 billion 2012 compared 214 billion 2011 increase compared 2011 reflected significant increase net gains investments equity securities primarily public equities principally due impact increase global equity prices 2012 equity prices europe asia declined significantly 2011 net gains equity securities included gain 408 million 2012 loss 517 million 2011 related investment ordinary shares icbc increase compared 2011 also reflected significant increase net gains debt securities loans primarily due approximately 1 billion unrealized losses related relationship lending activities including effect hedges 2011 impact favorable credit environment credit spreads tightened 2012 widening 2011 increases partially offset lower net revenues principally related consolidated investments operating expenses 267 billion 2012 essentially unchanged compared 2011 pretax earnings 323 billion 2012 compared pretax loss 531 million 2011 investment management investment management provides investment management services offers investment products primarily separately managed accounts commingled vehicles mutual funds private investment funds across major asset classes diverse set institutional individual clients investment management also offers wealth advisory services including portfolio management financial counseling brokerage transaction services highnetworth individuals families assets supervision include assets management client assets management include client assets earn fee managing assets discretionary basis includes net assets mutual funds hedge funds credit funds private equity funds including real estate funds separately managed accounts institutional individual investors client assets include client assets invested thirdparty managers bank deposits advisory relationships earn fee advisory services investment discretion assets supervision include selfdirected brokerage assets clients longterm assets supervision represent assets supervision excluding liquidity products liquidity products represent money markets bank deposit assets supervision typically generate fees percentage net asset value vary asset class affected investment performance well asset inflows redemptions asset classes alternative investment equity assets typically generate higher fees relative fixed income liquidity product assets average effective management fee excludes nonassetbased fees earned assets supervision 40 basis points 2013 39 basis points 2012 41 basis points 2011 certain circumstances also entitled receive incentive fees based percentage fund’s separately managed account’s return exceeds specified benchmark performance targets incentive fees recognized material contingencies resolved goldman sachs group inc subsidiaries management’s discussion analysis table presents operating results investment management segment tables present periodend assets supervision aus asset class distribution channel well summary changes assets supervision 1 primarily includes hedge funds credit funds private equity real estate currencies commodities asset allocation strategies 1 fixed income flows 2013 include 10 billion assets managed firm related americas reinsurance business majority stake sold april 2013 previously excluded assets supervision assets consolidated subsidiary 2 includes 34 billion fixed income asset inflows connection acquisition dwight asset management company llc 5 billion fixed income equity asset outflows related liquidation goldman sachs asset management korea co ltd 3 includes 6 billion asset inflows across asset classes connection acquisitions goldman sachs australia pty ltd benchmark asset management company private limited table presents average monthly assets supervision asset class goldman sachs group inc subsidiaries management’s discussion analysis 2013 versus 2012 net revenues investment management 546 billion 2013 5 higher 2012 reflecting higher management fees primarily due higher average assets supervision year total assets supervision increased 77 billion 104 trillion longterm assets supervision increased 81 billion including net inflows 41 billion 1 reflecting inflows fixed income equity assets partially offset outflows alternative investment assets net market appreciation 40 billion year primarily equity assets liquidity products decreased 4 billion 2013 investment management operated environment generally characterized improved asset prices particularly equities resulting appreciation value client assets addition mix average assets supervision shifted slightly compared 2012 liquidity products longterm assets supervision primarily due growth equity fixed income assets future asset prices decline investors favor asset classes typically generate lower fees investors withdraw assets net revenues investment management would likely negatively impacted addition continued concerns global economic outlook could result downward pressure assets supervision operating expenses 435 billion 2013 slightly compared 2012 due increased compensation benefits expenses primarily resulting higher net revenues pretax earnings 111 billion 2013 20 higher 2012 versus 2011 net revenues investment management 522 billion 2012 4 higher 2011 due significantly higher incentive fees partially offset lower transaction revenues slightly lower management fees 2012 assets supervision increased 70 billion 965 billion longterm assets supervision increased 67 billion including net inflows 18 billion 2 reflecting inflows fixed income assets partially offset outflows equity assets net market appreciation 49 billion 2012 primarily fixed income equity assets addition liquidity products increased 3 billion 2012 investment management operated environment generally characterized improved asset prices resulting appreciation value client assets however mix average assets supervision shifted slightly asset classes typically generate higher fees primarily equity alternative investment assets asset classes typically generate lower fees primarily fixed income assets compared 2011 operating expenses 429 billion 2012 7 higher 2011 due increased compensation benefits expenses pretax earnings 928 million 2012 8 lower 2011 geographic data see note 25 consolidated financial statements part ii item 8 2013 form 10k summary total net revenues pretax earnings net earnings geographic region regulatory developments businesses subject significant evolving regulation us doddfrank wall street reform consumer protection act doddfrank act enacted july 2010 significantly altered financial regulatory regime within operate addition reforms adopted considered regulators policy makers worldwide doddfrank act reforms may affect businesses expect principal areas impact regulatory reform us increased regulatory capital requirements increased regulation restriction certain activities however given many new proposed rules highly complex full impact regulatory reform known rules implemented market practices develop final regulations see “business regulation” part item 1 2013 form 10k information laws rules regulations proposed laws rules regulations apply us operations addition see “equity capital revised capital framework” note 20 consolidated financial statements part ii item 8 2013 form 10k information regulatory developments relate regulatory capital leverage liquidity ratios impact increased regulation restriction certain activities increased regulation limitations activities including doddfrank prohibition “proprietary trading” limitation sponsorship investment covered funds defined volcker rule addition increased regulation restrictions overthecounter otc derivatives markets transactions particularly related swaps securitybased swaps 1 fixed income flows 2013 include 10 billion assets managed firm related americas reinsurance business majority stake sold april 2013 previously excluded assets supervision assets consolidated subsidiary 2 includes 34 billion fixed income asset inflows connection acquisition dwight asset management company llc 5 billion fixed income equity asset outflows related liquidation goldman sachs asset management korea co ltd goldman sachs group inc subsidiaries management’s discussion analysis volcker rule december 2013 final rules implement provisions doddfrank act referred “volcker rule” adopted required compliance rule including development extensive compliance program july 2015 certain provisions rule subject possible extensions july 2017 volcker rule prohibits “proprietary trading” allow activities underwriting market making riskmitigation hedging anticipation final rule evaluated prohibition determined businesses engage “bright line” proprietary trading likely prohibited 2010 2011 liquidated substantially global macro proprietary principal strategies trading positions based know date filing expect impact prohibition proprietary trading material financial condition results operations cash flows however rule highly complex impact known market practices fully developed addition prohibition proprietary trading volcker rule limits sponsorship investment “covered funds” defined rule banking entities including group inc subsidiaries also limits certain types transactions us sponsored funds similar limitations transactions depository institutions affiliates described “ transactions affiliates” covered funds include private equity funds certain credit real estate funds hedge funds limitation investments covered funds requires us reduce investment fund 3 less fund’s net asset value reduce aggregate investment funds 3 less tier 1 capital anticipation final rule limited initial investment certain new covered funds 3 fund’s net asset value continue manage existing funds taking account transition periods volcker rule result march 2012 began redeeming certain interests hedge funds continue certain covered funds order compliant volcker rule prescribed compliance date extent underlying investments particular funds sold firm may required sell investments funds occurs firm may receive value investments less carrying value could limited secondary market investments firm may unable sell orderly transactions although net revenues investments private equity credit real estate hedge funds may vary period aggregate net revenues investments material aggregate total net revenues period 1999 2013 swap dealers derivatives regulation doddfrank act also provides significantly increased regulation restrictions derivative markets registered certain subsidiaries “swap dealers” us commodity futures trading commission cftc rules see “business regulation” part item 1 2013 form 10k discussion requirements imposed doddfrank status sec cftc rulemaking well nonus regulation area full application new derivatives rules across different national regulatory jurisdictions yet fully established goldman sachs group inc subsidiaries management’s discussion analysis balance sheet funding sources balance sheet management one important risk management disciplines ability manage size composition balance sheet asset base changes due client activity market fluctuations business opportunities size composition balance sheet reflect overall risk tolerance ii ability access stable funding sources iii amount equity capital hold although balance sheet fluctuates daytoday basis total assets quarterly yearend dates generally materially different occurring within reporting periods order ensure appropriate risk management seek maintain liquid balance sheet processes place dynamically manage assets liabilities include  quarterly planning  businessspecific limits  monitoring key metrics  scenario analyses quarterly planning prepare quarterly balance sheet plan combines projected total assets composition assets expected funding sources capital levels upcoming quarter objectives quarterly planning process  develop nearterm balance sheet projections taking account general state financial markets expected business activity levels  ensure projected assets supported adequate amount tenor funding projected capital liquidity metrics within management guidelines regulatory requirements  allow business risk managers independent control support functions objectively evaluate balance sheet limit requests business managers context firm’s overall balance sheet constraints include firm’s liability profile equity capital levels maturities plans new debt equity issuances share repurchases deposit trends secured funding transactions prepare quarterly balance sheet plan business risk managers independent control support functions meet business managers review current prior period metrics discuss expectations upcoming quarter specific metrics reviewed include asset liability size composition aged inventory limit utilization risk performance measures capital usage consolidated quarterly plan including balance sheet plans business funding capital projections projected capital liquidity metrics reviewed firmwide finance committee see “overview structure risk management” overview risk management structure goldman sachs group inc subsidiaries management’s discussion analysis businessspecific limits firmwide finance committee sets asset liability limits business aged inventory limits certain financial instruments disincentive hold inventory longer periods time limits set levels generally close actual operating levels order ensure prompt escalation discussion among business managers independent control support functions routine basis firmwide finance committee reviews approves balance sheet limits quarterly basis may also approve changes limits ad hoc basis response changing business needs market conditions monitoring key metrics monitor key balance sheet metrics daily business consolidated basis including asset liability size composition aged inventory limit utilization risk measures capital usage allocate assets businesses review analyze movements resulting new business activity well market fluctuations scenario analyses conduct scenario analyses determine would manage size composition balance sheet maintain appropriate funding liquidity capital positions variety situations  scenarios cover shortterm longterm time horizons using various macroeconomic firmspecific assumptions use analyses assist us developing longerterm funding plans including level unsecured debt issuances size secured funding program amount composition equity capital also consider potential future constraints limits ability grow asset base absence appropriate funding  capital planning stress testing process incorporates internally designed stress tests required ccar doddfrank act stress tests dfast well resolution recovery planning analyze would manage balance sheet risks duration severe crisis develop plans access funding generate liquidity andor redeploy issue equity capital appropriate balance sheet allocation addition preparing consolidated statements financial condition accordance us gaap prepare balance sheet generally allocates assets businesses nongaap presentation may comparable similar nongaap presentations used companies believe presenting assets basis meaningful consistent way management views manages risks associated firm’s assets better enables investors assess liquidity firm’s assets description captions following table presents balance sheet allocation excess liquidity cash maintain substantial excess liquidity meet broad range potential cash outflows collateral needs event stressed environment see “liquidity risk management” details composition sizing excess liquidity pool “global core excess” gce addition excess liquidity maintain operating cash balances primarily use specific currencies entities jurisdictions immediate access parent company liquidity secured client financing provide collateralized financing client positions including margin loans secured client collateral securities borrowed resale agreements primarily collateralized government obligations result client activities required segregate cash securities satisfy regulatory requirements secured client financing arrangements generally shortterm accounted fair value amounts approximate fair value include daily margin requirements mitigate counterparty credit risk goldman sachs group inc subsidiaries management’s discussion analysis institutional client services institutional client services maintain inventory positions facilitate marketmaking fixed income equity currency commodity products additionally part marketmaking activities enter resale securities borrowing arrangements obtain securities use cover transactions clients sold securities yet purchased receivables institutional client services primarily relate securities transactions investing lending investing lending make investments originate loans provide financing clients investments loans typically longerterm nature make investments directly indirectly funds manage debt securities loans public private equity securities real estate entities investments assets generally less liquid nonfinancial assets including property leasehold improvements equipment goodwill identifiable intangible assets income taxrelated receivables equitymethod investments assets classified held sale miscellaneous receivables 1 december 2012 includes 208 billion related investment ordinary shares icbc sold first half 2013 2 includes 1576 billion 1650 billion december 2013 december 2012 respectively direct loans primarily extended corporate private wealth management clients accounted fair value 3 includes 1490 billion 650 billion december 2013 december 2012 respectively loans held investment accounted amortized cost net estimated uncollectible amounts loans primarily comprised corporate loans private wealth management clients 4 includes assets related americas reinsurance business classified held sale majority stake sold april 2013 see note 12 consolidated financial statements part ii item 8 2013 form 10k information goldman sachs group inc subsidiaries management’s discussion analysis tables present reconciliation balance sheet allocation us gaap balance sheet tables total assets institutional client services investing lending represent inventory related assets amounts differ total assets business segment disclosed note 25 consolidated financial statements part ii item 8 2013 form 10k total assets disclosed note 25 include allocations excess liquidity cash secured client financing assets 1 includes unencumbered cash us government federal agency obligations including highly liquid us federal agency mortgagebacked obligations german french japanese united kingdom government obligations december 2013 total assets decreased 2705 billion december 2012 due decrease assets related institutional client services assets partially offset increase secured client financing excess liquidity cash assets related institutional client services decreased 5615 billion primarily due decrease financial instruments owned fair value result decreases us government federal agency obligations nonus government agency obligations derivatives commodities addition assets decreased 1711 billion primarily due sale majority stake americas reinsurance business april 2013 secured client financing increased 3394 billion reflecting increase collateralized agreements primarily due increase client activity excess liquidity cash also increased 840 billion reflecting increase collateralized agreements partially offset decrease cash equivalents goldman sachs group inc subsidiaries management’s discussion analysis balance sheet analysis metrics december 2013 total assets consolidated statements financial condition 91151 billion decrease 2705 billion december 2012 decrease primarily due decrease financial instruments owned fair value 6789 billion primarily due decreases us government federal agency obligations nonus government agency obligations derivatives commodities decrease assets 1711 billion primarily due sale majority stake americas reinsurance business april 2013 decreases partially offset increase collateralized agreements 4807 billion due firm client activity december 2013 total liabilities consolidated statements financial condition 83304 billion decrease 2980 billion december 2012 decrease primarily due decrease liabilities accrued expenses 2635 billion primarily due sale majority stake americas reinsurance business april 2013 european insurance business december 2013 decrease collateralized financings 924 billion primarily due firm financing activities decrease partially offset increase payables customers counterparties 1021 billion december 2013 total securities sold agreements repurchase accounted collateralized financings 16478 billion 5 higher 4 higher daily average amount repurchase agreements quarter ended year ended december 2013 respectively increase repurchase agreements relative daily average 2013 primarily due increase client activity end period december 2012 total securities sold agreements repurchase accounted collateralized financings 17181 billion essentially unchanged 3 higher daily average amount repurchase agreements quarter ended year ended december 2012 respectively increase repurchase agreements relative daily average 2012 primarily due increase firm financing activities end period level repurchase agreements fluctuates within periods primarily due providing clients access highly liquid collateral us government federal agency investmentgrade sovereign obligations collateralized financing activities table presents information assets unsecured longterm borrowings shareholders’ equity leverage ratios leverage ratio leverage ratio equals total assets divided total shareholders’ equity measures proportion equity debt firm using finance assets ratio different tier 1 leverage ratio included “equity capital consolidated regulatory capital ratios” described note 20 consolidated financial statements part ii item 8 2013 form 10k debt equity ratio debt equity ratio equals unsecured longterm borrowings divided total shareholders’ equity goldman sachs group inc subsidiaries management’s discussion analysis funding sources primary sources funding secured financings unsecured longterm shortterm borrowings deposits seek maintain broad diversified funding sources globally across products programs markets currencies creditors avoid funding concentrations raise funding number different products including  collateralized financings repurchase agreements securities loaned secured financings  longterm unsecured debt including structured notes syndicated us registered offerings us registered rule 144a mediumterm note programs offshore mediumterm note offerings debt offerings  savings demand deposits deposit sweep programs time deposits internal thirdparty brokerdealers  shortterm unsecured debt us nonus hybrid financial instruments commercial paper promissory note issuances methods funding primarily raised us dollar euro british pound japanese yen generally distribute funding products sales force thirdparty distributors large diverse creditor base variety markets americas europe asia believe relationships creditors critical liquidity creditors include banks governments securities lenders pension funds insurance companies mutual funds individuals imposed various internal guidelines monitor creditor concentration across funding programs secured funding fund significant amount inventory secured basis secured funding less sensitive changes credit quality unsecured funding due posting collateral lenders nonetheless continually analyze refinancing risk secured funding activities taking account trade tenors maturity profiles counterparty concentrations collateral eligibility counterparty rollover probabilities seek mitigate refinancing risk executing term trades staggered maturities diversifying counterparties raising excess secured funding prefunding residual risk gce seek raise secured funding term appropriate liquidity assets financed seek longer maturities secured funding collateralized asset classes may harder fund secured basis especially times market stress substantially secured funding excluding funding collateralized liquid government obligations executed tenors one month greater assets may harder fund secured basis times market stress include certain financial instruments following categories mortgage assetbacked loans securities noninvestment grade corporate debt securities equities convertible debentures emerging market securities assets classified level 3 fair value hierarchy generally funded unsecured basis see notes 5 6 consolidated financial statements part ii item 8 2013 form 10k information classification financial instruments fair value hierarchy “ unsecured longterm borrowings” information use unsecured longterm borrowings source funding goldman sachs group inc subsidiaries management’s discussion analysis weighted average maturity secured funding excluding funding collateralized highly liquid securities eligible inclusion gce exceeded 100 days december 2013 majority secured funding securities eligible inclusion gce executed term repurchase agreements securities lending contracts also raise financing types collateralized financings secured loans notes gs bank usa access funding federal reserve bank discount window rely funding liquidity planning stress testing maintain policies procedures necessary access funding test discount window borrowing procedures unsecured longterm borrowings issue unsecured longterm borrowings source funding inventory assets finance portion gce issue different tenors currencies products maximize diversification investor base table presents quarterly unsecured longterm borrowings maturity profile fourth quarter 2019 december 2013 weighted average maturity unsecured longterm borrowings december 2013 approximately eight years mitigate refinancing risk seek limit principal amount debt maturing one day week year enter interest rate swaps convert substantial portion longterm borrowings floatingrate obligations order manage exposure interest rates see note 16 consolidated financial statements part ii item 8 2013 form 10k information unsecured longterm borrowings goldman sachs group inc subsidiaries management’s discussion analysis deposits part efforts diversify funding base deposits become meaningful share funding activities mainly gs bank usa goldman sachs international bank gsib table presents type sources deposits 1 represents deposits stated maturity 2 weighted average maturity approximately three years 3 substantially overnight deposit sweep programs related private wealth management clients 4 represents longterm contractual agreements several us brokerdealers sweep client cash fdicinsured deposits 5 deposits insured fdic december 2013 approximately 4122 billion unsecured shortterm borrowings significant portion shortterm borrowings originally longterm debt scheduled mature within one year reporting date use shortterm borrowings finance liquid assets cash management purposes issue hybrid financial instruments commercial paper promissory notes december 2013 unsecured shortterm borrowings including current portion unsecured longterm borrowings 4469 billion see note 15 consolidated financial statements part ii item 8 2013 form 10k information unsecured shortterm borrowings equity capital adequacy critical importance us objective conservatively capitalized terms amount composition equity base relative risk exposures compared external requirements benchmarks accordingly place comprehensive capital management policy provides framework set guidelines assist us determining level composition capital target maintain determine appropriate level composition equity capital considering multiple factors including current future consolidated regulatory capital requirements results capital planning stress testing process factors rating agency guidelines subsidiary capital requirements business environment conditions financial markets assessments potential future losses due adverse changes business market environments capital planning stress testing process incorporates internally designed stress tests required ccar dfast also designed identify measure material risks associated business activities including market risk credit risk operational risk project sources uses capital given range business environments including stressed conditions addition part comprehensive capital management policy maintain contingency capital plan provides framework analyzing responding actual perceived capital shortfall required federal reserve board’s annual ccar guidelines us bank holding companies total consolidated assets 50 billion greater submit capital plans review federal reserve board purpose federal reserve board’s review ensure institutions robust forwardlooking capital planning process accounts unique risks permits continued operations times economic financial stress goldman sachs group inc subsidiaries management’s discussion analysis federal reserve board evaluates bank holding company based part whether capital necessary continue operating baseline stress scenarios provided federal reserve board scenarios developed bank holding company evaluation also takes account bank holding company’s process identifying risk controls governance capital planning guidelines making capital planning decisions addition part review federal reserve board evaluates bank holding company’s plan make capital distributions ie dividend payments repurchases redemptions stock subordinated debt capital securities across range macroeconomic scenarios firmspecific assumptions additionally federal reserve board evaluates bank holding company’s plan issue capital addition dfast rules require us conduct stress tests semiannual basis publish summary certain results annual dfast submission incorporated ccar submission federal reserve board also conducts annual stress tests publishes summary certain results part initial 2013 ccar submission federal reserve board informed us object proposed capital actions including repurchase outstanding common stock potential increase quarterly common stock dividend possible issuance redemption modification capital securities first quarter 2014 required federal reserve board resubmitted 2013 capital plan september 2013 incorporating certain enhancements stress testing process december 2013 federal reserve board informed us object resubmitted capital plan submitted 2014 ccar federal reserve january 2014 expect publish summary annual dfast results march 2014 see “business available information” part item 1 2013 form 10k addition submitted results midcycle dfast federal reserve board july 2013 published summary midcycle dfast results internally developed severely adverse scenario september 2013 internally developed severely adverse scenario designed stress firm’s risks idiosyncratic vulnerabilities assess firm’s proforma capital position ratios hypothetical stressed environment provide additional information internal stress testing process internally developed severely adverse scenario used midcycle dfast summary results web site described “business available information” part item 1 2013 form 10k consolidated regulatory capital requirements determined federal reserve board described december 2013 total shareholders’ equity 7847 billion consisting common shareholders’ equity 7127 billion preferred stock 720 billion december 2012 total shareholders’ equity 7572 billion consisting common shareholders’ equity 6952 billion preferred stock 620 billion see “ consolidated regulatory capital ratios” information regarding impact regulatory developments consolidated regulatory capital federal reserve board primary regulator group inc bank holding company bank holding company act 1956 bhc act financial holding company amendments bhc act effected us grammleachbliley act 1999 bank holding company subject consolidated riskbased regulatory capital requirements computed accordance federal reserve board’s riskbased capital regulations december 2013 based basel capital accord basel committee also reflected federal reserve board’s revised market risk regulatory capital requirements became effective january 1 2013 capital requirements expressed capital ratios compare measures capital riskweighted assets rwas capital regulations also include requirements respect leverage firm’s capital levels also subject qualitative judgments regulators components capital risk weightings factors beginning january 1 2014 federal reserve board implemented revised consolidated regulatory capital leverage requirements see note 20 consolidated financial statements part ii item 8 2013 form 10k additional information regarding firm’s current rwas required minimum capital ratios revised capital framework defined goldman sachs group inc subsidiaries management’s discussion analysis consolidated regulatory capital ratios table presents information regulatory capital ratios tier 1 leverage ratio basel implemented federal reserve board information december 2013 reflects revised market risk regulatory capital requirements information december 2012 prior implementation revised market risk regulatory capital requirements table  equity investments certain entities primarily represent portion nonconsolidated equity investments  disallowed deferred tax assets represent certain deferred tax assets excluded regulatory capital based upon assessment addition factors includes estimate future taxable income  debt valuation adjustment represents cumulative change fair value unsecured borrowings attributable impact changes credit spreads net tax applicable tax rate  adjustments within tier 1 common capital include net unrealized gainslosses availableforsale securities net tax applicable tax rate cumulative change pension postretirement liabilities net tax applicable tax rate investments certain nonconsolidated entities  qualifying subordinated debt represents subordinated debt issued group inc original term maturity five years greater outstanding amount subordinated debt qualifying tier 2 capital reduced discounted upon reaching remaining maturity five years see note 16 consolidated financial statements part ii item 8 2013 form 10k additional information subordinated debt 1 january 1 2013 began incorporate doddfrank act’s phaseout regulatory capital treatment junior subordinated debt issued trusts allowing 75 capital instruments included tier 1 capital 25 designated tier 2 capital calculation current capital ratios july 2013 agencies finalized phaseout provisions capital instruments see note 16 consolidated financial statements part ii item 8 2013 form 10k additional information junior subordinated debt issued trusts 2 tier 1 common ratio equals tier 1 common capital divided rwas believe tier 1 common ratio meaningful one measures regulators investors use assess capital adequacy tier 1 common ratio nongaap measure may comparable similar nongaap measures used companies 3 see note 20 consolidated financial statements part ii item 8 2013 form 10k additional information firm’s tier 1 leverage ratio goldman sachs group inc subsidiaries management’s discussion analysis tier 1 capital ratio 167 unchanged compared december 2012 primarily reflecting increase rwas offset increase tier 1 capital increase rwas primarily driven implementation revised market risk regulatory capital requirements significant part regulatory capital changes ultimately reflected basel iii capital ratios table presents changes tier 1 common capital tier 1 capital tier 2 capital 2013 2012 see “business regulation” part item 1 2013 form 10k note 20 consolidated financial statements part ii item 8 2013 form 10k additional information regulatory capital ratios related regulatory requirements including pending proposed regulatory changes riskweighted assets rwas federal reserve board’s riskbased capital requirements calculated based measures credit risk market risk rwas credit risk reflect amounts onbalancesheet offbalancesheet exposures credit risk requirements onbalancesheet assets receivables cash generally based balance sheet value credit risk requirements securities financing transactions determined based upon positive net exposure trade include effect counterparty netting collateral applicable offbalancesheet exposures including commitments guarantees credit equivalent amount calculated based notional amount trade requirements otc derivatives based combination positive net exposure percentage notional amount trade include effect counterparty netting collateral applicable assets exposures assigned risk weight depending among things whether counterparty sovereign bank qualifying securities firm entity collateral held depending nature collateral december 2012 rwas market risk determined reference firm’s valueatrisk var model supplemented standardized measurement method used determine rwas specific risk certain positions federal reserve board’s revised market risk regulatory capital requirements became effective january 1 2013 methodology calculating rwas market risk changed rwas market risk determined using var stressed var incremental risk comprehensive risk standardized measurement method specific risk goldman sachs group inc subsidiaries management’s discussion analysis var potential loss value inventory positions well certain financial assets financial liabilities due adverse market movements defined time horizon specified confidence level risk management purposes regulatory capital calculations use single var model captures risks including interest rates equity prices currency rates commodity prices var used regulatory capital requirements regulatory var differs risk management var due different time horizons confidence levels 10day 99 regulatory var vs oneday 95 risk management var well differences scope positions var calculated stressed var potential loss value inventory positions period significant market stress incremental risk potential loss value nonsecuritized inventory positions due default credit migration issuers financial instruments oneyear time horizon comprehensive risk potential loss value due price risk defaults within firm’s credit correlation positions standardized measurement method used determine rwas specific risk certain positions applying supervisory defined riskweighting factors positions applicable netting performed provide additional information regulatory var stressed var incremental risk comprehensive risk standardized measurement method specific risk web site described “business available information” part item 1 2013 form 10k table presents information components rwas within consolidated regulatory capital ratios based basel implemented federal reserve board also reflected revised market risk regulatory capital requirements 1 principally includes certain commitments extend credit letters credit 2 represents resale repurchase agreements securities borrowed loaned transactions 3 principally includes receivables customers certain loans assets cash equivalents 4 current regulatory capital framework explicit requirement operational risk goldman sachs group inc subsidiaries management’s discussion analysis table presents changes rwas december 31 2012 december 31 2013 credit rwas decreased 1928 billion compared december 2012 primarily due decrease securities financing exposure market rwas increased 5258 billion compared december 2012 reflecting impact revised market risk regulatory capital requirements became effective january 1 2013 partially offset among things decrease specific risk due decrease inventory also attribute rwas business segments december 2013 approximately 80 rwas attributed institutional client services segment substantially remaining rwas attributed investing lending segment revised capital framework agencies approved revised riskbased capital leverage ratio regulations establishing new comprehensive capital framework us banking organizations revised capital framework regulations largely based basel committee’s december 2010 final capital framework strengthening international capital standards basel iii significantly revise riskbased capital leverage ratio requirements applicable bank holding companies compared previous us riskbased capital leverage ratio rules thereby implement certain provisions doddfrank act revised capital framework group inc “advanced approach” banking organization see note 20 consolidated financial statements part ii item 8 2013 form 10k information revised capital framework including difference “standardized approach” basel iii advanced approach estimated capital ratios estimate firm’s ratio basel iii common equity tier 1 cet1 rwas calculated basel iii advanced approach basel iii advanced cet1 ratio december 2013 would 98 fully phasedin basis ie expiration transition provisions estimate basel iii advanced cet1 ratio continue evolve assess details rules discuss interpretation application regulators management believes estimated basel iii advanced cet1 ratio meaningful one measures regulators investors use assess capital adequacy estimated basel iii advanced cet1 ratio nongaap measure december 2013 may comparable similar nongaap measures used companies date become formal regulatory measure firm april 1 2014 goldman sachs group inc subsidiaries management’s discussion analysis table presents reconciliation common shareholders’ equity estimated basel iii advanced cet1 fully phasedin basis 1 deduction represents fully phasedin requirement amount investments capital nonconsolidated financial institutions exceed certain prescribed thresholds transitional period thereafter deduction required applicable proportion investments capital nonconsolidated financial institutions falls prescribed thresholds 2 principally includes credit valuation adjustments derivative liabilities debt valuation adjustments well required credit riskbased deductions addition beginning first quarter 2015 subject transitional provisions also required disclose ratios calculated standardized approach estimated cet1 ratio standardized approach standardized cet1 ratio fully phasedin basis approximately 60 basis points lower estimated basel iii advanced cet1 ratio table basel iii advanced cet1 ratio standardized cet1 ratio subject transitional provisions reflecting transitional provisions became effective january 1 2014 estimated basel iii advanced cet1 ratio estimated standardized cet1 ratio approximately 150 basis points higher respective cet1 ratios fully phasedin basis december 2013 effective january 1 2014 group inc’s capital leverage ratios calculated subject minimums defined revised capital framework changes definition capital minimum ratios subject transitional provisions effective beginning january 1 2014 rwas based basel adjusted defined note 20 consolidated financial statements part ii item 8 2013 form 10k firm transition basel iii beginning april 1 2014 including impact changes definition regulatory capital reflecting transitional provisions effective 2014 estimated cet1 ratio cet1 rwas basel adjusted basis december 2013 would essentially unchanged compared tier 1 common ratio basel regulatory leverage ratios revised capital framework increased minimum tier 1 leverage ratio applicable us 3 4 effective january 1 2014 addition revised capital framework introduce new tier 1 supplementary leverage ratio supplementary leverage ratio advanced approach banking organizations supplementary leverage ratio compares tier 1 capital defined revised capital framework measure leverage exposure defined sum firm’s assets less certain cet1 deductions plus certain offbalancesheet exposures including measure derivatives exposures commitments revised capital framework requires minimum supplementary leverage ratio 3 effective january 1 2018 disclosure required beginning first quarter 2015 addition subsequent approval revised capital framework agencies issued proposal increase minimum supplementary leverage ratio requirement largest us banks deemed global systemically important banking institutions gsibs basel gsib framework proposals would require firm gsibs meet 5 supplementary leverage ratio comprised minimum requirement 3 plus 2 buffer december 2013 estimated supplementary leverage ratio based revised capital framework approximates proposed minimum addition basel committee recently finalized revisions would increase size leverage exposure purposes supplementary leverage ratio would retain minimum supplementary leverage ratio requirement 3 known certainty point whether us regulators adopt revised definition leverage rules proposals supplementary leverage ratio goldman sachs group inc subsidiaries management’s discussion analysis developments basel committee financial stability board established direction leaders group 20 also recently issued several consultative papers propose changes capital regulations particular basel committee issued consultation papers “fundamental review trading book” “revisions securitization framework” could impact level firm’s rwas regulatory capital ratios european union eu finalized legislation implement basel iii became effective january 1 2014 doddfrank act reform initiatives proposed announced agencies basel committee governmental entities regulators including eu uk’s financial services authority fsa replaced prudential regulation authority financial conduct authority fca april 1 2013 cases consistent one another adds uncertainty firm’s future capital leverage liquidity requirements firm’s subsidiaries doddfrank act contains provisions require registration swap dealers major swap participants securitybased swap dealers major securitybased swap participants firm registered certain subsidiaries “swap dealers” cftc rules including gsco gs bank usa goldman sachs international gsi j aron company entities would require registration cftc sec rules subject regulatory capital requirements finalized cftc sec capital planning stress testing process capital planning stress testing process incorporates internally designed stress tests required ccar dfast process designed identify measure material risks associated business activities also attribute capital usage businesses maintain contingency capital plan stress testing stress testing process incorporates internal capital adequacy assessment objective ensuring firm appropriately capitalized relative risks business part assessment project sources uses capital given range business environments including stressed conditions stress scenarios incorporate internally designed stress tests required ccar dfast designed capture specific vulnerabilities risks analyze whether firm holds appropriate amount capital goal hold sufficient capital ensure remain adequately capitalized experiencing severe stress event assessment capital adequacy viewed tandem assessment liquidity adequacy integrated overall risk management structure governance policy framework firm internal riskbased capital assessment part capital planning stress testing process perform internal riskbased capital assessment incorporates market risk credit risk operational risk market risk calculated using var calculations supplemented riskbased addons include risks related rare events tail risks credit risk utilizes assumptions counterparties’ probability default size losses event default operational risk calculated based scenarios incorporating multiple types operational failures well incorporating internal external actual loss experience backtesting used gauge effectiveness models capturing measuring relevant risks capital attribution attribute capital usage businesses based upon regulatory capital requirements well internal riskbased capital assessment manage levels capital usage based upon established balance sheet risk limits contingency capital plan part comprehensive capital management policy maintain contingency capital plan contingency capital plan provides framework analyzing responding perceived actual capital deficiency including limited identification drivers capital deficiency well mitigants potential actions outlines appropriate communication procedures follow crisis period including internal dissemination information well ensuring timely communication external stakeholders goldman sachs group inc subsidiaries management’s discussion analysis rating agency guidelines credit rating agencies assign credit ratings obligations group inc directly issues guarantees substantially firm’s senior unsecured obligations gsco gsi gsib assigned long shortterm issuer ratings certain credit rating agencies gs bank usa also assigned long shortterm issuer ratings well ratings longterm shortterm bank deposits addition credit rating agencies assigned ratings debt obligations certain subsidiaries group inc level composition equity capital among many factors considered determining credit ratings agency definition eligible capital methodology evaluating capital adequacy assessments generally based combination factors rather single calculation see “liquidity risk management credit ratings” information credit ratings group inc gs bank usa gsco gsi gsib subsidiary capital requirements many subsidiaries including gs bank usa brokerdealer subsidiaries subject separate regulation capital requirements jurisdictions operate gs bank usa gs bank usa subject minimum capital requirements calculated manner similar applicable bank holding companies computes riskbased capital ratios accordance regulatory capital requirements applicable state member banks december 2013 based basel also reflected revised market risk regulatory capital requirements implemented federal reserve board capital regulations also include requirements respect leverage see note 20 consolidated financial statements part ii item 8 2013 form 10k information gs bank usa’s regulatory capital ratios gs bank usa also subject revised capital framework beginning january 1 2014 addition revisions riskbased capital ratios gs bank usa subject 4 minimum tier 1 leverage ratio requirement advanced approach banking organization subject new minimum supplementary leverage ratio described 3 effective january 1 2018 shortly approval revised capital framework agencies issued proposal also requires us insured depository institution subsidiaries us gsibs gs bank usa meet “wellcapitalized” supplementary leverage ratio requirement 6 proposals enacted proposed higher requirements would effective beginning january 1 2018 december 2013 gs bank usa’s estimated supplementary leverage ratio based revised capital framework approximates proposed minimum addition basel committee’s recently finalized revisions regarding supplementary leverage ratio discussed may also applicable gs bank usa see note 20 consolidated financial statements part ii item 8 2013 form 10k information revised capital framework relates gs bank usa incremental capital requirements domestic systemically important banking institutions purposes assessing adequacy capital gs bank usa also performs internal capital adequacy assessment similar performed group inc addition rules adopted federal reserve board doddfrank act require gs bank usa conduct stress tests annual basis publish summary certain results gs bank usa submitted annual dfast stress results federal reserve january 2014 expects publish summary results march 2014 gs bank usa’s capital levels prompt corrective action classification subject qualitative judgments regulators components capital risk weightings factors goldman sachs group inc subsidiaries management’s discussion analysis gsi regulated uk brokerdealer gsi one firm’s principal nonus regulated subsidiaries regulated pra fca december 2013 december 2012 gsi subject capital regulations based basel committee’s june 2006 framework basel ii modified basel committee’s february 2011 revisions basel ii market risk framework implemented european union capital requirements directives december 2013 december 2012 gsi tier 1 capital ratio 144 115 respectively total capital ratio 185 169 respectively minimum tier 1 capital ratio pra rules 4 minimum total capital ratio 8 pra significantly revised capital regulations effective beginning january 1 2014 revised regulations largely based basel iii similar revised capital framework also introduce leverage ratio reporting requirements subsidiaries expect capital requirements several subsidiaries likely increase future due various developments arising basel committee doddfrank act governmental entities regulators see note 20 consolidated financial statements part ii item 8 2013 form 10k information capital requirements regulated subsidiaries potential impact regulatory reform subsidiaries subject separate regulatory capital requirements may hold capital satisfy local tax legal guidelines rating agency requirements entities assigned credit ratings internal policies including policies concerning minimum amount capital subsidiary hold based underlying level risk certain instances group inc may limited ability access capital held certain subsidiaries result regulatory tax constraints december 2013 december 2012 group inc’s equity investment subsidiaries 7339 billion 7332 billion respectively compared total shareholders’ equity 7847 billion 7572 billion respectively guarantees subsidiaries group inc guaranteed payment obligations gsco gs bank usa goldman sachs execution clearing lp gsec subject certain exceptions november 2008 group inc contributed subsidiaries gs bank usa group inc agreed guarantee certain losses including creditrelated losses relating assets held contributed entities connection guarantee group inc also agreed pledge gs bank usa certain collateral including interests subsidiaries illiquid assets capital invested nonus subsidiaries generally exposed foreign exchange risk substantially managed combination derivatives nonus denominated debt equity capital management principally manage capital issuances repurchases common stock may also time issue repurchase preferred stock junior subordinated debt issued trusts subordinated debt forms capital business conditions warrant subject approval federal reserve board manage capital requirements principally setting limits balance sheet assets andor limits risk case consolidated business levels attribute capital usage businesses based upon regulatory capital requirements well internal riskbased capital assessment manage levels capital usage based upon established balance sheet risk limits see notes 16 19 consolidated financial statements part ii item 8 2013 form 10k information preferred stock junior subordinated debt issued trusts subordinated debt berkshire hathaway warrant october 1 2013 berkshire hathaway exercised full warrant purchase shares firm’s common stock warrant amended march 2013 required net share settlement firm delivered 131 million shares common stock berkshire hathaway october 4 2013 number shares delivered represented value difference average closing price firm’s common stock 10 trading days preceding october 1 2013 exercise price 11500 multiplied number shares common stock 435 million covered warrant impact firm’s book value per common share tangible book value per common share reduction approximately 3 goldman sachs group inc subsidiaries management’s discussion analysis share repurchase program seek use share repurchase program help maintain appropriate level common equity repurchase program effected primarily regular openmarket purchases amounts timing determined primarily current projected capital positions may also influenced general market conditions prevailing price trading volumes common stock april 15 2013 board directors group inc board authorized repurchase additional 750 million shares common stock pursuant firm’s existing share repurchase program december 2013 share repurchase program approved board repurchase 572 million additional shares common stock however repurchases subject approval federal reserve board see “market registrant’s common equity related stockholder matters issuer purchases equity securities” part ii item 5 note 19 consolidated financial statements part ii item 8 2013 form 10k additional information repurchase program see information annual ccar capital metrics table presents information shareholders’ equity book value per common share tangible common shareholders’ equity tangible common shareholders’ equity equals total shareholders’ equity less preferred stock goodwill identifiable intangible assets believe tangible common shareholders’ equity meaningful measure investors use assess capital adequacy tangible common shareholders’ equity nongaap measure may comparable similar nongaap measures used companies table presents reconciliation total shareholders’ equity tangible common shareholders’ equity book value tangible book value per common share book value tangible book value per common share based common shares outstanding including restricted stock units granted employees future service requirements 4674 million 4805 million december 2013 december 2012 respectively believe tangible book value per common share tangible common shareholders’ equity divided common shares outstanding meaningful measure investors use assess capital adequacy tangible book value per common share nongaap measure may comparable similar nongaap measures used companies goldman sachs group inc subsidiaries management’s discussion analysis offbalancesheet arrangements contractual obligations offbalancesheet arrangements various types offbalancesheet arrangements enter ordinary course business involvement arrangements take many different forms including  purchasing retaining residual interests special purpose entities mortgagebacked assetbacked securitization vehicles  holding senior subordinated debt interests limited general partnerships preferred common stock nonconsolidated vehicles  entering interest rate foreign currency equity commodity credit derivatives including total return swaps  entering operating leases  providing guarantees indemnifications loan commitments letters credit representations warranties enter arrangements variety business purposes including securitizations securitization vehicles purchase mortgages corporate bonds types financial assets critical functioning several significant investor markets including mortgagebacked assetbacked securities markets since offer investors access specific cash flows risks created securitization process also enter arrangements underwrite client securitization transactions provide secondary market liquidity make investments performing nonperforming debt equity real estate assets provide investors creditlinked assetrepackaged notes receive provide letters credit satisfy margin requirements facilitate clearance settlement process financial interests derivative transactions nonconsolidated entities generally accounted fair value manner financial instruments except cases apply equity method accounting table presents discussion various offbalancesheet arrangements may found part ii items 7 8 2013 form 10k addition see note 3 consolidated financial statements part ii item 8 2013 form 10k discussion consolidation policies goldman sachs group inc subsidiaries management’s discussion analysis contractual obligations certain contractual obligations require us make future cash payments contractual obligations include unsecured longterm borrowings secured longterm financings time deposits contractual interest payments included consolidated statements financial condition obligations make future cash payments also include certain offbalancesheet contractual obligations purchase obligations minimum rental payments noncancelable leases commitments guarantees table presents contractual obligations commitments guarantees december 2013 1 aggregate contractual principal amount secured longterm financings fair value option elected exceeded related fair value 154 million 2 includes 748 billion adjustments carrying value certain unsecured longterm borrowings resulting application hedge accounting addition aggregate contractual principal amount unsecured longterm borrowings principal nonprincipalprotected fair value option elected exceeded related fair value 92 million 3 represents estimated future interest payments related unsecured longterm borrowings secured longterm financings time deposits based applicable interest rates december 2013 includes stated coupons structured notes 4 566 billion commitments covered funds defined volcker rule included 2014 20152016 columns expect substantially commitments called table  obligations maturing within one year financial statement date redeemable within one year financial statement date option holder excluded treated shortterm obligations  obligations repayable prior maturity option reflected contractual maturity dates obligations redeemable prior maturity option holders reflected dates options become exercisable  amounts included table necessarily reflect actual future cash flow requirements arrangements commitments guarantees represent notional amounts may expire unused reduced cancelled counterparty’s request  due uncertainty timing amounts ultimately paid liability unrecognized tax benefits excluded see note 24 consolidated financial statements part ii item 8 2013 form 10k information unrecognized tax benefits goldman sachs group inc subsidiaries management’s discussion analysis see notes 15 18 consolidated financial statements part ii item 8 2013 form 10k information shortterm borrowings commitments guarantees respectively december 2013 unsecured longterm borrowings 16097 billion maturities extending 2061 consisted principally senior borrowings see note 16 consolidated financial statements part ii item 8 2013 form 10k information unsecured longterm borrowings december 2013 future minimum rental payments net minimum sublease rentals noncancelable leases 270 billion lease commitments principally office space expire various dates 2069 certain agreements subject periodic escalation provisions increases real estate taxes charges see note 18 consolidated financial statements part ii item 8 2013 form 10k information leases occupancy expenses include costs associated office space held excess current requirements excess space cost charged earnings incurred held potential growth replace currently occupied space may exit future regularly evaluate current future space capacity relation current projected staffing levels 2013 total occupancy expenses space held excess current requirements material addition 2013 incurred exit costs 19 million related office space may incur exit costs future extent reduce space capacity ii commit occupy new properties locations operate consequently dispose existing space held potential growth exit costs may material results operations given period risk management risk factors risks inherent business include liquidity market credit operational legal regulatory reputational risks discussion risk management processes see “overview structure risk management” risks include risks across risk categories regions global businesses well uncertain outcomes potential materially impact financial results liquidity reputation discussion areas risk see “ liquidity risk management” “ market risk management” “ credit risk management” “ operational risk management” “certain risk factors may affect businesses” goldman sachs group inc subsidiaries management’s discussion analysis overview structure risk management overview believe effective risk management primary importance success firm accordingly comprehensive risk management processes monitor evaluate manage risks assume conducting activities include market credit liquidity operational legal regulatory reputational risk exposures risk management framework built around three core components governance processes people governance risk management governance starts board plays important role reviewing approving risk management policies practices directly committees including risk committee board also receives regular briefings firmwide risks including market risk liquidity risk credit risk operational risk independent control support functions including chief risk officer matters impacting reputation chair firmwide client business standards committee chief risk officer part review firmwide risk portfolio regularly advises risk committee board relevant risk metrics material exposures next senior levels firm leaders experienced risk managers sophisticated detailed understanding risks take senior managers lead participate riskoriented committees leaders independent control support functions including compliance controllers credit risk management department credit risk management human capital management legal market risk management department market risk management operations operational risk management department operational risk management tax technology treasury firm’s governance structure provides protocol responsibility decisionmaking risk management issues ensures implementation decisions make extensive use riskrelated committees meet regularly serve important means facilitate foster ongoing discussions identify manage mitigate risks maintain strong communication risk culture collaboration decisionmaking among revenueproducing units independent control support functions committees senior management believe first line defense managing risk rests managers revenueproducing units dedicate extensive resources independent control support functions order ensure strong oversight structure appropriate segregation duties regularly reinforce firm’s strong culture escalation accountability across divisions functions processes maintain various processes procedures critical components risk management first foremost daily discipline marking substantially firm’s inventory current market levels goldman sachs carries inventory fair value changes valuation reflected immediately risk management systems net revenues believe discipline one effective tools assessing managing risk provides transparent realistic insight financial exposures also apply rigorous framework limits control risk across multiple transactions products businesses markets includes setting credit market risk limits variety levels monitoring limits daily basis limits typically set levels periodically exceeded rather levels reflect maximum risk appetite fosters ongoing dialogue risk among revenueproducing units independent control support functions committees senior management well rapid escalation riskrelated matters see “market risk management” “credit risk management” information risk limits active management positions another important process proactive mitigation market credit exposures minimizes risk required take outsized actions periods stress goldman sachs group inc subsidiaries management’s discussion analysis also focus rigor effectiveness firm’s risk systems goal risk management technology get right information right people right time requires systems comprehensive reliable timely devote significant time resources risk management technology ensure consistently provides us complete accurate timely information people even best technology serves tool helping make informed decisions real time risks taking ultimately effective risk management requires people interpret risk data ongoing timely basis adjust risk positions accordingly revenueproducing units independent control support functions experience professionals understanding nuances limitations risk measure guide firm assessing exposures maintaining within prudent levels reinforce culture effective risk management training development programs well way evaluate performance recognize reward people training development programs including certain sessions led senior leaders firm focused importance risk management client relationships reputational excellence part annual performance review process assess reputational excellence including employee exercises good risk management reputational judgment adheres code conduct compliance policies review reward processes designed communicate reinforce professionals link behavior people recognized need focus clients reputation need always act accordance highest standards firm structure ultimate oversight risk responsibility firm’s board oversees risk directly committees including risk committee risk committee consists independent directors within firm series committees specific risk management mandates oversight decisionmaking responsibilities risk management activities committee membership generally consists senior managers revenueproducing units independent control support functions established procedures committees ensure appropriate information barriers place primary risk committees also additional subcommittees working groups described addition committees riskoriented committees provide oversight different businesses activities products regions legal entities firmwide regional divisional committees responsibility considering impact transactions activities oversee reputation membership firm’s risk committees reviewed regularly updated reflect changes responsibilities committee members accordingly length time members serve respective committees varies determined committee chairs based responsibilities members within firm addition independent control support functions report chief financial officer general counsel chief administrative officer responsible daytoday oversight monitoring risk discussed greater detail following sections internal audit reports audit committee board includes professionals broad range audit industry experience including risk management expertise responsible independently assessing validating key controls within risk management framework goldman sachs group inc subsidiaries management’s discussion analysis chart presents overview risk management governance structure highlighting oversight board key riskrelated committees independence control support functions management committee management committee oversees global activities firm including firm’s independent control support functions provides oversight directly authority delegated committees established committee comprised senior leaders firm chaired firm’s chief executive officer management committee established various committees delegated authority chairperson management committee appoints chairpersons committees members management committee also members firmwide divisional regional committees following committees principally involved firmwide risk management firmwide client business standards committee firmwide client business standards committee assesses makes determinations regarding business standards practices reputational risk management client relationships client service chaired firm’s president chief operating officer reports management committee also responsibility overseeing recommendations business standards committee periodically updates receives guidance public responsibilities subcommittee corporate governance nominating public responsibilities committee board committee established following two riskrelated committees report goldman sachs group inc subsidiaries management’s discussion analysis  firmwide new activity committee firmwide new activity committee responsible reviewing new activities establishing process identify review previously approved activities significant changed complexity andor structure present different reputational suitability concerns time consider whether activities remain appropriate committee cochaired firm’s head operationschief operating officer europe middle east africa chief administrative officer investment management division appointed firmwide client business standards committee chairperson  firmwide suitability committee firmwide suitability committee responsible setting standards policies product transaction client suitability providing forum consistency across divisions regions products suitability assessments committee also reviews suitability matters escalated firm committees committee cochaired deputy head global compliance division cohead investment management division appointed firmwide client business standards committee chairperson firmwide risk committee firmwide risk committee globally responsible ongoing monitoring management firm’s financial risks direct delegated authority firmwide risk committee approves firmwide product divisional businesslevel limits market credit risks approves sovereign credit risk limits reviews results stress tests scenario analyses committee cochaired firm’s chief financial officer senior managing director firm’s executive office reports management committee following four committees report firmwide risk committee chairperson securities division risk committee appointed chairpersons firmwide risk committee chairpersons credit policy firmwide operational risk committees appointed firm’s chief risk officer chairpersons firmwide finance committee appointed firmwide risk committee  securities division risk committee securities division risk committee sets market risk limits subject overall firmwide risk limits securities division based number risk measures including limited var stress tests scenario analyses balance sheet levels committee chaired chief risk officer securities division  credit policy committee credit policy committee establishes reviews broad firmwide credit policies parameters implemented credit risk management committee chaired firm’s chief credit officer  firmwide operational risk committee firmwide operational risk committee provides oversight ongoing development implementation operational risk policies framework methodologies monitors effectiveness operational risk management committee cochaired managing director credit risk management managing director operational risk management  firmwide finance committee firmwide finance committee oversight responsibility liquidity risk size composition balance sheet capital base credit ratings committee regularly reviews liquidity balance sheet funding position capitalization approves related policies makes recommendations adjustments made light current events risks exposures regulatory requirements part oversight among things committee reviews approves balance sheet limits size gce committee cochaired firm’s chief financial officer firm’s global treasurer goldman sachs group inc subsidiaries management’s discussion analysis following committees report jointly firmwide risk committee firmwide client business standards committee  firmwide commitments committee firmwide commitments committee reviews firm’s underwriting distribution activities respect equity equityrelated product offerings sets maintains policies procedures designed ensure legal reputational regulatory business standards maintained global basis addition reviewing specific transactions committee periodically conducts general strategic reviews sectors products establishes policies connection transaction practices committee cochaired firm’s senior strategy officer cohead global mergers acquisitions appointed firmwide client business standards committee chairperson  firmwide capital committee firmwide capital committee provides approval oversight debtrelated transactions including principal commitments firm’s capital committee aims ensure business reputational standards underwritings capital commitments maintained global basis committee cochaired firm’s global treasurer head credit finance europe middle east africa appointed firmwide risk committee chairpersons investment management division risk committee investment management division risk committee responsible ongoing monitoring control global market counterparty credit liquidity risks associated activities investment management businesses head investment management division risk management chair committee investment management division risk committee reports firm’s chief risk officer conflicts management conflicts interest firm’s approach dealing fundamental client relationships reputation longterm success term “conflict interest” universally accepted meaning conflicts arise many forms within business businesses responsibility identifying potential conflicts well complying firm’s policies procedures shared entire firm multilayered approach resolving conflicts addressing reputational risk firm’s senior management oversees policies related conflicts resolution firm’s senior management business selection conflicts resolution group legal department compliance division firmwide client business standards committee internal committees play roles formulation policies standards principles assist making judgments regarding appropriate resolution particular conflicts resolving potential conflicts necessarily depends facts circumstances particular situation application experienced informed judgment transaction level various people groups roles general matter business selection conflicts resolution group reviews financing advisory assignments investment banking certain investing lending activities firm various transaction oversight committees firmwide capital commitments suitability committees across firm also review new underwritings loans investments structured products committees work internal external lawyers compliance division evaluate address actual potential conflicts regularly assess policies procedures address conflicts interest effort conduct business accordance highest ethical standards compliance applicable laws rules regulations goldman sachs group inc subsidiaries management’s discussion analysis liquidity risk management liquidity critical importance financial institutions failures financial institutions occurred large part due insufficient liquidity accordingly firm place comprehensive conservative set liquidity funding policies address firmspecific broader industry market liquidity events principal objective able fund firm enable core businesses continue serve clients generate revenues even adverse circumstances manage liquidity risk according following principles excess liquidity maintain substantial excess liquidity meet broad range potential cash outflows collateral needs stressed environment assetliability management assess anticipated holding periods assets expected liquidity stressed environment manage maturities diversity funding across markets products counterparties seek maintain liabilities appropriate tenor relative asset base contingency funding plan maintain contingency funding plan provide framework analyzing responding liquidity crisis situation periods market stress framework sets forth plan action fund normal business activity emergency stress situations principles discussed detail excess liquidity important liquidity policy prefund estimated potential cash collateral needs liquidity crisis hold excess liquidity form unencumbered highly liquid securities cash believe securities held global core excess would readily convertible cash matter days liquidation entering repurchase agreements maturities resale agreements cash would allow us meet immediate obligations without needing sell assets depend additional funding creditsensitive markets december 2013 december 2012 fair value securities certain overnight cash deposits included gce totaled 18407 billion 17462 billion respectively based results internal liquidity risk model discussed well consideration factors including limited assessment potential intraday liquidity needs qualitative assessment condition financial markets firm believe liquidity position december 2013 december 2012 appropriate table presents fair value securities certain overnight cash deposits included gce us dollardenominated excess composed unencumbered us government federal agency obligations including highly liquid us federal agency mortgagebacked obligations eligible collateral federal reserve open market operations ii certain overnight us dollar cash deposits nonus dollardenominated excess composed unencumbered german french japanese united kingdom government obligations certain overnight cash deposits highly liquid currencies strictly limit excess liquidity narrowly defined list securities cash highly liquid even difficult funding environment include potential sources excess liquidity less liquid unencumbered securities committed credit facilities gce goldman sachs group inc subsidiaries management’s discussion analysis table presents fair value gce asset class gce held group inc major brokerdealer bank subsidiaries presented table gce reflects following principles  first days weeks liquidity crisis critical company’s survival  focus must maintained potential cash collateral outflows disruptions financing flows businesses diverse liquidity needs determined many factors including market movements collateral requirements client commitments change dramatically difficult funding environment  liquidity crisis creditsensitive funding including unsecured debt types secured financing agreements may unavailable terms eg interest rates collateral provisions tenor availability types secured financing may change  result policy prefund liquidity estimate may needed crisis hold unencumbered securities larger debt balances businesses would otherwise require believe liquidity stronger greater balances highly liquid unencumbered securities even though increases total assets funding costs believe gce provides us resilient source funds would available advance potential cash collateral outflows gives us significant flexibility managing difficult funding environment order determine appropriate size gce use internal liquidity model referred modeled liquidity outflow captures quantifies firm’s liquidity risks also consider factors including limited assessment potential intraday liquidity needs qualitative assessment condition financial markets firm distribute gce across entities asset types clearing agents provide us sufficient operating liquidity ensure timely settlement major markets even difficult funding environment maintain gce enable us meet current potential liquidity requirements parent company group inc subsidiaries modeled liquidity outflow incorporates consolidated requirement firm well standalone requirement major brokerdealer bank subsidiaries liquidity held directly major subsidiaries intended use subsidiary meet liquidity requirements assumed available group inc unless legally provided ii additional regulatory tax restrictions addition modeled liquidity outflow incorporates broader assessment standalone liquidity requirements subsidiaries hold portion gce directly group inc support requirements addition gce maintain operating cash balances several operating entities primarily use specific currencies entities jurisdictions immediate access parent company liquidity addition gce significant amount unencumbered cash financial instruments including government obligations highgrade money market securities corporate obligations marginable equities loans cash deposits included gce fair value assets averaged 9077 billion 2013 8709 billion 2012 consider assets liquid enough eligible gce liquidity pool therefore conservatively assume generate liquidity assets modeled liquidity outflow goldman sachs group inc subsidiaries management’s discussion analysis modeled liquidity outflow modeled liquidity outflow based conducting multiple scenarios include combinations marketwide firmspecific stress scenarios characterized following qualitative elements  severely challenged market environments including low consumer corporate confidence financial political instability adverse changes market values including potential declines equity markets widening credit spreads  firmspecific crisis potentially triggered material losses reputational damage litigation executive departure andor ratings downgrade following critical modeling parameters modeled liquidity outflow  liquidity needs 30day scenario  twonotch downgrade firm’s longterm senior unsecured credit ratings  combination contractual outflows upcoming maturities unsecured debt contingent outflows eg actions though contractually required may deem necessary crisis assume contingent outflows occur within initial days weeks crisis  issuance equity unsecured debt  support government funding facilities although access various central bank funding programs assume reliance source funding liquidity crisis  assume asset liquidation gce modeled liquidity outflow calculated reported senior management daily basis regularly refine model reflect changes market economic conditions firm’s business mix potential contractual contingent cash collateral outflows covered modeled liquidity outflow include unsecured funding  contractual upcoming maturities unsecured longterm debt commercial paper promissory notes unsecured funding products assume unable issue new unsecured debt roll maturing debt  contingent repurchases outstanding longterm debt commercial paper hybrid financial instruments ordinary course business market maker deposits  contractual upcoming maturities term deposits assume unable raise new term deposits rollover maturing term deposits  contingent withdrawals bank deposits contractual maturity withdrawal assumptions reflect among factors type deposit whether deposit insured uninsured firm’s relationship depositor secured funding  contractual portion upcoming contractual maturities secured funding due either inability refinance ability refinance wider haircuts ie terms require us post additional collateral assumptions reflect among factors quality underlying collateral counterparty roll probabilities assessment counterparty’s likelihood continuing provide funding secured basis maturity trade counterparty concentration  contingent adverse changes value financial assets pledged collateral financing transactions would necessitate additional collateral postings transactions otc derivatives  contingent collateral postings counterparties due adverse changes value otc derivatives excluding cleared settled central counterparties otccleared  contingent outflows cash collateral related otc derivatives excluding otccleared including impact trade terminations collateral substitutions collateral disputes loss rehypothecation rights collateral calls termination payments required twonotch downgrade credit ratings collateral called counterparties available goldman sachs group inc subsidiaries management’s discussion analysis exchangetraded otccleared derivatives  contingent variation margin postings required due adverse changes value outstanding exchangetraded otccleared derivatives  contingent increase initial margin guaranty fund requirements derivative clearing houses customer cash securities  contingent liquidity outflows associated prime brokerage business including withdrawals customer credit balances reduction customer short positions serve funding source long positions unfunded commitments  contingent draws unfunded commitments draw assumptions reflect among things type commitment counterparty  upcoming large cash outflows tax payments assetliability management liquidity risk management policies designed ensure sufficient amount financing even funding markets experience persistent stress seek maintain longdated diversified funding profile taking consideration characteristics liquidity profile assets approach assetliability management includes  conservatively managing overall characteristics funding book focus maintaining longterm diversified sources funding excess current requirements see “balance sheet funding sources funding sources” additional details  actively managing monitoring asset base particular focus liquidity holding period ability fund assets secured basis enables us determine appropriate funding products tenors see “balance sheet funding sources balance sheet management” detail balance sheet management process “ funding sources secured funding” detail asset classes may harder fund secured basis  raising secured unsecured financing long tenor relative liquidity profile assets reduces risk liabilities come due advance ability generate liquidity sale assets maintain highly liquid balance sheet holding period certain assets may materially shorter contractual maturity dates goal ensure firm maintains sufficient liquidity fund assets meet contractual contingent obligations normal times well periods market stress dynamic balance sheet management process see “balance sheet funding sources balance sheet management” use actual projected asset balances determine secured unsecured funding requirements funding plans reviewed approved firmwide finance committee quarterly basis addition senior managers independent control support functions regularly analyze firmwide finance committee reviews consolidated total capital position unsecured longterm borrowings plus total shareholders’ equity maintain level longterm funding sufficient meet longterm financing requirements liquidity crisis would first use gce order avoid reliance asset sales gce however recognize orderly asset sales may prudent necessary severe persistent liquidity crisis subsidiary funding policies majority unsecured funding raised group inc lends necessary funds subsidiaries regulated meet asset financing liquidity capital requirements addition group inc provides regulated subsidiaries necessary capital meet regulatory requirements key benefit approach subsidiary funding greater flexibility meet funding requirements various subsidiaries time funding also raised subsidiary level variety products including secured funding unsecured borrowings deposits goldman sachs group inc subsidiaries management’s discussion analysis intercompany funding policies assume unless legally provided subsidiary’s funds securities freely available parent company subsidiaries particular many subsidiaries subject laws authorize regulatory bodies block reduce flow funds subsidiaries group inc regulatory action kind could impede access funds group inc needs make payments obligations accordingly assume capital provided regulated subsidiaries available group inc subsidiaries financing provided regulated subsidiaries available maturity financing group inc provided substantial amounts equity subordinated indebtedness directly indirectly regulated subsidiaries example december 2013 group inc 3140 billion equity subordinated indebtedness invested gsco principal us registered brokerdealer 2640 billion invested gsi regulated uk brokerdealer 226 billion invested gsec us registered brokerdealer 282 billion invested gsjcl regulated japanese brokerdealer 2004 billion invested gs bank usa regulated new york statechartered bank 350 billion invested gsib regulated uk bank group inc also provided directly indirectly 7577 billion unsubordinated loans 993 billion collateral entities substantially gsco gsi gs bank usa december 2013 addition december 2013 group inc significant amounts capital invested loans regulated subsidiaries contingency funding plan goldman sachs contingency funding plan sets plan action would use fund business activity crisis situations periods market stress contingency funding plan outlines list potential risk factors key reports metrics reviewed ongoing basis assist assessing severity managing liquidity crisis andor market dislocation contingency funding plan also describes detail firm’s potential responses assessments indicate firm entered liquidity crisis include funding potential cash collateral needs well utilizing secondary sources liquidity mitigants action items address specific risks may arise also described assigned individuals responsible execution contingency funding plan identifies key groups individuals foster effective coordination control distribution information critical management crisis period market stress contingency funding plan also details responsibilities groups individuals include making disseminating key decisions coordinating contingency activities throughout duration crisis period market stress implementing liquidity maintenance activities managing internal external communication proposed liquidity framework basel committee banking supervision’s international framework liquidity risk measurement standards monitoring calls imposition liquidity coverage ratio designed ensure banks bank holding companies maintain adequate level unencumbered highquality liquid assets based expected cash outflows acute liquidity stress scenario net stable funding ratio designed promote medium longterm funding assets activities entities oneyear time horizon basel committee framework liquidity coverage ratio would introduced january 1 2015 however would phasein period whereby firms would 60 minimum 2015 would raised 10 per year reaches 100 2019 net stable funding ratio expected introduced requirement january 1 2018 addition office comptroller currency federal reserve board fdic issued proposal minimum liquidity standards generally consistent basel committee’s framework described certain modifications highquality liquid asset definition expected cash outflow assumptions accelerated transition provisions addition proposed accelerated transition timeline liquidity coverage ratio would introduced january 1 2015 however would accelerated us phasein period whereby firms would 80 minimum 2015 would raised 10 per year reaches 100 2017 firm continue evaluate impact risk management framework going forward principles behind new frameworks proposed basel committee agencies broadly consistent current liquidity management framework possible implementation standards could impact liquidity funding requirements practices goldman sachs group inc subsidiaries management’s discussion analysis credit ratings rely shortterm longterm debt capital markets fund significant portion daytoday operations cost availability debt financing influenced credit ratings credit ratings also important competing certain markets otc derivatives seek engage longerterm transactions see “certain risk factors may affect businesses” “risk factors” part item 1a 2013 form 10k discussion risks associated reduction credit ratings fourth quarter 2013 part reassessment government support assumptions related eight largest us bank holding companies moody’s investors service moody’s lowered group inc’s ratings longterm debt a3 baa1 subordinated debt baa1 baa2 table presents unsecured credit ratings outlook group inc 1 trust preferred securities issued goldman sachs capital 2 includes senior guaranteed trust securities issued murray street investment trust vesey street investment trust 3 includes group inc’s noncumulative preferred stock apex issued goldman sachs capital ii goldman sachs capital iii table presents unsecured credit ratings gs bank usa gsco gsi gsib february 21 2014 moody’s assigned gsib rating a2 longterm debt longterm bank deposits p1 shortterm debt shortterm bank deposits goldman sachs group inc subsidiaries management’s discussion analysis believe credit ratings primarily based credit rating agencies’ assessment  liquidity market credit operational risk management practices  level variability earnings  capital base  franchise reputation management  corporate governance  external operating environment including assumed level government support certain firm’s derivatives transacted bilateral agreements counterparties may require us post collateral terminate transactions based changes credit ratings assess impact bilateral agreements determining collateral termination payments would occur assuming downgrade rating agencies downgrade one rating agency depending agency’s relative ratings firm time downgrade may impact comparable impact downgrade rating agencies allocate portion gce ensure would able make additional collateral termination payments may required event twonotch reduction longterm credit ratings well collateral called counterparties available table presents additional collateral termination payments related net derivative liabilities bilateral agreements could called reporting date counterparties event onenotch twonotch downgrade credit ratings cash flows global financial institution cash flows complex bear little relation net earnings net assets consequently believe traditional cash flow analysis less meaningful evaluating liquidity position excess liquidity assetliability management policies described cash flow analysis may however helpful highlighting certain macro trends strategic initiatives businesses year ended december 2013 cash equivalents decreased 1154 billion 6113 billion end 2013 generated 454 billion net cash operating activities used net cash 1608 billion investing financing activities primarily fund loans held investment repurchases common stock year ended december 2012 cash equivalents increased 1666 billion 7267 billion end 2012 generated 914 billion net cash operating investing activities generated 752 billion net cash financing activities increase bank deposits partially offset net repayments unsecured secured longterm borrowings year ended december 2011 cash equivalents increased 1622 billion 5601 billion end 2011 generated 2313 billion net cash operating investing activities used net cash 691 billion financing activities primarily repurchases series g preferred stock common stock partially offset increase bank deposits goldman sachs group inc subsidiaries management’s discussion analysis market risk management overview market risk loss value inventory well certain financial assets financial liabilities due changes market conditions firm employs variety risk measures described respective sections monitor market risk hold inventory primarily market making clients investing lending activities inventory therefore changes based client demands investment opportunities inventory accounted fair value therefore fluctuates daily basis related gains losses included “market making” “other principal transactions” categories market risk include following  interest rate risk results exposures changes level slope curvature yield curves volatilities interest rates mortgage prepayment speeds credit spreads  equity price risk results exposures changes prices volatilities individual equities baskets equities equity indices  currency rate risk results exposures changes spot prices forward prices volatilities currency rates  commodity price risk results exposures changes spot prices forward prices volatilities commodities crude oil petroleum products natural gas electricity precious base metals market risk management process manage market risk diversifying exposures controlling position sizes establishing economic hedges related securities derivatives includes  accurate timely exposure information incorporating multiple risk metrics  dynamic limit setting framework  constant communication among revenueproducing units risk managers senior management market risk management independent revenueproducing units reports firm’s chief risk officer primary responsibility assessing monitoring managing market risk firm monitor control risks strong firmwide oversight independent control support functions across firm’s global businesses managers revenueproducing units accountable managing risk within prescribed limits managers indepth knowledge positions markets instruments available hedge exposures managers revenueproducing units market risk management discuss market information positions estimated risk loss scenarios ongoing basis risk measures market risk management produces risk measures monitors market risk limits set firm’s risk committees measures reflect extensive range scenarios results aggregated trading desk business firmwide levels use variety risk measures estimate size potential losses moderate extreme market moves shortterm longterm time horizons primary risk measures var used shorterterm periods stress tests risk reports detail key risks drivers changes desk business distributed daily senior management revenueproducing units independent control support functions valueatrisk var potential loss value due adverse market movements defined time horizon specified confidence level positions included var see “ financial statement linkages market risk measures” typically employ oneday time horizon 95 confidence level use single var model captures risks including interest rates equity prices currency rates commodity prices var facilitates comparison across portfolios different risk characteristics var also captures diversification aggregated risk firmwide level goldman sachs group inc subsidiaries management’s discussion analysis aware inherent limitations var therefore use variety risk measures market risk management process inherent limitations var include  var estimate potential losses longer time horizons moves may extreme  var take account relative liquidity different risk positions  previous moves market risk factors may produce accurate predictions future market moves calculating var use historical simulations full valuation approximately 70000 market factors var calculated position level based simultaneously shocking relevant market risk factors position sample 5 years historical data generate scenarios var calculation historical data weighted relative importance data reduces time gives greater importance recent observations reflects current asset volatilities improves accuracy estimates potential loss result even positions included var unchanged var would increase increasing market volatility vice versa given reliance historical data var effective estimating risk exposures markets sudden fundamental changes shifts market conditions var measure include  positions best measured monitored using sensitivity measures  impact changes counterparty credit spreads derivatives well changes credit spreads unsecured borrowings fair value option elected stress testing stress testing method determining effect firm various hypothetical stress scenarios use stress testing examine risks specific portfolios well potential impact significant risk exposures across firm use variety stress testing techniques calculate potential loss wide range market moves firm’s portfolios including sensitivity analysis scenario analysis firmwide stress tests results various stress tests analyzed together risk management purposes sensitivity analysis used quantify impact market move single risk factor across positions eg equity prices credit spreads using variety defined market shocks ranging could expected oneday time horizon could take many months occur also use sensitivity analysis quantify impact default single corporate entity captures risk large concentrated exposures scenario analysis used quantify impact specified event including event impacts multiple risk factors simultaneously example sovereign stress testing calculate potential direct exposure associated sovereign inventory well corresponding debt equity currency exposures associated nonsovereign inventory may impacted sovereign distress conducting scenario analysis typically consider number possible outcomes scenario ranging moderate severely adverse market impacts addition stress tests constructed using historical events forwardlooking hypothetical scenarios firmwide stress testing combines market credit operational liquidity risks single combined scenario firmwide stress tests primarily used assess capital adequacy part capital planning stress testing process however also ensure firmwide stress testing integrated risk governance framework includes selecting appropriate scenarios use capital planning stress testing process see “equity capital planning stress testing process” information goldman sachs group inc subsidiaries management’s discussion analysis unlike var measures implied probability calculated specified confidence level generally implied probability stress test scenarios occur instead stress tests used model moderate extreme moves underlying market factors estimating potential loss generally assume positions cannot reduced hedged although experience demonstrates generally able stress test scenarios conducted regular basis part firm’s routine risk management process ad hoc basis response market events concerns stress testing important part firm’s risk management process allows us quantify exposure tail risks highlight potential loss concentrations undertake riskreward analysis assess mitigate risk positions limits use risk limits various levels firm including firmwide product business govern risk appetite controlling size exposures market risk limits set based var range stress tests relevant firm’s exposures limits reviewed frequently amended permanent temporary basis reflect changing market conditions business conditions tolerance risk firmwide risk committee sets market risk limits firmwide product levels securities division risk committee sets sublimits marketmaking investing activities business level purpose firmwide limits assist senior management controlling firm’s overall risk profile sublimits set desired maximum amount exposure may managed particular business daytoday basis without additional levels senior management approval effectively leaving daytoday trading decisions individual desk managers traders accordingly sublimits management tool designed ensure appropriate escalation rather establish maximum risk tolerance sublimits also distribute risk among various businesses manner consistent level activity client demand taking account relative performance area market risk limits monitored daily market risk management responsible identifying escalating timely basis instances limits exceeded businesslevel limits set securities division risk committee subject scrutiny limit escalation policy firmwide limits risk limit exceeded eg due changes market conditions increased volatilities changes correlations reported appropriate risk committee discussion takes place relevant desk managers either risk position reduced risk limit temporarily permanently increased model review validation var stress testing models subject review validation independent model validation group least annually review includes  critical evaluation model theoretical soundness adequacy intended use  verification testing strategy utilized model developers ensure model functions intended  verification suitability calculation techniques incorporated model var stress testing models regularly reviewed enhanced order incorporate changes composition positions included firm’s market risk measures well variations market conditions prior implementing significant changes assumptions andor models perform model validation test runs significant changes var stress testing models reviewed firm’s chief risk officer chief financial officer approved firmwide risk committee evaluate accuracy var model daily backtesting ie comparing daily trading net revenues var measure calculated prior business day firmwide level businesses major regulated subsidiaries goldman sachs group inc subsidiaries management’s discussion analysis systems made significant investment technology monitor market risk including  independent calculation var stress measures  risk measures calculated individual position levels  attribution risk measures individual risk factors position  ability report many different views risk measures eg desk business product type legal entity  ability produce ad hoc analyses timely manner metrics analyze var firmwide level variety detailed levels including risk category business region tables present risk category average daily var periodend var well high low var period diversification effect tables represents difference total var sum vars four risk categories effect arises four market risk categories perfectly correlated average daily var average daily var decreased 80 million 2013 86 million 2012 primarily reflecting decrease interest rates category principally due lower levels volatility decreased exposures decrease partially offset increase equity prices category principally due increased exposures average daily var decreased 86 million 2012 113 million 2011 reflecting decrease interest rates category due lower levels volatility decreases commodity prices currency rates categories due reduced exposures lower levels volatility decrease equity prices category due reduced exposures decreases partially offset decrease diversification benefit across risk categories yearend var high low var 1 reflects impact temporarily increased exposures result equity underwriting transactions daily var increased 85 million december 2013 71 million december 2012 primarily reflecting increases equity prices currency rates categories principally due increased exposures increases partially offset decrease interest rates category primarily due decreased exposures 2013 2012 firmwide var risk limit exceeded year reduced one occasion due lower levels volatility goldman sachs group inc subsidiaries management’s discussion analysis chart reflects var last four quarters daily trading net revenues compared var calculated end prior business day trading losses incurred single day exceed 95 oneday var 2013 2012 ie var exception periods firm significantly positive net revenue days net revenue loss days expect fewer var exceptions normal conditions business model generally produces positive net revenues periods franchise revenues adversely affected generally loss days resulting var exceptions addition var backtesting performed total daily marketmaking revenues including bidoffer net revenues likely positive nature chart presents frequency distribution daily trading net revenues substantially positions included var 2013 goldman sachs group inc subsidiaries management’s discussion analysis sensitivity measures certain portfolios individual positions included var appropriate risk measure sensitivity measures use analyze market risk described 10 sensitivity measures table presents market risk inventory positions included var market risk positions determined estimating potential reduction net revenues 10 decline underlying asset value equity positions relate private restricted public equity securities including interests funds invest corporate equities real estate interests hedge funds included “financial instruments owned fair value” debt positions include interests funds invest corporate mezzanine senior debt instruments loans backed commercial residential real estate corporate bank loans corporate debt including acquired portfolios distressed loans debt positions included “financial instruments owned fair value” see note 6 consolidated financial statements part ii item 8 2013 form 10k information cash instruments measures reflect diversification benefits across asset categories across market risk measures 1 december 2012 includes 208 million related investment ordinary shares icbc sold first half 2013 credit spread sensitivity derivatives borrowings var excludes impact changes counterparty credit spreads derivatives well changes credit spreads unsecured borrowings fair value option elected estimated sensitivity one basis point increase credit spreads counterparty derivatives gain 4 million 3 million including hedges december 2013 december 2012 respectively addition estimated sensitivity one basis point increase credit spreads unsecured borrowings fair value option elected gain 8 million 7 million including hedges december 2013 december 2012 respectively however actual net impact change credit spreads also affected liquidity duration convexity sensitivity linear changes yields unsecured borrowings fair value option elected well relative performance hedges undertaken interest rate sensitivity december 2013 december 2012 firm 1490 billion 650 billion respectively loans held investment accounted amortized cost included “receivables customers counterparties” substantially floating interest rates december 2013 december 2012 estimated sensitivity 100 basis point increase interest rates loans 136 million 62 million respectively additional interest income 12month period take account potential impact increase costs fund loans see note 8 consolidated financial statements part ii item 8 2013 form 10k information loans held investment goldman sachs group inc subsidiaries management’s discussion analysis financial statement linkages market risk measures firm employs variety risk measures described respective sections monitor market risk across consolidated statements financial condition consolidated statements earnings related gains losses positions included “market making” “other principal transactions” “interest income” “interest expense” table presents certain categories consolidated statement financial condition market risk measures used assess assets liabilities certain categories consolidated statement financial condition incorporated one risk measure categories consolidated statement financial condition included market risk measure market risk measure securities segregated regulatory purposes fair value  var collateralized agreements  securities purchased agreements resell fair value  securities borrowed fair value  var receivables customers counterparties  certain secured loans fair value  var  loans held investment amortized cost  interest rate sensitivity financial instruments owned fair value  var  10 sensitivity measures  credit spread sensitivity derivatives collateralized financings  securities sold agreements repurchase fair value  securities loaned fair value  secured financings fair value  var financial instruments sold yet purchased fair value  var  credit spread sensitivity derivatives unsecured shortterm borrowings unsecured longterm borrowings fair value  var  credit spread sensitivity borrowings market risk considerations addition december 2013 december 2012 commitments held loans obtained credit loss protection sumitomo mitsui financial group inc see note 18 consolidated financial statements part ii item 8 2013 form 10k information lending commitments additionally make investments accounted equity method also make direct investments real estate included “other assets” consolidated statements financial condition direct investments real estate accounted cost less accumulated depreciation see note 12 consolidated financial statements part ii item 8 2013 form 10k information “other assets” goldman sachs group inc subsidiaries management’s discussion analysis credit risk management overview credit risk represents potential loss due default deterioration credit quality counterparty eg otc derivatives counterparty borrower issuer securities instruments hold exposure credit risk comes mostly client transactions otc derivatives loans lending commitments credit risk also comes cash placed banks securities financing transactions ie resale repurchase agreements securities borrowing lending activities receivables brokers dealers clearing organizations customers counterparties credit risk management independent revenueproducing units reports firm’s chief risk officer primary responsibility assessing monitoring managing credit risk firm credit policy committee firmwide risk committee establish review credit policies parameters addition hold positions give rise credit risk eg bonds held inventory secondary bank loans credit risks captured component market risk measures monitored managed market risk management consistent inventory positions firm also enters derivatives manage market risk exposures derivatives also give rise credit risk monitored managed credit risk management policies authorized firmwide risk committee credit policy committee prescribe level formal approval required firm assume credit exposure counterparty across product areas taking account applicable netting provisions collateral credit risk mitigants credit risk management process effective management credit risk requires accurate timely information high level communication knowledge customers countries industries products process managing credit risk includes  approving transactions setting communicating credit exposure limits  monitoring compliance established credit exposure limits  assessing likelihood counterparty default payment obligations  measuring firm’s current potential credit exposure losses resulting counterparty default  reporting credit exposures senior management board regulators  use credit risk mitigants including collateral hedging  communication collaboration independent control support functions operations legal compliance part risk assessment process credit risk management performs credit reviews include initial ongoing analyses counterparties credit review independent judgment capacity willingness counterparty meet financial obligations substantially credit exposures core process annual counterparty review counterparty review written analysis counterparty’s business profile financial strength resulting internal credit rating represents probability default financial obligations firm determination internal credit ratings incorporates assumptions respect counterparty’s future business performance nature outlook counterparty’s industry economic environment senior personnel within credit risk management expertise specific industries inspect approve credit reviews internal credit ratings global credit risk management systems capture credit exposure individual counterparties aggregate basis counterparties subsidiaries economic groups systems also provide management comprehensive information aggregate credit risk product internal credit rating industry country region goldman sachs group inc subsidiaries management’s discussion analysis risk measures limits measure credit risk based potential loss event nonpayment counterparty derivatives securities financing transactions primary measure potential exposure estimate future exposure could arise life transaction based market movements within specified confidence level potential exposure takes account netting collateral arrangements loans lending commitments primary measure function notional amount position also monitor credit risk terms current exposure amount presently owed firm taking account applicable netting collateral use credit limits various levels counterparty economic group industry country control size credit exposures limits counterparties economic groups reviewed regularly revised reflect changing appetites given counterparty group counterparties limits industries countries based firm’s risk tolerance designed allow regular monitoring review escalation management credit risk concentrations stress testsscenario analysis use regular stress tests calculate credit exposures including potential concentrations would result applying shocks counterparty credit ratings credit risk factors eg currency rates interest rates equity prices shocks include wide range moderate extreme market movements stress tests include shocks multiple risk factors consistent occurrence severe market economic event case sovereign default estimate direct impact default sovereign credit exposures changes credit exposures arising potential market moves response default impact credit market deterioration corporate borrowers counterparties may result sovereign default unlike potential exposure calculated within specified confidence level stress test generally assumed probability events occurring run stress tests regular basis part routine risk management processes conduct tailored stress tests ad hoc basis response market developments stress tests regularly conducted jointly firm’s market liquidity risk functions risk mitigants reduce credit exposures derivatives securities financing transactions may enter netting agreements counterparties permit us offset receivables payables counterparties may also reduce credit risk counterparties entering agreements enable us obtain collateral upfront contingent basis andor terminate transactions counterparty’s credit rating falls specified level monitor fair value collateral daily basis ensure credit exposures appropriately collateralized seek minimize exposures significant positive correlation creditworthiness counterparties market value collateral receive loans lending commitments depending credit quality borrower characteristics transaction employ variety potential risk mitigants risk mitigants include collateral provisions guarantees covenants structural seniority bank loan claims certain lending commitments provisions legal documentation allow firm adjust loan amounts pricing structure terms market conditions change type structure risk mitigants employed significantly influence degree credit risk involved loan sufficient visibility counterparty’s financial strength believe counterparty requires support parent company may obtain thirdparty guarantees counterparty’s obligations may also mitigate credit risk using credit derivatives participation agreements credit exposures december 2013 credit exposures decreased compared december 2012 primarily reflecting decreases otc derivatives cash securities financing exposures partially offset increase loans lending commitments percentage credit exposure arising noninvestmentgrade counterparties based internally determined public rating agency equivalents increased december 2012 primarily reflecting increase loans lending commitments 2013 counterparty defaults primarily occurred within otc derivatives loans lending commitments number counterparty defaults 2013 remained low less 05 counterparties counterparty defaults higher 2013 approximately 10 additional defaults compared 2012 primarily related otc derivatives estimated losses associated defaults higher compared prior year material firm goldman sachs group inc subsidiaries management’s discussion analysis firm’s credit exposures described cash equivalents cash equivalents include interestbearing noninterestbearing deposits mitigate risk credit loss place substantially deposits highlyrated banks central banks otc derivatives firm’s credit exposure otc derivatives arises primarily marketmaking activities firm market maker enters derivative transactions provide liquidity clients facilitate transfer hedging risks firm also enters derivatives manage market risk exposures manage credit exposure otc derivatives using credit risk process measures limits risk mitigants described derivatives reported netbycounterparty basis ie net payable receivable derivative assets liabilities given counterparty legal right setoff exists enforceable netting agreement derivatives accounted fair value net cash collateral received posted enforceable credit support agreements generally enter otc derivatives transactions bilateral collateral arrangements daily exchange collateral credit risk essential component fair value firm includes credit valuation adjustment cva fair value derivatives reflect counterparty credit risk described note 7 consolidated financial statements part ii item 8 2013 form 10k cva function present value expected exposure probability counterparty default assumed recovery upon default tables present distribution exposure otc derivatives tenor based expected duration mortgagerelated credit derivatives generally remaining contractual maturity derivatives effect collateral netting agreements receivable payable balances counterparty across tenor categories netted enforceable netting agreements cash collateral received netted enforceable credit support agreements receivable payable balances counterparty tenor category netted within tenor category net credit exposure tables represents otc derivative assets included “financial instruments owned fair value” less cash collateral fair value securities collateral primarily us government federal agency obligations nonus government agency obligations received credit support agreements management considers determining credit risk collateral eligible netting us gaap categories shown reflect internally determined public rating agency equivalents goldman sachs group inc subsidiaries management’s discussion analysis lending financing activities manage firm’s lending financing activities using credit risk process measures limits risk mitigants described lending positions including secondary trading positions riskmanaged component market risk  lending activities firm’s lending activities include lending investmentgrade noninvestmentgrade corporate borrowers loans lending commitments associated activities principally used operating liquidity general corporate purposes connection contingent acquisitions firm’s lending activities also include extending loans borrowers secured commercial real estate see tables information credit exposures associated lending activities  securities financing transactions firm enters securities financing transactions order among things facilitate client activities invest excess cash acquire securities cover short positions finance certain firm activities firm bears credit risk related resale agreements securities borrowed extent cash advanced value securities pledged delivered counterparty exceeds value collateral received firm also credit exposure repurchase agreements securities loaned extent value securities pledged delivered counterparty transactions exceeds amount cash collateral received securities collateral obtained securities financing transactions primarily includes us government federal agency obligations nonus government agency obligations manage credit risk securities financing transactions using credit risk process measures limits risk mitigants described approximately 29 billion 37 billion december 2013 december 2012 respectively credit exposure related securities financing transactions reflecting netting agreements collateral management considers determining credit risk  credit exposures firm exposed credit risk receivables brokers dealers clearing organizations customers counterparties receivables brokers dealers clearing organizations primarily comprised initial cash margin placed clearing organizations receivables related sales securities traded yet settled receivables generally minimal credit risk due low probability clearing organization default shortterm nature receivables related securities settlements receivables customers counterparties generally comprised collateralized receivables related customer securities transactions generally minimal credit risk due value collateral received shortterm nature receivables net credit exposure related activities approximately 18 billion december 2013 december 2012 primarily comprised initial margin cash securities placed clearing organizations addition firm extends loans lending commitments private wealth clients generally longerterm nature primarily secured residential real estate assets gross exposure related loans lending commitments approximately 11 billion 7 billion december 2013 december 2012 respectively fair value collateral received loans lending commitments exceeded gross exposure december 2013 december 2012 credit exposure industry region credit quality tables present firm’s credit exposures related cash otc derivatives loans lending commitments excluding securities financing transactions credit exposures broken industry region credit quality goldman sachs group inc subsidiaries management’s discussion analysis credit exposure industry credit exposure region credit exposure credit quality 1 includes approximately 23 billion 12 billion loans december 2013 december 2012 respectively approximately 82 billion 71 billion lending commitments december 2013 december 2012 respectively excludes certain loans related lending commitments riskmanaged part market risk using var sensitivity measures goldman sachs group inc subsidiaries management’s discussion analysis selected country exposures continuing concerns european sovereign debt risk impact european banking system number european member states experienced significant credit deterioration pronounced market concerns relate greece ireland italy portugal spain tables present credit exposure gross net hedges sovereigns financial institutions corporate counterparties borrowers countries credit exposure represents potential loss due default deterioration credit quality counterparty borrower addition tables include market exposure long short inventory issuer underlier located countries market exposure represents potential loss value inventory due changes market prices overlap credit market exposures tables country risk determined location counterparty issuer underlier’s assets generate revenue country headquartered andor government whose policies affect ability repay obligations 1 principally consists loans collateralized cash securities real estate 2 includes benefit 44 billion cash us treasury securities collateral excludes nonus government agency obligations corporate securities collateral 254 million 3 includes written purchased credit derivative notionals reduced fair values credit derivatives goldman sachs group inc subsidiaries management’s discussion analysis 1 principally consists loans fair value collateral exceeds carrying value loans 2 includes benefit 66 billion cash us treasury securities collateral excludes nonus government agency obligations corporate securities collateral 357 million 3 includes written purchased credit derivative notionals reduced fair values credit derivatives economically hedge exposure written credit derivatives entering offsetting purchased credit derivatives identical underlyings possible endeavor match tenor credit default terms hedges written credit derivatives substantially purchased credit derivatives included bought investmentgrade counterparties domiciled outside countries collateralized cash us treasury securities german government agency obligations gross purchased written credit derivative notionals across countries singlename index credit default swaps included ‘hedges’ ‘credit derivatives’ tables 1546 billion 1482 billion respectively december 2013 1794 billion 1686 billion respectively december 2012 including netting legally enforceable netting agreements within across countries purchased written credit derivative notionals singlename index credit default swaps 223 billion 158 billion respectively december 2013 260 billion 153 billion respectively december 2012 notionals representative exposure exclude available netting legally enforceable netting agreements derivatives outside countries collateral received posted credit support agreements credit exposure ‘other’ principally consists deposits secured lending transactions secured receivables net applicable collateral december 2013 december 2012 119 billion 48 billion respectively secured lending transactions secured receivables fully collateralized information nature payout trigger events related written purchased credit protection contracts see note 7 consolidated financial statements part ii item 8 2013 form 10k goldman sachs group inc subsidiaries management’s discussion analysis supplement regular stress tests conduct tailored stress tests ad hoc basis response specific market events deem significant example response euro area debt crisis conducted stress tests intended estimate direct indirect impact might result variety possible events involving certain european member states including sovereign defaults exit one countries euro area stress tests described “market risk management stress testing” “credit risk management stress testsscenario analysis” estimated direct impact event credit market exposures resulting shocks risk factors including limited currency rates interest rates equity prices parameters shocks varied based scenario reflected stress test also estimated indirect impact exposures arising potential market moves response event impact credit market deterioration corporate borrowers counterparties along shocks risk factors described reviewed estimated losses produced stress tests order understand magnitude highlight potential loss concentrations assess mitigate exposures necessary euro area exit scenarios included analysis impacts exposure might result redenomination assets exiting country countries also tested operational risk management readiness capability respond redenomination event constructing stress tests scenarios requires many assumptions exposures might directly impacted resulting secondary market moves would indirectly impact exposures given multiple parameters involved scenarios losses events inherently difficult quantify may materially differ estimates see “liquidity risk management modeled liquidity outflow” “market risk management stress testing” “credit risk management stress testsscenario analysis” discussion goldman sachs group inc subsidiaries management’s discussion analysis operational risk management overview operational risk loss resulting inadequate failed internal processes people systems external events exposure operational risk arises routine processing errors well extraordinary incidents major systems failures potential types loss events related internal external operational risk include  clients products business practices  execution delivery process management  business disruption system failures  employment practices workplace safety  damage physical assets  internal fraud  external fraud maintain comprehensive control framework designed provide wellcontrolled environment minimize operational risks firmwide operational risk committee along support regional entityspecific working groups committees provides oversight ongoing development implementation operational risk policies framework operational risk management risk management function independent revenueproducing units reports firm’s chief risk officer responsible developing implementing policies methodologies formalized framework operational risk management goal minimizing exposure operational risk operational risk management process managing operational risk requires timely accurate information well strong control culture seek manage operational risk  training supervision development people  active participation senior management identifying mitigating key operational risks across firm  independent control support functions monitor operational risk daily basis implementation extensive policies procedures controls designed prevent occurrence operational risk events  proactive communication revenueproducing units independent control support functions  network systems throughout firm facilitate collection data used analyze assess operational risk exposure combine topdown bottomup approaches manage measure operational risk topdown perspective firm’s senior management assesses firmwide business level operational risk profiles bottomup perspective revenueproducing units independent control support functions responsible risk management daytoday basis including identifying mitigating escalating operational risks senior management operational risk framework part designed comply operational risk measurement rules basel ii evolved based changing needs businesses regulatory guidance framework comprises following practices  risk identification reporting  risk measurement  risk monitoring internal audit performs independent review operational risk framework including key controls processes applications annual basis assess effectiveness framework goldman sachs group inc subsidiaries management’s discussion analysis risk identification reporting core operational risk management framework risk identification reporting comprehensive data collection process including firmwide policies procedures operational risk events established policies require managers revenueproducing units independent control support functions escalate operational risk events operational risk events identified policies require events documented analyzed determine whether changes required systems andor processes mitigate risk future events addition firmwide systems capture internal operational risk event data key metrics transaction volumes statistical information performance trends use internallydeveloped operational risk management application aggregate organize information managers revenueproducing units independent control support functions analyze information evaluate operational risk exposures identify businesses activities products heightened levels operational risk also provide periodic operational risk reports senior management risk committees board risk measurement measure operational risk exposure twelvemonth time horizon using statistical modeling scenario analyses involve qualitative assessments potential frequency extent potential operational risk losses businesses operational risk measurement incorporates qualitative quantitative assessments factors including  internal external operational risk event data  assessments internal controls  evaluations complexity business activities  degree potential automation processes  new product information  legal regulatory environment  changes markets products services including diversity sophistication customers counterparties  liquidity capital markets reliability infrastructure supports capital markets results scenario analyses used monitor changes operational risk determine business lines may heightened exposure operational risk analyses ultimately used determination appropriate level operational risk capital hold risk monitoring evaluate changes operational risk profile businesses including changes business mix jurisdictions operate monitoring factors noted firmwide level detective preventive internal controls designed reduce frequency severity operational risk losses probability operational risk events monitor results assessments independent internal audits internal controls certain risk factors may affect businesses face variety risks substantial inherent businesses including market liquidity credit operational legal regulatory reputational risks discussion management seeks manage risks see “overview structure risk management” summary important factors could affect businesses follows discussion important factors could affect businesses financial condition results operations cash flows liquidity see “risk factors” part item 1a 2013 form 10k  businesses may continue adversely affected conditions global financial markets economic conditions generally  businesses may adversely affected declining asset values particularly true businesses net “long” positions receive fees based value assets managed receive post collateral  businesses may adversely affected disruptions credit markets including reduced access credit higher costs obtaining credit  marketmaking activities may affected changes levels market volatility  investment banking client execution investment management businesses adversely affected may continue adversely affected market uncertainty lack confidence among investors ceos due general declines economic activity unfavorable economic geopolitical market conditions goldman sachs group inc subsidiaries management’s discussion analysis  investment management business may affected poor investment performance investment products  may incur losses result ineffective risk management processes strategies  liquidity profitability businesses may adversely affected inability access debt capital markets sell assets reduction credit ratings increase credit spreads  conflicts interest increasing failure appropriately identify address conflicts interest could adversely affect businesses  group inc holding company dependent liquidity payments subsidiaries many subject restrictions  businesses profitability liquidity may adversely affected deterioration credit quality defaults third parties owe us money securities assets whose securities obligations hold  concentration risk increases potential significant losses marketmaking underwriting investing lending activities  financial services industry highly competitive interrelated  face enhanced risks new business initiatives lead us transact broader array clients counterparties expose us new asset classes new markets  derivative transactions delayed settlements may expose us unexpected risk potential losses  businesses may adversely affected unable hire retain qualified employees  businesses clients subject extensive pervasive regulation around world  may adversely affected increased governmental regulatory scrutiny negative publicity  failure operational systems infrastructure third parties could impair liquidity disrupt businesses result disclosure confidential information damage reputation cause losses  substantial legal liability significant regulatory action us could material adverse financial effects cause us significant reputational harm turn could seriously harm business prospects  growth electronic trading introduction new trading technology may adversely affect business may increase competition  commodities activities particularly physical commodities activities subject us extensive regulation potential catastrophic events environmental reputational risks may expose us significant liabilities costs  conducting businesses around world subject political economic legal operational risks inherent operating many countries  may incur losses result unforeseen catastrophic events including emergence pandemic terrorist attacks extreme weather events natural disasters item 7ananitem 7 management’s discussion analysis financial condition results operations introduction goldman sachs group inc group inc parent company delaware corporation together consolidated subsidiaries leading global investment banking securities investment management firm provides wide range financial services substantial diversified client base includes corporations financial institutions governments individuals founded 1869 headquartered new york maintain offices major financial centers around world use terms “we” “us” “our” mean group inc consolidated subsidiaries report activities four business segments investment banking institutional client services investing lending investment management see “results operations” information business segments references “this form 10k” annual report form 10k year ended december 31 2018 references “the consolidated financial statements” “supplemental financial information” part ii item 8 form 10k references 2018 2017 2016 refer years ended dates context requires december 31 2018 december 31 2017 december 31 2016 respectively reference future year refers year ending december 31 year certain reclassifications made previously reported amounts conform current presentation discussion analysis financial condition results operations included information may constitute “forwardlooking statements” within meaning safe harbor provisions us private securities litigation reform act 1995 forwardlooking statements historical facts instead represent beliefs regarding future events many nature inherently uncertain outside control statements include statements historical information statements current conditions may relate future plans objectives results among things may also include statements effect changes capital leverage liquidity longterm debt total lossabsorbing capacity tlac rules applicable banks bank holding companies bhcs impact us doddfrank wall street reform consumer protection act doddfrank act businesses operations various legal proceedings governmental investigations mortgagerelated contingencies set forth notes 27 18 consolidated financial statements part ii item 8 form 10k well statements results doddfrank act stress tests statements objectives effectiveness business continuity plan information security program risk management liquidity policies statements resolution plan resolution strategy implications debtholders stakeholders statements design effectiveness resolution capital liquidity models triggers alerts framework statements trends growth opportunities businesses statements future status activities reporting us nonus banking financial regulation statements investment banking transaction backlog statements expected tax rate statements estimated impact new accounting standards statements level capital actions statements expected interest income statements credit exposures statements preparations following uk’s notification european council decision leave eu brexit including plan manage hard brexit scenario statements replacement libor ibors objectives program related transition ibors alternative riskfree reference rates statements adequacy allowance credit losses identifying statements manner alerting possibility actual results financial condition may differ possibly materially anticipated results financial condition indicated forwardlooking statements important factors could cause actual results financial condition differ indicated forwardlooking statements include among others described “risk factors” part item 1a form 10k “cautionary statement pursuant us private securities litigation reform act 1995” part item 1 form 10k goldman sachs group inc subsidiaries management’s discussion analysis executive overview 2018 versus 2017 generated net earnings 1046 billion 2018 significantly higher compared 429 billion 2017 diluted earnings per common share 2527 2018 significantly higher compared 901 2017 return average common shareholders’ equity roe 133 2018 compared 49 2017 book value per common share 20736 december 2018 146 higher compared december 2017 2018 recorded 487 million income tax benefit finalized estimated income tax expense 440 billion related tax cuts jobs act tax legislation recorded fourth quarter 2017 excluding items diluted earnings per common share 2402 2018 compared 1976 2017 roe 127 2018 compared 108 2017 see “results operations financial overview” information nongaap measures exclude impact tax legislation see “results operations provision taxes” information tax legislation net revenues 3662 billion 2018 12 higher 2017 reflecting higher net revenues across segments net revenues institutional client services higher due higher net revenues equities fixed income currency commodities client execution ficc client execution net revenues investing lending increased driven significantly higher net interest income debt securities loans net revenues also higher investment management primarily due significantly higher incentive fees investment banking reflecting strong net revenues financial advisory underwriting 2018 provision credit losses 674 million 2018 compared 657 million 2017 higher provision credit losses primarily related consumer loan growth 2018 partially offset impairment approximately 130 million secured loan 2017 operating expenses 2346 billion 2018 12 higher 2017 primarily due higher compensation benefits expenses reflecting improved operating performance significantly higher net provisions litigation regulatory proceedings returned 452 billion capital common shareholders 2018 including 329 billion common share repurchases 123 billion common stock dividends december 2018 common equity tier 1 cet1 ratio calculated accordance standardized approach 133 basel iii advanced approach 131 see note 20 consolidated financial statements information capital ratios 2017 versus 2016 generated net earnings 429 billion 2017 decrease 42 compared 740 billion 2016 diluted earnings per common share 901 2017 decrease 45 compared 1629 2016 roe 49 2017 compared 94 2016 book value per common share 18100 december 2017 08 lower compared december 2016 net revenues 3273 billion 2017 6 higher 2016 due significantly higher net revenues investing lending higher net revenues investment banking investment management increases partially offset lower net revenues institutional client services primarily reflecting significantly lower net revenues ficc client execution provision credit losses 657 million 2017 compared 182 million 2016 reflecting increase impairments included impairment approximately 130 million secured loan 2017 higher provision credit losses primarily related consumer loan growth operating expenses 2094 billion 2017 3 higher 2016 primarily driven slightly higher compensation benefits expenses investments fund growth returned 790 billion capital common shareholders 2017 including 672 billion common share repurchases 118 billion common stock dividends december 2017 cet1 ratio calculated accordance standardized approach 121 basel iii advanced approach 109 case reflecting applicable transitional provisions see note 20 consolidated financial statements information capital ratios goldman sachs group inc subsidiaries management’s discussion analysis business environment global 2018 real gross domestic product gdp growth appeared increase us generally decreased major economies advanced economies growth euro area uk japan lower emerging markets growth china decreased slightly economic activity several major emerging market economies impacted concerns vulnerability economies stronger us dollar higher us treasury rates global asset markets experienced significant periods volatility first fourth quarters 2018 driven concerns prospect slowing global growth tighter monetary policy us presidential administration implemented proposed new tariffs imports china prompted retaliatory measures rising global trade tensions remained meaningful source uncertainty affecting asset prices throughout 2018 political uncertainty europe increased new coalition government formed italy may 2018 future relationship uk eu remained uncertain 2018 us federal reserve increased target federal funds rate four times bank england increased official target interest rate august 2018 bank japan introduced forward guidance expanded permissible range fluctuations 10year interest rate investment banking industrywide announced completed mergers acquisitions volumes increased compared 2017 industrywide underwriting transactions decreased united states us real gdp appeared increase 29 2018 compared 22 2017 growth total fixed investment government spending increased measures consumer confidence stronger average compared prior year unemployment rate declined 39 december 2018 housing starts sales prices increased compared 2017 measures headline inflation stable compared 2017 measures core inflation excluding food energy increased us federal reserve increased target federal funds rate 25 basis points quarter 2018 range 225 250 december 2018 yield 10year us treasury note ended year 269 29 basis points higher compared end 2017 price crude oil wti ended year approximately 45 per barrel decrease 25 compared end 2017 equity markets dow jones industrial average decreased 6 sp 500 index decreased 6 nasdaq composite index decreased 4 compared end 2017 europe euro area real gdp increased 18 2018 compared 24 2017 measures inflation remained low european central bank maintained main refinancing operations rate 0 deposit rate 040 reduced monthly asset purchases pace 15 billion per month september 2018 december 2018 net asset purchases ended measures unemployment decreased euro depreciated 4 us dollar compared end 2017 following formation new coalition government may 2018 political uncertainty italy remained high yield 10year government bonds italy increased significantly elsewhere euro area yields 10year government bonds mostly decreased equity markets dax index decreased 18 euro stoxx 50 index decreased 14 cac 40 index decreased 11 compared end 2017 march 2018 announced terms agreed upon transitional period uk’s withdrawal eu november 2018 uk eu agreed draft brexit withdrawal agreement however end year significant uncertainty future relationship uk eu uk real gdp increased 14 2018 compared 18 2017 bank england increased official bank rate 25 basis points 075 august 2018 british pound depreciated 6 us dollar yield 10year government bonds increased 8 basis points equity markets ftse 100 index decreased 12 compared end 2017 asia japan real gdp increased 07 2018 compared 19 2017 bank japan maintained asset purchase program continued target yield 10year government bonds approximately 0 july 2018 bank japan introduced forward guidance interest rate policy expanded permissible range deviations 0 target yield 10year government bond yield 10year government bonds decreased 3 basis points us dollar depreciated 3 japanese yen nikkei 225 index decreased 12 compared end 2017 china real gdp increased 66 2018 compared 68 2017 us dollar appreciated 6 chinese yuan compared end 2017 equity markets shanghai composite index decreased 25 hang seng index decreased 14 goldman sachs group inc subsidiaries management’s discussion analysis india real gdp appeared increase 75 2018 compared 63 2017 us dollar appreciated 9 indian rupee bse sensex index increased 6 compared end 2017 markets brazil real gdp appeared increase 12 2018 compared 11 2017 us dollar appreciated 17 brazilian real bovespa index increased 15 compared end 2017 russia real gdp appeared increase 23 2018 compared 15 2017 us dollar appreciated 21 russian ruble moex russia index increased 12 compared end 2017 critical accounting policies fair value fair value hierarchy financial instruments owned financial instruments sold yet purchased ie inventory certain financial assets financial liabilities included consolidated statements financial condition fair value ie markedtomarket related gains losses generally recognized consolidated statements earnings use fair value measure financial instruments fundamental risk management practices critical accounting policy fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date measure certain financial assets financial liabilities portfolio ie based net exposure market andor credit risks determining fair value hierarchy us generally accepted accounting principles us gaap gives highest priority unadjusted quoted prices active markets identical unrestricted assets liabilities level 1 inputs ii next priority inputs level 1 inputs observable either directly indirectly level 2 inputs iii lowest priority inputs cannot observed market activity level 3 inputs evaluating significance valuation input consider among factors portfolio’s net risk exposure input assets liabilities classified entirety based lowest level input significant fair value measurement fair values substantially financial assets financial liabilities based observable prices inputs classified levels 1 2 fair value hierarchy certain level 2 level 3 financial assets financial liabilities may require appropriate valuation adjustments market participant would require arrive fair value factors counterparty credit quality funding risk transfer restrictions liquidity bidoffer spreads instruments classified level 3 fair value hierarchy require one significant inputs observable level 3 financial assets represented 24 december 2018 21 december 2017 total assets see notes 5 8 consolidated financial statements information level 3 financial assets including changes level 3 financial assets related fair value measurements absent evidence contrary instruments classified level 3 fair value hierarchy initially valued transaction price considered best initial estimate fair value subsequent transaction date use methodologies determine fair value vary based type instrument estimating fair value level 3 financial instruments requires judgments made judgments include • determining appropriate valuation methodology andor model type level 3 financial instrument • determining model inputs based evaluation relevant empirical market data including prices evidenced market transactions interest rates credit spreads volatilities correlations • determining appropriate valuation adjustments including related illiquidity counterparty credit quality regardless methodology valuation inputs assumptions changed corroborated substantive evidence controls valuation financial instruments market makers investment professionals revenueproducing units responsible pricing financial instruments control infrastructure independent revenueproducing units fundamental ensuring financial instruments appropriately valued marketclearing levels event difference opinion situations estimating fair value financial instruments requires judgment eg calibration market comparables trade comparison described final valuation decision made senior managers independent risk oversight control functions independent price verification critical ensuring financial instruments properly valued goldman sachs group inc subsidiaries management’s discussion analysis price verification financial instruments fair value classified levels 1 2 3 fair value hierarchy subject independent price verification process objective price verification informed independent opinion regard valuation financial instruments review instruments one significant inputs cannot corroborated external market data classified level 3 fair value hierarchy price verification strategies utilized independent risk oversight control functions include • trade comparison analysis trade data internal external available used determine relevant pricing inputs valuations • external price comparison valuations prices compared pricing data obtained third parties eg brokers dealers markit bloomberg idc trace data obtained various sources compared ensure consistency validity broker dealer quotations thirdparty pricing vendors used valuation price verification greater priority generally given executable quotations • calibration market comparables marketbased transactions used corroborate valuation positions similar characteristics risks components • relative value analyses marketbased transactions analyzed determine similarity measured terms risk liquidity return one instrument relative another given instrument one maturity relative another • collateral analyses margin calls derivatives analyzed determine implied values used corroborate valuations • execution trades appropriate trading desks instructed execute trades order provide evidence marketclearing levels • backtesting valuations corroborated comparison values realized upon sales see notes 5 8 consolidated financial statements information fair value measurements review net revenues independent risk oversight control functions ensure adherence pricing policy combination daily procedures including explanation attribution net revenues based underlying factors process independently validate net revenues identify resolve potential fair value trade booking issues timely basis seek ensure risks properly categorized quantified review valuation models independent model risk management group model risk management consisting quantitative professionals separate model developers performs independent model review validation process valuation models new changed models reviewed approved prior put use models evaluated reapproved annually assess impact changes product market developments pricing theories see “risk management model risk management” information review validation valuation models goodwill identifiable intangible assets goodwill cost acquired companies excess fair value net assets including identifiable intangible assets acquisition date goodwill assessed impairment annually fourth quarter frequently events occur circumstances change indicate impairment may exist assessing goodwill impairment first qualitative factors assessed determine whether likely estimated fair value reporting unit less estimated carrying value results qualitative assessment conclusive quantitative goodwill test performed comparing estimated fair value reporting unit estimated carrying value fourth quarter 2018 assessed goodwill impairment reporting units performing qualitative assessment qualitative assessment required management make judgments evaluate several factors included limited performance indicators firm industry events macroeconomic indicators fair value indicators based evaluation factors determined likely estimated fair value reporting units exceeded respective estimated carrying value therefore determined goodwill reporting unit impaired quantitative goodwill test required see note 13 consolidated financial statements information goodwill estimating fair value reporting units requires management make judgments critical inputs fair value estimates include projected earnings attributed equity inherent uncertainty projected earnings estimated net book value reporting unit reflects allocation total shareholders’ equity represents estimated amount total shareholders’ equity required support activities reporting unit currently applicable regulatory capital requirements see “equity capital management regulatory capital” information capital requirements goldman sachs group inc subsidiaries management’s discussion analysis experience prolonged severe period weakness business environment financial markets performance common stock price additional increases capital requirements goodwill could impaired future identifiable intangible assets amortize identifiable intangible assets estimated useful lives generally using straightline method identifiable intangible assets tested impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable prolonged severe period market weakness significant changes regulation could adversely impact businesses impair value identifiable intangible assets addition certain events could indicate potential impairment identifiable intangible assets including weaker business performance resulting decrease customer base decreases revenues customer contracts relationships management judgment required evaluate whether indications potential impairment occurred test intangible assets impairment required impairment generally calculated difference estimated fair value carrying value asset group recognized total estimated undiscounted cash flows relating asset group less corresponding carrying value see note 13 consolidated financial statements information identifiable intangible assets recent accounting developments see note 3 consolidated financial statements information recent accounting developments use estimates us gaap requires management make certain estimates assumptions addition estimates make connection fair value measurements accounting goodwill identifiable intangible assets use estimates assumptions also important determining allowance credit losses loans receivable lending commitments held investment provisions losses may arise litigation regulatory proceedings including governmental investigations provisions losses may arise tax audits estimate record allowance credit losses related loans receivable lending commitments held investment management’s estimate credit losses entails judgment collectability reporting dates uncertainties inherent judgments see note 9 consolidated financial statements information allowance credit losses also estimate provide potential losses may arise litigation regulatory proceedings extent losses probable reasonably estimated addition estimate upper end range reasonably possible aggregate loss excess related reserves litigation regulatory proceedings believe risk loss slight see notes 18 27 consolidated financial statements information certain judicial litigation regulatory proceedings significant judgment required making estimates final liabilities may ultimately materially different total estimated liability respect litigation regulatory proceedings determined casebycase basis represents estimate probable losses considering among factors progress case proceeding investigation experience others similar cases proceedings investigations opinions views legal counsel accounting income taxes recognize tax positions financial statements likely position sustained examination relevant taxing authority based technical merits position see note 24 consolidated financial statements information income taxes results operations composition net revenues varied time financial markets scope operations changed composition net revenues also vary shorter term due fluctuations us global economic market conditions see “risk factors” part item 1a form 10k information impact economic market conditions results operations goldman sachs group inc subsidiaries management’s discussion analysis financial overview table presents overview financial results selected financial ratios table • dividend payout ratio calculated dividing dividends declared per common share diluted earnings per common share • net earnings applicable common shareholders 2016 included benefit 266 million reflected preferred stock dividends related exchange apex shares series e series f preferred stock see note 19 consolidated financial statements information • roe calculated dividing net earnings applicable common shareholders average monthly common shareholders’ equity tangible common shareholders’ equity calculated total shareholders’ equity less preferred stock goodwill identifiable intangible assets return average tangible common shareholders’ equity rote calculated dividing net earnings applicable common shareholders average monthly tangible common shareholders’ equity believe tangible common shareholders’ equity meaningful measure investors use assess capital adequacy rote meaningful measures performance businesses consistently whether acquired developed internally tangible common shareholders’ equity rote nongaap measures may comparable similar nongaap measures used companies return average total shareholders’ equity calculated dividing net earnings average monthly total shareholders’ equity table presents average common total shareholders’ equity including reconciliation average total shareholders’ equity average tangible common shareholders’ equity • 2017 recorded 440 billion estimated income tax expense related tax legislation excluding expense diluted earnings per common share 1976 roe 108 rote 114 2017 fourth quarter 2018 finalized estimate reflect impact updated information including subsequent guidance issued us internal revenue service irs resulting 487 million income tax benefit 2018 excluding benefit diluted earnings per common share 2402 roe 127 rote 134 2018 believe presenting results excluding tax legislation meaningful excluding items increases comparability periodtoperiod results see “results operations provision taxes” information tax legislation diluted earnings per common share roe rote excluding impact items related tax legislation nongaap measures may comparable similar nongaap measures used companies tables present calculation net earnings applicable common shareholders diluted earnings per common share average common shareholders’ equity excluding impact items related tax legislation • 2017 required adopted asu 201609 “compensation stock compensation topic 718 improvements employee sharebased payment accounting” impact adoption reduction provision taxes 719 million 2017 increased diluted earnings per common share approximately 175 roe rote approximately 10 percentage points impact 2018 material see note 3 consolidated financial statements information asu goldman sachs group inc subsidiaries management’s discussion analysis net revenues table presents net revenues line item table • investment banking consists revenues excluding net interest financial advisory underwriting assignments well derivative transactions directly related assignments activities included investment banking segment • investment management consists revenues excluding net interest providing investment management services diverse set clients well wealth advisory services certain transaction services highnetworth individuals families activities included investment management segment • commissions fees consists revenues executing clearing client transactions major stock options futures exchanges worldwide well overthecounter otc transactions activities included institutional client services investment management segments • market making consists revenues excluding net interest client execution activities related making markets interest rate products credit products mortgages currencies commodities equity products activities included institutional client services segment • principal transactions consists revenues excluding net interest investing activities origination loans provide financing clients addition principal transactions includes revenues related consolidated investments activities included investing lending segment provision credit losses previously reported principal transactions revenues reported separate line item consolidated statements earnings previously reported amounts conformed current presentation operating environment 2018 marketmaking activities reflected generally higher levels volatility improved client activity compared low volatility environment 2017 investment banking industrywide mergers acquisitions volumes increased compared 2017 industrywide underwriting transactions decreased principal transactions revenues benefited companyspecific events including sales strong corporate performance investments public equities reflected losses global equity prices generally decreased 2018 particularly towards end year investment management assets supervision increased reflecting net inflows liquidity products fixed income assets equity assets partially offset depreciation client assets primarily equity assets marketmaking investment banking activity levels decline assets supervision decline asset prices continue decline net revenues would likely negatively impacted see “segment operating results” information operating environment material trends uncertainties may impact results operations 2017 generally higher asset prices tighter credit spreads supportive industrywide underwriting activities investment management performance principal transactions however low levels volatility equity fixed income currency commodity markets continued negatively affect marketmaking activities 2018 versus 2017 net revenues consolidated statements earnings 3662 billion 2018 12 higher 2017 primarily due significantly higher market making revenues net interest income well higher investment management revenues investment banking revenues noninterest revenues investment banking revenues consolidated statements earnings 786 billion 2018 7 higher 2017 revenues financial advisory higher reflecting increase industrywide completed mergers acquisitions volumes revenues underwriting slightly higher due significantly higher revenues equity underwriting driven initial public offerings partially offset lower revenues debt underwriting reflecting decline leveraged finance activity investment management revenues consolidated statements earnings 651 billion 2018 12 higher 2017 primarily due significantly higher incentive fees result harvesting management fees also higher reflecting higher average assets supervision impact recently adopted revenue recognition standard partially offset shifts mix client assets strategies see note 3 consolidated financial statements information asu 201409 “revenue contracts customers topic 606” goldman sachs group inc subsidiaries management’s discussion analysis commissions fees consolidated statements earnings 320 billion 2018 5 higher 2017 reflecting increase listed cash equity futures volumes generally consistent market volumes market making revenues consolidated statements earnings 945 billion 2018 23 higher 2017 due significantly higher revenues equity products interest rate products commodities increases partially offset significantly lower results mortgages lower revenues credit products principal transactions revenues consolidated statements earnings 582 billion 2018 2 lower 2017 reflecting net losses investments public equities compared net gains prior year partially offset significantly higher net gains investments private equities driven companyspecific events including sales corporate performance net interest income net interest income consolidated statements earnings 377 billion 2018 28 higher 2017 reflecting increase interest income primarily due impact higher interest rates collateralized agreements interestearning assets deposits banks increases total average loans receivable financial instruments owned higher yields financial instruments owned loans receivable increase interest income partially offset higher interest expense primarily due impact higher interest rates interestbearing liabilities collateralized financings deposits longterm borrowings increases total average longterm borrowings deposits see “statistical disclosures distribution assets liabilities shareholders’ equity” information sources net interest income 2017 versus 2016 net revenues consolidated statements earnings 3273 billion 2017 6 higher 2016 due significantly higher principal transactions revenues higher investment banking revenues investment management revenues net interest income increases partially offset significantly lower market making revenues lower commissions fees noninterest revenues investment banking revenues consolidated statements earnings 737 billion 2017 18 higher 2016 revenues financial advisory higher compared 2016 reflecting increase completed mergers acquisitions transactions revenues underwriting significantly higher compared 2016 due significantly higher revenues debt underwriting primarily reflecting increase industrywide leveraged finance activity equity underwriting reflecting increase industrywide secondary offerings investment management revenues consolidated statements earnings 580 billion 2017 7 higher 2016 due higher management fees reflecting higher average assets supervision higher transaction revenues commissions fees consolidated statements earnings 305 billion 2017 5 lower 2016 reflecting decline listed cash equity volumes us market volumes us also declined market making revenues consolidated statements earnings 766 billion 2017 23 lower 2016 due significantly lower revenues commodities currencies credit products interest rate products equity derivative products results partially offset significantly higher revenues equity cash products significantly improved results mortgages principal transactions revenues consolidated statements earnings 591 billion 2017 75 higher 2016 primarily reflecting significant increase net gains private equities positively impacted companyspecific events corporate performance addition net gains public equities significantly higher global equity prices increased year net interest income net interest income consolidated statements earnings 293 billion 2017 13 higher 2016 reflecting increase interest income primarily due impact higher interest rates collateralized agreements higher interest income loans receivable due higher yields increase total average loans receivable increase total average financial instruments owned impact higher interest rates interestearning assets deposits banks increase interest income partially offset higher interest expense primarily due impact higher interest rates interestbearing liabilities increase total average longterm borrowings impact higher interest rates interestbearing deposits shortterm borrowings collateralized financings see “statistical disclosures distribution assets liabilities shareholders’ equity” information sources net interest income provision credit losses provision credit losses consists provision credit losses loans receivable lending commitments held investment see note 9 consolidated financial statements information provision credit losses table presents provision credit losses goldman sachs group inc subsidiaries management’s discussion analysis 2018 versus 2017 provision credit losses consolidated statements earnings 674 million 2018 compared 657 million 2017 higher provision credit losses primarily related consumer loan growth 2018 partially offset impairment approximately 130 million secured loan 2017 versus 2016 provision credit losses consolidated statements earnings 657 million 2017 compared 182 million 2016 reflecting increase impairments included impairment approximately 130 million secured loan 2017 higher provision credit losses primarily related consumer loan growth operating expenses operating expenses primarily influenced compensation headcount levels business activity compensation benefits includes salaries discretionary compensation amortization equity awards items benefits discretionary compensation significantly impacted among factors level net revenues overall financial performance prevailing labor markets business mix structure sharebased compensation programs external environment addition see “use estimates” information expenses may arise litigation regulatory proceedings table presents operating expenses line item headcount table following reclassifications made previously reported amounts conform current presentation • regulatoryrelated fees paid exchanges reported brokerage clearing exchange distribution fees previously amounts reported expenses • headcount consists employees excludes consultants temporary staff previously reported part total staff result expenses related consultants temporary staff reported professional fees previously amounts reported compensation benefits expenses 2018 versus 2017 operating expenses consolidated statements earnings 2346 billion 2018 12 higher 2017 efficiency ratio total operating expenses divided total net revenues 2018 641 compared 640 2017 increase operating expenses compared 2017 primarily due higher compensation benefits expenses reflecting improved operating performance significantly higher net provisions litigation regulatory proceedings brokerage clearing exchange distribution fees also higher reflecting increase activity levels technology expenses increased reflecting higher expenses related computing services addition expenses related consolidated investments digital lending deposit platform increased increases primarily depreciation amortization expenses market development expenses increase compared 2017 also included 297 million related recently adopted revenue recognition standard see note 3 consolidated financial statements information asu 201409 “revenue contracts customers topic 606” net provisions litigation regulatory proceedings 2018 844 million compared 188 million 2017 2018 included 132 million charitable contribution goldman sachs gives donoradvised fund compensation reduced fund charitable contribution goldman sachs gives ask participating managing directors make recommendations regarding potential charitable recipients contribution december 2018 headcount increased 9 compared december 2017 reflecting increase technology professionals investments new business initiatives 2017 versus 2016 operating expenses consolidated statements earnings 2094 billion 2017 3 higher 2016 efficiency ratio 2017 640 compared 659 2016 increase operating expenses compared 2016 primarily driven slightly higher compensation benefits expenses investments fund growth higher expenses related consolidated investments digital lending deposit platform primarily included depreciation amortization expenses market development expenses addition technology expenses increased reflecting higher expenses related cloudbased services software depreciation professional fees increased primarily related consulting costs increases partially offset lower net provisions litigation regulatory proceedings lower occupancy expenses primarily related exit costs 2016 goldman sachs group inc subsidiaries management’s discussion analysis net provisions litigation regulatory proceedings 2017 188 million compared 396 million 2016 2017 included 127 million charitable contribution goldman sachs gives donoradvised fund compensation reduced fund charitable contribution goldman sachs gives ask participating managing directors make recommendations regarding potential charitable recipients contribution december 2017 headcount increased 4 compared december 2016 reflecting increase employees digital lending deposit platform support regulatory efforts provision taxes effective income tax rate 2018 162 615 2017 included estimated impact tax legislation increased effective income tax rate 395 percentage points additionally decrease compared 2017 reflected impact lower us corporate income tax rate 2018 estimated impact tax legislation increase income tax expense 440 billion 2017 2018 finalized estimate reflect impact updated information including subsequent guidance issued irs resulting 487 million income tax benefit 2018 effective income tax rate 2017 615 282 2016 increase compared 2016 primarily due estimated impact tax legislation enacted december 22 2017 partially offset tax benefits settlement employee sharebased awards accordance asu 201609 effective january 1 2018 tax legislation reduced us corporate tax rate 21 eliminated tax deductions certain expenses enacted two new taxes base erosion antiabuse tax beat global intangible low taxed income gilti beat alternative minimum tax applies banks pay 2 total deductible expenses certain foreign subsidiaries gilti effectively 105 tax allowable credits foreign taxes paid annual taxable income certain foreign subsidiaries income tax expense associated gilti recognized incurred 2018 irs issued proposed regulations relating beat gilti 2018 effective income tax rate includes estimates beat gilti based current interpretation proposed regulations expect finalization proposed regulations material impact estimates based current interpretations rules legislative guidance date expect 2019 tax rate 22 23 excluding impact equitybased compensation segment operating results table presents net revenues provision credit losses operating expenses pretax earnings segment table • provision credit losses previously reported investing lending segment net revenues reported separate line item previously reported amounts conformed current presentation • operating expenses allocated segments except charitable contributions 132 million 2018 127 million 2017 114 million 2016 net revenues segments include allocations interest income expense specific securities commodities positions relation cash generated funding requirements positions see note 25 consolidated financial statements information business segments cost drivers taken whole compensation headcount levels business activity broadly similar business segments compensation benefits expenses within segments reflect among factors overall performance well performance individual businesses consequently pretax margins one segment business may significantly affected performance business segments description segment operating results follows goldman sachs group inc subsidiaries management’s discussion analysis investment banking investment banking segment consists financial advisory includes strategic advisory assignments respect mergers acquisitions divestitures corporate defense activities restructurings spinoffs risk management derivative transactions directly related client advisory assignments underwriting includes public offerings private placements including local crossborder transactions acquisition financing wide range securities financial instruments including loans derivative transactions directly related client underwriting activities table presents operating results investment banking segment table presents financial advisory underwriting transaction volumes table • volumes per dealogic • announced completed mergers acquisitions volumes based full credit advisors transaction equity equityrelated offerings debt offerings based full credit single book managers equal credit joint book managers transaction volumes may indicative net revenues given period addition transaction volumes prior periods may vary amounts previously reported due subsequent withdrawal change value transaction • equity equityrelated offerings includes rule 144a public common stock offerings convertible offerings rights offerings • debt offerings includes nonconvertible preferred stock mortgagebacked securities assetbacked securities taxable municipal debt includes publicly registered rule 144a issues excludes leveraged loans operating environment 2018 industrywide announced completed mergers acquisitions activity strong volumes increased compared 2017 underwriting industrywide equity debt underwriting transactions decreased compared 2017 reflecting challenging market environment financing towards end 2018 however demand initial public offerings increased compared 2017 future industrywide mergers acquisitions volumes decline equity debt underwriting transactions continue decline net revenues investment banking would likely negatively impacted 2017 investment banking operated environment characterized solid industrywide mergers acquisitions transactions although volumes declined compared 2016 industrywide debt underwriting offerings remained strong industrywide equity underwriting offerings increased significantly compared 2016 2018 versus 2017 net revenues investment banking 786 billion 2018 7 higher 2017 net revenues financial advisory 351 billion 10 higher 2017 reflecting increase industrywide completed mergers acquisitions volumes net revenues underwriting 436 billion 4 higher 2017 due significantly higher net revenues equity underwriting driven initial public offerings partially offset lower net revenues debt underwriting reflecting decline leveraged finance activity operating expenses 435 billion 2018 23 higher 2017 primarily due higher net provisions litigation regulatory proceedings increased compensation benefits expenses reflecting higher net revenues impact recently adopted revenue recognition standard pretax earnings 352 billion 2018 9 lower 2017 see note 3 consolidated financial statements information asu 201409 “revenue contracts customers topic 606” december 2018 investment banking transaction backlog increased compared december 2017 primarily due significantly higher estimated net revenues potential advisory transactions estimated net revenues potential debt underwriting transactions also higher estimated net revenues equity underwriting transactions essentially unchanged goldman sachs group inc subsidiaries management’s discussion analysis investment banking transaction backlog represents estimate future net revenues investment banking transactions believe future revenue realization likely believe changes investment banking transaction backlog may useful indicator client activity levels long term impact net revenues however time frame completion corresponding revenue recognition transactions backlog varies based nature assignment certain transactions may remain backlog longer periods time others may enter leave within reporting period addition transaction backlog subject certain limitations assumptions likelihood individual client transactions occur future transactions may cancelled modified transactions included estimate may also occur 2017 versus 2016 net revenues investment banking 737 billion 2017 18 higher 2016 net revenues financial advisory 319 billion 9 higher 2016 reflecting increase completed mergers acquisitions transactions net revenues underwriting 418 billion 25 higher 2016 due significantly higher net revenues debt underwriting primarily reflecting increase industrywide leveraged finance activity equity underwriting reflecting increase industrywide secondary offerings operating expenses 353 billion 2017 3 higher 2016 due increased compensation benefits expenses reflecting higher net revenues pretax earnings 385 billion 2017 36 higher 2016 december 2017 investment banking transaction backlog increased compared december 2016 due significantly higher estimated net revenues potential debt underwriting transactions significantly higher estimated net revenues potential equity underwriting transactions primarily initial public offerings increases partially offset lower estimated net revenues potential advisory transactions principally related mergers acquisitions institutional client services institutional client services segment consists ficc client execution includes client execution activities related making markets cash derivative instruments interest rate products credit products mortgages currencies commodities • interest rate products government bonds including inflationlinked securities across maturities governmentbacked securities sold agreements repurchase agreements interest rate swaps options derivatives • credit products investmentgrade corporate securities highyield securities credit derivatives exchangetraded funds bank bridge loans municipal securities emerging market distressed debt trade claims • mortgages commercial mortgagerelated securities loans derivatives residential mortgagerelated securities loans derivatives including us government agencyissued collateralized mortgage obligations securities loans assetbacked securities loans derivatives • currencies currency options spotforwards derivatives g10 currencies emergingmarket products • commodities commodity derivatives lesser extent physical commodities involving crude oil petroleum products natural gas base precious metals electricity coal agricultural commodity products equities includes client execution activities related making markets equity products commissions fees executing clearing institutional client transactions major stock options futures exchanges worldwide well otc transactions equities also includes securities services business provides financing securities lending prime brokerage services institutional clients including hedge funds mutual funds pension funds foundations generates revenues primarily form interest rate spreads fees goldman sachs group inc subsidiaries management’s discussion analysis marketmaking activities market maker facilitate transactions liquid less liquid markets primarily institutional clients corporations financial institutions investment funds governments assist clients meeting investment objectives managing risks role seek earn difference price market participant willing sell instrument us price another market participant willing buy us vice versa ie bidoffer spread addition maintain inventory typically short period time response anticipation client demand also hold inventory actively manage risk exposures arise marketmaking activities marketmaking inventory recorded financial instruments owned long positions financial instruments sold yet purchased short positions consolidated statements financial condition results influenced combination interconnected drivers including client activity levels transactional bidoffer spreads collectively client activity ii changes fair value inventory interest income interest expense related holding hedging funding inventory collectively marketmaking inventory changes due integrated nature marketmaking activities disaggregation net revenues client activity marketmaking inventory changes judgmental inherent complexities limitations amount composition net revenues vary time drivers impacted multiple interrelated factors affecting economic market conditions including volatility liquidity market changes interest rates currency exchange rates credit spreads equity prices commodity prices investor confidence macroeconomic concerns uncertainties general assuming marketmaking conditions remain constant increases client activity levels bidoffer spreads tend result increases net revenues decreases tend opposite effect however changes marketmaking conditions materially impact client activity levels bidoffer spreads well fair value inventory example decrease liquidity market could impact increasing bidoffer spread ii decreasing investor confidence thereby decreasing client activity levels iii wider credit spreads inventory positions table presents operating results institutional client services segment table presents net revenues institutional client services segment line item consolidated statements earnings table • difference commissions fees consolidated statements earnings represents commissions fees included investment management segment • see “net revenues” information market making revenues commissions fees net interest income see note 25 consolidated financial statements net interest income business segment • primary driver net revenues ficc client execution client activity goldman sachs group inc subsidiaries management’s discussion analysis operating environment 2018 institutional client services operated environment characterized generally higher levels volatility improved client activity compared low volatility environment 2017 average daily vix 2018 increased 17 reflecting periods high volatility first fourth quarters 2018 compared 11 2017 2018 global equity markets generally decreased msci world index 11 credit markets spreads generally widened us highyield credit spreads wider 139 basis points particularly towards end year oil prices decreased 45 per barrel wti natural gas prices essentially unchanged 294 per million british thermal units compared end 2017 activity levels decline net revenues institutional client services would likely negatively impacted see “business environment” information economic market conditions global operating environment year 2017 low volatility levels equity fixed income currency commodity markets impacted operating environment institutional client services negatively affected client activity across businesses particularly ficc client execution although marketmaking conditions challenged global equity markets increased compared 2016 credit spreads generally tightened 2018 versus 2017 net revenues institutional client services 1348 billion 2018 13 higher 2017 net revenues ficc client execution 588 billion 11 higher 2017 primarily reflecting higher client activity following provides information ficc client execution net revenues business compared 2017 results • net revenues commodities significantly higher reflecting impact improved marketmaking conditions inventory compared challenging conditions 2017 higher client activity • net revenues currencies significantly higher primarily reflecting higher client activity • net revenues interest rate products mortgages slightly lower reflecting lower client activity • net revenues credit products essentially unchanged reflecting impact challenging marketmaking conditions inventory particularly fourth quarter 2018 offset higher client activity 2018 approximately 90 net revenues ficc client execution generated market intermediation approximately 10 generated financing ficc client execution financing net revenues include net revenues primarily shortterm repurchase agreement activities net revenues equities 760 billion 15 higher 2017 primarily due significantly higher net revenues equities client execution reflecting significantly higher net revenues cash products derivatives addition commissions fees higher reflecting increase listed cash equity futures volumes generally consistent market volumes net revenues securities services slightly higher 2018 approximately 60 net revenues equities generated market intermediation approximately 40 generated financing equities financing net revenues include net revenues prime brokerage financing activities including securities lending margin lending swaps operating expenses 1035 billion 2018 7 higher 2017 primarily due increased compensation benefits expenses reflecting higher net revenues higher net provisions litigation regulatory proceedings higher brokerage clearing exchange fees pretax earnings 313 billion 2018 42 higher 2017 versus 2016 net revenues institutional client services 1190 billion 2017 18 lower 2016 net revenues ficc client execution 530 billion 30 lower 2016 reflecting significantly lower client activity approximately onethird decline ficc client execution net revenues due significantly lower results commodities following provides information ficc client execution net revenues business compared 2016 results • net revenues commodities significantly lower reflecting impact challenging marketmaking conditions inventory • net revenues interest rate products significantly lower reflecting lower client activity • net revenues currencies significantly lower reflecting lower client activity impact challenging marketmaking conditions inventory • net revenues credit products significantly lower reflecting lower client activity • net revenues mortgages significantly higher reflecting impact favorable marketmaking conditions inventory including generally tighter spreads compared challenging 2016 goldman sachs group inc subsidiaries management’s discussion analysis net revenues equities 660 billion 4 lower 2016 primarily due lower commissions fees reflecting decline listed cash equity volumes us market volumes us also declined addition net revenues equities client execution lower reflecting lower net revenues derivatives partially offset higher net revenues cash products net revenues securities services essentially unchanged operating expenses 969 billion 2017 essentially unchanged compared 2016 due decreased compensation benefits expenses reflecting lower net revenues largely offset increased technology expenses reflecting higher expenses related cloudbased services software depreciation increased consulting costs pretax earnings 221 billion 2017 54 lower 2016 investing lending investing lending includes investing activities origination loans including relationship lending activities provide financing clients investments loans typically longerterm nature make investments consolidated including merchant banking business special situations group debt securities loans public private equity securities infrastructure real estate entities investments made indirectly funds manage also make unsecured loans digital platform marcus goldman sachs secured loans digital platform goldman sachs private bank select table presents operating results investing lending segment operating environment 2018 investments private equities benefited companyspecific events including sales strong corporate performance investments public equities reflected losses global equity prices generally decreased results investments debt securities loans reflected continued growth loans receivables resulting higher net interest income macroeconomic concerns negatively affect corporate performance origination loans global equity prices continue decline net revenues investing lending would likely negatively impacted 2017 generally higher global equity prices tighter credit spreads contributed favorable environment equity debt investments results also reflected net gains companyspecific events including sales corporate performance 2018 versus 2017 net revenues investing lending 825 billion 2018 14 higher 2017 net revenues equity securities 446 billion 3 lower 2017 reflecting net losses investments public equities 2018 included 183 million net losses compared net gains prior year partially offset significantly higher net gains investments private equities 2018 included 464 billion net gains driven companyspecific events including sales corporate performance 2018 60 net revenues equity securities generated corporate investments 40 generated real estate net revenues debt securities loans 380 billion 43 higher 2017 primarily driven significantly higher net interest income 2018 included net interest income approximately 270 billion compared approximately 180 billion 2017 provision credit losses 674 million 2018 compared 657 million 2017 higher provision credit losses primarily related consumer loan growth 2018 partially offset impairment approximately 130 million secured loan 2017 operating expenses 337 billion 2018 20 higher 2017 primarily due increased expenses related consolidated investments digital lending deposit platform increased compensation benefits expenses reflecting higher net revenues pretax earnings 421 billion 2018 11 higher 2017 versus 2016 net revenues investing lending 724 billion 2017 70 higher 2016 net revenues equity securities 458 billion 78 higher 2016 primarily reflecting significant increase net gains private equities 2017 included 382 billion net gains positively impacted companyspecific events corporate performance addition net gains public equities 2017 included 762 million net gains significantly higher global equity prices increased year 2017 64 net revenues equity securities generated corporate investments 36 generated real estate net revenues debt securities loans 266 billion 57 higher 2016 reflecting significantly higher net interest income 2017 included approximately 180 billion net interest income goldman sachs group inc subsidiaries management’s discussion analysis provision credit losses 657 million 2017 compared 182 million 2016 reflecting increase impairments included impairment approximately 130 million secured loan 2017 higher provision credit losses primarily related consumer loan growth operating expenses 280 billion 2017 17 higher 2016 due increased compensation benefits expenses reflecting higher net revenues increased expenses related consolidated investments increased expenses related digital lending deposit platform pretax earnings 379 billion 2017 compared 169 billion 2016 investment management investment management provides investment management services offers investment products primarily separately managed accounts commingled vehicles mutual funds private investment funds across major asset classes diverse set institutional individual clients investment management also offers wealth advisory services provided subsidiary ayco company lp including portfolio management financial planning counseling brokerage transaction services highnetworth individuals families assets supervision aus include client assets earn fee managing assets discretionary basis includes net assets mutual funds hedge funds credit funds private equity funds including real estate funds separately managed accounts institutional individual investors assets supervision also include client assets invested thirdparty managers bank deposits advisory relationships earn fee advisory services investment discretion assets supervision include selfdirected brokerage assets clients longterm assets supervision represent assets supervision excluding liquidity products liquidity products represent money market bank deposit assets supervision typically generate fees percentage net asset value vary asset class distribution channel type services provided affected investment performance well asset inflows redemptions asset classes alternative investment equity assets typically generate higher fees relative fixed income liquidity product assets average effective management fee excludes nonassetbased fees earned assets supervision 34 basis points 2018 35 basis points 2017 2016 certain circumstances also entitled receive incentive fees based percentage fund’s separately managed account’s return exceeds specified benchmark performance targets table presents operating results investment management segment table presents periodend assets supervision asset class distribution channel region vehicle table alternative investments primarily includes hedge funds credit funds private equity real estate currencies commodities asset allocation strategies table presents changes assets supervision goldman sachs group inc subsidiaries management’s discussion analysis table total aus net inflowsoutflows 2017 included 23 billion inflows 20 billion longterm aus 3 billion liquidity products connection acquisition portion verus investors’ outsourced chief investment officer business verus acquisition 5 billion equity asset outflows connection divestiture local australianfocused investment capabilities fund platform australian divestiture table presents average monthly assets supervision asset class operating environment 2018 assets supervision increased reflecting net inflows liquidity products fixed income assets equity assets increase partially offset depreciation client assets primarily equity assets global equity prices generally decreased 2018 particularly towards end year mix average assets supervision longterm assets supervision liquidity products 2018 essentially unchanged compared 2017 future asset prices continue decline investors continue favor assets typically generate lower fees investors withdraw assets net revenues investment management would likely negatively impacted 2017 investment management operated environment characterized generally higher asset prices resulting appreciation equity fixed income assets longterm assets supervision increased net inflows primarily fixed income alternative investment assets increases partially offset net outflows liquidity products result mix average assets supervision 2017 shifted slightly liquidity products longterm assets supervision compared mix end 2016 2018 versus 2017 net revenues investment management 702 billion 2018 13 higher 2017 primarily due significantly higher incentive fees result harvesting management fees also higher reflecting higher average assets supervision impact recently adopted revenue recognition standard partially offset shifts mix client assets strategies addition transaction revenues higher see note 3 consolidated financial statements information asu 201409 “revenue contracts customers topic 606” 2018 total assets supervision increased 48 billion 154 trillion longterm assets supervision decreased 4 billion including net market depreciation 41 billion primarily equity assets largely offset net inflows 37 billion primarily fixed income equity assets liquidity products increased 52 billion operating expenses 527 billion 2018 10 higher 2017 primarily due impact recently adopted revenue recognition standard increased compensation benefits expenses reflecting higher net revenues pretax earnings 176 billion 2018 24 higher 2017 see note 3 consolidated financial statements information asu 201409 “revenue contracts customers topic 606” 2017 versus 2016 net revenues investment management 622 billion 2017 7 higher 2016 due higher management fees reflecting higher average assets supervision higher transaction revenues 2017 total assets supervision increased 115 billion 149 trillion longterm assets supervision increased 128 billion including net market appreciation 86 billion primarily equity fixed income assets net inflows 42 billion includes 20 billion inflows connection verus acquisition 5 billion equity asset outflows connection australian divestiture primarily fixed income alternative investment assets liquidity products decreased 13 billion includes 3 billion inflows connection verus acquisition operating expenses 480 billion 2017 3 higher 2016 primarily due increased compensation benefits expenses reflecting higher net revenues pretax earnings 142 billion 2017 25 higher 2016 geographic data see note 25 consolidated financial statements summary total net revenues pretax earnings net earnings geographic region goldman sachs group inc subsidiaries management’s discussion analysis balance sheet funding sources balance sheet management one risk management disciplines ability manage size composition balance sheet asset base changes due client activity market fluctuations business opportunities size composition balance sheet also reflects factors including overall risk tolerance ii amount equity capital hold iii funding profile among factors see “equity capital management regulatory capital equity capital management” information equity capital management process although balance sheet fluctuates daytoday basis total assets quarterend yearend dates generally materially different occurring within reporting periods order ensure appropriate risk management seek maintain sufficiently liquid balance sheet processes place dynamically manage assets liabilities include balance sheet planning ii balance sheet limits iii monitoring key metrics iv scenario analyses balance sheet planning prepare balance sheet plan combines projected total assets composition assets expected funding sources threeyear time horizon plan reviewed quarterly may adjusted response changing business needs market conditions objectives planning process • develop balance sheet projections taking account general state financial markets expected business activity levels well regulatory requirements • allow treasury independent risk oversight control functions objectively evaluate balance sheet limit requests revenueproducing units context overall balance sheet constraints including liability profile equity capital levels key metrics • inform target amount tenor type funding raise based projected assets contractual maturities treasury independent risk oversight control functions along revenueproducing units review current prior period information expectations year prepare balance sheet plan specific information reviewed includes asset liability size composition limit utilization risk performance measures capital usage consolidated balance sheet plan including balance sheets business funding projections projected key metrics reviewed approved firmwide asset liability committee risk governance committee see “risk management overview structure risk management” overview risk management structure balance sheet limits firmwide asset liability committee risk governance committee responsibility reviewing approving balance sheet limits set levels close actual operating levels rather levels reflect maximum risk appetite order ensure prompt escalation discussion among revenueproducing units treasury independent risk oversight control functions routine basis firmwide asset liability committee risk governance committee review approve balance sheet limits addition risk governance committee sets aged inventory limits certain financial instruments disincentive hold inventory longer periods time requests changes limits evaluated giving consideration impact key metrics compliance limits monitored revenueproducing units treasury well independent risk oversight control functions monitoring key metrics monitor key balance sheet metrics business consolidated basis including asset liability size composition limit utilization risk measures allocate assets businesses review analyze movements resulting new business activity well market fluctuations scenario analyses conduct various scenario analyses including part comprehensive capital analysis review ccar doddfrank act stress tests dfast well resolution recovery planning see “equity capital management regulatory capital equity capital management” information scenario analyses scenarios cover shortterm longterm time horizons using various macroeconomic firmspecific assumptions based range economic scenarios use analyses assist us developing longerterm balance sheet management strategy including level composition assets funding equity capital additionally analyses help us develop approaches maintaining appropriate funding liquidity capital across variety situations including severely stressed environment goldman sachs group inc subsidiaries management’s discussion analysis balance sheet allocation addition preparing consolidated statements financial condition accordance us gaap prepare balance sheet generally allocates assets businesses nongaap presentation may comparable similar nongaap presentations used companies believe presenting assets basis meaningful consistent way management views manages risks associated assets better enables investors assess liquidity assets table presents balance sheet allocation following description captions table • global core liquid assets gcla segregated assets maintain liquidity meet broad range potential cash outflows collateral needs stressed environment see “risk management liquidity risk management” information composition sizing gcla also segregate cash securities regulatory purposes related client activity securities segregated inventory well collateral obtained securities borrowed securities purchased agreements resell resale agreements addition maintain unrestricted operating cash balances primarily use specific currencies entities jurisdictions immediate access parent company liquidity • secured client financing provide collateralized financing client positions including margin loans secured client collateral securities borrowed resale agreements primarily collateralized government obligations secured client financing arrangements generally shortterm accounted fair value amounts approximate fair value include daily margin requirements mitigate counterparty credit risk • institutional client services maintain inventory positions facilitate market making fixed income equity currency commodity products additionally part marketmaking activities enter resale securities borrowing arrangements obtain securities use inventory cover transactions clients sold securities yet purchased receivables institutional client services primarily relate securities transactions • investing lending invest originate loans provide financing clients investments loans typically longerterm nature make investments merchant banking business special situations group debt securities loans public private equity also originate secured unsecured loans digital platforms investing lending primarily includes customer receivables equity make equity investments corporate real estate entities december 2018 30 total equity investments made 2011 earlier 23 investments made 2012 2014 47 investments made since beginning 2015 table presents equity type region goldman sachs group inc subsidiaries management’s discussion analysis loans table presents loans type region table • december 2018 corporate loans included 1550 billion loans relating relationship lending investment banking activities 699 billion relating collateralized inventory financing remainder loans related corporate lending activities including middle market lending december 2017 corporate loans included 1196 billion loans relating relationship lending investment banking activities 549 billion relating collateralized inventory financing remainder loans related corporate lending activities including middle market lending • approximately 85 total loans secured december 2018 december 2017 • see note 9 consolidated financial statements information loans receivable • assets generally less liquid nonfinancial assets including property leasehold improvements equipment goodwill identifiable intangible assets income taxrelated receivables miscellaneous receivables assets included 1321 billion december 2018 942 billion december 2017 held consolidated investment entities cies connection investing lending segment activities substantially assets relate cies engaged real estate investment activities entities funded liabilities approximately 6 billion december 2018 4 billion december 2017 substantially liabilities nonrecourse thereby reducing equity risk table presents reconciliation balance sheet allocation us gaap balance sheet table • total assets institutional client services investing lending represent inventory related assets amounts differ total assets business segment disclosed note 25 consolidated financial statements total assets disclosed note 25 include allocations gcla segregated assets secured client financing assets • see “balance sheet analysis metrics” explanations changes balance sheet december 2017 december 2018 goldman sachs group inc subsidiaries management’s discussion analysis balance sheet analysis metrics december 2018 total assets consolidated statements financial condition 93180 billion increase 1502 billion december 2017 reflecting increases cash equivalents 2050 billion financial instruments owned 2017 billion loans receivable 1466 billion partially offset net decrease collateralized agreements 3713 billion increase cash equivalents reflected impact clients’ activities increase financial instruments owned primarily reflected higher client activity government agency obligations partially offset lower activity equity securities us clients increase loans receivable primarily reflected increase corporate commercial real estate loans net decrease collateralized agreements reflected impact clients’ activities december 2018 total liabilities consolidated statements financial condition 84161 billion increase 708 billion december 2017 primarily reflecting increases deposits 1965 billion unsecured longterm borrowings 646 billion partially offset decreases collateralized financings 1234 billion unsecured short term borrowings 642 billion increase deposits primarily reflected increase consumer deposits increase unsecured longterm borrowings primarily due net new issuances decrease collateralized financings reflected impact clients’ activities decrease unsecured short term borrowings primarily due maturities early retirements total repurchase agreements accounted collateralized financings 7872 billion december 2018 8472 billion december 2017 1 higher december 2018 2 lower december 2017 daily average amount repurchase agreements respective quarters 12 lower december 2018 1 lower december 2017 daily average amount repurchase agreements respective years december 2018 increase repurchase agreements relative daily average quarter decrease repurchase agreements relative daily average year resulted client activity end period level repurchase agreements fluctuates within periods primarily due providing clients access highly liquid collateral liquid government agency obligations collateralized financing activities table presents information balance sheet leverage ratios table • leverage ratio equals total assets divided total shareholders’ equity measures proportion equity debt use finance assets ratio different leverage ratios included note 20 consolidated financial statements • debt equity ratio equals unsecured longterm borrowings divided total shareholders’ equity table presents information shareholders’ equity book value per common share including reconciliation total shareholders’ equity tangible common shareholders’ equity table • tangible common shareholders’ equity equals total shareholders’ equity less preferred stock goodwill identifiable intangible assets believe tangible common shareholders’ equity meaningful measure investors use assess capital adequacy tangible common shareholders’ equity nongaap measure may comparable similar nongaap measures used companies • book value per common share tangible book value per common share based common shares outstanding restricted stock units granted employees future service requirements collectively basic shares 3809 million december 2018 3889 million december 2017 believe tangible book value per common share tangible common shareholders’ equity divided basic shares meaningful measure investors use assess capital adequacy tangible book value per common share nongaap measure may comparable similar nongaap measures used companies goldman sachs group inc subsidiaries management’s discussion analysis funding sources primary sources funding deposits collateralized financings unsecured shortterm longterm borrowings shareholders’ equity seek maintain broad diversified funding sources globally across products programs markets currencies creditors avoid funding concentrations table presents information funding sources funding primarily raised us dollar euro british pound japanese yen generally distribute funding products sales force thirdparty distributors large diverse creditor base variety markets americas europe asia believe relationships creditors critical liquidity creditors include banks governments securities lenders corporations pension funds insurance companies mutual funds individuals imposed various internal guidelines monitor creditor concentration across funding programs deposits provide us diversified source funding reduce reliance wholesale funding growing portion deposit base consists consumer deposits primarily used finance lending activity inventory portion gcla raise deposits including savings demand time deposits internal thirdparty brokerdealers consumers institutional clients primarily goldman sachs bank usa gs bank usa goldman sachs international bank gsib september 2018 launched marcus goldman sachs uk accept deposits see note 14 consolidated financial statements information deposits secured funding fund significant amount inventory secured basis secured funding includes collateralized financings consolidated statements financial condition may also pledge inventory collateral securities borrowed securities lending agreement also use inventory cover transactions clients sold securities yet purchased secured funding less sensitive changes credit quality unsecured funding due posting collateral lenders nonetheless continually analyze refinancing risk secured funding activities taking account trade tenors maturity profiles counterparty concentrations collateral eligibility counterparty roll probabilities seek mitigate refinancing risk executing term trades staggered maturities diversifying counterparties raising excess secured funding prefunding residual risk gcla seek raise secured funding term appropriate liquidity assets financed seek longer maturities secured funding collateralized asset classes may harder fund secured basis especially times market stress secured funding excluding funding collateralized liquid government agency obligations primarily executed tenors one month greater primarily executed term repurchase agreements securities loaned contracts weighted average maturity secured funding included collateralized financings consolidated statements financial condition excluding funding collateralized liquid government agency obligations exceeded 120 days december 2018 assets may harder fund secured basis times market stress include certain financial instruments following categories mortgage assetbacked loans securities noninvestmentgrade corporate debt securities equity securities emerging market securities assets classified level 3 fair value hierarchy generally funded unsecured basis see notes 5 6 consolidated financial statements information classification financial instruments fair value hierarchy “unsecured longterm borrowings” information use unsecured longterm borrowings source funding also raise financing types collateralized financings secured loans notes gs bank usa access funding federal home loan bank outstanding borrowings federal home loan bank 528 million december 2018 340 billion december 2017 goldman sachs group inc subsidiaries management’s discussion analysis gs bank usa also access funding federal reserve bank discount window rely funding liquidity planning stress testing maintain policies procedures necessary access funding test discount window borrowing procedures unsecured shortterm borrowings significant portion unsecured shortterm borrowings originally longterm debt scheduled mature within one year reporting date use unsecured shortterm borrowings including us nonus hybrid financial instruments finance liquid assets cash management purposes light regulatory developments group inc longer issues debt original maturity less one year subsidiaries see note 15 consolidated financial statements information unsecured shortterm borrowings unsecured longterm borrowings issue unsecured longterm borrowings source funding inventory assets finance portion gcla unsecured longterm borrowings including structured notes raised syndicated us registered offerings us registered rule 144a mediumterm note programs offshore mediumterm note offerings debt offerings issue different tenors currencies products maximize diversification investor base table presents quarterly unsecured longterm borrowings maturity profile december 2018 weighted average maturity unsecured longterm borrowings december 2018 approximately eight years mitigate refinancing risk seek limit principal amount debt maturing course monthly quarterly annual time horizon enter interest rate swaps convert portion unsecured longterm borrowings floatingrate obligations manage exposure interest rates see note 16 consolidated financial statements information unsecured longterm borrowings shareholders’ equity shareholders’ equity stable perpetual source funding see note 19 consolidated financial statements information shareholders’ equity capital management regulatory capital adequacy critical importance us place comprehensive capital management policy provides framework defines objectives establishes guidelines assist us maintaining appropriate level composition capital businessasusual stressed conditions equity capital management determine appropriate amount composition equity capital considering multiple factors including current future regulatory capital requirements results capital planning stress testing process results resolution capital models factors rating agency guidelines subsidiary capital requirements business environment conditions financial markets manage capital requirements levels capital usage principally setting limits balance sheet assets andor limits risk case firmwide business levels principally manage level composition equity capital issuances repurchases common stock may also time issue repurchase preferred stock junior subordinated debt issued trusts subordinated debt forms capital business conditions warrant prior repurchases must receive confirmation board governors federal reserve system frb object capital action see notes 16 19 consolidated financial statements information preferred stock junior subordinated debt issued trusts subordinated debt goldman sachs group inc subsidiaries management’s discussion analysis capital planning stress testing process part capital planning project sources uses capital given range business environments including stressed conditions stress testing process designed identify measure material risks associated business activities including market risk credit risk operational risk well ability generate revenues following description capital planning stress testing process • capital planning capital planning process incorporates internal capital adequacy assessment objective ensuring appropriately capitalized relative risks businesses incorporate stress scenarios capital planning process goal holding sufficient capital ensure remain adequately capitalized experiencing severe stress event assessment capital adequacy viewed tandem assessment liquidity adequacy integrated overall risk management structure governance policy framework capital planning process also includes internal riskbased capital assessment incorporates market risk credit risk operational risk market risk calculated using valueatrisk var calculations supplemented riskbased addons include risks related rare events tail risks credit risk utilizes assumptions counterparties’ probability default size losses event default operational risk calculated based scenarios incorporating multiple types operational failures well considering internal external actual loss experience backtesting market risk credit risk used gauge effectiveness models capturing measuring relevant risks • stress testing stress tests incorporate internally designed stress scenarios including internally developed severely adverse scenario required ccar dfast designed capture specific vulnerabilities risks provide information stress test processes summary results website described “business available information” part item 1 form 10k required frb’s annual ccar rules submit capital plan review frb purpose frb’s review ensure robust forwardlooking capital planning process accounts unique risks permits continued operation times economic financial stress frb evaluates us based part whether capital necessary continue operating baseline stress scenarios provided frb developed internally evaluation also takes account process identifying risk controls governance capital planning guidelines making capital planning decisions addition frb evaluates plan make capital distributions ie dividend payments repurchases redemptions stock subordinated debt capital securities issue capital across range macroeconomic scenarios firmspecific assumptions addition dfast rules currently require us conduct stress tests semiannual basis publish summary results frb also conducts annual stress tests publishes summary certain results respect 2018 ccar submission frb informed us object capital plan conditioned upon us returning 630 billion capital third quarter 2018 second quarter 2019 capital plan provides 500 billion repurchases outstanding common stock 130 billion total common stock dividends including increase common stock dividend 005 080 085 per share second quarter 2019 subject approval board directors group inc board amount timing capital actions based among things current projected capital position capital deployment opportunities published summary annual dfast results june 2018 see “business available information” part item 1 form 10k october 2018 submitted semiannual dfast results frb published summary results internally developed severely adverse scenario see “business available information” part item 1 form 10k addition gs bank usa submitted 2018 annual dfast results frb april 2018 published summary annual dfast results june 2018 gs bank usa required conduct annual companyrun stress test 2019 see “business available information” part item 1 form 10k goldman sachs international gsi gsib also capital planning stress testing process incorporates internally designed stress tests required prudential regulation authority’s pra internal capital adequacy assessment process goldman sachs group inc subsidiaries management’s discussion analysis contingency capital plan part comprehensive capital management policy maintain contingency capital plan contingency capital plan provides framework analyzing responding perceived actual capital deficiency including limited identification drivers capital deficiency well mitigants potential actions outlines appropriate communication procedures follow crisis period including internal dissemination information well timely communication external stakeholders capital attribution assess businesses’ capital usage based upon internal assessment risks incorporates attribution relevant regulatory capital requirements regulatory capital requirements allocated using attributed equity framework takes consideration binding capital constraints binding capital constraint based results frb’s annual stress test scenarios include standardized riskbased capital leverage ratios also attribute riskweighted assets rwas business segments december 2018 approximately 60 rwas calculated accordance standardized capital rules approximately 50 rwas calculated accordance basel iii advanced rules attributed institutional client services segment substantially remaining rwas attributed investing lending segment manage levels capital usage based upon balance sheet risk limits well capital return analyses businesses based capital attribution share repurchase program use share repurchase program help maintain appropriate level common equity repurchase program effected primarily regular openmarket purchases may include repurchase plans designed comply rule 10b51 amounts timing determined primarily current projected capital position capital plan submitted frb part ccar amounts timing repurchases may also influenced general market conditions prevailing price trading volumes common stock december 2018 remaining share authorization existing repurchase program 337 million shares however permitted make repurchases extent repurchases objected frb see “market registrant’s common equity related stockholder matters issuer purchases equity securities” part ii item 5 form 10k note 19 consolidated financial statements information share repurchase program see information capital planning stress testing process resolution capital models connection resolution planning efforts established resolution capital adequacy positioning framework designed ensure major subsidiaries gs bank usa goldman sachs co llc gsco gsi gsib goldman sachs japan co ltd gsjcl goldman sachs asset management lp goldman sachs asset management international gsami access sufficient lossabsorbing capacity form equity subordinated debt unsecured senior debt able winddown following group inc bankruptcy filing accordance preferred resolution strategy addition established triggers alerts framework designed provide board information needed make informed decision whether commence bankruptcy proceedings group inc rating agency guidelines credit rating agencies assign credit ratings obligations group inc directly issues guarantees substantially senior unsecured debt obligations gsco gsi assigned long shortterm issuer ratings certain credit rating agencies gs bank usa gsib also assigned long shortterm issuer ratings well ratings long shortterm bank deposits addition credit rating agencies assigned ratings debt obligations certain subsidiaries group inc level composition equity capital among many factors considered determining credit ratings agency definition eligible capital methodology evaluating capital adequacy assessments generally based combination factors rather single calculation see “risk management liquidity risk management credit ratings” information credit ratings group inc gs bank usa gsib gsco gsi goldman sachs group inc subsidiaries management’s discussion analysis consolidated regulatory capital subject consolidated regulatory capital requirements calculated accordance regulations frb capital framework capital framework “advanced approach” banking organization designated global systemically important bank gsib capital framework includes riskbased capital buffers phased ratably became fully effective january 1 2019 minimum riskbased capital ratios applicable us january 2019 reflected fully phasedin capital conservation buffer 25 countercyclical capital buffer determined frb addition fully phasedin gsib buffer applicable us january 2019 25 based 2017 financial data gsib buffer applicable us january 2020 25 based 2018 financial data gsib countercyclical buffers future may differ due additional guidance regulators andor positional changes see note 20 consolidated financial statements information riskbased capital ratios leverage ratios capital framework subsidiary capital requirements many subsidiaries including bank brokerdealer subsidiaries subject separate regulation capital requirements jurisdictions operate bank subsidiaries gs bank usa primary us banking subsidiary gsib primary nonus banking subsidiary entities subject regulatory capital requirements see note 20 consolidated financial statements information regulatory capital requirements bank subsidiaries us regulated brokerdealer subsidiaries gsco primary us regulated brokerdealer subsidiary subject regulatory capital requirements including imposed sec financial industry regulatory authority inc addition gsco registered futures commission merchant subject regulatory capital requirements imposed cftc chicago mercantile exchange national futures association rule 15c31 sec rule 117 cftc specify uniform minimum net capital requirements defined registrants also effectively require significant part registrants’ assets kept relatively liquid form gsco elected calculate minimum capital requirements accordance “alternative net capital requirement” permitted rule 15c31 gsco regulatory net capital defined rule 15c31 1745 billion december 2018 1557 billion december 2017 exceeded amount required 1500 billion december 2018 1315 billion december 2017 addition alternative minimum net capital requirements gsco also required hold tentative net capital excess 1 billion net capital excess 500 million accordance market credit risk standards appendix e rule 15c31 gsco also required notify sec event tentative net capital less 5 billion december 2018 december 2017 gsco tentative net capital net capital excess minimum notification requirements nonus regulated brokerdealer subsidiaries principal nonus regulated brokerdealer subsidiaries include gsi gsjcl gsi uk brokerdealer regulated pra financial conduct authority fca gsi subject capital framework euregulated financial institutions prescribed eu fourth capital requirements directive eu capital requirements regulation crr capital regulations largely based basel iii table presents information gsi’s riskbased capital ratios minimum ratios table • cet1 tier 1 capital total capital december 2018 included amounts finalized upon issuance gsi’s 2018 annual audited financial statements contributed approximately 114 basis points riskbased capital ratios • minimum riskbased capital ratios incorporate capital guidance received pra could change future gsi’s future capital requirements may also impacted developments introduction riskbased capital buffers goldman sachs group inc subsidiaries management’s discussion analysis november 2016 european commission proposed amendments crr implement 3 minimum leverage ratio requirement certain eu financial institutions leverage ratio compares crr’s definition tier 1 capital measure leverage exposure defined sum certain assets plus certain offbalancesheet exposures include measure derivatives securities financing transactions commitments guarantees less tier 1 capital deductions required minimum leverage ratio expected become effective gsi earlier january 1 2021 gsi leverage ratio 44 december 2018 41 december 2017 tier 1 capital december 2018 included amounts finalized upon issuance gsi’s 2018 annual audited financial statements amounts contributed approximately 31 basis points leverage ratio leverage ratio based current interpretation understanding rule may evolve discuss interpretation application rule gsi’s regulators gsjcl japanese brokerdealer regulated japan’s financial services agency gsjcl certain nonus subsidiaries also subject capital adequacy requirements promulgated authorities countries operate december 2018 december 2017 subsidiaries compliance local capital adequacy requirements regulatory matters developments regulatory matters businesses subject significant evolving regulation doddfrank act enacted july 2010 significantly altered financial regulatory regime within operate addition reforms adopted considered regulators policy makers worldwide given many new proposed rules highly complex full impact regulatory reform known rules implemented market practices develop final regulations see “business regulation” part item 1 form 10k information laws rules regulations proposed laws rules regulations apply us operations resolution recovery plans required frb fdic submit periodic plan describes strategy rapid orderly resolution event material financial distress failure resolution plan also required frb submit periodic recovery plan outlines steps management could take reduce risk maintain sufficient liquidity conserve capital times prolonged stress december 2017 frb fdic provided feedback 2017 resolution plan determined satisfactorily addressed shortcomings identified prior submissions frb fdic identify deficiencies 2017 resolution plan frb fdic note one shortcoming must addressed next resolution plan submission next resolution plan due july 1 2019 december 2018 frb fdic finalized guidance resolution plan submissions consolidated superseded prior guidance see “business available information” part item 1 form 10k addition gs bank usa required submit periodic resolution plans fdic gs bank usa’s 2018 resolution plan submitted june 28 2018 august 2018 fdic extended next resolution plan filing deadline sooner july 1 2020 tlac december 2016 frb adopted final rule establishing new tlac related requirements us bhcs designated gsibs rule became effective january 2019 phasein period failure comply tlac requirements could result restrictions imposed frb could limit ability distribute capital including share repurchases dividend payments make certain discretionary compensation payments table presents information tlac external longterm debt ratios goldman sachs group inc subsidiaries management’s discussion analysis table • tlac includes common preferred stock eligible longterm debt issued group inc eligible longterm debt represents unsecured debt remaining maturity least one year satisfies additional requirements • external longterm debt consists eligible longterm debt subject haircut due paid one two years • rwas represent basel iii advanced rwas accordance tlac rules higher basel iii advanced standardized rwas used calculation tlac external longterm debt ratios • leverage exposure consists average adjusted total assets certain offbalancesheet exposures see “business regulation” part item 1 form 10k information tlac developments brexit march 2017 uk government commenced formal proceedings end uk’s membership eu two year window terms uk’s exit eu may negotiated period expires march 29 2019 eu uk negotiated withdrawal agreement uk eu parliaments must ratify withdrawal agreement uk parliament yet approved withdrawal agreement result possibility uk leave eu march 29 2019 without transitional arrangements place firms based uk lose existing access arrangements eu markets scenario referred “hard” brexit preparing anticipated outcomes including hard brexit goal ensuring maintain access eu markets able continue provide products services eu clients order us continue serve eu clients may need face entity within one remaining eu member states unless national laws applicable member state permit crossborder services noneu entities example based specific licenses exemptions plan manage hard brexit scenario involves transition certain activities new andor different legal entities working clients counterparties redocument transactions face one eu legal entities changes infrastructure obtaining developing new real estate cases moving people offices eu hard brexit scenario otherwise necessary plan service eu client base following manner • german bank subsidiary goldman sachs bank europe se gsbe act main operating subsidiary eu assume certain functions longer efficiently effectively performed uk operating subsidiaries including gsi gsib gsami • consistent global approach closer clients also setting branches gsbe number jurisdictions eu enable investment banking institutional client services pwm investment personnel situated offices countries • received approval german financial regulator bafin licensed investment firm goldman sachs europe se able conduct certain activities related physical commodities related products gsbe may prevented undertaking • order service investment management business received approval irish financial regulator central bank ireland collective investment fund alternative investment fund manager ireland replace similar existing londonbased alternative investment fund manager lose eu passport postbrexit • large portion institutional client services investment banking clients classified professionals eligible counterparties specific jurisdictions may choose continue serviced continue transact uk service providers entities domestic arrangements provided individual member states licenses exemptions expect continue providing products services manner extent clients prefer coverage available would mean clients choose certain jurisdictions could continue face gsi • also process opening accounts enable clients transact gsbe andor goldman sachs europe se applicable • internal infrastructure buildout external connectivity financial market infrastructure required new eu entities continues progress substantial elements already place gsbe connected settlement clearing systems testing exchange connectivity goldman sachs group inc subsidiaries management’s discussion analysis • gsbe assigned credit rating af1 fitch inc fitch a1p1 moody’s investors service moody’s aa1 standard poor’s ratings services sp consistent issued gsi • headcount eu offices increased course last year several hundred roles expected transition eu current planning assumptions • secured developing additional real estate capacity frankfurt stockholm milan dublin replacement interbank offered rates ibors including libor central banks regulators number major jurisdictions example us uk eu switzerland japan convened working groups find implement transition suitable replacements ibors uk fca regulates libor announced compel panel banks contribute libor 2021 eu benchmarks regulation imposed conditions compliant benchmarks may used new contracts 2021 marketled working groups major jurisdictions noted already selected preferred alternative riskfree reference rates published continue publish consultations issues including methodologies fallback provisions contracts financial instruments linked ibors development term structures alternative riskfree reference rates critical financial markets transition use alternative riskfree reference rates place ibors exposure ibors including financial instruments contracts mature 2021 exposures arise securities loans hold investment connection marketmaking activities well derivatives enter make markets clients hedge risks also exposure ibors floatingrate securities funding products issue markets alternative riskfree reference rates developing develop expect transition alternative riskfree reference rates seeking facilitate orderly transition ibors alternative riskfree reference rates us clients accordingly created program focuses • evaluating monitoring impacts across businesses including transactions products • identifying evaluating scope existing financial instruments contracts may affected extent financial instruments contracts already contain appropriate fallback language would require amendment either bilateral negotiation using industrywide tools protocols • enhancements infrastructure example models systems prepare smooth transition alternative riskfree reference rates • active participation central bank sector working groups including responding industry consultations • client education communication part program sought systematically identify risks inherent transition including financial risks example earnings volatility stress due widening swap spreads loss funding sources result counterparties’ reluctance participate transitioning positions nonfinancial risks example inability negotiate fallbacks clients andor counterparties operational impediments transition engaged range industry regulatory working groups example isda bank england’s working group sterling risk free reference rates federal reserve’s alternative reference rates committee continue engage clients counterparties facilitate orderly transition alternative riskfree reference rates offbalancesheet arrangements contractual obligations offbalancesheet arrangements ordinary course business enter various types offbalancesheet arrangements involvement arrangements take many different forms including • purchasing retaining residual interests special purpose entities mortgagebacked assetbacked securitization vehicles • holding senior subordinated debt interests limited general partnerships preferred common stock nonconsolidated vehicles • entering interest rate foreign currency equity commodity credit derivatives including total return swaps • entering operating leases • providing guarantees indemnifications commitments letters credit representations warranties goldman sachs group inc subsidiaries management’s discussion analysis enter arrangements variety business purposes including securitizations securitization vehicles purchase mortgages corporate bonds types financial assets critical functioning several significant investor markets including mortgagebacked assetbacked securities markets since offer investors access specific cash flows risks created securitization process also enter arrangements underwrite client securitization transactions provide secondary market liquidity make investments performing nonperforming debt distressed loans powerrelated assets equity securities real estate assets provide investors creditlinked assetrepackaged notes receive provide letters credit satisfy margin requirements facilitate clearance settlement process table presents information various offbalancesheet arrangements may found form 10k addition see note 3 consolidated financial statements information consolidation policies type offbalancesheet arrangement disclosure form 10k variable interests obligations including contingent obligations arising variable interests nonconsolidated variable interest entities vies see note 12 consolidated financial statements leases see “contractual obligations” note 18 consolidated financial statements guarantees letters credit lending commitments see note 18 consolidated financial statements derivatives see “risk management credit risk management credit exposures otc derivatives” notes 4 5 7 18 consolidated financial statements contractual obligations certain contractual obligations require us make future cash payments contractual obligations include time deposits secured longterm financings unsecured longterm borrowings contractual interest payments minimum rental payments noncancelable leases obligations make future cash payments also include commitments guarantees related offbalancesheet arrangements excluded table see note 18 consolidated financial statements information commitments guarantees due uncertainty timing amounts ultimately paid liability unrecognized tax benefits excluded table see note 24 consolidated financial statements information unrecognized tax benefits table presents contractual obligations type table presents contractual obligations expiration table • obligations maturing within one year financial statement date redeemable within one year financial statement date option holders excluded treated shortterm obligations see note 15 consolidated financial statements information shortterm borrowings • obligations repayable prior maturity option reflected contractual maturity dates obligations redeemable prior maturity option holders reflected earliest dates options become exercisable • december 2018 unsecured longterm borrowings maturities extending 2067 consisted principally senior borrowings included 424 billion adjustments carrying value certain unsecured longterm borrowings resulting application hedge accounting see note 16 consolidated financial statements information unsecured longterm borrowings • december 2018 difference aggregate contractual principal amount related fair value longterm secured financings fair value option elected material • december 2018 aggregate contractual principal amount unsecured longterm borrowings fair value option elected exceeded related fair value 238 billion goldman sachs group inc subsidiaries management’s discussion analysis • contractual interest payments represents estimated future interest payments related unsecured longterm borrowings secured longterm financings time deposits based applicable interest rates december 2018 includes stated coupons structured notes • future minimum rental payments net minimum sublease rentals noncancelable leases lease commitments office space expire various dates 2069 certain agreements subject periodic escalation provisions increases real estate taxes charges see note 18 consolidated financial statements information leases risk management risks inherent businesses include liquidity market credit operational model legal compliance conduct regulatory reputational risks information risk management processes see “overview structure risk management” risks include risks across risk categories regions global businesses well uncertain outcomes potential materially impact financial results liquidity reputation information areas risk see “liquidity risk management” “market risk management” “credit risk management” “operational risk management” “model risk management” “risk factors” part item 1a form 10k overview structure risk management overview believe effective risk management critical success accordingly established enterprise risk management framework employs comprehensive integrated approach risk management designed enable comprehensive risk management processes identify assess monitor manage risks assume conducting activities risks include liquidity market credit operational model legal compliance conduct regulatory reputational risk exposures risk management structure built around three core components governance processes people governance risk management governance starts board directly committees including risk committee oversees risk management policies practices implemented enterprise risk management framework board also responsible annual review approval risk appetite statement risk appetite statement describes levels types risk willing accept avoid order achieve strategic business objectives remaining compliance regulatory requirements board receives regular briefings firmwide risks including liquidity risk market risk credit risk operational risk model risk independent risk oversight control functions including chief risk officer compliance risk conduct risk head compliance legal regulatory matters general counsel matters impacting reputation chair firmwide client business standards committee firmwide reputational risk committee chief risk officer reports chief executive officer risk committee board part review firmwide risk portfolio chief risk officer regularly advises risk committee board relevant risk metrics material exposures including risk limits thresholds established risk appetite statement enterprise risk management department reports chief risk officer oversees implementation risk governance structure core risk management processes responsible ensuring enterprise risk management framework provides board risk committees senior management consistent integrated approach managing various risks manner consistent risk appetite revenueproducing units well treasury operations technology first line defense accountable outcomes riskgenerating activities well assessing managing risks within risk appetite independent risk oversight control functions considered second line defense provide independent assessment oversight challenge risks taken first line defense well lead participate riskoriented committees independent risk oversight control functions include compliance conflicts resolution controllers credit risk management enterprise risk management human capital management legal liquidity risk management market risk management model risk management operational risk management tax goldman sachs group inc subsidiaries management’s discussion analysis internal audit considered third line defense reports chief executive officer audit committee board internal audit includes professionals broad range audit industry experience including risk management expertise internal audit responsible independently assessing validating effectiveness key controls including within risk management framework providing timely reporting audit committee board senior management regulators three lines defense structure promotes accountability first line risk takers provides framework effective challenge second line empowers independent review third line governance structure provides protocol responsibility decisionmaking risk management issues ensures implementation decisions make extensive use riskrelated committees meet regularly serve important means facilitate foster ongoing discussions manage mitigate risks maintain strong communication risk culture collaboration decisionmaking among first second lines defense committees senior management first line defense responsible management risk dedicate extensive resources second line defense order ensure strong oversight structure appropriate segregation duties regularly reinforce strong culture escalation accountability across functions processes maintain various processes critical components risk management framework including identifying assessing monitoring limiting risks effectively assess monitor risks maintain daily discipline marking substantially inventory current market levels carry inventory fair value changes valuation reflected immediately risk management systems net revenues believe discipline one effective tools assessing managing risk provides transparent realistic insight inventory exposures also apply rigorous framework limits thresholds control monitor risk across transactions products businesses markets board directly indirectly risk committee approves limits thresholds included risk appetite statement firmwide business product levels addition firmwide enterprise risk committee responsible approving risk limits framework subject overall limits approved risk committee board variety levels monitoring limits daily basis risk governance committee responsible approving limits firmwide business product levels certain limits may set levels require periodic adjustment rather levels reflect maximum risk appetite fosters ongoing dialogue risk among first second lines defense committees senior management well rapid escalation riskrelated matters see “liquidity risk management” “market risk management” “credit risk management” “operational risk management” information active management positions another important process proactive mitigation market credit exposures minimizes risk required take outsized actions periods stress effective risk reporting risk decisionmaking depends ability get right information right people right time focus rigor effectiveness risk systems objective ensuring risk management technology systems comprehensive reliable timely devote significant time resources risk management technology ensure consistently provides us complete accurate timely information people even best technology serves tool helping make informed decisions real time risks taking ultimately effective risk management requires people interpret risk data ongoing timely basis adjust risk positions accordingly experience professionals understanding nuances limitations risk measure guides us assessing exposures maintaining within prudent levels reinforce culture effective risk management consistent risk appetite training development programs well way evaluate performance recognize reward people training development programs including certain sessions led senior leaders focused importance risk management client relationships reputational excellence part annual performance review process assess reputational excellence including employee exercises good risk management reputational judgment adheres code conduct compliance policies review reward processes designed communicate reinforce professionals link behavior people recognized need focus clients reputation need always act accordance highest standards goldman sachs group inc subsidiaries management’s discussion analysis structure ultimate oversight risk responsibility board oversees risk directly committees including risk committee series committees specific risk management mandates oversight decisionmaking responsibilities risk management activities committee membership generally consists senior managers first second lines defense established procedures committees ensure appropriate information barriers place primary risk committees also additional subcommittees working groups described addition committees riskoriented committees provide oversight different businesses activities products regions entities committees responsibility considering impact transactions activities oversee reputation membership risk committees reviewed regularly updated reflect changes responsibilities committee members accordingly length time members serve respective committees varies determined committee chairs based responsibilities members chart presents overview risk management governance structure three lines defense reporting relationships management committee management committee oversees global activities provides oversight directly authority delegated committees established committee consists senior leaders chaired chief executive officer members management committee also members committees following committees principally involved firmwide risk management firmwide enterprise risk committee firmwide enterprise risk committee responsible ongoing review approval monitoring enterprise risk management framework providing oversight aggregate financial nonfinancial risks part oversight committee responsible ongoing approval monitoring risk limits framework firmwide business product levels committee cochaired chief financial officer chief risk officer appointed chairs chief executive officer reports management committee following primary committees report firmwide enterprise risk committee • firmwide risk committee firmwide risk committee globally responsible ongoing monitoring relevant financial risks related risk limits firmwide business product levels committee cochaired chairs firmwide enterprise risk committee • firmwide new activity committee firmwide new activity committee responsible reviewing new activities establishing process identify review previously approved activities significant changed complexity andor structure present different reputational suitability concerns time consider whether activities remain appropriate committee cochaired head regulatory controllers cohead europe middle east africa ficc sales appointed chairs firmwide enterprise risk committee • firmwide model risk control committee firmwide model risk control committee responsible oversight development implementation model risk controls includes governance policies procedures related reliance financial models committee chaired deputy chief risk officer appointed chair chairs firmwide enterprise risk committee goldman sachs group inc subsidiaries management’s discussion analysis • firmwide conduct operational risk committee firmwide conduct operational risk committee globally responsible ongoing approval monitoring frameworks policies parameters limits govern conduct operational risks committee cochaired managing director global compliance deputy chief risk officer appointed chairs firmwide enterprise risk committee • firmwide technology risk committee firmwide technology risk committee reviews matters related design development deployment use technology committee oversees cyber security matters well technology risk management frameworks methodologies monitors effectiveness committee cochaired chief information officer head global investment research appointed chairs firmwide enterprise risk committee • global business resilience committee global business resilience committee responsible oversight business resilience initiatives promoting increased levels security resilience reviewing certain operating risks related business resilience committee chaired chief administrative officer appointed chair chairs firmwide enterprise risk committee • risk governance committee risk governance committee delegated authority firmwide enterprise risk committee globally responsible ongoing approval monitoring risk frameworks policies parameters limits firmwide business product levels addition committee reviews results stress tests scenario analyses committee chaired chief risk officer appointed chair chairs firmwide enterprise risk committee • firmwide volcker oversight committee firmwide volcker oversight committee responsible oversight periodic review implementation volcker rule compliance program approved board volcker rulerelated matters committee cochaired head market risk management deputy head compliance appointed chairs firmwide enterprise risk committee firmwide client business standards committee firmwide client business standards committee assesses makes determinations regarding relationships clients client service experience related business standards reputational risk committee chaired president chief operating officer appointed chair chief executive officer reports management committee periodically provides updates receives guidance public responsibilities committee board following committees report jointly firmwide enterprise risk committee firmwide client business standards committee • firmwide reputational risk committee firmwide reputational risk committee responsible assessing reputational risks arising transactions identified potential heightened reputational risk pursuant criteria established firmwide reputational risk committee chaired president chief operating officer vicechairs head compliance head conflicts resolution appointed vicechairs chair firmwide reputational risk committee • firmwide suitability committee firmwide suitability committee responsible setting standards policies product transaction client suitability providing forum consistency across functions regions products suitability assessments committee also reviews suitability matters escalated committees committee cochaired deputy head compliance cohead europe middle east africa ficc sales appointed chairs chair firmwide client business standards committee • firmwide investment policy committee firmwide investment policy committee reviews approves sets policies provides oversight certain illiquid principal investments including review risk management controls types investments committee cochaired head merchant banking division head special situations group appointed chairs president chief operating officer chief financial officer goldman sachs group inc subsidiaries management’s discussion analysis • firmwide capital committee firmwide capital committee provides approval oversight debtrelated transactions including principal commitments capital committee aims ensure business reputational suitability standards underwritings capital commitments maintained global basis committee cochaired head credit risk management cohead financing group appointed chairs firmwide enterprise risk committee • firmwide commitments committee firmwide commitments committee reviews underwriting distribution activities respect equity equityrelated product offerings sets maintains policies procedures designed ensure legal reputational regulatory business standards maintained global basis addition reviewing specific transactions committee periodically conducts general strategic reviews sectors products establishes policies connection transaction practices committee cochaired cohead industrials group investment banking division advisory director managing director risk management appointed chairs chair firmwide client business standards committee firmwide asset liability committee firmwide asset liability committee reviews approves strategic direction financial resources including capital liquidity funding balance sheet committee oversight responsibility asset liability management including interest rate currency risk funds transfer pricing capital allocation incentives credit ratings committee makes recommendations adjustments asset liability management financial resource allocation light current events risks exposures regulatory requirements approves related policies committee cochaired chief financial officer global treasurer appointed chairs chief executive officer reports management committee conflicts management conflicts interest approach dealing fundamental client relationships reputation longterm success term “conflict interest” universally accepted meaning conflicts arise many forms within business businesses responsibility identifying potential conflicts well complying policies procedures shared employees multilayered approach resolving conflicts addressing reputational risk senior management oversees policies related conflicts resolution conjunction conflicts resolution legal compliance firmwide client business standards committee internal committees formulates policies standards principles assists making judgments regarding appropriate resolution particular conflicts resolving potential conflicts necessarily depends facts circumstances particular situation application experienced informed judgment general matter conflicts resolution reviews financing advisory assignments investment banking certain investing lending activities addition various transaction oversight committees firmwide capital commitments suitability committees also review new underwritings loans investments structured products groups committees work internal external counsel compliance evaluate address actual potential conflicts resolution reports president chief operating officer regularly assess policies procedures address conflicts interest effort conduct business accordance highest ethical standards compliance applicable laws rules regulations goldman sachs group inc subsidiaries management’s discussion analysis liquidity risk management overview liquidity risk unable fund meet liquidity needs event firmspecific broader industry market liquidity stress events place comprehensive conservative set liquidity funding policies principal objective able fund enable core businesses continue serve clients generate revenues even adverse circumstances treasury reports chief financial officer primary responsibility developing managing executing liquidity funding strategy within risk appetite liquidity risk management independent revenueproducing units treasury reports chief risk officer primary responsibility assessing monitoring managing liquidity risk firmwide oversight across global businesses establishment stress testing limits frameworks liquidity risk management principles manage liquidity risk according three principles hold sufficient excess liquidity form gcla cover outflows stressed period ii maintain appropriate assetliability management iii maintain viable contingency funding plan gcla liquidity maintain meet broad range potential cash outflows collateral needs stressed environment primary liquidity principle prefund estimated potential cash collateral needs liquidity crisis hold liquidity form unencumbered highly liquid securities cash believe securities held gcla would readily convertible cash matter days liquidation entering repurchase agreements maturities resale agreements cash would allow us meet immediate obligations without needing sell assets depend additional funding creditsensitive markets gcla reflects following principles • first days weeks liquidity crisis critical company’s survival • focus must maintained potential cash collateral outflows disruptions financing flows businesses diverse liquidity needs determined many factors including market movements collateral requirements client commitments change dramatically difficult funding environment • liquidity crisis creditsensitive funding including unsecured debt certain deposits types secured financing agreements may unavailable terms eg interest rates collateral provisions tenor availability types secured financing may change certain deposits may withdrawn • result policy prefund liquidity estimate may needed crisis hold unencumbered securities larger debt balances businesses would otherwise require believe liquidity stronger greater balances highly liquid unencumbered securities even though increases total assets funding costs maintain gcla across group inc goldman sachs funding llc funding ihc group inc’s major brokerdealer bank subsidiaries asset types clearing agents provide us sufficient operating liquidity ensure timely settlement major markets even difficult funding environment addition gcla maintain cash balances securities several entities primarily use specific currencies entities jurisdictions immediate access parent company liquidity believe gcla provides us resilient source funds would available advance potential cash collateral outflows gives us significant flexibility managing difficult funding environment assetliability management liquidity risk management policies designed ensure sufficient amount financing even funding markets experience persistent stress manage maturities diversity funding across markets products counterparties seek maintain diversified funding profile appropriate tenor taking consideration characteristics liquidity profile assets approach assetliability management includes • conservatively managing overall characteristics funding book focus maintaining longterm diversified sources funding excess current requirements see “balance sheet funding sources funding sources” information goldman sachs group inc subsidiaries management’s discussion analysis • actively managing monitoring asset base particular focus liquidity holding period ability fund assets secured basis assess funding requirements ability liquidate assets stressed environment appropriately managing risk enables us determine appropriate funding products tenors see “balance sheet funding sources balance sheet management” information balance sheet management process “ funding sources secured funding” information asset classes may harder fund secured basis • raising secured unsecured financing long tenor relative liquidity profile assets reduces risk liabilities come due advance ability generate liquidity sale assets maintain highly liquid balance sheet holding period certain assets may materially shorter contractual maturity dates goal ensure maintain sufficient liquidity fund assets meet contractual contingent obligations normal times well periods market stress dynamic balance sheet management process use actual projected asset balances determine secured unsecured funding requirements funding plans reviewed approved firmwide asset liability committee addition independent risk oversight control functions analyze firmwide asset liability committee reviews consolidated total capital position unsecured longterm borrowings plus total shareholders’ equity maintain level longterm funding sufficient meet longterm financing requirements liquidity crisis would first use gcla order avoid reliance asset sales gcla however recognize orderly asset sales may prudent necessary severe persistent liquidity crisis subsidiary funding policies majority unsecured funding raised group inc lends necessary funds funding ihc subsidiaries regulated meet asset financing liquidity capital requirements addition group inc provides regulated subsidiaries necessary capital meet regulatory requirements benefits approach subsidiary funding enhanced control greater flexibility meet funding requirements subsidiaries funding also raised subsidiary level variety products including deposits secured funding unsecured borrowings intercompany funding policies assume subsidiary’s funds securities freely available parent funding ihc subsidiaries unless legally provided ii additional regulatory tax restrictions particular many subsidiaries subject laws authorize regulatory bodies block reduce flow funds subsidiaries group inc funding ihc regulatory action kind could impede access funds group inc needs make payments obligations accordingly assume capital provided regulated subsidiaries available group inc subsidiaries financing provided regulated subsidiaries available group inc funding ihc maturity financing group inc provided substantial amounts equity subordinated indebtedness directly indirectly regulated subsidiaries example december 2018 group inc 2905 billion equity subordinated indebtedness invested gsco principal us registered brokerdealer 3969 billion invested gsi regulated uk brokerdealer 276 billion invested gsjcl regulated japanese brokerdealer 3198 billion invested gs bank usa regulated new york statechartered bank 393 billion invested gsib regulated uk bank group inc also provided directly indirectly 11438 billion unsubordinated loans including secured loans 2872 billion 1809 billion collateral cash deposits entities substantially gsco gsi gsjcl gs bank usa december 2018 addition december 2018 group inc significant amounts capital invested loans regulated subsidiaries contingency funding plan maintain contingency funding plan provide framework analyzing responding liquidity crisis situation periods market stress contingency funding plan outlines list potential risk factors key reports metrics reviewed ongoing basis assist assessing severity managing liquidity crisis andor market dislocation contingency funding plan also describes detail potential responses assessments indicate entered liquidity crisis include prefunding estimate potential cash collateral needs well utilizing secondary sources liquidity mitigants action items address specific risks may arise also described assigned individuals responsible execution goldman sachs group inc subsidiaries management’s discussion analysis contingency funding plan identifies key groups individuals foster effective coordination control distribution information critical management crisis period market stress contingency funding plan also provides information responsibilities groups individuals include making disseminating key decisions coordinating contingency activities throughout duration crisis period market stress implementing liquidity maintenance activities managing internal external communication stress tests order determine appropriate size gcla use internal liquidity model referred modeled liquidity outflow captures quantifies liquidity risks also consider factors including limited assessment potential intraday liquidity needs additional internal liquidity model referred intraday liquidity model results longterm stress testing models resolution liquidity models applicable regulatory requirements qualitative assessment condition well financial markets results modeled liquidity outflow intraday liquidity model longterm stress testing models resolution liquidity models reported senior management regular basis also perform stress tests designed ensure comprehensive analysis vulnerabilities idiosyncratic risks combining financial nonfinancial risks including limited credit market liquidity funding operational compliance strategic systemic emerging risks single combined scenario modeled liquidity outflow modeled liquidity outflow based conducting multiple scenarios include combinations marketwide firmspecific stress scenarios characterized following qualitative elements • severely challenged market environments including low consumer corporate confidence financial political instability adverse changes market values including potential declines equity markets widening credit spreads • firmspecific crisis potentially triggered material losses reputational damage litigation executive departure andor ratings downgrade following key modeling elements modeled liquidity outflow • liquidity needs 30day scenario • twonotch downgrade longterm senior unsecured credit ratings • combination contractual outflows upcoming maturities unsecured debt contingent outflows eg actions though contractually required may deem necessary crisis assume contingent outflows occur within initial days weeks crisis • issuance equity unsecured debt • support additional government funding facilities although access various central bank funding programs assume reliance additional sources funding liquidity crisis • asset liquidation gcla potential contractual contingent cash collateral outflows covered modeled liquidity outflow include unsecured funding • contractual upcoming maturities unsecured longterm debt commercial paper unsecured funding products assume unable issue new unsecured debt roll maturing debt • contingent repurchases outstanding longterm debt commercial paper hybrid financial instruments ordinary course business market maker deposits • contractual upcoming maturities term deposits assume unable raise new term deposits roll maturing term deposits • contingent partial withdrawals deposits contractual maturity withdrawal assumptions reflect among factors type deposit whether deposit insured uninsured relationship depositor secured funding • contractual portion upcoming contractual maturities secured funding due either inability refinance ability refinance wider haircuts ie terms require us post additional collateral assumptions reflect among factors quality underlying collateral counterparty roll probabilities assessment counterparty’s likelihood continuing provide funding secured basis maturity trade counterparty concentration • contingent adverse changes value financial assets pledged collateral financing transactions would necessitate additional collateral postings transactions goldman sachs group inc subsidiaries management’s discussion analysis otc derivatives • contingent collateral postings counterparties due adverse changes value otc derivatives excluding cleared settled central counterparties otccleared • contingent outflows cash collateral related otc derivatives excluding otccleared including impact trade terminations collateral substitutions collateral disputes loss rehypothecation rights collateral calls termination payments required twonotch downgrade credit ratings collateral called counterparties available exchangetraded otccleared derivatives • contingent variation margin postings required due adverse changes value outstanding exchangetraded otccleared derivatives • contingent increase initial margin guaranty fund requirements derivative clearing houses customer cash securities • contingent liquidity outflows associated prime brokerage business including withdrawals customer credit balances reduction customer short positions may serve funding source long positions securities • contingent liquidity outflows associated reduction composition change short positions may serve funding source long positions unfunded commitments • contingent draws unfunded commitments draw assumptions reflect among things type commitment counterparty • upcoming large cash outflows tax payments intraday liquidity model intraday liquidity model measures intraday liquidity needs using scenario analysis characterized qualitative elements modeled liquidity outflow model assesses risk increased intraday liquidity requirements scenario access sources intraday liquidity may become constrained following key modeling elements intraday liquidity model • liquidity needs oneday settlement period • delays receipt counterparty cash payments • reduction availability intraday credit lines thirdparty clearing agents • higher settlement volumes due increase activity longterm stress testing utilize longerterm stress tests take forward view liquidity position prolonged stress periods experience severe liquidity stress recover environment continues challenging focused ensuring conservative assetliability management prepare prolonged period potential stress seeking maintain diversified funding profile appropriate tenor taking consideration characteristics liquidity profile assets also perform stress tests regular basis part routine risk management processes conduct tailored stress tests ad hoc productspecific basis response market developments resolution liquidity models connection resolution planning efforts established resolution liquidity adequacy positioning framework estimates liquidity needs major subsidiaries stressed environment liquidity needs measured using modeled liquidity outflow assumptions include certain additional interaffiliate exposures also established resolution liquidity execution need framework measures liquidity needs major subsidiaries stabilize winddown following group inc bankruptcy filing accordance preferred resolution strategy addition established triggers alerts framework designed provide board information needed make informed decision whether commence bankruptcy proceedings group inc model review validation regularly refine modeled liquidity outflow intraday liquidity model stress testing models reflect changes market economic conditions business mix changes including model assumptions approved liquidity risk management significant changes models also approved risk governance committee models independently reviewed validated approved model risk management see “model risk management” information limits use liquidity limits various levels across liquidity risk types manage size liquidity exposures limits measured relative acceptable levels risk given liquidity risk tolerance purpose firmwide limits assist senior management monitoring controlling overall liquidity profile goldman sachs group inc subsidiaries management’s discussion analysis risk committee board risk governance committee approve liquidity risk limits firmwide level consistent risk appetite statement limits reviewed frequently amended required approvals permanent temporary basis appropriate reflect changing market business conditions liquidity risk limits monitored treasury liquidity risk management liquidity risk management responsible identifying escalating senior management andor appropriate risk committee timely basis instances limits exceeded gcla unencumbered metrics gcla based results internal liquidity risk models described well consideration factors including limited assessment potential intraday liquidity needs qualitative assessment condition well financial markets believe liquidity position december 2018 december 2017 appropriate strictly limit gcla narrowly defined list securities cash highly liquid even difficult funding environment include potential sources excess liquidity gcla less liquid unencumbered securities committed credit facilities table presents information average gcla table • us dollardenominated gcla consists unencumbered us government agency obligations including highly liquid us agency mortgagebacked obligations eligible collateral federal reserve open market operations ii certain overnight us dollar cash deposits • nonus dollardenominated gcla consists nonus government obligations unencumbered german french japanese uk government obligations certain overnight cash deposits highly liquid currencies maintain gcla enable us meet current potential liquidity requirements parent company group inc subsidiaries modeled liquidity outflow intraday liquidity model incorporate consolidated requirement group inc well standalone requirement major brokerdealer bank subsidiaries funding ihc required provide necessary liquidity group inc ordinary course business also obligated provide capital liquidity support major subsidiaries event material financial distress failure liquidity held directly major brokerdealer bank subsidiaries intended use subsidiary meet liquidity requirements assumed available group inc funding ihc unless legally provided ii additional regulatory tax restrictions addition modeled liquidity outflow intraday liquidity model also incorporate broader assessment standalone liquidity requirements subsidiaries hold portion gcla directly group inc funding ihc support requirements unencumbered assets addition gcla significant amount unencumbered cash financial instruments including government obligations highgrade money market securities corporate obligations marginable equities loans cash deposits included gcla fair value unencumbered assets averaged 17708 billion 2018 15841 billion 2017 consider assets liquid enough eligible gcla liquidity regulatory framework bhc subject minimum liquidity coverage ratio lcr rule approved us federal bank regulatory agencies lcr rule requires organizations maintain adequate ratio eligible highquality liquid assets hqla expected net cash outflows acute shortterm liquidity stress scenario eligible hqla excludes hqla held subsidiaries excess minimum requirement subject transfer restrictions required maintain minimum lcr 100 expect fluctuations client activity business mix market environment impact average lcr table presents information average daily lcr goldman sachs group inc subsidiaries management’s discussion analysis addition us federal bank regulatory agencies issued proposed rule calls net stable funding ratio nsfr large us banking organizations proposal would require banking organizations ensure access stable funding oneyear time horizon proposed rule includes quarterly disclosure ratio description banking organization’s stable funding sources us federal bank regulatory agencies released final rule expect compliant nsfr requirement effective following information subsidiary liquidity regulatory requirements • gs bank usa gs bank usa subject minimum lcr 100 lcr rule approved us federal bank regulatory agencies december 2018 gs bank usa’s lcr exceeded minimum requirement nsfr requirement described would also apply gs bank usa • gsi subject minimum lcr 100 lcr rule approved uk regulatory authorities european commission gsi’s average monthly lcr trailing twelvemonth period ended december 2018 exceeded minimum requirement • subsidiaries monitor local regulatory liquidity requirements subsidiaries ensure compliance many subsidiaries requirements either changed likely change future due implementation basel committee’s framework liquidity risk measurement standards monitoring well regulatory developments implementation rules amendments adopted regulatory authorities could impact liquidity funding requirements practices future credit ratings rely shortterm longterm debt capital markets fund significant portion daytoday operations cost availability debt financing influenced credit ratings credit ratings also important competing certain markets otc derivatives seek engage longerterm transactions see “risk factors” part item 1a form 10k information risks associated reduction credit ratings table presents unsecured credit ratings outlook group inc table • ratings outlook dbrs inc dbrs fitch moody’s rating investment information inc ri sp • ratings trust preferred relate guaranteed preferred beneficial interests issued goldman sachs capital • dbrs fitch moody’s sp ratings preferred stock include apex issued goldman sachs capital ii goldman sachs capital iii table presents unsecured credit ratings outlook gs bank usa gsib gsco gsi fitch moody’s sp goldman sachs group inc subsidiaries management’s discussion analysis believe credit ratings primarily based credit rating agencies’ assessment • liquidity market credit operational risk management practices • level variability earnings • capital base • franchise reputation management • corporate governance • external operating economic environment including cases assumed level government support systemic considerations potential resolution certain derivatives transacted bilateral agreements counterparties may require us post collateral terminate transactions based changes credit ratings manage gcla ensure would among potential requirements able make additional collateral termination payments may required event twonotch reduction longterm credit ratings well collateral called counterparties available see note 7 consolidated financial statements information derivatives creditrelated contingent features additional collateral termination payments related net derivative liabilities bilateral agreements could called counterparties event onenotch twonotch downgrade credit ratings cash flows global financial institution cash flows complex bear little relation net earnings net assets consequently believe traditional cash flow analysis less meaningful evaluating liquidity position liquidity assetliability management policies described cash flow analysis may however helpful highlighting certain macro trends strategic initiatives businesses year ended december 2018 cash equivalents increased 2050 billion 13055 billion end 2018 primarily due net cash provided financing activities operating activities partially offset net cash used investing activities net cash provided financing activities primarily reflected increases consumer deposits net cash provided operating activities primarily reflected net earnings decrease collateralized transactions partially offset increase financial instruments owned net cash used investing activities primarily fund corporate commercial real estate loans year ended december 2017 cash equivalents decreased 1166 billion 11005 billion end 2017 used 1823 billion net cash operating activities reflecting decrease net liability receivables payables due client activity used 2864 billion net cash investing activities primarily fund corporate real estate loans investments us government agency obligations accounted availableforsale securities generated 3521 billion net cash financing activities primarily net issuances unsecured longterm borrowings increases institutional consumer deposits partially offset repurchases common stock year ended december 2016 cash equivalents increased 2827 billion 12171 billion end 2016 generated 968 billion net cash investing activities primarily net cash acquired business acquisitions generated 1860 billion net cash financing activities operating activities primarily increases deposits net issuances unsecured longterm borrowings partially offset repurchases common stock goldman sachs group inc subsidiaries management’s discussion analysis market risk management overview market risk loss value inventory well certain financial assets financial liabilities due changes market conditions employ variety risk measures described respective sections monitor market risk hold inventory primarily market making clients investing lending activities inventory therefore changes based client demands investment opportunities inventory accounted fair value therefore fluctuates daily basis related gains losses included market making principal transactions categories market risk include following • interest rate risk results exposures changes level slope curvature yield curves volatilities interest rates prepayment speeds credit spreads • equity price risk results exposures changes prices volatilities individual equities baskets equities equity indices • currency rate risk results exposures changes spot prices forward prices volatilities currency rates • commodity price risk results exposures changes spot prices forward prices volatilities commodities crude oil petroleum products natural gas electricity precious base metals market risk management independent revenueproducing units reports chief risk officer primary responsibility assessing monitoring managing market risk firmwide oversight across global businesses managers revenueproducing units market risk management discuss market information positions estimated loss scenarios ongoing basis managers revenueproducing units accountable managing risk within prescribed limits managers indepth knowledge positions markets instruments available hedge exposures market risk management process managing market risk includes • collecting complete accurate timely information • dynamic limitsetting framework • monitoring compliance established market risk limits reporting exposures • diversifying exposures • controlling position sizes • evaluating mitigants economic hedges related securities derivatives • proactive communication revenueproducing units independent risk oversight control functions market risk management systems enable us perform independent calculation var stress measures capture risk measures individual position levels attribute risk measures individual risk factors position report many different views risk measures eg desk business product type entity produce ad hoc analyses timely manner risk measures market risk management produces risk measures monitors established market risk limits measures reflect extensive range scenarios results aggregated product business firmwide levels use variety risk measures estimate size potential losses moderate extreme market moves shortterm longterm time horizons primary risk measures var used shorterterm periods stress tests risk reports detail key risks drivers changes desk business distributed daily senior management revenueproducing units independent risk oversight control functions goldman sachs group inc subsidiaries management’s discussion analysis valueatrisk var potential loss value due adverse market movements defined time horizon specified confidence level assets liabilities included var see “financial statement linkages market risk measures” typically employ oneday time horizon 95 confidence level use single var model captures risks including interest rates equity prices currency rates commodity prices var facilitates comparison across portfolios different risk characteristics var also captures diversification aggregated risk firmwide level aware inherent limitations var therefore use variety risk measures market risk management process inherent limitations var include • var estimate potential losses longer time horizons moves may extreme • var take account relative liquidity different risk positions • previous moves market risk factors may produce accurate predictions future market moves comprehensively capture exposures relevant risks var calculation use historical simulations full valuation market factors position level simultaneously shocking relevant market factors position market factors include spot prices credit spreads funding spreads yield curves volatility correlation updated periodically based changes composition positions well variations market conditions sample five years historical data generate scenarios var calculation historical data weighted relative importance data reduces time gives greater importance recent observations reflects current asset volatilities improves accuracy estimates potential loss result even positions included var unchanged var would increase increasing market volatility vice versa given reliance historical data var effective estimating risk exposures markets sudden fundamental changes shifts market conditions var measure include • positions best measured monitored using sensitivity measures • impact changes counterparty credit spreads derivatives well changes credit spreads financial liabilities fair value option elected perform daily backtesting var model ie comparing daily net revenues positions included var measure calculated prior business day firmwide level businesses major regulated subsidiaries stress testing stress testing method determining effect various hypothetical stress scenarios use stress testing examine risks specific portfolios well potential impact significant risk exposures use variety stress testing techniques calculate potential loss wide range market moves portfolios including sensitivity analysis scenario analysis stress tests results various stress tests analyzed together risk management purposes sensitivity analysis used quantify impact market move single risk factor across positions eg equity prices credit spreads using variety defined market shocks ranging could expected oneday time horizon could take many months occur also use sensitivity analysis quantify impact default single entity captures risk large concentrated exposures scenario analysis used quantify impact specified event including event impacts multiple risk factors simultaneously example sovereign stress testing calculate potential direct exposure associated sovereign inventory well corresponding debt equity currency exposures associated nonsovereign inventory may impacted sovereign distress conducting scenario analysis typically consider number possible outcomes scenario ranging moderate severely adverse market impacts addition stress tests constructed using historical events forwardlooking hypothetical scenarios goldman sachs group inc subsidiaries management’s discussion analysis stress testing designed ensure comprehensive analysis vulnerabilities idiosyncratic risks combining financial nonfinancial risks including limited market credit liquidity funding operational compliance strategic systemic emerging risks single combined scenario stress tests primarily used assess capital adequacy part capital planning stress testing process however stress testing also integrated risk governance framework includes selecting appropriate scenarios use capital planning stress testing process see “equity capital management regulatory capital equity capital management” information unlike var measures implied probability calculated specified confidence level generally implied probability stress test scenarios occur instead stress tests used model moderate extreme moves underlying market factors estimating potential loss generally assume positions cannot reduced hedged although experience demonstrates generally able stress test scenarios conducted regular basis part routine risk management process ad hoc basis response market events concerns stress testing important part risk management process allows us quantify exposure tail risks highlight potential loss concentrations undertake riskreward analysis assess mitigate risk positions limits use risk limits various levels including firmwide business product govern risk appetite controlling size exposures market risk limits set based var range stress tests relevant exposures limits reviewed frequently amended permanent temporary basis reflect changing market conditions business conditions tolerance risk committee board risk governance committee approve market risk limits sublimits firmwide business product levels consistent risk appetite statement addition market risk management delegated authority risk governance committee sets market risk limits sublimits certain product desk levels purpose firmwide limits assist senior management controlling overall risk profile sublimits set approved level risk limits sublimits set desired maximum amount exposure may managed particular business daytoday basis without additional levels senior management approval effectively leaving daytoday decisions individual desk managers traders accordingly sublimits management tool designed ensure appropriate escalation rather establish maximum risk tolerance sublimits also distribute risk among various businesses manner consistent level activity client demand taking account relative performance area market risk limits monitored market risk management responsible identifying escalating senior management andor appropriate risk committee timely basis instances limits exceeded risk limit exceeded eg due positional changes market conditions increased volatilities changes correlations escalated senior management andor appropriate risk committee instances remediated inventory reduction andor temporary permanent increase risk limit model review validation var stress testing models regularly reviewed market risk management enhanced order incorporate changes composition positions included market risk measures well variations market conditions prior implementing significant changes assumptions andor models model risk management performs model validations significant changes var stress testing models reviewed chief risk officer chief financial officer approved risk governance committee models independently reviewed validated approved model risk management see “model risk management” information goldman sachs group inc subsidiaries management’s discussion analysis metrics analyze var firmwide level variety detailed levels including risk category business region tables present average daily var periodend var well high low var period diversification effect tables represents difference total var sum vars four risk categories effect arises four market risk categories perfectly correlated table presents average daily var risk category average daily var increased 60 million 2018 54 million 2017 primarily due increases equity prices interest rates categories partially offset increase diversification effect overall increase due increased exposures higher levels volatility table presents periodend var risk category daily var decreased 57 million december 2018 65 million december 2017 primarily due increase diversification effect partially offset increase currency rates category overall decrease primarily due reduced exposures 2018 2017 firmwide var risk limit exceeded raised reduced table presents high low var risk category high total var 86 million 2018 2017 low total var 42 million 2018 37 million 2017 chart presents daily var 2018 chart presents frequency distribution daily net revenues positions included var 2018 daily net revenues positions included var compared var calculated end prior business day net losses incurred single day positions exceeded 95 oneday var ie var exception two occasions 2018 exceed 95 oneday var 2017 goldman sachs group inc subsidiaries management’s discussion analysis periods significantly positive net revenue days net revenue loss days expect fewer var exceptions normal conditions business model generally produces positive net revenues periods franchise revenues adversely affected generally loss days resulting var exceptions daily net revenues positions included var used determine var exceptions reflect impact intraday activity including bidoffer net revenues likely positive nature sensitivity measures certain portfolios individual positions included var appropriate risk measure sensitivity measures use analyze market risk described 10 sensitivity measures table presents market risk asset category positions accounted fair value included var table • market risk positions determined estimating potential reduction net revenues 10 decline value positions • equity positions relate private restricted public equity securities including interests funds invest corporate equities real estate interests hedge funds • debt positions include interests funds invest corporate mezzanine senior debt instruments loans backed commercial residential real estate corporate bank loans corporate debt including acquired portfolios distressed loans • funded equity debt positions included consolidated statements financial condition financial instruments owned see note 6 consolidated financial statements information cash instruments • measures reflect diversification effect across asset categories across market risk measures credit spread sensitivity derivatives financial liabilities var excludes impact changes counterparty credit spreads derivatives well changes credit spreads debt valuation adjustment financial liabilities fair value option elected estimated sensitivity one basis point increase credit spreads counterparty derivatives gain 3 million including hedges december 2018 december 2017 addition estimated sensitivity one basis point increase credit spreads financial liabilities fair value option elected gain 41 million december 2018 35 million december 2017 however actual net impact change credit spreads also affected liquidity duration convexity sensitivity linear changes yields financial liabilities fair value option elected well relative performance hedges undertaken interest rate sensitivity loans receivable 8059 billion december 2018 6593 billion december 2017 substantially floating interest rates estimated sensitivity 100 basis point increase interest rates loans 607 million december 2018 527 million december 2017 additional interest income twelvemonth period take account potential impact increase costs fund loans see note 9 consolidated financial statements information loans receivable market risk considerations december 2018 december 2017 commitments held loans obtained credit loss protection sumitomo mitsui financial group inc see note 18 consolidated financial statements information lending commitments addition make investments securities accounted availableforsale included financial instruments owned consolidated statements financial condition see note 6 consolidated financial statements information also make investments accounted equity method also make direct investments real estate included assets direct investments real estate accounted cost less accumulated depreciation see note 13 consolidated financial statements information assets goldman sachs group inc subsidiaries management’s discussion analysis financial statement linkages market risk measures employ variety risk measures described respective sections monitor market risk across consolidated statements financial condition consolidated statements earnings related gains losses positions included market making principal transactions interest income interest expense consolidated statements earnings debt valuation adjustment consolidated statements comprehensive income table presents certain categories assets liabilities consolidated statements financial condition market risk measures used assess assets liabilities categories consolidated statements financial condition market risk measures collateralized agreements fair value var receivables var interest rate sensitivity financial instruments owned var 10 sensitivity measures credit spread sensitivity derivatives deposits fair value credit spread sensitivity financial liabilities collateralized financings fair value var financial instruments sold yet purchased var credit spread sensitivity derivatives unsecured shortterm longterm borrowings fair value var credit spread sensitivity financial liabilities credit risk management overview credit risk represents potential loss due default deterioration credit quality counterparty eg otc derivatives counterparty borrower issuer securities instruments hold exposure credit risk comes mostly client transactions otc derivatives loans lending commitments credit risk also comes cash placed banks securities financing transactions ie resale repurchase agreements securities borrowing lending activities customer receivables credit risk management independent revenueproducing units reports chief risk officer primary responsibility assessing monitoring managing credit risk firmwide oversight across global businesses risk governance committee reviews approves credit policies parameters addition hold positions give rise credit risk eg bonds held inventory secondary bank loans credit risks captured component market risk measures monitored managed market risk management consistent inventory positions also enter derivatives manage market risk exposures derivatives also give rise credit risk monitored managed credit risk management credit risk management process managing credit risk includes • collecting complete accurate timely information • approving transactions setting communicating credit exposure limits • monitoring compliance established credit risk limits reporting exposure • establishing approving underwriting standards • assessing likelihood counterparty default payment obligations • measuring current potential credit exposure losses resulting counterparty default • using credit risk mitigants including collateral hedging • maximizing recovery active workout restructuring claims • proactive communication revenueproducing units independent risk oversight control functions goldman sachs group inc subsidiaries management’s discussion analysis part risk assessment process credit risk management performs credit reviews include initial ongoing analyses counterparties substantially credit exposures core process annual counterparty credit review credit review independent analysis capacity willingness counterparty meet financial obligations resulting internal credit rating determination internal credit ratings also incorporates assumptions respect nature outlook counterparty’s industry economic environment senior personnel within credit risk management expertise specific industries inspect approve credit reviews internal credit ratings risk assessment process may also include applicable reviewing certain key metrics including limited delinquency status collateral values fair isaac corporation credit scores risk factors global credit risk management systems capture credit exposure individual counterparties aggregate basis counterparties subsidiaries economic groups systems also provide management comprehensive information aggregate credit risk product internal credit rating industry country region risk measures limits measure credit risk based potential loss event nonpayment counterparty using current potential exposure derivatives securities financing transactions current exposure represents amount presently owed us taking account applicable netting collateral arrangements potential exposure represents estimate future exposure could arise life transaction based market movements within specified confidence level potential exposure also takes account netting collateral arrangements loans lending commitments primary measure function notional amount position risk committee board risk governance committee approve credit risk limits firmwide business product levels consistent risk appetite statement credit risk management delegated authority risk governance committee sets credit limits individual counterparties economic groups industries countries policies authorized firmwide enterprise risk committee risk governance committee prescribe level formal approval required us assume credit exposure counterparty across product areas taking account applicable netting provisions collateral credit risk mitigants use credit limits various levels eg counterparty economic group industry country well underwriting standards control size nature credit exposures limits counterparties economic groups reviewed regularly revised reflect changing risk appetites given counterparty group counterparties limits industries countries based risk appetite designed allow regular monitoring review escalation management credit risk concentrations credit risk limits monitored credit risk management responsible identifying escalating timely basis instances limits exceeded risk limit exceeded escalated senior management andor appropriate risk committee stress tests use regular stress tests calculate credit exposures including potential concentrations would result applying shocks counterparty credit ratings credit risk factors eg currency rates interest rates equity prices shocks include wide range moderate extreme market movements stress tests include shocks multiple risk factors consistent occurrence severe market economic event case sovereign default estimate direct impact default sovereign credit exposures changes credit exposures arising potential market moves response default impact credit market deterioration corporate borrowers counterparties may result sovereign default unlike potential exposure calculated within specified confidence level stress test generally assumed probability events occurring perform stress tests regular basis part routine risk management processes conduct tailored stress tests ad hoc basis response market developments also perform stress tests designed ensure comprehensive analysis vulnerabilities idiosyncratic risks combining financial nonfinancial risks including limited credit market liquidity funding operational compliance strategic systemic emerging risks single combined scenario model review validation potential credit exposure stress testing models changes models assumptions independently reviewed validated approved model risk management see “model risk management” information goldman sachs group inc subsidiaries management’s discussion analysis risk mitigants reduce credit exposures derivatives securities financing transactions may enter netting agreements counterparties permit us offset receivables payables counterparties may also reduce credit risk counterparties entering agreements enable us obtain collateral upfront contingent basis andor terminate transactions counterparty’s credit rating falls specified level monitor fair value collateral ensure credit exposures appropriately collateralized seek minimize exposures significant positive correlation creditworthiness counterparties market value collateral receive loans lending commitments depending credit quality borrower characteristics transaction employ variety potential risk mitigants risk mitigants include collateral provisions guarantees covenants structural seniority bank loan claims certain lending commitments provisions legal documentation allow us adjust loan amounts pricing structure terms market conditions change type structure risk mitigants employed significantly influence degree credit risk involved loan lending commitment sufficient visibility counterparty’s financial strength believe counterparty requires support parent may obtain thirdparty guarantees counterparty’s obligations may also mitigate credit risk using credit derivatives participation agreements credit exposures december 2018 aggregate credit exposure increased compared december 2017 primarily reflecting increase cash deposits central banks loans lending commitments partially offset decrease secured financing transactions percentage credit exposures arising noninvestmentgrade counterparties based internally determined public rating agency equivalents increased compared december 2017 reflecting increase noninvestmentgrade loans lending commitments credit exposure counterparties defaulted 2018 lower compared credit exposure counterparties defaulted prior year substantially exposure related loans lending commitments credit exposure counterparties defaulted 2018 remained low representing less 05 total credit exposure estimated losses compared prior year lower material credit exposures described cash equivalents credit exposure cash equivalents arises unrestricted cash includes interestbearing noninterestbearing deposits mitigate risk credit loss place substantially deposits highly rated banks central banks table presents credit exposure unrestricted cash equivalents concentration industry region credit quality table excludes cash segregated regulatory purposes 2314 billion december 2018 1844 billion december 2017 otc derivatives credit exposure otc derivatives arises primarily marketmaking activities market maker enter derivative transactions provide liquidity clients facilitate transfer hedging risks also enter derivatives manage market risk exposures manage credit exposure otc derivatives using credit risk process measures limits risk mitigants described generally enter otc derivatives transactions bilateral collateral arrangements require daily exchange collateral credit risk essential component fair value include credit valuation adjustment cva fair value derivatives reflect counterparty credit risk described note 7 consolidated financial statements cva function present value expected exposure probability counterparty default assumed recovery upon default goldman sachs group inc subsidiaries management’s discussion analysis table presents net credit exposure otc derivatives concentration industry region table • otc derivative assets included consolidated statements financial condition reported netbycounterparty basis ie net receivable given counterparty legal right setoff exists enforceable netting agreement counterparty netting accounted fair value net cash collateral received enforceable credit support agreements cash collateral netting • collateral represents cash collateral fair value securities collateral primarily us nonus government agency obligations received credit support agreements management considers determining credit risk collateral eligible netting us gaap table presents distribution net credit exposure otc derivatives tenor table • tenor based remaining contractual maturity • netting includes counterparty netting across tenor categories cash securities collateral management considers determining credit risk including collateral eligible netting us gaap counterparty netting within tenor category included within tenor category tables present distribution net credit exposure otc derivatives tenor internally determined public rating agency equivalents goldman sachs group inc subsidiaries management’s discussion analysis lending activities manage lending activities using credit risk process measures limits risk mitigants described lending positions including secondary trading positions riskmanaged component market risk • commercial lending commercial lending activities include lending investmentgrade noninvestmentgrade corporate borrowers loans lending commitments associated activities principally used operating liquidity general corporate purposes connection contingent acquisitions corporate loans may secured unsecured depending loan purpose risk profile borrower factors commercial lending activities also include extending loans borrowers secured commercial real estate table presents credit exposure commercial loans lending commitments concentration industry region credit quality • pwm residential real estate lending extend pwm loans lending commitments private bank secured residential real estate securities assets fair value collateral received loans lending commitments generally exceeds carrying value also residential real estate lending exposures includes purchased residential real estate unsecured consumer loans commitments purchase loans including distressed loans securities table presents credit exposure pwm residential real estate lending concentration region • consumer lending originate unsecured consumer loans table presents credit exposure originated unsecured consumer loans concentration five concentrated us states see note 9 consolidated financial statements information credit quality indicators consumer loans goldman sachs group inc subsidiaries management’s discussion analysis securities financing transactions enter securities financing transactions order among things facilitate client activities invest excess cash acquire securities cover short positions finance certain activities bear credit risk related resale agreements securities borrowed extent cash advanced value securities pledged delivered counterparty exceeds value collateral received also credit exposure repurchase agreements securities loaned extent value securities pledged delivered counterparty transactions exceeds amount cash collateral received securities collateral obtained securities financing transactions primarily includes us nonus government agency obligations table presents credit exposure secured financing transactions concentration industry region credit quality table reflects netting agreements collateral management considers determining credit risk credit exposures exposed credit risk receivables brokers dealers clearing organizations customers counterparties receivables brokers dealers clearing organizations primarily consist initial margin placed clearing organizations receivables related sales securities traded yet settled receivables generally minimal credit risk due low probability clearing organization default shortterm nature receivables related securities settlements receivables customers counterparties generally consist collateralized receivables related customer securities transactions generally minimal credit risk due value collateral received shortterm nature receivables table presents credit exposures concentration industry region credit quality table reflects collateral management considers determining credit risk selected exposures credit market exposures described heightened focus due recent events broad market concerns credit exposure represents potential loss due default deterioration credit quality counterparty borrower market exposure represents potential loss value long short inventory due changes market prices international sanctions russia led concerns economic stability december 2018 total credit exposure russia 371 million primarily nonsovereign counterparties borrowers primarily related loans lending commitments addition total market exposure russia december 2018 502 million reflecting equity exposure nonsovereign issuers underliers goldman sachs group inc subsidiaries management’s discussion analysis potential restructuring lebanon’s sovereign debt led concerns financial stability december 2018 credit exposure lebanon 570 million substantially related loans lending commitments nonsovereign borrowers taking consideration benefit cash lebanese securities collateral held net credit exposure material addition total market exposure lebanon december 2018 material debt crisis mozambique resulted credit rating downgrades political instability ukraine led economic concerns addition venezuela delayed payments sovereign debt political situation remains unclear december 2018 total credit market exposure mozambique ukraine venezuela material comprehensive framework monitor measure assess country exposures determine risk appetite determine country risk location counterparty issuer underlier’s assets generate revenue country headquartered jurisdiction claim could enforced andor government whose policies affect ability repay obligations monitor credit exposure specific country individual counterparty level well aggregate country level use regular stress tests described calculate credit exposures including potential concentrations would result applying shocks counterparty credit ratings credit risk factors supplement regular stress tests also conduct tailored stress tests ad hoc basis response specific market events deem significant stress tests designed estimate direct impact event credit market exposures resulting shocks risk factors including limited currency rates interest rates equity prices also utilize stress tests estimate indirect impact certain hypothetical events country exposures impact credit market deterioration corporate borrowers counterparties along shocks risk factors described parameters shocks vary based scenario reflected stress test review estimated losses produced stress tests order understand magnitude highlight potential loss concentrations assess mitigate exposures necessary see “stress tests” “liquidity risk management stress tests” “market risk management risk measures stress testing” information stress tests operational risk management overview operational risk adverse outcome resulting inadequate failed internal processes people systems external events exposure operational risk arises routine processing errors well extraordinary incidents major systems failures legal regulatory matters potential types loss events related internal external operational risk include • clients products business practices • execution delivery process management • business disruption system failures • employment practices workplace safety • damage physical assets • internal fraud • external fraud maintain comprehensive control framework designed provide wellcontrolled environment minimize operational risks firmwide conduct operational risk committee globally responsible ongoing approval monitoring frameworks policies parameters limits thresholds govern operational risks operational risk management independent revenueproducing units reports chief risk officer primary responsibility developing implementing formalized framework assessing monitoring managing operational risk goal maintaining exposure operational risk levels within risk appetite operational risk management process managing operational risk includes • collecting complete accurate timely information • training supervision development people • active participation senior management identifying mitigating key operational risks • independent risk oversight control functions monitor operational risk implementation policies procedures controls designed prevent occurrence operational risk events • proactive communication revenueproducing units independent risk oversight control functions goldman sachs group inc subsidiaries management’s discussion analysis combine topdown bottomup approaches manage measure operational risk topdown perspective senior management assesses firmwide businesslevel operational risk profiles bottomup perspective first second lines defense responsible risk identification risk management daytoday basis including escalating operational risks senior management operational risk management framework part designed comply operational risk measurement rules capital framework evolved based changing needs businesses regulatory guidance operational risk management framework consists following practices • risk identification assessment • risk measurement • risk monitoring reporting risk identification assessment core operational risk management framework risk identification assessment comprehensive data collection process including firmwide policies procedures operational risk events established policies require employees report escalate operational risk events operational risk events identified policies require events documented analyzed determine whether changes required systems andor processes mitigate risk future events use operational risk management applications capture organize operational risk event data key metrics one key risk identification assessment tools operational risk control selfassessment process performed managers process consists identification rating operational risks forwardlooking basis related controls results process analyzed evaluate operational risk exposures identify businesses activities products heightened levels operational risk measurement measure operational risk exposure using statistical modeling scenario analyses involve qualitative quantitative assessments internal external operational risk event data internal control factors businesses operational risk measurement also incorporates assessment business environment factors including limited • evaluations complexity business activities • degree automation processes • new activity information • legal regulatory environment • changes markets products services including diversity sophistication customers counterparties results scenario analyses used monitor changes operational risk determine business lines may heightened exposure operational risk analyses used determination appropriate level operational risk capital hold stress tests perform stress tests regular basis part routine risk management processes also perform stress tests designed ensure comprehensive analysis vulnerabilities idiosyncratic risks combining financial nonfinancial risks including limited credit market liquidity funding operational compliance strategic systemic emerging risks single combined scenario risk monitoring reporting evaluate changes operational risk profile businesses including changes business mix jurisdictions operate monitoring factors noted firmwide level preventive detective internal controls designed reduce frequency severity operational risk losses probability operational risk events monitor results assessments independent internal audits internal controls established limits thresholds consistent risk appetite statement approved risk committee board well escalation protocols operational risk limits thresholds monitored operational risk management operational risk management responsible identifying escalating senior management andor appropriate risk committee timely basis instances limits thresholds exceeded model review validation statistical models utilized operational risk management independently reviewed validated approved model risk management see “model risk management” information goldman sachs group inc subsidiaries management’s discussion analysis model risk management overview model risk potential adverse consequences decisions made based model outputs may incorrect used inappropriately rely quantitative models across business activities primarily value certain financial assets financial liabilities monitor manage risk measure monitor regulatory capital model risk management framework managed governance structure risk management controls encompass standards designed ensure maintain comprehensive model inventory including risk assessment classification sound model development practices independent review modelspecific usage controls firmwide model risk control committee oversees model risk management framework model risk management independent revenueproducing units model developers model owners model users reports chief risk officer primary responsibility assessing monitoring managing model risk firmwide oversight across global businesses provides periodic updates senior management risk committees risk committee board model review validation process model risk management consists quantitative professionals perform independent review validation approval models review includes analysis model documentation independent testing assessment appropriateness methodology used verification compliance model development implementation standards model risk management reviews existing models annual basis approves new models significant changes models prior implementation model validation process incorporates review models trade risk parameters across broad range scenarios including extreme conditions order critically evaluate verify • model’s conceptual soundness including reasonableness model assumptions suitability intended use • testing strategy utilized model developers ensure models function intended • suitability calculation techniques incorporated model • model’s accuracy reflecting characteristics related product significant risks • model’s consistency models similar products • model’s sensitivity input parameters assumptions see “critical accounting policies fair value review valuation models” “liquidity risk management” “market risk management” “credit risk management” “operational risk management” information use models within areas goldman sachs group inc subsidiaries item 7aitem 7 management’s discussion analysis financial condition results operations introduction goldman sachs group inc group inc parent company delaware corporation together consolidated subsidiaries leading global investment banking securities investment management firm provides wide range financial services substantial diversified client base includes corporations financial institutions governments individuals founded 1869 headquartered new york maintain offices major financial centers around world report activities four business segments investment banking global markets asset management consumer wealth management see “results operations” information business segments use terms “we” “us” “our” mean group inc consolidated subsidiaries use term “our subsidiaries” mean consolidated subsidiaries group inc references “this form 10k” annual report form 10k year ended december 31 2019 references “the consolidated financial statements” “supplemental financial information” part ii item 8 form 10k references 2019 2018 2017 refer years ended dates context requires december 31 2019 december 31 2018 december 31 2017 respectively reference future year refers year ending december 31 year certain reclassifications made previously reported amounts conform current presentation discussion analysis financial condition results operations included information may constitute “forwardlooking statements” within meaning safe harbor provisions us private securities litigation reform act 1995 forwardlooking statements historical facts statements current conditions instead represent beliefs regarding future events many nature inherently uncertain outside control identifying following statements manner alerting possibility actual results financial condition may differ possibly materially anticipated results financial condition forwardlooking statements important factors could cause results financial condition capital actions differ statements include among others described “risk factors” part item 1a form 10k “cautionary statement pursuant us private securities litigation reform act 1995” part item 1 form 10k statements may relate among things future plans results including target roe rote efficiency ratio cet1 capital ratio achieved ii various legal proceedings governmental investigations contingencies set forth notes 27 18 consolidated financial statements part ii item 8 form 10k iii results stress tests iv objectives effectiveness business continuity plan information security program risk management liquidity policies v resolution plan resolution strategy implications stakeholders vi design effectiveness resolution capital liquidity models triggers alerts framework vii trends growth opportunities businesses including timing benefits business strategic initiatives changes importance efficiency ratio viii effect changes regulations well future status activities reporting banking financial regulation ix nsfr scb x level future compensation expense percentage operating expenses xi investment banking transaction backlog xii expected tax rate xiii proposed capital actions including permitted ccar 2019 capital plan xiv expected interest income xv credit exposures xvi expected provisions credit losses xvii preparations brexit including hard brexit scenario xviii replacement libor ibors program transition alternative riskfree reference rates xix adequacy allowance credit losses xx projected growth deposits associated interest expense savings xxi projected growth consumer loan credit card businesses xxii business initiatives including related transaction banking new consumer financial products xxiii expense savings initiatives increasing use strategic locations xxiv planned 2020 parent vanilla debt issuances xxv amount gcla expect hold xxvi expected gsib surcharge xxvii expenses may incur including future litigation expense associated investing consumer lending credit card transaction banking businesses goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis executive overview generated net earnings 847 billion 2019 decrease 19 compared 1046 billion 2018 diluted earnings per common share 2103 2019 decrease 17 compared 2527 2018 return average common shareholders’ equity roe 100 2019 compared 133 2018 book value per common share 21852 december 2019 54 higher compared december 2018 2019 recorded net provisions litigation regulatory proceedings 124 billion reduced diluted earnings per common share 316 roe 15 percentage points net revenues 3655 billion 2019 essentially unchanged compared 2018 reflecting lower net revenues investment banking driven lower net revenues underwriting financial advisory offset slightly higher net revenues global markets due higher net revenues fixed income currency commodities ficc net revenues asset management consumer wealth management essentially unchanged provision credit losses 107 billion 2019 58 higher 2018 primarily reflecting higher impairments related corporate loans higher provisions related credit card loans operating expenses 2490 billion 2019 6 higher 2018 primarily reflecting significantly higher net provisions litigation regulatory proceedings higher expenses consolidated investments technology efficiency ratio total operating expenses divided total net revenues 2019 681 compared 641 2018 pretax earnings 1058 billion 2019 included investments digital platform marcus goldman sachs marcus credit card activities planned launch transaction banking activities collectively pretax loss approximately 700 million returned 688 billion capital common shareholders 2019 including 534 billion common share repurchases 154 billion common stock dividends december 2019 common equity tier 1 cet1 capital ratio calculated accordance standardized capital rules 133 calculated accordance advanced capital rules 137 see note 20 consolidated financial statements information capital ratios 2020 announced strategic initiatives related expense efficiencies funding optimization emphasis improving profitability shareholder returns estimated next three years generate 13 billion expense efficiencies create capacity fund growth ii 10 billion interest expense savings funding optimization growth deposits reduction wholesale unsecured funding business environment 2019 global real gross domestic product gdp growth appeared decrease compared 2018 reflecting decreased growth emerging markets advanced economies including us concerns future global growth mixed macroeconomic environment led accommodative monetary policies global central banks including three cuts federal funds rate us federal reserve year target range 15 175 market sentiment 2019 also impacted geopolitical uncertainty including ongoing trade concerns us china multiple extensions deadline related uk’s decision leave eu brexit see “results operations segment operating results” information operating environment business segments critical accounting policies fair value fair value hierarchy trading assets liabilities certain investments loans certain financial assets liabilities included consolidated balance sheets fair value ie markedtomarket related gains losses generally recognized consolidated statements earnings use fair value measure financial instruments fundamental risk management practices critical accounting policy fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date measure certain financial assets liabilities portfolio ie based net exposure market andor credit risks determining fair value hierarchy us generally accepted accounting principles us gaap gives highest priority unadjusted quoted prices active markets identical unrestricted assets liabilities level 1 inputs ii next priority inputs level 1 inputs observable either directly indirectly level 2 inputs iii lowest priority inputs cannot observed market activity level 3 inputs evaluating significance valuation input consider among factors portfolio’s net risk exposure input assets liabilities classified entirety based lowest level input significant fair value measurement goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis fair values substantially financial assets liabilities based observable prices inputs classified levels 1 2 fair value hierarchy certain level 2 level 3 financial assets liabilities may require appropriate valuation adjustments market participant would require arrive fair value factors counterparty credit quality funding risk transfer restrictions liquidity bidoffer spreads instruments classified level 3 fair value hierarchy require one significant inputs observable level 3 financial assets represented 23 december 2019 24 december 2018 total assets see notes 4 10 consolidated financial statements information level 3 financial assets including changes level 3 financial assets related fair value measurements absent evidence contrary instruments classified level 3 fair value hierarchy initially valued transaction price considered best initial estimate fair value subsequent transaction date use methodologies determine fair value vary based type instrument estimating fair value level 3 financial instruments requires judgments made judgments include • determining appropriate valuation methodology andor model type level 3 financial instrument • determining model inputs based evaluation relevant empirical market data including prices evidenced market transactions interest rates credit spreads volatilities correlations • determining appropriate valuation adjustments including related illiquidity counterparty credit quality regardless methodology valuation inputs assumptions changed corroborated substantive evidence controls valuation financial instruments market makers investment professionals revenueproducing units responsible pricing financial instruments control infrastructure independent revenueproducing units fundamental ensuring financial instruments appropriately valued marketclearing levels event difference opinion situations estimating fair value financial instruments requires judgment eg calibration market comparables trade comparison described final valuation decision made senior managers independent risk oversight control functions independent price verification critical ensuring financial instruments properly valued price verification financial instruments fair value classified levels 1 2 3 fair value hierarchy subject independent price verification process objective price verification informed independent opinion regard valuation financial instruments review instruments one significant inputs cannot corroborated external market data classified level 3 fair value hierarchy price verification strategies utilized independent risk oversight control functions include • trade comparison analysis trade data internal external available used determine relevant pricing inputs valuations • external price comparison valuations prices compared pricing data obtained third parties eg brokers dealers markit bloomberg idc trace data obtained various sources compared ensure consistency validity broker dealer quotations thirdparty pricing vendors used valuation price verification greater priority generally given executable quotations • calibration market comparables marketbased transactions used corroborate valuation positions similar characteristics risks components • relative value analyses marketbased transactions analyzed determine similarity measured terms risk liquidity return one instrument relative another given instrument one maturity relative another • collateral analyses margin calls derivatives analyzed determine implied values used corroborate valuations • execution trades appropriate marketmaking desks instructed execute trades order provide evidence marketclearing levels • backtesting valuations corroborated comparison values realized upon sales see note 4 consolidated financial statements information fair value measurements review net revenues independent risk oversight control functions ensure adherence pricing policy combination daily procedures including explanation attribution net revenues based underlying factors process independently validate net revenues identify resolve potential fair value trade booking issues timely basis seek ensure risks properly categorized quantified goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis review valuation models independent model risk management group model risk consisting quantitative professionals separate model developers performs independent model review validation process valuation models new changed models reviewed approved prior implementation models reviewed annually assess impact changes product market developments pricing theories see “risk management model risk management” information review validation valuation models allowance credit losses estimate record allowance credit losses related loans held investment accounted amortized cost allowance loan losses consists specific loanlevel reserves portfoliolevel reserves purchased credit impaired loans determination components entails significant judgment various risk factors including industry default loss data current macroeconomic indicators borrower’s capacity meet financial obligations borrower’s country risk loan seniority collateral type addition loans backed real estate risk factors include loantovalue ratio debt service ratio home price index risk factors consumer credit card loans include fair isaac corporation fico credit scores delinquency status estimate credit losses entails judgment collectability reporting dates uncertainties inherent judgments use best information available determine estimate future adjustments allowance may necessary based among things changes economic environment variances actual results original assumptions used loans charged allowance loan losses deemed uncollectible see note 3 consolidated financial statements information adoption asu 201613 “financial instruments credit losses topic 326 measurement credit losses financial instruments” also record allowance losses lending commitments held investment accounted amortized cost allowance determined using methodology allowance loan losses also taking consideration probability drawdowns funding included liabilities see note 9 consolidated financial statements information allowance credit losses use estimates us gaap requires us make certain estimates assumptions addition estimates make connection fair value measurements allowance credit losses loans lending commitments held investment accounted amortized cost use estimates assumptions also important determining accounting goodwill identifiable intangible assets provisions losses may arise litigation regulatory proceedings including governmental investigations provisions losses may arise tax audits goodwill assessed impairment annually fourth quarter frequently events occur circumstances change indicate impairment may exist assessing goodwill impairment first qualitative assessment made determine whether likely estimated fair value reporting unit less estimated carrying value results qualitative assessment conclusive quantitative goodwill test performed alternatively quantitative goodwill test performed without performing qualitative assessment estimating fair value reporting units requires judgment critical inputs fair value estimates include projected earnings allocated equity inherent uncertainty projected earnings estimated carrying value reporting unit reflects allocation total shareholders’ equity represents estimated amount total shareholders’ equity required support activities reporting unit currently applicable regulatory capital requirements see note 12 consolidated financial statements information goodwill experience prolonged severe period weakness business environment financial markets performance common stock price additional increases capital requirements goodwill could impaired future goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis identifiable intangible assets tested impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable judgment required evaluate whether indications potential impairment occurred test intangible assets impairment required impairment recognized total estimated undiscounted cash flows relating asset group less corresponding carrying value see note 12 consolidated financial statements information identifiable intangible assets also estimate provide potential losses may arise litigation regulatory proceedings extent losses probable reasonably estimated addition estimate upper end range reasonably possible aggregate loss excess related reserves litigation regulatory proceedings believe risk loss slight see notes 18 27 consolidated financial statements information certain judicial litigation regulatory proceedings significant judgment required making estimates final liabilities may ultimately materially different total estimated liability respect litigation regulatory proceedings determined casebycase basis represents estimate probable losses considering among factors progress case proceeding investigation experience others similar cases proceedings investigations opinions views legal counsel accounting income taxes recognize tax positions financial statements likely position sustained examination relevant taxing authority based technical merits position see note 24 consolidated financial statements information income taxes recent accounting developments see note 3 consolidated financial statements information recent accounting developments results operations composition net revenues varied time financial markets scope operations changed composition net revenues also vary shorter term due fluctuations us global economic market conditions see “risk factors” part item 1a form 10k information impact economic market conditions results operations financial overview table presents overview financial results selected financial ratios table • net earnings common represents net earnings applicable common shareholders calculated net earnings less preferred stock dividends • average equity average assets calculated dividing average total shareholders’ equity average total assets • dividend payout ratio calculated dividing dividends declared per common share diluted earnings per common share • roe calculated dividing net earnings common average monthly common shareholders’ equity tangible common shareholders’ equity calculated total shareholders’ equity less preferred stock goodwill identifiable intangible assets return average tangible common shareholders’ equity rote calculated dividing net earnings common average monthly tangible common shareholders’ equity believe tangible common shareholders’ equity meaningful measure investors use assess capital adequacy rote meaningful measures performance businesses consistently whether acquired developed internally tangible common shareholders’ equity rote nongaap measures may comparable similar nongaap measures used companies return average total shareholders’ equity calculated dividing net earnings average monthly total shareholders’ equity table presents average equity reconciliation average common shareholders’ equity average tangible common shareholders’ equity goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis • 2017 recorded 440 billion estimated income tax expense related tax cuts jobs act tax legislation excluding expense diluted earnings per common share 1976 roe 108 rote 114 2017 fourth quarter 2018 finalized estimate reflect impact updated information including subsequent guidance issued us internal revenue service irs resulting 487 million income tax benefit 2018 excluding benefit diluted earnings per common share 2402 roe 127 rote 134 2018 believe presenting results excluding tax legislation meaningful excluding items increases comparability periodtoperiod results see “results operations provision taxes” information tax legislation diluted earnings per common share roe rote excluding impact items related tax legislation nongaap measures may comparable similar nongaap measures used companies tables present calculation net earnings common diluted earnings per common share average common shareholders’ equity excluding impact items related tax legislation • 2017 required adopted asu 201609 “compensation stock compensation topic 718 improvements employee sharebased payment accounting” impact adoption reduction provision taxes 719 million 2017 increased diluted earnings per common share approximately 175 roe rote approximately 10 percentage points impact 2019 2018 material net revenues table presents net revenues line item table • investment banking consists revenues excluding net interest financial advisory underwriting assignments activities included investment banking segment revenues transactions derivatives related client advisory underwriting assignments previously reported investment banking reported market making reclassifications made previously reported amounts conform current presentation • investment management consists revenues excluding net interest providing asset management services across major asset classes diverse set asset management clients included asset management segment well asset management services wealth advisory services certain transaction services wealth management clients included consumer wealth management segment • commissions fees consists revenues executing clearing client transactions major stock options futures exchanges worldwide well overthecounter otc transactions activities included global markets consumer wealth management segments • market making consists revenues excluding net interest client execution activities related making markets interest rate products credit products mortgages currencies commodities equity products activities included global markets segment • principal transactions consists revenues excluding net interest equity investing activities including revenues related consolidated investments included asset management segment lending activities included across four segments goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis operating environment 2019 marketmaking activities operated environment generally characterized macroeconomic concerns driven continued trade tensions concerns slowdown future global economic growth volatility equity markets decreased average daily vix year lower compared 2018 monetary policies set global central banks remained accommodative throughout year investment banking activities reflected decreases industrywide completed mergers acquisitions transactions industrywide equity underwriting transactions principal transactions revenues benefited companyspecific events including sales assets supervision increased acquisitions organic net inflows appreciation client assets reflecting generally higher equity fixed income prices macroeconomic concerns continue continued declines marketmaking activity levels volatility investment banking transaction levels declines assets supervision global equity markets net revenues would likely negatively impacted see “segment operating results” information operating environment material trends uncertainties may impact results operations 2019 versus 2018 net revenues consolidated statements earnings 3655 billion 2019 essentially unchanged compared 2018 primarily reflecting lower investment banking revenues investment management revenues offset higher net interest income slightly higher market making revenues noninterest revenues investment banking revenues consolidated statements earnings 680 billion 2019 9 lower 2018 reflecting lower revenues underwriting financial advisory decrease underwriting revenues due lower revenues debt underwriting driven lower revenues investmentgrade leveraged finance activity equity underwriting reflecting decline industrywide initial public offerings decrease financial advisory revenues reflected decrease industrywide completed mergers acquisitions transactions investment management revenues consolidated statements earnings 619 billion 2019 6 lower 2018 driven significantly lower incentive fees decrease partially offset slightly higher management fees including impact united capital financial partners inc united capital reflecting impact higher average assets supervision partially offset lower average effective fee due shifts mix client assets strategies united capital acquired third quarter 2019 commissions fees consolidated statements earnings 299 billion 2019 7 lower 2018 primarily reflecting decrease listed cash equity volumes us generally consistent market volumes market making revenues consolidated statements earnings 1016 billion 2019 4 higher 2018 primarily reflecting significantly higher revenues interest rate products commodities slightly higher revenues equity products partially offset significantly lower revenues currencies lower revenues mortgages principal transactions consolidated statements earnings 605 billion 2019 2 higher 2018 primarily reflecting significantly higher net gains investments public equities partially offset lower net gains investments debt instruments slightly lower net gains investments private equities net interest income net interest income consolidated statements earnings 436 billion 2019 16 higher 2018 reflecting increase interest income primarily related trading assets loans reflecting impact higher average balances collateralized agreements reflecting impact higher interest rates partially offset impact lower average balances increase interest income partially offset higher interest expense primarily related deposits reflecting impact higher interest rates higher average balances collateralized financings reflecting impact higher interest rates see “statistical disclosures distribution assets liabilities shareholders’ equity” information sources net interest income 2018 versus 2017 net revenues consolidated statements earnings 3662 billion 2018 12 higher 2017 primarily due significantly higher market making revenues net interest income well higher investment management revenues slightly higher investment banking revenues goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis noninterest revenues investment banking revenues consolidated statements earnings 743 billion 2018 5 higher 2017 revenues financial advisory higher reflecting increase industrywide completed mergers acquisitions volumes revenues underwriting slightly higher due significantly higher revenues equity underwriting driven initial public offerings partially offset lower revenues debt underwriting reflecting decline leveraged finance activity investment management revenues consolidated statements earnings 659 billion 2018 12 higher 2017 primarily due significantly higher incentive fees result harvesting management fees also higher reflecting higher average assets supervision impact revenue recognition standard partially offset shifts mix client assets strategies see note 3 consolidated financial statements information asu 201409 “revenue contracts customers topic 606” commissions fees consolidated statements earnings 320 billion 2018 5 higher 2017 reflecting increase listed cash equity futures volumes generally consistent market volumes market making revenues consolidated statements earnings 972 billion 2018 24 higher 2017 due significantly higher revenues equity products interest rate products commodities increases partially offset significantly lower results mortgages lower revenues credit products principal transactions revenues consolidated statements earnings 591 billion 2018 essentially unchanged compared 2017 reflecting net losses investments public equities compared net gains prior year offset significantly higher net gains investments private equities driven companyspecific events including sales corporate performance net interest income net interest income consolidated statements earnings 377 billion 2018 28 higher 2017 reflecting increase interest income primarily related collateralized agreements interestearning assets reflecting impact higher interest rates well loans reflecting impact higher average balances higher yields increase interest income partially offset higher interest expense primarily related interestbearing liabilities deposits collateralized financings reflecting impact higher interest rates see “statistical disclosures distribution assets liabilities shareholders’ equity” information sources net interest income provision credit losses provision credit losses consists provision credit losses loans lending commitments held investment accounted amortized cost see note 9 consolidated financial statements information provision credit losses table presents provision credit losses 2019 versus 2018 provision credit losses consolidated statements earnings 107 billion 2019 58 higher 2018 primarily reflecting higher impairments related corporate loans higher provisions related credit card loans 2018 versus 2017 provision credit losses consolidated statements earnings 674 million 2018 3 higher 2017 higher provision credit losses primarily related consumer loan growth 2018 partially offset impairment approximately 130 million secured loan 2017 operating expenses operating expenses primarily influenced compensation headcount levels business activity compensation benefits includes salaries yearend discretionary compensation amortization equity awards items benefits discretionary compensation significantly impacted among factors level net revenues overall financial performance prevailing labor markets business mix structure sharebased compensation programs external environment table presents operating expenses line item headcount goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis 2019 versus 2018 operating expenses consolidated statements earnings 2490 billion 2019 6 higher 2018 efficiency ratio total operating expenses divided total net revenues 2019 681 compared 641 2018 increase operating expenses compared 2018 primarily reflected significantly higher net provisions litigation regulatory proceedings higher expenses consolidated investments technology increases primarily depreciation amortization communications technology occupancy expenses addition 2019 included higher expenses related credit card transaction banking activities increases primarily professional fees expenses also included impact united capital compensation benefits expenses essentially unchanged compared 2018 net provisions litigation regulatory proceedings 2019 124 billion compared 844 million 2018 2019 included 140 million charitable contribution goldman sachs gives donoradvised fund december 2019 headcount increased 5 compared december 2018 reflecting increase technology professionals impact united capital 2018 versus 2017 operating expenses consolidated statements earnings 2346 billion 2018 12 higher 2017 efficiency ratio total operating expenses divided total net revenues 2018 641 compared 640 2017 increase operating expenses compared 2017 primarily due higher compensation benefits expenses reflecting improved operating performance significantly higher net provisions litigation regulatory proceedings brokerage clearing exchange distribution fees also higher reflecting increase activity levels technology expenses increased reflecting higher expenses related computing services addition expenses related consolidated investments digital lending deposit platform increased increases primarily depreciation amortization expenses market development expenses increase compared 2017 also included 297 million related revenue recognition standard see note 3 consolidated financial statements information asu 201409 “revenue contracts customers topic 606” net provisions litigation regulatory proceedings 2018 844 million compared 188 million 2017 2018 included 132 million charitable contribution goldman sachs gives donoradvised fund compensation reduced fund charitable contribution goldman sachs gives december 2018 headcount increased 9 compared december 2017 reflecting increase technology professionals investments new business initiatives provision taxes effective income tax rate 2019 200 162 2018 included 487 million income tax benefit 2018 related finalization impact tax legislation additionally increase compared 2018 due increase nondeductible litigation provisions changes geographic mix earnings partially offset discrete tax benefits 2019 effective income tax rate 2018 162 615 2017 included estimated impact tax legislation increased effective income tax rate 395 percentage points additionally decrease compared 2017 reflected impact lower us corporate income tax rate 2018 estimated impact tax legislation increase income tax expense 440 billion 2017 2018 finalized estimate reflect impact updated information including subsequent guidance issued irs resulting 487 million income tax benefit 2018 june 2019 irs us department treasury us treasury released final temporary proposed regulations relating implementation global intangible low taxed income proposed regulations would applicable final regulations published december 2019 irs us treasury released final proposed regulations relating implementation base erosion antiabuse tax final regulations generally consistent certain modifications proposed regulations issued december 2018 final proposed regulations material impact effective tax rate 2019 based current interpretations rules legislative guidance date expect 2020 tax rate approximately 21 excluding impact tax benefits employee share based awards nondeductible litigation goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis segment assets operating results commencing fourth quarter 2019 made certain changes business segments prior fourth quarter 2019 reported activities following four business segments investment banking institutional client services investing lending investment management beginning fourth quarter 2019 report activities four business segments investment banking global markets asset management consumer wealth management see “business segments” part item 1 form 10k information changes business segments segment assets table presents assets segment allocation process segment assets based activities segments allocation assets includes allocation global core liquid assets gcla consists unencumbered highly liquid securities cash generally included within cash equivalents collateralized agreements trading assets balance sheet due integrated nature segments estimates judgments made allocating assets see “risk management liquidity risk management” information gcla segment operating results table presents segment operating results table operating expenses related corporate charitable contributions previously allocated segments allocated allocation reflects change manner measure performance segments result change operating expenses allocated segments reclassifications made previously reported segment amounts conform current presentation net revenues segments include allocations interest income expense specific positions relation cash generated funding requirements positions see note 25 consolidated financial statements information business segments goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis allocation common shareholders’ equity preferred stock dividends segment based estimated amount equity required support activities segment current applicable regulatory capital requirements net earnings segment calculated applying firmwide tax rate segment’s pretax earnings compensation benefits expenses within segments reflect among factors overall performance well performance individual businesses consequently pretax margins one segment business may significantly affected performance business segments description segment operating results follows investment banking investment banking generates revenues following • financial advisory includes strategic advisory assignments respect mergers acquisitions divestitures corporate defense activities restructurings spinoffs • underwriting includes public offerings private placements including local crossborder transactions acquisition financing wide range securities financial instruments including loans • corporate lending includes lending corporate clients including middlemarket lending relationship lending acquisition financing table presents operating results investment banking segment table presents financial advisory underwriting transaction volumes table • volumes per dealogic • announced completed mergers acquisitions volumes based full credit advisors transaction equity equityrelated offerings debt offerings based full credit single book managers equal credit joint book managers transaction volumes may indicative net revenues given period addition transaction volumes prior periods may vary amounts previously reported due subsequent withdrawal change value transaction • equity equityrelated offerings includes rule 144a public common stock offerings convertible offerings rights offerings • debt offerings includes nonconvertible preferred stock mortgagebacked securities assetbacked securities taxable municipal debt includes publicly registered rule 144a issues excludes leveraged loans operating environment 2019 industrywide completed mergers acquisitions transactions decreased industrywide announced mergers acquisitions transactions decreased slightly compared strong 2018 underwriting industrywide equity underwriting transactions decreased compared 2018 reflecting decline initial public offerings industrywide debt underwriting activity reflected decrease loan syndications compared 2018 future industrywide mergers acquisitions transactions equity underwriting transactions loan syndications continue decline net revenues investment banking would likely negatively impacted 2019 versus 2018 net revenues investment banking 760 billion 2019 7 lower compared strong 2018 reflecting lower net revenues underwriting financial advisory partially offset higher net revenues corporate lending decrease underwriting net revenues due lower net revenues debt underwriting driven lower net revenues investmentgrade leveraged finance activity equity underwriting reflecting decline industrywide initial public offerings decrease financial advisory net revenues reflected decrease industrywide completed mergers acquisitions transactions provision credit losses 333 million 2019 compared 124 million 2018 primarily reflecting higher impairments related corporate loans operating expenses 469 billion 2019 5 higher 2018 primarily due higher net provisions litigation regulatory proceedings higher expenses related transaction banking activities pretax earnings 258 billion 2019 28 lower 2018 goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis december 2019 investment banking transaction backlog essentially unchanged compared december 2018 due lower estimated net revenues potential debt underwriting transactions particularly assetbacked transactions equity underwriting transactions offset higher estimated net revenues potential advisory transactions investment banking transaction backlog represents estimate future net revenues investment banking transactions believe future revenue realization likely believe changes investment banking transaction backlog may useful indicator client activity levels long term impact net revenues however time frame completion corresponding revenue recognition transactions backlog varies based nature assignment certain transactions may remain backlog longer periods time others may enter leave within reporting period addition transaction backlog subject certain limitations assumptions likelihood individual client transactions occur future transactions may cancelled modified transactions included estimate may also occur 2018 versus 2017 net revenues investment banking 818 billion 2018 10 higher 2017 reflecting significantly higher net revenues corporate lending higher net revenues financial advisory slightly higher net revenues underwriting increase corporate lending net revenues driven significantly higher net interest income middlemarket lending activities higher results hedges related relationship lending activities increase financial advisory net revenues reflected increase industrywide completed mergers acquisitions volumes increase underwriting net revenues due significantly higher net revenues equity underwriting driven initial public offerings partially offset lower net revenues debt underwriting reflecting decline leveraged finance activity provision credit losses 124 million 2018 compared 34 million 2017 primarily reflecting higher impairments related corporate loans operating expenses 447 billion 2018 24 higher 2017 due higher net provisions litigation regulatory proceedings increased compensation benefits expenses reflecting improved operating performance impact revenue recognition standard pretax earnings 358 billion 2018 6 lower 2017 december 2018 investment banking transaction backlog increased compared december 2017 driven significantly higher estimated net revenues potential advisory transactions estimated net revenues potential debt equity underwriting transactions lower global markets global markets segment consists ficc generates revenues intermediation financing activities • ficc intermediation includes client execution activities related making markets trading cash derivative instruments detailed interest rate products government bonds including inflationlinked securities across maturities governmentbacked securities interest rate swaps options derivatives credit products investmentgrade corporate securities highyield securities credit derivatives exchangetraded funds etfs bank bridge loans municipal securities emerging market distressed debt trade claims mortgages commercial mortgagerelated securities loans derivatives residential mortgagerelated securities loans derivatives including us government agencyissued collateralized mortgage obligations securities loans assetbacked securities loans derivatives currencies currency options spotforwards derivatives g10 currencies emergingmarket products commodities commodity derivatives lesser extent physical commodities involving crude oil petroleum products natural gas base precious metals electricity coal agricultural commodity products information marketmaking activities see “marketmaking activities” • ficc financing includes providing financing clients securities sold agreements repurchase agreements well structured credit warehouse lending including residential commercial mortgage lending assetbacked lending typically longer term nature goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis equities generates revenues intermediation financing activities • equities intermediation make markets equity securities equityrelated products including etfs convertible securities options futures overthecounter otc derivative instruments global basis also structure make markets derivatives indices industry sectors financial measures individual company stocks exchangebased marketmaking activities include making markets stocks etfs futures options major exchanges worldwide addition generate commissions fees executing clearing institutional client transactions major stock options futures exchanges worldwide well otc transactions information marketmaking activities see “marketmaking activities” • equities financing includes prime brokerage equities financing activities including securities lending margin lending swaps earn fees providing clearing settlement custody services globally provide services principally involve borrowing lending securities cover institutional clients’ short sales borrowing securities cover short sales otherwise make deliveries market addition active participant brokertobroker securities lending thirdparty agency lending activities provide financing clients securities trading activities margin loans collateralized securities cash acceptable collateral addition execute swap transactions provide clients exposure securities indices marketmaking activities market maker facilitate transactions liquid less liquid markets primarily institutional clients corporations financial institutions investment funds governments assist clients meeting investment objectives managing risks role seek earn difference price market participant willing sell instrument us price another market participant willing buy us vice versa ie bidoffer spread addition maintain marketmaking positions typically short period time response anticipation client demand ii positions actively manage risk exposures arise marketmaking activities collectively inventory recorded trading assets long positions trading liabilities short positions consolidated balance sheets results influenced combination interconnected drivers including client activity levels transactional bidoffer spreads collectively client activity ii changes fair value inventory interest income interest expense related holding hedging funding inventory collectively marketmaking inventory changes due integrated nature marketmaking activities disaggregation net revenues client activity marketmaking inventory changes judgmental inherent complexities limitations amount composition net revenues vary time drivers impacted multiple interrelated factors affecting economic market conditions including volatility liquidity market changes interest rates currency exchange rates credit spreads equity prices commodity prices investor confidence macroeconomic concerns uncertainties general assuming marketmaking conditions remain constant increases client activity levels bidoffer spreads tend result increases net revenues decreases tend opposite effect however changes marketmaking conditions materially impact client activity levels bidoffer spreads well fair value inventory example decrease liquidity market could impact increasing bidoffer spread ii decreasing investor confidence thereby decreasing client activity levels iii widening credit spreads inventory positions table presents operating results global markets segment goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis table presents net revenues global markets segment line item consolidated statements earnings table • difference commissions fees consolidated statements earnings represents commissions fees included consumer wealth management segment • see “net revenues” information market making revenues commissions fees net interest income see note 25 consolidated financial statements net interest income business segment • primary driver net revenues ficc intermediation client activity operating environment 2019 global markets operated environment generally characterized concerns future global growth mixed macroeconomic environment led accommodative monetary policies set global central banks volatility lower average daily vix decreasing 15 2019 compared 17 2018 yield curve us treasury 2year note versus 10year widened 15 basis points global equity markets generally increased msci world index 24 compared end 2018 conditions contributed lower client activity primarily equities compared 2018 activity levels volatility continue decline macroeconomic concerns continue net revenues global markets would likely negatively impacted 2019 versus 2018 net revenues global markets 1478 billion 2019 2 higher 2018 net revenues ficc 739 billion 6 higher 2018 due slightly higher net revenues ficc intermediation driven improved marketmaking conditions inventory higher net revenues ficc financing reflecting higher net revenues structured credit financing following provides information ficc intermediation net revenues business compared 2018 results • net revenues commodities significantly higher interest rate products higher reflecting improved marketmaking conditions inventory • net revenues mortgages significantly higher primarily reflecting higher client activity • net revenues currencies significantly lower primarily reflecting challenging marketmaking conditions inventory • net revenues credit products lower reflecting lower client activity net revenues equities 739 billion essentially unchanged compared 2018 net revenues equities intermediation lower reflecting lower net revenues derivatives partially offset higher net revenues cash products decrease offset higher net revenues equities financing reflecting improved spreads provision credit losses 35 million 2019 compared 52 million 2018 operating expenses 1085 billion 2019 3 higher 2018 due higher net provisions litigation regulatory proceedings higher expenses technology increases primarily depreciation amortization communications technology partially offset decreased compensation benefits expenses pretax earnings 389 billion 2019 2 higher 2018 goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis 2018 versus 2017 net revenues global markets 1444 billion 2018 17 higher 2017 net revenues ficc 699 billion 12 higher 2017 due higher net revenues ficc intermediation reflecting higher client activity impact improved marketmaking conditions inventory ficc financing reflecting increase lending activity following provides information ficc intermediation net revenues business compared 2017 results • net revenues currencies significantly higher reflecting higher client activity impact improved marketmaking conditions inventory • net revenues commodities significantly higher reflecting higher client activity impact improved marketmaking conditions inventory compared challenging conditions 2017 • net revenues credit products higher reflecting higher client activity partially offset impact challenging marketmaking conditions inventory • net revenues interest rate products lower reflecting lower client activity partially offset impact improved marketmaking conditions inventory • net revenues mortgages lower reflecting impact challenging marketmaking conditions inventory net revenues equities 745 billion 23 higher 2017 net revenues equities financing significantly higher reflecting improved spreads higher average client balances net revenues equities intermediation higher reflecting significantly higher net revenues derivatives provision credit losses 52 million 2018 71 lower 2017 due impairment approximately 130 million secured loan 2017 operating expenses 1059 billion 2018 6 higher 2017 primarily due higher net provisions litigation regulatory proceedings increased compensation benefits expenses reflecting improved operating performance higher brokerage clearing exchange distribution fees pretax earnings 380 billion 2018 78 higher 2017 asset management manage client assets across broad range investment strategies asset classes diverse set institutional clients network thirdparty distributors around world including equity fixed income alternative investments provide investment solutions including managed fiduciary basis portfolio managers well managed variety thirdparty managers offer investment solutions variety structures including separately managed accounts mutual funds private partnerships comingled vehicles solutions begin identifying clients’ objectives continue portfolio construction ongoing asset allocation risk management investment realization addition managing client assets invest alternative investments across range asset classes seek deliver longterm accretive riskadjusted returns investing activities typically longer term include investments public private equity debt investments real estate infrastructure entities asset management generates revenues following • management fees majority revenues management fees consists assetbased fees client assets manage information assets supervision aus see “assets supervision” fees charge vary asset class distribution channel types services provided affected investment performance well asset inflows redemptions • incentive fees certain circumstances also receive incentive fees based percentage fund’s separately managed account’s return exceeds specified benchmark performance targets fees include overrides consist increased share income gains derived primarily private equity credit funds return fund’s investments life fund exceeds certain threshold returns incentive fees recognized probable significant reversal fees occur • equity investments alternative investing activities relate public private equity investments corporate real estate infrastructure entities also make investments consolidated investment entities substantially engaged real estate investment activities • lending provide financing related asset management businesses invest debt securities loans backed real estate activities include investments mezzanine debt senior debt distressed debt securities goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis table presents operating results asset management segment operating environment higher global equity markets increased fixed income asset prices contributed positively assets supervision global equity lending investment portfolio within asset management segment future asset prices decline investors continue favor asset classes typically generate lower fees investors withdraw assets macroeconomic concerns negatively impact companyspecific events net revenues asset management would likely negatively impacted 2019 versus 2018 net revenues asset management 897 billion 2019 essentially unchanged compared 2018 reflecting higher net revenues equity investments offset significantly lower incentive fees lower net revenues lending management fees essentially unchanged increase equity investments net revenues reflected significantly higher net gains investments public equities 2019 included 477 million net gains partially offset slightly lower net gains investments private equities 2019 included 429 billion net gains driven companyspecific events including sales corporate performance 2019 50 net revenues equity investments generated corporate investments 50 generated real estate decrease lending net revenues primarily reflected lower net gains investments debt instruments management fees reflected impact higher average assets supervision offset lower average effective fee due shifts mix client assets strategies provision credit losses 274 million 2019 71 higher 2018 primarily reflecting higher impairments related purchased credit impaired pci loans operating expenses 482 billion 2019 15 higher 2018 primarily due higher expenses related consolidated investments increased compensation benefits expenses pretax earnings 387 billion 2019 14 lower 2018 versus 2017 net revenues asset management 884 billion 2018 4 higher 2017 reflecting higher management fees net revenues lending incentive fees partially offset slightly lower net revenues equity investments increase management fees reflected higher average assets supervision impact revenue recognition standard partially offset shifts mix client assets strategies increase lending net revenues reflected significantly higher net interest income partially offset significantly lower net gains investments debt instruments decrease equity investments net revenues reflected net losses investments public equities 2018 included 183 million net losses compared net gains prior year partially offset significantly higher net gains investments private equities 2018 included 439 billion net gains driven companyspecific events including sales corporate performance 2018 57 net revenues equity investments generated corporate investments 43 generated real estate provision credit losses 160 million 2018 50 lower 2017 primarily reflecting lower impairments related pci loans operating expenses 418 billion 2018 11 higher 2017 primarily due higher expenses related consolidated investments impact revenue recognition standard pretax earnings 450 billion 2018 essentially unchanged compared 2017 goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis consumer wealth management consumer wealth management helps clients achieve individual financial goals providing broad range wealth advisory banking services including financial planning investment management deposit taking lending services offered global network advisors via digital platforms wealth management wealth management provides tailored wealth advisory services clients across wealth spectrum operate globally serving individuals families family offices select foundations endowments relationships established directly introduced corporations sponsor financial wellness programs employees offer personalized financial planning inclusive income liability management compensation benefits analysis trust estate structuring tax optimization philanthropic giving asset protection also provide customized investment advisory solutions offer structuring execution capabilities security derivative products across major global markets leverage broad openarchitecture investment platform global execution capabilities help clients achieve investment goals addition offer clients full range private banking services including variety deposit alternatives loans clients use finance investments financial nonfinancial assets bridge cash flow timing gaps provide liquidity flexibility needs wealth management generates revenues following • management fees includes fees related managing assets providing investing wealth advisory solutions providing financial planning counseling services via subsidiary ayco company lp executing brokerage transactions wealth management clients • incentive fees certain circumstances also receive incentive fees based percentage fund’s return exceeds specified benchmark performance targets fees include overrides consist increased share income gains derived primarily private equity credit funds return fund’s investments life fund exceeds certain threshold returns incentive fees recognized probable significant reversal fees occur • private banking lending includes interest income allocated deposittaking net interest income earned lending activities wealth management clients consumer banking consumer banking business issues unsecured loans marcus credit cards finance purchases goods services also accept deposits marcus primarily goldman sachs bank usa goldman sachs international bank used source funding deposits include savings time deposits provide us diversified source funding reduces reliance wholesale funding consumer banking revenues consist net interest income earned unsecured loans issued consumers marcus credit card lending activities net interest income allocated consumer deposits table presents operating results consumer wealth management segment operating environment higher global equity markets increased fixed income asset prices contributed positively assets supervision within consumer wealth management segment consumer banking activities continue reflect increased deposits loans future asset prices decline investors continue favor asset classes typically generate lower fees investors withdraw assets consumers withdraw deposits consumer credit deteriorates net revenues consumer wealth management would likely negatively impacted 2019 versus 2018 net revenues consumer wealth management 520 billion 2019 essentially unchanged compared 2018 net revenues wealth management 434 billion 5 lower 2018 reflecting significantly lower incentive fees slightly lower net revenues private banking lending decreases partially offset higher management fees including impact united capital reflecting higher average assets supervision net revenues consumer banking 864 million 41 higher 2018 driven higher net interest income primarily reflecting increase deposit balances goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis provision credit losses 423 million 2019 25 higher 2018 primarily reflecting higher provisions related credit card loans operating expenses 455 billion 2019 8 higher 2018 due higher expenses related credit card activities impact united capital pretax earnings 235 million 2019 61 lower 2018 versus 2017 net revenues consumer wealth management 517 billion 2018 16 higher 2017 net revenues wealth management 455 billion 12 higher 2017 primarily reflecting significantly higher incentive fees result harvesting addition management fees slightly higher reflecting higher average assets supervision impact revenue recognition standard partially offset shifts mix client assets strategies net revenues private banking lending slightly higher net revenues consumer banking 611 million 61 higher 2017 driven significantly higher net interest income primarily reflecting increase deposit balances provision credit losses 338 million 2018 compared 123 million 2017 reflecting higher provisions primarily related consumer loan growth operating expenses 422 billion 2018 18 higher 2017 primarily due increased compensation benefits expenses reflecting improved operating performance higher expenses related digital lending deposit platform impact revenue recognition standard pretax earnings 603 million 2018 19 lower 2017 assets supervision assets supervision includes institutional clients’ assets sourced thirdparty distributors included asset management segment well highnetworth clients’ assets included consumer wealth management segment earn fee managing assets discretionary basis includes net assets mutual funds hedge funds credit funds private equity funds real estate funds separately managed accounts institutional individual investors assets supervision also include client assets invested thirdparty managers private bank deposits advisory relationships earn fee advisory services investment discretion assets supervision include selfdirected brokerage assets clients table presents firmwide periodend assets supervision segment asset class distribution channel region vehicle table • liquidity products includes money market funds private bank deposits • emea represents europe middle east africa asset classes alternative investment equity assets typically generate higher fees relative fixed income liquidity product assets average effective management fee excludes nonassetbased fees earned firmwide assets supervision 32 basis points 2019 34 basis points 2018 35 basis points 2017 decreases reflected shifts mix client assets strategies earn management fees client assets manage also receive incentive fees based percentage fund’s separately managed account’s return exceeds specified benchmark performance targets incentive fees recognized probable significant reversal fees occur unrecognized incentive fees assuming liquidation fair value 163 billion december 2019 150 billion december 2018 206 billion december 2017 fees recognized assuming decline fair value probable significant reversal fees occur generally fees longer subject fluctuations market value assets funds goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis table presents changes assets supervision table • total aus net inflowsoutflows 2019 included 71 billion inflows substantially equity fixed income assets connection acquisitions standard poor’s investment advisory services spias united capital rocaton investment advisors rocaton spias rocaton included asset management segment united capital included consumer wealth management segment • total aus net inflowsoutflows 2017 included 23 billion inflows 20 billion longterm aus 3 billion liquidity products connection acquisition portion verus investors’ outsourced chief investment officer business verus acquisition 5 billion equity asset outflows connection divestiture local australianfocused investment capabilities fund platform australian divestiture verus acquisition australian divestiture included asset management segment table presents information average monthly firmwide assets supervision addition assets supervision discretion alternative investments currently earn management fees nonfeeearning alternative assets table presents information assets supervision alternative assets nonfeeearning alternative assets total alternative assets table • total alternative assets included uncalled capital available future investing 32 billion december 2019 27 billion december 2018 26 billion december 2017 • nonfeeearning alternative assets primarily includes investments hold balance sheet unfunded commitments unfunded commitments clients charge fees commitments credit facilities collateralized fund assets employee funds calculation nonfeeearning alternative assets may comparable similar calculations used companies goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis table presents information alternative investments asset management segment hold balance sheet table • private equity includes positions converted public equity upon initial public offering underlying company 2 billion december 2019 1 billion december 2018 2 billion december 2017 • assets represents investments held consolidated investment entities cies funded liabilities approximately 9 billion december 2019 6 billion december 2018 4 billion december 2017 substantially liabilities nonrecourse thereby reducing equity risk table presents information equity investments vintage geographic data see note 25 consolidated financial statements summary total net revenues pretax earnings net earnings geographic region balance sheet funding sources balance sheet management one risk management disciplines ability manage size composition balance sheet asset base changes due client activity market fluctuations business opportunities size composition balance sheet also reflects factors including overall risk tolerance ii amount equity capital hold iii funding profile among factors see “equity capital management regulatory capital equity capital management” information equity capital management process although balance sheet fluctuates daytoday basis total assets quarterend yearend dates generally materially different occurring within reporting periods order ensure appropriate risk management seek maintain sufficiently liquid balance sheet processes place dynamically manage assets liabilities include balance sheet planning ii balance sheet limits iii monitoring key metrics iv scenario analyses balance sheet planning prepare balance sheet plan combines projected total assets composition assets expected funding sources threeyear time horizon plan reviewed quarterly may adjusted response changing business needs market conditions objectives planning process • develop balance sheet projections taking account general state financial markets expected business activity levels well regulatory requirements • allow treasury independent risk oversight control functions objectively evaluate balance sheet limit requests revenueproducing units context overall balance sheet constraints including liability profile equity capital levels key metrics • inform target amount tenor type funding raise based projected assets contractual maturities treasury independent risk oversight control functions along revenueproducing units review current prior period information expectations year prepare balance sheet plan specific information reviewed includes asset liability size composition limit utilization risk performance measures capital usage goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis consolidated balance sheet plan including balance sheets business funding projections projected key metrics reviewed approved firmwide asset liability committee risk governance committee see “risk management overview structure risk management” overview risk management structure balance sheet limits firmwide asset liability committee risk governance committee responsibility review approve balance sheet limits set levels close actual operating levels rather levels reflect maximum risk appetite order ensure prompt escalation discussion among revenueproducing units treasury independent risk oversight control functions routine basis additionally risk governance committee sets aged limits certain financial instruments disincentive hold positions longer periods time requests changes limits evaluated giving consideration impact key metrics compliance limits monitored revenueproducing units treasury well independent risk oversight control functions monitoring key metrics monitor key balance sheet metrics business consolidated basis including asset liability size composition limit utilization risk measures allocate assets businesses review analyze movements resulting new business activity well market fluctuations scenario analyses conduct various scenario analyses including part comprehensive capital analysis review ccar us doddfrank wall street reform consumer protection act doddfrank act stress tests dfast well resolution recovery planning see “equity capital management regulatory capital equity capital management” information scenario analyses scenarios cover short longterm time horizons using various macroeconomic firmspecific assumptions based range economic scenarios use analyses assist us developing longerterm balance sheet management strategy including level composition assets funding equity capital additionally analyses help us develop approaches maintaining appropriate funding liquidity capital across variety situations including severely stressed environment balance sheet analysis metrics december 2019 total assets consolidated balance sheets 99297 billion increase 6117 billion december 2018 primarily reflecting increases trading assets 7514 billion investments 1671 billion loans 1107 billion partially offset net decrease collateralized agreements 5278 billion increase trading assets primarily reflected higher client activity government agency obligations equity securities increase investments primarily reflected increase us government obligations accounted availableforsale held maturity increase loans primarily reflected increase corporate wealth management commercial real estate loans partially offset decrease residential real estate loans net decrease collateralized agreements primarily reflected impact clients’ activities december 2019 total liabilities consolidated balance sheets 90270 billion increase 6109 billion december 2018 primarily reflecting increases collateralized financings 4005 billion deposits 3176 billion partially offset decrease unsecured borrowings 929 billion net increase collateralized financings primarily reflected clients’ activities increase deposits primarily reflected increase consumer deposits decrease unsecured borrowings primarily due net maturities total repurchase agreements accounted collateralized financings 11776 billion december 2019 7872 billion december 2018 32 higher december 2019 1 higher december 2018 average daily amount repurchase agreements respective quarters 40 higher december 2019 12 lower december 2018 average daily amount repurchase agreements respective years december 2019 increase repurchase agreements relative average daily amount repurchase agreements quarter year resulted higher levels clients’ activity end period level repurchase agreements fluctuates within periods primarily due providing clients access highly liquid collateral liquid government agency obligations collateralized financing activities goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis table presents information balance sheet leverage ratios table • leverage ratio equals total assets divided total shareholders’ equity measures proportion equity debt use finance assets ratio different leverage ratios included note 20 consolidated financial statements • debttoequity ratio equals unsecured longterm borrowings divided total shareholders’ equity table presents information shareholders’ equity book value per common share including reconciliation common shareholders’ equity tangible common shareholders’ equity table • tangible common shareholders’ equity calculated total shareholders’ equity less preferred stock goodwill identifiable intangible assets believe tangible common shareholders’ equity meaningful measure investors use assess capital adequacy tangible common shareholders’ equity nongaap measure may comparable similar nongaap measures used companies • book value per common share tangible book value per common share based common shares outstanding restricted stock units granted employees future service requirements subject performance conditions collectively basic shares 3618 million december 2019 3809 million december 2018 believe tangible book value per common share tangible common shareholders’ equity divided basic shares meaningful measure investors use assess capital adequacy tangible book value per common share nongaap measure may comparable similar nongaap measures used companies funding sources primary sources funding deposits collateralized financings unsecured short longterm borrowings shareholders’ equity seek maintain broad diversified funding sources globally across products programs markets currencies creditors avoid funding concentrations table presents information funding sources funding primarily raised us dollar euro british pound japanese yen generally distribute funding products sales force thirdparty distributors large diverse creditor base variety markets americas europe asia believe relationships creditors critical liquidity creditors include banks governments securities lenders corporations pension funds insurance companies mutual funds individuals imposed various internal guidelines monitor creditor concentration across funding programs deposits provide us diversified source funding reduce reliance wholesale funding growing portion deposit base consists consumer deposits raise deposits including savings demand time deposits internal thirdparty brokerdealers consumers institutional clients primarily goldman sachs bank usa gs bank usa goldman sachs international bank gsib see note 13 consolidated financial statements information deposits secured funding fund significant amount inventory portion investments secured basis secured funding includes collateralized financings consolidated balance sheets may also pledge inventory investments collateral securities borrowed securities lending agreement also use inventory investments cover transactions clients sold securities yet purchased secured funding less sensitive changes credit quality unsecured funding due posting collateral lenders nonetheless analyze refinancing risk secured funding activities taking account trade tenors maturity profiles counterparty concentrations collateral eligibility counterparty rollover probabilities seek mitigate refinancing risk executing term trades staggered maturities diversifying counterparties raising excess secured funding prefunding residual risk gcla goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis seek raise secured funding term appropriate liquidity assets financed seek longer maturities secured funding collateralized asset classes may harder fund secured basis especially times market stress secured funding excluding funding collateralized liquid government agency obligations primarily executed tenors one month greater primarily executed term repurchase agreements securities loaned contracts weighted average maturity secured funding included collateralized financings consolidated balance sheets excluding funding collateralized liquid government agency obligations exceeded 120 days december 2019 assets may harder fund secured basis times market stress include certain financial instruments following categories mortgage assetbacked loans securities noninvestmentgrade corporate debt securities equity securities emerging market securities assets classified level 3 fair value hierarchy generally funded unsecured basis see notes 4 10 consolidated financial statements information classification financial instruments fair value hierarchy “unsecured longterm borrowings” information use unsecured longterm borrowings source funding also raise financing types collateralized financings secured loans notes gs bank usa access funding federal home loan bank outstanding borrowings federal home loan bank 527 million december 2019 528 million december 2018 gs bank usa also access funding federal reserve bank discount window rely funding liquidity planning stress testing maintain policies procedures necessary access funding test discount window borrowing procedures unsecured shortterm borrowings significant portion unsecured shortterm borrowings originally longterm debt scheduled mature within one year reporting date use unsecured shortterm borrowings including us nonus hybrid financial instruments finance liquid assets cash management purposes light regulatory developments group inc longer issues debt original maturity less one year subsidiaries see note 14 consolidated financial statements information unsecured shortterm borrowings unsecured longterm borrowings unsecured longterm borrowings including structured notes raised syndicated us registered offerings us registered rule 144a mediumterm note programs offshore mediumterm note offerings debt offerings issue different tenors currencies products maximize diversification investor base table presents quarterly unsecured longterm borrowings maturity profile december 2019 weighted average maturity unsecured longterm borrowings december 2019 approximately eight years mitigate refinancing risk seek limit principal amount debt maturing course monthly quarterly annual time horizon enter interest rate swaps convert portion unsecured longterm borrowings floatingrate obligations manage exposure interest rates see note 14 consolidated financial statements information unsecured longterm borrowings shareholders’ equity shareholders’ equity stable perpetual source funding see note 19 consolidated financial statements information shareholders’ equity goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis equity capital management regulatory capital adequacy critical importance us place comprehensive capital management policy provides framework defines objectives establishes guidelines assist us maintaining appropriate level composition capital businessasusual stressed conditions equity capital management determine appropriate amount composition equity capital considering multiple factors including current future regulatory capital requirements results capital planning stress testing process results resolution capital models factors rating agency guidelines subsidiary capital requirements business environment conditions financial markets manage capital requirements levels capital usage principally setting limits balance sheet andor limits risk case firmwide business levels principally manage level composition equity capital issuances repurchases common stock may also time issue repurchase preferred stock junior subordinated debt issued trusts subordinated debt forms capital business conditions warrant prior repurchases must receive confirmation board governors federal reserve system frb object capital action see notes 14 19 consolidated financial statements information preferred stock junior subordinated debt issued trusts subordinated debt capital planning stress testing process part capital planning project sources uses capital given range business environments including stressed conditions stress testing process designed identify measure material risks associated business activities including market risk credit risk operational risk well ability generate revenues capital planning process incorporates internal capital adequacy assessment objective ensuring appropriately capitalized relative risks businesses incorporate stress scenarios capital planning process goal holding sufficient capital ensure remain adequately capitalized experiencing severe stress event assessment capital adequacy viewed tandem assessment liquidity adequacy integrated overall risk management structure governance policy framework stress tests incorporate internally designed stress scenarios including internally developed severely adverse scenario required ccar dfast designed capture specific vulnerabilities risks provide information stress test processes summary results website described “business available information” part item 1 form 10k required frb’s ccar rules submit annual capital plan review frb purpose frb’s review ensure robust forwardlooking capital planning process accounts unique risks permits continued operation times economic financial stress frb evaluates us based part whether capital necessary continue operating baseline severely adverse scenarios provided frb developed internally evaluation also takes account process identifying risk controls governance capital planning guidelines making capital planning decisions addition frb evaluates plan make capital distributions ie dividend payments repurchases redemptions stock subordinated debt capital securities issue capital across range macroeconomic scenarios firmspecific assumptions goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis respect 2019 ccar submission frb informed us object capital plan includes return 88 billion capital third quarter 2019 second quarter 2020 2019 ccar cycle capital plan provides 70 billion repurchases outstanding common stock 18 billion total common stock dividends including increase common stock dividend 085 125 per share third quarter 2019 third fourth quarters 2019 returned total 375 billion capital including stock repurchases 283 billion common stock dividends 919 million stock repurchase amount less authorized amount included capital plan submission first half 2019 ccar cycle unutilized amount carried forward second half 2019 ccar cycle may elect execute portion capital actions based among things current projected capital position capital deployment opportunities target cet1 capital ratio next three years 130 135 including management buffers target reflects among things calculations current interpretation proposed scb rule may change rule finalized implemented published summary annual dfast results june 2019 see “business available information” part item 1 form 10k october 2019 accordance dfast rules submitted midcycle dfast results frb published summary results internally developed severely adverse scenario frb eliminated requirement conduct midcycle dfast beginning 2020 still required conduct stress test annual basis publish summary results frb also conducts annual stress tests publishes summary certain results see “business available information” part item 1 form 10k gs bank usa capital planning process required conduct annual stress test 2019 goldman sachs international gsi gsib also capital planning stress testing process incorporates internally designed stress tests required prudential regulation authority’s pra internal capital adequacy assessment process contingency capital plan part comprehensive capital management policy maintain contingency capital plan contingency capital plan provides framework analyzing responding perceived actual capital deficiency including limited identification drivers capital deficiency well mitigants potential actions outlines appropriate communication procedures follow crisis period including internal dissemination information well timely communication external stakeholders capital attribution assess businesses’ capital usage based internal assessment risks incorporates attribution relevant regulatory capital requirements regulatory capital requirements allocated using attributed equity framework takes consideration binding capital constraints binding capital constraint based results frb’s annual stress test scenarios include standardized riskbased capital leverage ratios see “segment assets operating results segment operating results” information attributed equity segment share repurchase program use share repurchase program help maintain appropriate level common equity repurchase program effected primarily regular openmarket purchases may include repurchase plans designed comply rule 10b51 accelerated share repurchases amounts timing determined primarily current projected capital position capital plan submitted frb part ccar amounts timing repurchases may also influenced general market conditions prevailing price trading volumes common stock july 15 2019 board directors group inc board authorized repurchase additional 50 million shares common stock pursuant existing share repurchase program however permitted make repurchases extent repurchases objected frb december 2019 remaining share authorization existing repurchase program 579 million shares see “market registrant’s common equity related stockholder matters issuer purchases equity securities” part ii item 5 form 10k note 19 consolidated financial statements information share repurchase program see information capital planning stress testing process goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis resolution capital models connection resolution planning efforts established resolution capital adequacy positioning framework designed ensure major subsidiaries gs bank usa goldman sachs co llc gsco gsi gsib goldman sachs japan co ltd gsjcl goldman sachs asset management lp goldman sachs asset management international access sufficient lossabsorbing capacity form equity subordinated debt unsecured senior debt able winddown following group inc bankruptcy filing accordance preferred resolution strategy addition established triggers alerts framework designed provide board information needed make informed decision whether commence bankruptcy proceedings group inc rating agency guidelines credit rating agencies assign credit ratings obligations group inc directly issues guarantees substantially senior unsecured debt obligations gsco gsi assigned longterm shortterm issuer ratings certain credit rating agencies gs bank usa gsib also assigned longterm shortterm issuer ratings well ratings longterm shortterm bank deposits addition credit rating agencies assigned ratings debt obligations certain subsidiaries group inc level composition equity capital among many factors considered determining credit ratings agency definition eligible capital methodology evaluating capital adequacy assessments generally based combination factors rather single calculation see “risk management liquidity risk management credit ratings” information credit ratings group inc gs bank usa gsib gsco gsi consolidated regulatory capital subject consolidated regulatory capital requirements calculated accordance regulations frb capital framework capital framework “advanced approach” banking organization designated global systemically important bank gsib capital requirements calculated accordance capital framework include riskbased capital buffers gsib surcharge riskbased capital buffers applicable us 2019 include capital conservation buffer 25 countercyclical capital buffer frb set zero percent addition gsib surcharge applicable us 2019 25 based 2017 financial data gsib surcharge applicable us 2020 25 based 2018 financial data 25 2021 based 2019 financial data gsib surcharge countercyclical buffer future may differ due additional guidance regulators andor positional changes expect gsib surcharge increase 3 next three years increase would effective january 1 year one full calendar year increased gsib surcharge finalized see note 20 consolidated financial statements information riskbased capital ratios leverage ratios capital framework subsidiary capital requirements many subsidiaries including bank brokerdealer subsidiaries subject separate regulation capital requirements jurisdictions operate bank subsidiaries gs bank usa primary us banking subsidiary gsib primary nonus banking subsidiary entities subject regulatory capital requirements see note 20 consolidated financial statements information regulatory capital requirements bank subsidiaries goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis us regulated brokerdealer subsidiaries gsco primary us regulated brokerdealer subsidiary subject regulatory capital requirements including imposed sec financial industry regulatory authority inc addition gsco registered futures commission merchant subject regulatory capital requirements imposed cftc chicago mercantile exchange national futures association rule 15c31 sec rule 117 cftc specify uniform minimum net capital requirements defined registrants also effectively require significant part registrants’ assets kept relatively liquid form gsco elected calculate minimum capital requirements accordance “alternative net capital requirement” permitted rule 15c31 gsco regulatory net capital defined rule 15c31 2088 billion december 2019 1745 billion december 2018 exceeded amount required 1815 billion december 2019 1500 billion december 2018 addition alternative minimum net capital requirements gsco also required hold tentative net capital excess 1 billion net capital excess 500 million accordance market credit risk standards appendix e rule 15c31 gsco also required notify sec event tentative net capital less 5 billion december 2019 december 2018 gsco tentative net capital net capital excess minimum notification requirements february 2020 gsco made cash dividend distribution 400 billion group inc nonus regulated brokerdealer subsidiaries principal nonus regulated brokerdealer subsidiaries include gsi gsjcl gsi uk brokerdealer regulated pra financial conduct authority fca gsi subject capital framework euregulated financial institutions prescribed eu fourth capital requirements directive eu capital requirements regulation crr capital regulations largely based basel iii table presents gsi’s riskbased capital requirements table riskbased capital requirements incorporate capital guidance received pra could change future gsi’s future capital requirements may also impacted developments introduction riskbased capital buffers table presents information gsi’s riskbased capital ratios table cet1 capital tier 1 capital total capital december 2019 excluded gsi’s undistributed profits december 1 2018 december 31 2019 may distributed dividends future gsi subject approval board directors gsi november 2016 european commission proposed amendments crr implement 3 leverage ratio requirement certain eu financial institutions leverage ratio compares crr’s definition tier 1 capital measure leverage exposure defined sum certain assets plus certain offbalancesheet exposures include measure derivatives securities financing transactions commitments guarantees less tier 1 capital deductions required leverage ratio expected become effective gsi june 28 2021 gsi leverage ratio 46 december 2019 44 december 2018 gsi’s leverage ratio december 2019 excluded gsi’s undistributed profits december 1 2018 december 31 2019 may distributed dividends future gsi subject approval board directors gsi leverage ratio based current interpretation understanding rule may evolve discuss interpretation application rule gsi’s regulators goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis gsi also subject minimum requirement funds eligible liabilities issued affiliates requirement subject transitional period began phase january 1 2019 become fully effective january 1 2022 december 2019 gsi compliance requirement gsjcl japanese brokerdealer regulated japan’s financial services agency gsjcl certain nonus subsidiaries also subject capital requirements promulgated authorities countries operate december 2019 december 2018 subsidiaries compliance local capital requirements regulatory matters developments regulatory matters businesses subject extensive regulation supervision worldwide regulations adopted considered regulators policy makers worldwide given many new proposed rules highly complex full impact regulatory reform known rules implemented market practices develop final regulations see “business regulation” part item 1 form 10k information laws rules regulations proposed laws rules regulations apply us operations tlac subject frb’s tlac related requirements became effective january 2019 failure comply tlac related requirements could result restrictions imposed frb could limit ability repurchase shares pay dividends make certain discretionary compensation payments table presents tlac external longterm debt requirements table • tlac rwas requirement includes 18 minimum ii 25 buffer iii 15 gsib surcharge method 1 iv countercyclical capital buffer frb set zero percent • tlac leverage exposure requirement includes 75 minimum ii 20 leverage exposure buffer • external longterm debt rwas requirement includes 6 minimum ii 25 gsib surcharge method 2 • external longterm debt total leverage exposure 45 minimum table presents information tlac external longterm debt ratios table • tlac includes common preferred stock eligible longterm debt issued group inc eligible longterm debt represents unsecured debt remaining maturity least one year satisfies additional requirements • external longterm debt consists eligible longterm debt subject haircut due paid one two years • rwas represent standardized rwas december 2019 advanced rwas december 2018 accordance tlac rules higher advanced standardized rwas used calculation tlac external longterm debt ratios applicable requirements • leverage exposure consists average adjusted total assets certain offbalancesheet exposures see “business regulation” part item 1 form 10k information tlac goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis developments brexit march 2017 uk government commenced formal proceedings withdraw eu uk agreed withdrawal agreement withdrawal agreement became effective january 31 2020 transition period withdrawal agreement last end december 2020 allow two sides negotiate future trade agreement transition period uk treated member state eu therefore existing arrangements uk eu change withdrawal agreement provides possibility extension transition period either one two years however uk pledged extend transition period beyond december 31 2020 based upon existing noneu country equivalence regimes eu uk agreed complete assessments equivalence end june 2020 significant uncertainty whether outcome assessments published end transition period whether uk firms rely upon availability equivalence posttransition planning continue prepare scenario uk financial services firms lose access eu markets december 31 2020 “hard” brexit ensuring remain flexible well positioned allow clients benefit favorable scenarios planning also recognizes end transition period rely degree continuing access uk entities pursuant national crossborder access regimes certain jurisdictions example based specific licenses exemptions hard brexit scenario otherwise necessary plan service eu client base following manner • german bank subsidiary goldman sachs bank europe se gsbe act main operating subsidiary eu assume certain functions longer efficiently effectively performed uk operating subsidiaries including gsi gsib gsami clients jurisdictions benefit specific “permissive” regime actively work clients plan appropriate timeline required migration business gsbe orderly fashion may required end transition period • set branches gsbe number jurisdictions eu enable investment banking global markets consumer wealth management personnel situated offices countries • meaningful portion global markets investment banking clients classified professionals eligible counterparties specific jurisdictions may choose continue serviced continue transact uk service providers entities domestic arrangements provided individual member states licenses exemptions expect continue providing products services manner extent clients prefer coverage available clients could continue face gsi applied applicable crossborder licenses exemptions gsi available also plan authorized thirdcountry branches gsi eu used global markets business domestic clients jurisdictions branches authorized • intend use goldman sachs paris inc et cie gspic primary brokerdealer entity eu clients primarily conduct certain activities gsbe may prevented undertaking activities related physical commodities related products • opened accounts enable clients transact gsbe continue facilitate clients trading subsidiaries branches eu • internal infrastructure buildout external connectivity financial market infrastructure required new eu entities complete gsbe connected operational eu exchange clearing settlement platforms • gsbe assigned credit rating af1 fitch inc fitch a1p1 moody’s investors service moody’s aa1 standard poor’s ratings services sp consistent issued gsi • order service asset management clients received approval irish financial regulator central bank ireland collective investment fund alternative investment fund manager ireland replace similar existing londonbased alternative investment fund manager lose eu passport postbrexit • headcount eu offices increased course 2019 roles expected transition eu current planning assumptions • developed additional real estate capacity frankfurt stockholm milan dublin sourcing real estate capacity paris goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis replacement interbank offered rates ibors including libor central banks regulators number major jurisdictions example us uk eu switzerland japan convened working groups find implement transition suitable replacements ibors uk fca regulates libor announced compel panel banks contribute libor 2021 marketled working groups major jurisdictions noted already selected preferred alternative riskfree reference rates published expected continue publish consultations issues including methodologies fallback provisions contracts financial instruments linked ibors development term structures alternative riskfree reference rates critical financial markets transition use alternative riskfree reference rates place ibors exposure ibors including financial instruments contracts mature 2021 exposures arise securities loans hold investment connection marketmaking activities well derivatives enter make markets clients hedge risks also exposure ibors floatingrate securities funding products issue seeking facilitate orderly transition ibors alternative riskfree reference rates us clients accordingly created program focuses • evaluating monitoring impacts across businesses including transactions products • identifying evaluating scope existing financial instruments contracts may affected extent financial instruments contracts already contain appropriate fallback language would require amendment either bilateral negotiation using industrywide tools protocols • enhancements infrastructure example models systems prepare smooth transition alternative riskfree reference rates • active participation central bank sector working groups including responding industry consultations • client education communication part program sought systematically identify risks inherent transition including financial risks example earnings volatility stress due widening swap spreads loss funding sources result counterparties’ reluctance participate transitioning positions nonfinancial risks example inability negotiate fallbacks clients andor counterparties potential disputes relating interpretation implementation fallback provision operational impediments transition engaged range industry regulatory working groups example isda bank england’s working group sterling riskfree reference rates federal reserve’s alternative reference rates committee continue engage clients counterparties facilitate orderly transition alternative riskfree reference rates markets alternative riskfree reference rates continue develop expect transition alternative riskfree reference rates liquidity allows begun transition particular 2019 • issued debt deposits linked secured overnight financing rate sofr sterling overnight index average sonia well preferred stock rate reset based 5year us treasury rates • executed sofr soniabased derivative contracts make markets facilitate client activities • executed transactions market reduce libor exposures arising hedges fixedrate debt issuances replace alternative riskfree reference rates exposures offbalancesheet arrangements contractual obligations offbalancesheet arrangements ordinary course business enter various types offbalancesheet arrangements involvement arrangements take many different forms including • purchasing retaining residual interests special purpose entities mortgagebacked assetbacked securitization vehicles • holding senior subordinated debt interests limited general partnerships preferred common stock nonconsolidated vehicles • entering interest rate foreign currency equity commodity credit derivatives including total return swaps • providing guarantees indemnifications commitments letters credit representations warranties goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis enter arrangements variety business purposes including securitizations securitization vehicles purchase mortgages corporate bonds types financial assets critical functioning several significant investor markets including mortgagebacked assetbacked securities markets since offer investors access specific cash flows risks created securitization process also enter arrangements underwrite client securitization transactions provide secondary market liquidity make investments performing nonperforming debt distressed loans powerrelated assets equity securities real estate assets provide investors creditlinked assetrepackaged notes receive provide letters credit satisfy margin requirements facilitate clearance settlement process table presents information various offbalancesheet arrangements may found form 10k addition see note 3 consolidated financial statements information consolidation policies offbalancesheet arrangement disclosure form 10k variable interests obligations including contingent obligations arising variable interests nonconsolidated variable interest entities vies see note 17 consolidated financial statements guarantees letters credit lending commitments see note 18 consolidated financial statements derivatives see “risk management credit risk management credit exposures otc derivatives” notes 4 5 7 18 consolidated financial statements contractual obligations certain contractual obligations require us make future cash payments contractual obligations include time deposits secured longterm financings unsecured longterm borrowings interest payments operating lease payments obligations make future cash payments also include commitments guarantees related offbalance sheet arrangements excluded table see note 18 consolidated financial statements information commitments guarantees due uncertainty timing amounts ultimately paid liability unrecognized tax benefits excluded table see note 24 consolidated financial statements information unrecognized tax benefits table presents contractual obligations type table presents contractual obligations expiration table • obligations maturing within one year financial statement date redeemable within one year financial statement date option holders excluded treated shortterm obligations see note 14 consolidated financial statements information shortterm borrowings • obligations repayable prior maturity option reflected contractual maturity dates obligations redeemable prior maturity option holders reflected earliest dates options become exercisable • december 2019 unsecured longterm borrowings maturities extending 2067 consisted principally senior borrowings included 769 billion adjustments carrying value certain unsecured longterm borrowings resulting application hedge accounting see note 14 consolidated financial statements information unsecured longterm borrowings • december 2019 difference aggregate contractual principal amount related fair value longterm secured financings fair value option elected material • december 2019 fair value unsecured longterm borrowings fair value option elected exceeded aggregate contractual principal amount 199 million • interest payments represents estimated future contractual interest payments related unsecured longterm borrowings secured longterm financings time deposits based applicable interest rates december 2019 includes stated coupons structured notes goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis • operating lease payments include lease commitments office space expire various dates 2069 certain agreements subject periodic escalation provisions increases real estate taxes charges see note 15 consolidated financial statements information operating lease liabilities risk management risks inherent businesses include liquidity market credit operational model legal compliance conduct regulatory reputational risks include risks across risk categories regions global businesses well uncertain outcomes potential materially impact financial results liquidity reputation information risk management processes see “overview structure risk management” information areas risk see “liquidity risk management” “market risk management” “credit risk management” “operational risk management” “model risk management” “risk factors” part item 1a form 10k overview structure risk management overview believe effective risk management critical success accordingly established enterprise risk management framework employs comprehensive integrated approach risk management designed enable comprehensive risk management processes identify assess monitor manage risks assume conducting activities risk management structure built around three core components governance processes people governance risk management governance starts board directly committees including risk committee oversees risk management policies practices implemented enterprise risk management framework board also responsible annual review approval risk appetite statement risk appetite statement describes levels types risk willing accept avoid order achieve objectives included strategic business plan remaining compliance regulatory requirements board reviews strategic business plan ultimately responsible overseeing providing direction strategy risk appetite board receives regular briefings firmwide risks including liquidity risk market risk credit risk operational risk model risk independent risk oversight control functions including chief risk officer compliance risk conduct risk head compliance legal regulatory matters general counsel matters impacting reputation chair firmwide client business standards committee firmwide reputational risk committee chief risk officer reports chief executive officer risk committee board part review firmwide risk portfolio chief risk officer regularly advises risk committee board relevant risk metrics material exposures including risk limits thresholds established risk appetite statement implementation risk governance structure core risk management processes overseen enterprise risk reports chief risk officer responsible ensuring enterprise risk management framework provides board risk committees senior management consistent integrated approach managing various risks manner consistent risk appetite revenueproducing units well treasury engineering human capital management operations services considered first line defense accountable outcomes riskgenerating activities well assessing managing risks within risk appetite independent risk oversight control functions considered second line defense provide independent assessment oversight challenge risks taken first line defense well lead participate risk committees independent risk oversight control functions include compliance conflicts resolution controllers credit risk enterprise risk legal liquidity risk market risk model risk operational risk tax internal audit considered third line defense reports audit committee board administratively chief executive officer internal audit includes professionals broad range audit industry experience including risk management expertise internal audit responsible independently assessing validating effectiveness key controls including within risk management framework providing timely reporting audit committee board senior management regulators three lines defense structure promotes accountability first line risk takers provides framework effective challenge second line empowers independent review third line goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis processes maintain various processes critical components risk management framework including risk identification assessment ii risk appetite limit threshold setting iii risk reporting monitoring iv risk decisionmaking • risk identification assessment believe identification assessment risks critical step providing board senior management transparency insight range materiality risks comprehensive data collection process including firmwide policies procedures require employees report escalate risk events approach risk identification assessment comprehensive across risk types dynamic forwardlooking reflect adapt changing risk profile business environment leverages subject matter expertise allows prioritization critical risks effectively assess risks maintain daily discipline marking substantially inventory current market levels carry inventory fair value changes valuation reflected immediately risk management systems net revenues believe discipline one effective tools assessing managing risk provides transparent realistic insight inventory exposures important part risk management process firmwide stress testing allows us quantify exposure tail risks highlight potential loss concentrations undertake riskreward analysis assess mitigate risk positions firmwide stress tests performed regular basis designed ensure comprehensive analysis vulnerabilities idiosyncratic risks combining financial nonfinancial risks including limited credit market liquidity funding operational compliance strategic systemic emerging risks single combined scenario also perform ad hoc stress tests anticipation market events conditions stress tests also used assess capital adequacy part capital planning stress testing process see “equity capital management regulatory capital equity capital management” information • risk appetite limit threshold setting apply rigorous framework limits thresholds control monitor risk across transactions products businesses markets board directly indirectly risk committee approves limits thresholds included risk appetite statement firmwide business product levels addition firmwide enterprise risk committee responsible approving risk limits framework subject overall limits approved risk committee board monitoring limits risk governance committee responsible approving limits firmwide business product levels certain limits may set levels require periodic adjustment rather levels reflect maximum risk appetite fosters ongoing dialogue risk among first second lines defense committees senior management well rapid escalation riskrelated matters additionally delegated authority risk governance committee market risk sets limits certain product desk levels credit risk sets limits individual counterparties subsidiaries industries countries limits reviewed regularly amended permanent temporary basis reflect changing market conditions business conditions risk tolerance • risk reporting monitoring effective risk reporting risk decisionmaking depends ability get right information right people right time focus rigor effectiveness risk systems objective ensuring risk management technology systems provide us complete accurate timely information risk reporting monitoring processes designed take account information existing emerging risks thereby enabling risk committees senior management perform responsibilities appropriate level insight risk exposures furthermore limit threshold breach processes provide means timely escalation evaluate changes risk profile businesses including changes business mix jurisdictions operate monitoring risk factors firmwide level goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis • risk decisionmaking governance structure provides protocol responsibility decisionmaking risk management issues ensures implementation decisions make extensive use risk committees meet regularly serve important means facilitate foster ongoing discussions manage mitigate risks maintain strong proactive communication risk culture collaboration decisionmaking among first second lines defense committees senior management first line defense responsible management risk dedicate extensive resources second line defense order ensure strong oversight structure appropriate segregation duties regularly reinforce strong culture escalation accountability across functions people even best technology serves tool helping make informed decisions real time risks taking ultimately effective risk management requires people interpret risk data ongoing timely basis adjust risk positions accordingly experience professionals understanding nuances limitations risk measure guides us assessing exposures maintaining within prudent levels reinforce culture effective risk management consistent risk appetite training development programs well way evaluate performance recognize reward people training development programs including certain sessions led senior leaders focused importance risk management client relationships reputational excellence part annual performance review process assess reputational excellence including employee exercises good risk management reputational judgment adheres code conduct compliance policies review reward processes designed communicate reinforce professionals link behavior people recognized need focus clients reputation need always act accordance highest standards structure ultimate oversight risk responsibility board oversees risk directly committees including risk committee series committees specific risk management mandates oversight decisionmaking responsibilities risk management activities committee membership generally consists senior managers first second lines defense established procedures committees ensure appropriate information barriers place primary risk committees also additional subcommittees working groups described addition committees risk committees provide oversight different businesses activities products regions entities committees responsibility considering impact transactions activities oversee reputation membership risk committees reviewed regularly updated reflect changes responsibilities committee members accordingly length time members serve respective committees varies determined committee chairs based responsibilities members chart presents overview risk management governance structure management committee management committee oversees global activities provides oversight directly authority delegated committees established committee consists senior leaders chaired chief executive officer members management committee also members committees following committees principally involved firmwide risk management goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis firmwide enterprise risk committee firmwide enterprise risk committee responsible overseeing financial nonfinancial risks part oversight committee responsible ongoing review approval monitoring enterprise risk management framework well risk limits framework committee cochaired chief financial officer chief risk officer appointed chairs chief executive officer reports management committee following primary committees report firmwide enterprise risk committee • firmwide risk committee firmwide risk committee responsible ongoing monitoring relevant financial risks related risk limits firmwide business product levels committee cochaired chairs firmwide enterprise risk committee • firmwide new activity committee firmwide new activity committee responsible reviewing new activities establishing process identify review previously approved activities significant changed complexity andor structure present different reputational suitability concerns time consider whether activities remain appropriate committee cochaired controller chief accounting officer head operations engineering global markets division appointed chairs firmwide enterprise risk committee • firmwide resilience operational risk committee firmwide resilience operational risk committee globally responsible overseeing operational risk ensuring business operational resilience assist firmwide resilience operational risk committee carrying mandate risk committees dedicated oversight technologyrelated risks including cyber security matters report firmwide resilience operational risk committee cochaired chief administrative officer deputy chief risk officer appointed chairs firmwide enterprise risk committee • firmwide conduct committee firmwide conduct committee globally responsible ongoing approval monitoring frameworks policies govern conduct risks conduct risk people fail act manner consistent business principles related core values policies codes applicable laws regulations thereby falling short fulfilling responsibilities us clients colleagues market participants broader community cochairs committee appointed chairs firmwide enterprise risk committee • risk governance committee risk governance committee delegated authority firmwide enterprise risk committee responsible ongoing approval monitoring risk frameworks policies related core risk management processes well limits firmwide business product levels addition committee reviews results stress tests scenario analyses assist risk governance committee carrying mandate number risk committees dedicated oversight stress testing model risks volcker rule compliance report risk governance committee chaired chief risk officer appointed chair chairs firmwide enterprise risk committee firmwide client business standards committee firmwide client business standards committee responsible overseeing relationships clients client service experience related business standards well clientrelated reputational matters committee chaired president chief operating officer appointed chair chief executive officer reports management committee periodically provides updates receives guidance public responsibilities committee board goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis following committees report jointly firmwide enterprise risk committee firmwide client business standards committee • firmwide reputational risk committee firmwide reputational risk committee responsible assessing reputational risks arising transactions identified potential heightened reputational risk pursuant criteria established firmwide reputational risk committee chaired president chief operating officer vicechairs chair compliance head conflicts resolution appointed vicechairs chair firmwide reputational risk committee periodically provides updates receives guidance public responsibilities committee board • firmwide suitability committee firmwide suitability committee responsible setting standards policies product transaction client suitability providing forum consistency across functions regions products suitability assessments committee also reviews suitability matters escalated committees committee cochaired head compliance cohead emea ficc sales appointed chairs chair firmwide client business standards committee • firmwide investment policy committee firmwide investment policy committee reviews approves sets policies provides oversight certain illiquid principal investments including review risk management controls types investments committee cochaired chairman merchant banking division head merchant banking division chief risk officer appointed chairs president chief operating officer chief financial officer • firmwide capital committee firmwide capital committee provides approval oversight debtrelated transactions including principal commitments capital committee aims ensure business reputational suitability standards underwritings capital commitments maintained global basis committee cochaired head credit risk cohead financing group appointed chairs firmwide enterprise risk committee • firmwide commitments committee firmwide commitments committee reviews underwriting distribution activities respect equity equityrelated product offerings sets maintains policies procedures designed ensure legal reputational regulatory business standards maintained global basis addition reviewing specific transactions committee periodically conducts general strategic reviews sectors products establishes policies connection transaction practices committee cochaired cohead industrials group investment banking division chief debt underwriting officer emea managing director investment banking division appointed chairs chair firmwide client business standards committee firmwide asset liability committee firmwide asset liability committee reviews approves strategic direction financial resources including capital liquidity funding balance sheet committee oversight responsibility asset liability management including interest rate currency risk funds transfer pricing capital allocation incentives credit ratings committee makes recommendations adjustments asset liability management financial resource allocation light current events risks exposures regulatory requirements approves related policies committee cochaired chief financial officer global treasurer appointed chairs chief executive officer reports management committee goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis conflicts management conflicts interest approach dealing fundamental client relationships reputation longterm success term “conflict interest” universally accepted meaning conflicts arise many forms within business businesses responsibility identifying potential conflicts well complying policies procedures shared employees multilayered approach resolving conflicts addressing reputational risk senior management oversees policies related conflicts resolution conjunction conflicts resolution legal compliance firmwide client business standards committee internal committees formulates policies standards principles assists making judgments regarding appropriate resolution particular conflicts resolving potential conflicts necessarily depends facts circumstances particular situation application experienced informed judgment general matter conflicts resolution reviews financing advisory assignments investment banking certain investing lending activities addition various transaction oversight committees firmwide capital commitments suitability committees also review new underwritings loans investments structured products groups committees work internal external counsel compliance evaluate address actual potential conflicts resolution reports president chief operating officer regularly assess policies procedures address conflicts interest effort conduct business accordance highest ethical standards compliance applicable laws rules regulations compliance risk management compliance risk legal regulatory sanctions material financial loss damage reputation arising failure comply requirements applicable laws rules regulations internal policies procedures compliance risk inherent activities conduct businesses compliance risk management program administered compliance assesses compliance regulatory reputational risk monitors compliance new amended laws rules regulations designs implements controls policies procedures training conducts independent testing investigates surveils monitors compliance risks breaches leads responses regulatory examinations audits inquiries monitor review business practices assess whether meet exceed minimum regulatory legal standards markets jurisdictions conduct business liquidity risk management overview liquidity risk unable fund meet liquidity needs event firmspecific broader industry market liquidity stress events place comprehensive conservative set liquidity funding policies principal objective able fund enable core businesses continue serve clients generate revenues even adverse circumstances treasury reports chief financial officer primary responsibility developing managing executing liquidity funding strategy within risk appetite liquidity risk independent revenueproducing units treasury reports chief risk officer primary responsibility assessing monitoring managing liquidity risk firmwide oversight across global businesses establishment stress testing limits frameworks liquidity risk management principles manage liquidity risk according three principles hold sufficient excess liquidity form gcla cover outflows stressed period ii maintain appropriate assetliability management iii maintain viable contingency funding plan gcla liquidity maintain meet broad range potential cash outflows collateral needs stressed environment primary liquidity principle prefund estimated potential cash collateral needs liquidity crisis hold liquidity form unencumbered highly liquid securities cash believe securities held gcla would readily convertible cash matter days liquidation entering repurchase agreements maturities resale agreements cash would allow us meet immediate obligations without needing sell assets depend additional funding creditsensitive markets gcla reflects following principles • first days weeks liquidity crisis critical company’s survival • focus must maintained potential cash collateral outflows disruptions financing flows businesses diverse liquidity needs determined many factors including market movements collateral requirements client commitments change dramatically difficult funding environment goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis • liquidity crisis creditsensitive funding including unsecured debt certain deposits types secured financing agreements may unavailable terms eg interest rates collateral provisions tenor availability types secured financing may change certain deposits may withdrawn • result policy prefund liquidity estimate may needed crisis hold unencumbered securities larger funding balances businesses would otherwise require believe liquidity stronger greater balances highly liquid unencumbered securities even though increases total assets funding costs maintain gcla across group inc goldman sachs funding llc funding ihc group inc’s major brokerdealer bank subsidiaries asset types clearing agents provide us sufficient operating liquidity ensure timely settlement major markets even difficult funding environment addition gcla maintain cash balances securities several entities primarily use specific currencies entities jurisdictions immediate access parent company liquidity assetliability management liquidity risk management policies designed ensure sufficient amount financing even funding markets experience persistent stress manage maturities diversity funding across markets products counterparties seek maintain diversified funding profile appropriate tenor taking consideration characteristics liquidity profile assets approach assetliability management includes • conservatively managing overall characteristics funding book focus maintaining longterm diversified sources funding excess current requirements see “balance sheet funding sources funding sources” information • actively managing monitoring asset base particular focus liquidity holding period ability fund assets secured basis assess funding requirements ability liquidate assets stressed environment appropriately managing risk enables us determine appropriate funding products tenors see “balance sheet funding sources balance sheet management” information balance sheet management process “ funding sources secured funding” information asset classes may harder fund secured basis • raising secured unsecured financing long tenor relative liquidity profile assets reduces risk liabilities come due advance ability generate liquidity sale assets maintain highly liquid balance sheet holding period certain assets may materially shorter contractual maturity dates goal ensure maintain sufficient liquidity fund assets meet contractual contingent obligations normal times well periods market stress dynamic balance sheet management process use actual projected asset balances determine secured unsecured funding requirements funding plans reviewed approved firmwide asset liability committee addition independent risk oversight control functions analyze firmwide asset liability committee reviews consolidated total capital position unsecured longterm borrowings plus total shareholders’ equity maintain level longterm funding sufficient meet longterm financing requirements liquidity crisis would first use gcla order avoid reliance asset sales gcla however recognize orderly asset sales may prudent necessary severe persistent liquidity crisis subsidiary funding policies majority unsecured funding raised group inc lends necessary funds funding ihc subsidiaries regulated meet asset financing liquidity capital requirements addition group inc provides regulated subsidiaries necessary capital meet regulatory requirements benefits approach subsidiary funding enhanced control greater flexibility meet funding requirements subsidiaries funding also raised subsidiary level variety products including deposits secured funding unsecured borrowings intercompany funding policies assume subsidiary’s funds securities freely available parent funding ihc subsidiaries unless legally provided ii additional regulatory tax restrictions particular many subsidiaries subject laws authorize regulatory bodies block reduce flow funds subsidiaries group inc funding ihc regulatory action kind could impede access funds group inc needs make payments obligations accordingly assume capital provided regulated subsidiaries available group inc subsidiaries financing provided regulated subsidiaries available group inc funding ihc maturity financing goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis group inc provided substantial amounts equity subordinated indebtedness directly indirectly regulated subsidiaries example december 2019 group inc 3205 billion equity subordinated indebtedness invested gsco principal us registered brokerdealer 3960 billion invested gsi regulated uk brokerdealer 285 billion invested gsjcl regulated japanese brokerdealer 3357 billion invested gs bank usa regulated new york statechartered bank 403 billion invested gsib regulated uk bank group inc also provided directly indirectly 8378 billion unsubordinated loans including secured loans 2308 billion 1504 billion collateral cash deposits entities substantially gsco gsi gsjcl december 2019 addition december 2019 group inc significant amounts capital invested loans regulated subsidiaries contingency funding plan maintain contingency funding plan provide framework analyzing responding liquidity crisis situation periods market stress contingency funding plan outlines list potential risk factors key reports metrics reviewed ongoing basis assist assessing severity managing liquidity crisis andor market dislocation contingency funding plan also describes detail potential responses assessments indicate entered liquidity crisis include prefunding estimate potential cash collateral needs well utilizing secondary sources liquidity mitigants action items address specific risks may arise also described assigned individuals responsible execution contingency funding plan identifies key groups individuals responsibilities include fostering effective coordination control distribution information implementing liquidity maintenance activities managing internal external communication critical management crisis period market stress tests order determine appropriate size gcla model liquidity outflows range scenarios time horizons one primary internal liquidity risk models referred modeled liquidity outflow quantifies liquidity risks 30day stress scenario also consider factors including limited assessment potential intraday liquidity needs additional internal liquidity risk model referred intraday liquidity model results longterm stress testing models resolution liquidity models applicable regulatory requirements qualitative assessment condition well financial markets results modeled liquidity outflow intraday liquidity model longterm stress testing models resolution liquidity models reported senior management regular basis also perform firmwide stress tests see “overview structure risk management” information firmwide stress tests modeled liquidity outflow modeled liquidity outflow based conducting multiple scenarios include combinations marketwide firmspecific stress scenarios characterized following qualitative elements • severely challenged market environments including low consumer corporate confidence financial political instability adverse changes market values including potential declines equity markets widening credit spreads • firmspecific crisis potentially triggered material losses reputational damage litigation andor ratings downgrade following key modeling elements modeled liquidity outflow • liquidity needs 30day scenario • twonotch downgrade longterm senior unsecured credit ratings • changing conditions funding markets limit access unsecured secured funding • support additional government funding facilities although access various central bank funding programs assume reliance additional sources funding liquidity crisis • combination contractual outflows upcoming maturities unsecured debt contingent outflows including limited withdrawal customer credit balances prime brokerage business increase variation margin requirements due adverse changes value exchangetraded otccleared derivatives withdrawals deposits contractual maturity goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis intraday liquidity model intraday liquidity model measures intraday liquidity needs using scenario analysis characterized qualitative elements modeled liquidity outflow model assesses risk increased intraday liquidity requirements scenario access sources intraday liquidity may become constrained longterm stress testing utilize longerterm stress tests take forward view liquidity position prolonged stress periods experience severe liquidity stress recover environment continues challenging focused ensuring conservative assetliability management prepare prolonged period potential stress seeking maintain diversified funding profile appropriate tenor taking consideration characteristics liquidity profile assets resolution liquidity models connection resolution planning efforts established resolution liquidity adequacy positioning framework estimates liquidity needs major subsidiaries stressed environment liquidity needs measured using modeled liquidity outflow assumptions include certain additional interaffiliate exposures also established resolution liquidity execution need framework measures liquidity needs major subsidiaries stabilize winddown following group inc bankruptcy filing accordance preferred resolution strategy addition established triggers alerts framework designed provide board information needed make informed decision whether commence bankruptcy proceedings group inc limits use liquidity risk limits various levels across liquidity risk types manage size liquidity exposures limits measured relative acceptable levels risk given liquidity risk tolerance see “overview structure risk management” information limit approval process limits monitored treasury liquidity risk liquidity risk responsible identifying escalating senior management andor appropriate risk committee timely basis instances limits exceeded gcla unencumbered metrics gcla based results internal liquidity risk models described well consideration factors including limited qualitative assessment condition well financial markets believe liquidity position december 2019 december 2018 appropriate strictly limit gcla narrowly defined list securities cash highly liquid even difficult funding environment include potential sources excess liquidity gcla less liquid unencumbered securities committed credit facilities table presents information gcla table • us dollardenominated gcla consists unencumbered us government agency obligations including highly liquid us agency mortgagebacked obligations eligible collateral federal reserve open market operations ii certain overnight us dollar cash deposits • nonus dollardenominated gcla consists nonus government obligations unencumbered german french japanese uk government obligations certain overnight cash deposits highly liquid currencies goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis maintain gcla enable us meet current potential liquidity requirements parent company group inc subsidiaries modeled liquidity outflow intraday liquidity model incorporate requirement group inc well standalone requirement major brokerdealer bank subsidiaries funding ihc required provide necessary liquidity group inc ordinary course business also obligated provide capital liquidity support major subsidiaries event material financial distress failure liquidity held directly major brokerdealer bank subsidiaries intended use subsidiary meet liquidity requirements assumed available group inc funding ihc unless legally provided ii additional regulatory tax restrictions addition modeled liquidity outflow intraday liquidity model also incorporate broader assessment standalone liquidity requirements subsidiaries hold portion gcla directly group inc funding ihc support requirements unencumbered assets addition gcla significant amount unencumbered cash financial instruments including government obligations highgrade money market securities corporate obligations marginable equities loans cash deposits included gcla fair value unencumbered assets averaged 20203 billion 2019 17708 billion 2018 consider assets liquid enough eligible gcla liquidity regulatory framework bank holding company bhc subject minimum liquidity coverage ratio lcr rule approved us federal bank regulatory agencies lcr rule requires organizations maintain adequate ratio eligible highquality liquid assets hqla expected net cash outflows acute shortterm liquidity stress scenario eligible hqla excludes hqla held subsidiaries excess minimum requirement subject transfer restrictions required maintain minimum lcr 100 expect fluctuations client activity business mix market environment impact lcr table presents information average daily lcr us federal bank regulatory agencies issued proposed rule calls net stable funding ratio nsfr large us banking organizations proposal would require banking organizations ensure access stable funding oneyear time horizon includes quarterly disclosure ratio description banking organization’s stable funding sources expect compliant nsfr requirement effective following provides information subsidiary liquidity regulatory requirements • gs bank usa gs bank usa subject minimum lcr 100 lcr rule approved us federal bank regulatory agencies december 2019 gs bank usa’s lcr exceeded minimum requirement nsfr requirement described would also apply gs bank usa • gsi subject minimum lcr 100 lcr rule approved uk regulatory authorities european commission gsi’s average monthly lcr trailing twelvemonth period ended december 2019 exceeded minimum requirement • subsidiaries monitor local regulatory liquidity requirements subsidiaries ensure compliance many subsidiaries requirements either changed likely change future due implementation basel committee banking supervision’s framework liquidity risk measurement standards monitoring well regulatory developments implementation rules amendments adopted regulatory authorities could impact liquidity funding requirements practices future goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis credit ratings rely short longterm debt capital markets fund significant portion daytoday operations cost availability debt financing influenced credit ratings credit ratings also important competing certain markets otc derivatives seek engage longerterm transactions see “risk factors” part item 1a form 10k information risks associated reduction credit ratings table presents unsecured credit ratings outlook group inc table • ratings outlook dbrs inc dbrs fitch moody’s rating investment information inc ri sp • ratings trust preferred relate guaranteed preferred beneficial interests issued goldman sachs capital • dbrs fitch moody’s sp ratings preferred stock include apex issued goldman sachs capital ii goldman sachs capital iii table presents unsecured credit ratings outlook gs bank usa gsib gsco gsi fitch moody’s sp believe credit ratings primarily based credit rating agencies’ assessment • liquidity market credit operational risk management practices • level variability earnings • capital base • franchise reputation management • corporate governance • external operating economic environment including cases assumed level government support systemic considerations potential resolution certain derivatives transacted bilateral agreements counterparties may require us post collateral terminate transactions based changes credit ratings manage gcla ensure would among potential requirements able make additional collateral termination payments may required event twonotch reduction longterm credit ratings well collateral called counterparties available see note 7 consolidated financial statements information derivatives creditrelated contingent features additional collateral termination payments related net derivative liabilities bilateral agreements could called counterparties event one twonotch downgrade credit ratings goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis cash flows global financial institution cash flows complex bear little relation net earnings net assets consequently believe traditional cash flow analysis less meaningful evaluating liquidity position liquidity assetliability management policies described cash flow analysis may however helpful highlighting certain macro trends strategic initiatives businesses year ended december 2019 cash equivalents increased 300 billion 13355 billion end 2019 primarily due net cash provided operating activities financing activities partially offset net cash used investing activities net cash provided operating activities primarily reflected cash provided collateralized transactions decrease collateralized agreements increase collateralized financings result clients’ activities partially offset increase trading assets result client activity net cash provided financing activities primarily reflected increase consumer deposits partially offset net repayments unsecured longterm borrowings common stock repurchases net cash used investing activities primarily reflected net purchases investments increase loans year ended december 2018 cash equivalents increased 2050 billion 13055 billion end 2018 primarily due net cash provided financing activities operating activities partially offset net cash used investing activities net cash provided financing activities primarily reflected increases consumer deposits net cash provided operating activities primarily reflected net earnings decrease collateralized agreements included collateralized transactions partially offset increase trading assets net cash used investing activities primarily reflected increase loans net purchases investments year ended december 2017 cash equivalents decreased 1166 billion 11005 billion end 2017 primarily due net cash used investing activities operating activities partially offset net cash provided financing activities net cash used investing activities primarily reflected increase loans net purchases investments net cash used operating activities primarily reflected increase net customer receivables payables partially offset increase collateralized financings included collateralized transactions net cash provided financing activities primarily reflected net issuances unsecured longterm borrowings increases institutional consumer deposits partially offset repurchases common stock market risk management overview market risk loss value inventory investments loans financial assets liabilities accounted fair value due changes market conditions hold positions primarily market making clients investing financing activities therefore positions change based client demands investment opportunities since positions accounted fair value fluctuate daily basis related gains losses included consolidated statements earnings employ variety risk measures described respective sections monitor market risk categories market risk include following • interest rate risk results exposures changes level slope curvature yield curves volatilities interest rates prepayment speeds credit spreads • equity price risk results exposures changes prices volatilities individual equities baskets equities equity indices • currency rate risk results exposures changes spot prices forward prices volatilities currency rates • commodity price risk results exposures changes spot prices forward prices volatilities commodities crude oil petroleum products natural gas electricity precious base metals market risk independent revenueproducing units reports chief risk officer primary responsibility assessing monitoring managing market risk firmwide oversight across global businesses managers revenueproducing units market risk discuss market information positions estimated loss scenarios ongoing basis managers revenueproducing units accountable managing risk within prescribed limits managers indepth knowledge positions markets instruments available hedge exposures goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis market risk management process managing market risk includes critical components risk management framework described “overview structure risk management” well following • monitoring compliance established market risk limits reporting exposures • diversifying exposures • controlling position sizes • evaluating mitigants economic hedges related securities derivatives market risk management systems enable us perform independent calculation valueatrisk var stress measures capture risk measures individual position levels attribute risk measures individual risk factors position report many different views risk measures eg desk business product type entity produce ad hoc analyses timely manner risk measures produce risk measures monitor established market risk limits measures reflect extensive range scenarios results aggregated product business firmwide levels use variety risk measures estimate size potential losses moderate extreme market moves short longterm time horizons primary risk measures var used shorterterm periods stress tests risk reports detail key risks drivers changes desk business distributed daily senior management revenueproducing units independent risk oversight control functions valueatrisk var potential loss value due adverse market movements defined time horizon specified confidence level assets liabilities included var see “financial statement linkages market risk measures” typically employ oneday time horizon 95 confidence level use single var model captures risks including interest rates equity prices currency rates commodity prices var facilitates comparison across portfolios different risk characteristics var also captures diversification aggregated risk firmwide level aware inherent limitations var therefore use variety risk measures market risk management process inherent limitations var include • var estimate potential losses longer time horizons moves may extreme • var take account relative liquidity different risk positions • previous moves market risk factors may produce accurate predictions future market moves comprehensively capture exposures relevant risks var calculation use historical simulations full valuation market factors position level simultaneously shocking relevant market factors position market factors include spot prices credit spreads funding spreads yield curves volatility correlation updated periodically based changes composition positions well variations market conditions sample five years historical data generate scenarios var calculation historical data weighted relative importance data reduces time gives greater importance recent observations reflects current asset volatilities improves accuracy estimates potential loss result even positions included var unchanged var would increase increasing market volatility vice versa given reliance historical data var effective estimating risk exposures markets sudden fundamental changes shifts market conditions var measure include • positions best measured monitored using sensitivity measures • impact changes counterparty credit spreads derivatives well changes credit spreads financial liabilities fair value option elected goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis perform daily backtesting var model ie comparing daily net revenues positions included var measure calculated prior business day firmwide level businesses major regulated subsidiaries stress testing stress testing method determining effect various hypothetical stress scenarios use stress testing examine risks specific portfolios well potential impact significant risk exposures use variety stress testing techniques calculate potential loss wide range market moves portfolios including firmwide stress tests sensitivity analysis scenario analysis results various stress tests analyzed together risk management purposes see “overview structure risk management” information firmwide stress tests sensitivity analysis used quantify impact market move single risk factor across positions eg equity prices credit spreads using variety defined market shocks ranging could expected oneday time horizon could take many months occur also use sensitivity analysis quantify impact default single entity captures risk large concentrated exposures scenario analysis used quantify impact specified event including event impacts multiple risk factors simultaneously example sovereign stress testing calculate potential direct exposure associated sovereign positions well corresponding debt equity currency exposures associated nonsovereign positions may impacted sovereign distress conducting scenario analysis often consider number possible outcomes scenario ranging moderate severely adverse market impacts addition stress tests constructed using historical events forwardlooking hypothetical scenarios unlike var measures implied probability calculated specified confidence level may implied probability stress testing scenarios occur instead stress testing used model moderate extreme moves underlying market factors estimating potential loss generally assume positions cannot reduced hedged although experience demonstrates generally able limits use market risk limits various levels manage size market exposures limits set based var range stress tests relevant exposures see “overview structure risk management” information limit approval process market risk responsible monitoring limits identifying escalating senior management andor appropriate risk committee timely basis instances limits exceeded eg due positional changes market conditions increased volatilities changes correlations instances remediated reduction positions hold andor temporary permanent increase limit metrics analyze var firmwide level variety detailed levels including risk category business region diversification effect tables represents difference total var sum vars four risk categories effect arises four market risk categories perfectly correlated table presents average daily var average daily var decreased 56 million 2019 60 million 2018 primarily due decreases equity prices currency rates categories partially offset decrease diversification effect overall decrease primarily due reduced exposures table presents periodend var periodend var increased 70 million december 2019 57 million december 2018 primarily due decrease diversification effect increase interest rates category partially offset decreases equity prices currency rates categories overall increase due higher levels volatility increased exposures goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis 2019 2018 firmwide var risk limit exceeded raised reduced table presents high low var chart presents daily var 2019 table presents number business days frequency distribution daily net revenues positions included var daily net revenues positions included var compared var calculated end prior business day net losses incurred single day positions exceed 95 oneday var ie var exception 2019 exceeded 95 oneday var two occasions 2018 periods significantly positive net revenue days net revenue loss days expect fewer var exceptions normal conditions business model generally produces positive net revenues periods franchise revenues adversely affected generally loss days resulting var exceptions daily net revenues positions included var used determine var exceptions reflect impact intraday activity including bidoffer net revenues likely positive nature sensitivity measures certain portfolios individual positions included var appropriate risk measure sensitivity measures use analyze market risk described 10 sensitivity measures table presents market risk asset category positions accounted fair value included var table • market risk positions determined estimating potential reduction net revenues 10 decline value positions • equity positions relate private restricted public equity securities including interests funds invest corporate equities real estate interests hedge funds • debt positions include interests funds invest corporate mezzanine senior debt instruments loans backed commercial residential real estate corporate bank loans corporate debt including acquired portfolios distressed loans • funded equity debt positions included consolidated balance sheets investments loans see note 8 consolidated financial statements information investments note 9 consolidated financial statements information loans • measures reflect diversification effect across asset categories across market risk measures goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis credit funding spread sensitivity derivatives financial liabilities var excludes impact changes counterparty credit spreads credit spreads unsecured funding spreads derivatives well changes credit spreads debt valuation adjustment financial liabilities fair value option elected estimated sensitivity one basis point increase credit spreads counterparty unsecured funding spreads derivatives including hedges loss 2 million december 2019 december 2018 addition estimated sensitivity one basis point increase credit spreads financial liabilities fair value option elected gain 29 million december 2019 41 million december 2018 however actual net impact change credit spreads also affected liquidity duration convexity sensitivity linear changes yields financial liabilities fair value option elected well relative performance hedges undertaken interest rate sensitivity loans accounted amortized cost 8920 billion december 2019 8059 billion december 2018 substantially floating interest rates estimated sensitivity 100 basis point increase interest rates loans 681 million december 2019 607 million december 2018 additional interest income twelvemonth period take account potential impact increase costs fund loans see note 9 consolidated financial statements information loans accounted amortized cost market risk considerations december 2019 december 2018 commitments held loans obtained credit loss protection sumitomo mitsui financial group inc see note 18 consolidated financial statements information lending commitments addition make investments securities accounted availableforsale heldtomaturity equity method included investments consolidated balance sheets see note 8 consolidated financial statements information direct investments real estate accounted cost less accumulated depreciation see note 12 consolidated financial statements information assets financial statement linkages market risk measures employ variety risk measures described respective sections monitor market risk across consolidated balance sheets consolidated statements earnings related gains losses positions included market making principal transactions interest income interest expense consolidated statements earnings debt valuation adjustment consolidated statements comprehensive income table presents certain assets liabilities consolidated balance sheets market risk measures used assess assets liabilities assets liabilities market risk measures collateralized agreements fair value var receivables var interest rate sensitivity trading assets var credit spread sensitivity derivatives investments var 10 sensitivity measures loans var 10 sensitivity measures deposits fair value var credit spread sensitivity financial liabilities collateralized financings fair value var trading liabilities var credit spread sensitivity derivatives unsecured short longterm borrowings fair value var credit spread sensitivity financial liabilities credit risk management overview credit risk represents potential loss due default deterioration credit quality counterparty eg otc derivatives counterparty borrower issuer securities instruments hold exposure credit risk comes mostly client transactions otc derivatives loans lending commitments credit risk also comes cash placed banks securities financing transactions ie resale repurchase agreements securities borrowing lending activities customer receivables goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis credit risk independent revenueproducing units reports chief risk officer primary responsibility assessing monitoring managing credit risk firmwide oversight across global businesses risk governance committee reviews approves credit policies parameters addition hold positions give rise credit risk eg bonds secondary bank loans credit risks captured component market risk measures monitored managed market risk also enter derivatives manage market risk exposures derivatives also give rise credit risk monitored managed credit risk credit risk management process managing credit risk includes critical components risk management framework described “overview structure risk management” well following • monitoring compliance established credit risk limits reporting credit exposures credit concentrations • establishing approving underwriting standards • assessing likelihood counterparty default payment obligations • measuring current potential credit exposure losses resulting counterparty default • using credit risk mitigants including collateral hedging • maximizing recovery active workout restructuring claims also perform credit reviews include initial ongoing analyses counterparties substantially credit exposures core process annual counterparty credit review credit review independent analysis capacity willingness counterparty meet financial obligations resulting internal credit rating determination internal credit ratings also incorporates assumptions respect nature outlook counterparty’s industry economic environment senior personnel expertise specific industries inspect approve credit reviews internal credit ratings risk assessment process may also include applicable reviewing certain key metrics including limited delinquency status collateral values fair isaac corporation credit scores risk factors credit risk management systems capture credit exposure individual counterparties aggregate basis counterparties subsidiaries systems also provide management comprehensive information aggregate credit risk product internal credit rating industry country region risk measures measure credit risk based potential loss event nonpayment counterparty using current potential exposure derivatives securities financing transactions current exposure represents amount presently owed us taking account applicable netting collateral arrangements potential exposure represents estimate future exposure could arise life transaction based market movements within specified confidence level potential exposure also takes account netting collateral arrangements loans lending commitments primary measure function notional amount position stress tests conduct regular stress tests calculate credit exposures including potential concentrations would result applying shocks counterparty credit ratings credit risk factors eg currency rates interest rates equity prices shocks cover wide range moderate extreme market movements including shocks multiple risk factors consistent occurrence severe market economic event case sovereign default estimate direct impact default sovereign credit exposures changes credit exposures arising potential market moves response default impact credit market deterioration corporate borrowers counterparties may result sovereign default unlike potential exposure calculated within specified confidence level stress testing generally assume probability events occurring also perform firmwide stress tests see “overview structure risk management” information firmwide stress tests supplement regular stress tests described also conduct tailored stress tests ad hoc basis response specific market events deem significant also utilize stress tests estimate indirect impact certain hypothetical events country exposures impact credit market deterioration corporate borrowers counterparties along shocks risk factors described parameters shocks vary based scenario reflected stress test review estimated losses produced stress tests order understand magnitude highlight potential loss concentrations assess mitigate exposures necessary goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis limits use credit risk limits various levels well underwriting standards manage size nature credit exposures limits industries countries based risk appetite designed allow regular monitoring review escalation management credit risk concentrations see “overview structure risk management” information limit approval process credit risk responsible monitoring limits identifying escalating senior management andor appropriate risk committee timely basis instances limits exceeded risk mitigants reduce credit exposures derivatives securities financing transactions may enter netting agreements counterparties permit us offset receivables payables counterparties may also reduce credit risk counterparties entering agreements enable us obtain collateral upfront contingent basis andor terminate transactions counterparty’s credit rating falls specified level monitor fair value collateral ensure credit exposures appropriately collateralized seek minimize exposures significant positive correlation creditworthiness counterparties market value collateral receive loans lending commitments depending credit quality borrower characteristics transaction employ variety potential risk mitigants risk mitigants include collateral provisions guarantees covenants structural seniority bank loan claims certain lending commitments provisions legal documentation allow us adjust loan amounts pricing structure terms market conditions change type structure risk mitigants employed significantly influence degree credit risk involved loan lending commitment sufficient visibility counterparty’s financial strength believe counterparty requires support parent may obtain thirdparty guarantees counterparty’s obligations may also mitigate credit risk using credit derivatives participation agreements credit exposures december 2019 aggregate credit exposure increased compared december 2018 primarily reflecting increase loans lending commitments securities financing transactions percentage credit exposures arising noninvestmentgrade counterparties based internally determined public rating agency equivalents increased compared december 2018 primarily reflecting increase noninvestmentgrade loans lending commitments credit exposure counterparties defaulted 2019 higher compared credit exposure counterparties defaulted prior year period substantially exposure related loans lending commitments credit exposure counterparties defaulted 2019 remained low representing less 05 total credit exposure estimated losses associated defaults recognized earnings credit exposures described cash equivalents credit exposure cash equivalents arises unrestricted cash includes interestbearing noninterestbearing deposits mitigate risk credit loss place substantially deposits highly rated banks central banks table presents credit exposure unrestricted cash equivalents concentration industry region credit quality table excludes cash segregated regulatory purposes 2278 billion december 2019 2314 billion december 2018 goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis otc derivatives credit exposure otc derivatives arises primarily marketmaking activities market maker enter derivative transactions provide liquidity clients facilitate transfer hedging risks also enter derivatives manage market risk exposures manage credit exposure otc derivatives using credit risk process measures limits risk mitigants described generally enter otc derivatives transactions bilateral collateral arrangements require daily exchange collateral credit risk essential component fair value include credit valuation adjustment cva fair value derivatives reflect counterparty credit risk described note 7 consolidated financial statements cva function present value expected exposure probability counterparty default assumed recovery upon default table presents net credit exposure otc derivatives concentration industry region table • otc derivative assets included consolidated balance sheets reported netbycounterparty basis ie net receivable given counterparty legal right setoff exists enforceable netting agreement counterparty netting accounted fair value net cash collateral received enforceable credit support agreements cash collateral netting • collateral represents cash collateral fair value securities collateral primarily us nonus government agency obligations received credit support agreements consider determining credit risk collateral eligible netting us gaap table presents distribution net credit exposure otc derivatives tenor table • tenor based remaining contractual maturity • netting includes counterparty netting across tenor categories cash securities collateral consider determining credit risk including collateral eligible netting us gaap counterparty netting within tenor category included within tenor category tables present distribution net credit exposure otc derivatives tenor internally determined public rating agency equivalents goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis lending activities manage lending activities using credit risk process measures limits risk mitigants described lending positions including secondary trading positions riskmanaged component market risk • commercial lending commercial lending activities include lending investmentgrade noninvestmentgrade corporate borrowers loans lending commitments associated activities principally used operating general corporate purposes connection contingent acquisitions corporate loans may secured unsecured depending loan purpose risk profile borrower factors commercial lending activities also include extending loans borrowers secured commercial real estate table presents credit exposure commercial loans lending commitments concentration industry region credit quality • wealth management residential real estate lending extend wealth management loans lending commitments private bank substantially secured commercial residential real estate securities assets fair value collateral received loans lending commitments generally exceeds carrying value also residential real estate lending exposures include purchased residential real estate unsecured consumer loans commitments purchase loans including distressed loans securities table presents credit exposure wealth management residential real estate lending concentration region • consumer credit card lending originate unsecured consumer credit card loans table presents credit exposure originated unsecured consumer loans concentration five concentrated us states goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis table presents credit exposure originated credit card loans concentration five concentrated us states see note 9 consolidated financial statements information credit quality indicators consumer loans securities financing transactions enter securities financing transactions order among things facilitate client activities invest excess cash acquire securities cover short positions finance certain activities bear credit risk related resale agreements securities borrowed extent cash advanced value securities pledged delivered counterparty exceeds value collateral received also credit exposure repurchase agreements securities loaned extent value securities pledged delivered counterparty transactions exceeds amount cash collateral received securities collateral obtained securities financing transactions primarily includes us nonus government agency obligations table presents credit exposure securities financing transactions concentration industry region credit quality table reflects netting agreements collateral consider determining credit risk credit exposures exposed credit risk receivables brokers dealers clearing organizations customers counterparties receivables brokers dealers clearing organizations primarily consist initial margin placed clearing organizations receivables related sales securities traded yet settled receivables generally minimal credit risk due low probability clearing organization default shortterm nature receivables related securities settlements receivables customers counterparties generally consist collateralized receivables related customer securities transactions generally minimal credit risk due value collateral received shortterm nature receivables goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis table presents credit exposures concentration industry region credit quality table reflects collateral consider determining credit risk selected exposures credit market exposures described heightened focus due recent events broad market concerns credit exposure represents potential loss due default deterioration credit quality counterparty borrower market exposure represents potential loss value long short positions due changes market prices high inflation turkey combined current account deficits significant depreciation turkish lira led concerns economic stability december 2019 total credit exposure turkey 210 billion nonsovereign counterparties borrowers exposure consisted 175 billion related otc derivatives 330 million related loans lending commitments 22 million related secured receivables taking consideration benefit turkish corporate sovereign collateral risk mitigants provided turkish counterparties net credit exposure 434 million addition total market exposure turkey december 2019 material significant depreciation argentine peso resulted higher inflation raised concerns argentina’s economic stability december 2019 total credit exposure argentina 132 million nonsovereign counterparties borrowers substantially related loans lending commitments addition total market exposure argentina 180 million primarily reflecting debt exposure sovereign issuers underliers potential restructuring lebanon’s sovereign debt led concerns financial stability december 2019 credit exposure lebanon 689 million substantially related loans lending commitments nonsovereign borrowers taking consideration benefit lebanese sovereign collateral received net credit exposure 331 million addition total market exposure lebanon december 2019 101 million primarily reflecting debt exposure sovereign issuers underliers venezuela delayed payments sovereign debt political situation remains unclear december 2019 total credit market exposure venezuela material comprehensive framework monitor measure assess country exposures determine risk appetite determine country risk location counterparty issuer underlier’s assets generate revenue country headquartered jurisdiction claim could enforced andor government whose policies affect ability repay obligations monitor credit exposure specific country individual counterparty level well aggregate country level see “stress tests” information stress tests designed estimate direct indirect impact events involving countries goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis operational risk management overview operational risk adverse outcome resulting inadequate failed internal processes people systems external events exposure operational risk arises routine processing errors well extraordinary incidents major systems failures legal regulatory matters potential types loss events related internal external operational risk include • clients products business practices • execution delivery process management • business disruption system failures • employment practices workplace safety • damage physical assets • internal fraud • external fraud operational risk independent revenueproducing units reports chief risk officer primary responsibility developing implementing formalized framework assessing monitoring managing operational risk goal maintaining exposure operational risk levels within risk appetite operational risk management process managing operational risk includes critical components risk management framework described “overview structure risk management” including comprehensive data collection process well firmwide policies procedures operational risk events combine topdown bottomup approaches manage measure operational risk topdown perspective senior management assesses firmwide businesslevel operational risk profiles bottomup perspective first second lines defense responsible risk identification risk management daytoday basis including escalating operational risks senior management maintain comprehensive control framework designed provide wellcontrolled environment minimize operational risks firmwide conduct operational risk committee responsible ongoing approval monitoring frameworks policies parameters limits thresholds govern operational risks operational risk management framework part designed comply operational risk measurement rules capital framework evolved based changing needs businesses regulatory guidance established policies require employees report escalate operational risk events operational risk events identified policies require events documented analyzed determine whether changes required systems andor processes mitigate risk future events use operational risk management applications capture organize operational risk event data key metrics one key risk identification assessment tools operational risk control selfassessment process performed managers process consists identification rating operational risks forwardlooking basis related controls results process analyzed evaluate operational risk exposures identify businesses activities products heightened levels operational risk measurement measure operational risk exposure using statistical modeling scenario analyses involve qualitative quantitative assessments internal external operational risk event data internal control factors businesses operational risk measurement also incorporates assessment business environment factors including • evaluations complexity business activities • degree automation processes • new activity information • legal regulatory environment • changes markets products services including diversity sophistication customers counterparties results scenario analyses used monitor changes operational risk determine business lines may heightened exposure operational risk analyses used determination appropriate level operational risk capital hold also perform firmwide stress tests see “overview structure risk management” information firmwide stress tests goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis types operational risks increased reliance technology thirdparty relationships resulted increased operational risks information cyber security risk thirdparty risk business resilience risk manage risks follows information cyber security risk information cyber security risk compromising confidentiality integrity availability data systems leading adverse impact us reputation clients andor broader financial system seek minimize occurrence impact unauthorized access disruption use information andor information systems deploy operate preventive detective controls processes mitigate emerging evolving information security cyber security threats including monitoring network known vulnerabilities signs unauthorized attempts access data systems increased information risk diversification data across external service providers including use variety cloudprovided hosted services applications see “risk factors” part item 1a form 10k information cyber security risk thirdparty risk thirdparty risk including vendor risk adverse impact due reliance third parties performing services activities behalf risks may include legal regulatory information security reputational operational risks inherent engaging third party identify manage report key thirdparty risks conduct due diligence across multiple risk domains including information security cyber security resilience additional thirdparty dependencies thirdparty risk program monitors reviews reassesses thirdparty risks ongoing basis see “risk factors” part item 1a form 10k information thirdparty risk business resilience risk business resilience risk disruption critical processes monitor threats assess risks seek ensure state readiness event significant operational disruption normal operations critical functions dependencies critical facilities systems third parties data andor personnel approach business continuity planning bcp lens business operational resilience framework defines fundamental principles bcp crisis management ensure critical functions continue operate event disruption business continuity program comprehensive consistent firmwide uptodate incorporating new information techniques technologies become available resilience recovery plans incorporate test specific measurable recovery time objectives accordance local market best practices regulatory requirements specific scenarios see “business continuity information security” part item 1 form 10k information business continuity goldman sachs 2019 form 10k goldman sachs group inc subsidiaries management’s discussion analysis model risk management overview model risk potential adverse consequences decisions made based model outputs may incorrect used inappropriately rely quantitative models across business activities primarily value certain financial assets liabilities monitor manage risk measure monitor regulatory capital model risk independent revenueproducing units model developers model owners model users reports chief risk officer primary responsibility assessing monitoring managing model risk firmwide oversight across global businesses provides periodic updates senior management risk committees risk committee board model risk management framework managed governance structure risk management controls encompass standards designed ensure maintain comprehensive model inventory including risk assessment classification sound model development practices independent review modelspecific usage controls firmwide model risk control committee oversees model risk management framework model review validation process model risk consists quantitative professionals perform independent review validation approval models review includes analysis model documentation independent testing assessment appropriateness methodology used verification compliance model development implementation standards regularly refine enhance models reflect changes market economic conditions business mix models reviewed annual basis new models significant changes existing models assumptions approved prior implementation model validation process incorporates review models trade risk parameters across broad range scenarios including extreme conditions order critically evaluate verify • model’s conceptual soundness including reasonableness model assumptions suitability intended use • testing strategy utilized model developers ensure models function intended • suitability calculation techniques incorporated model • model’s accuracy reflecting characteristics related product significant risks • model’s consistency models similar products • model’s sensitivity input parameters assumptions see “critical accounting policies fair value review valuation models” “liquidity risk management” “market risk management” “credit risk management” “operational risk management” information use models within areas goldman sachs 2019 form 10k goldman sachs group inc subsidiaries item 7aitem 7 management’s discussion analysis financial condition results operations introduction goldman sachs group inc group inc parent company delaware corporation together consolidated subsidiaries leading global financial institution delivers broad range financial services across investment banking securities investment management consumer banking large diversified client base includes corporations financial institutions governments individuals founded 1869 headquartered new york maintain offices major financial centers around world report activities four business segments investment banking global markets asset management consumer wealth management see “results operations” information business segments use terms “we” “us” “our” mean group inc consolidated subsidiaries use term “our subsidiaries” mean consolidated subsidiaries group inc references “this form 10k” annual report form 10k year ended december 31 2020 references “the consolidated financial statements” “supplemental financial information” part ii item 8 form 10k references 2020 2019 2018 refer years ended dates context requires december 31 2020 december 31 2019 december 31 2018 respectively reference future year refers year ending december 31 year discussion analysis financial condition results operations included information may constitute “forwardlooking statements” within meaning safe harbor provisions us private securities litigation reform act 1995 forwardlooking statements historical facts statements current conditions instead represent beliefs regarding future events many nature inherently uncertain outside control identifying following statements manner alerting possibility actual results financial condition may differ possibly materially anticipated results financial condition forwardlooking statements important factors could cause results financial condition capital actions differ statements include among others described “risk factors” part item 1a form 10k “cautionary statement pursuant us private securities litigation reform act 1995” part item 1 form 10k statements may relate among things future plans results including target roe rote efficiency ratio cet1 capital ratio achieved ii trends growth opportunities businesses including timing costs profitability benefits aspects business strategic initiatives impact efficiency ratio iii level future compensation expense including percentage operating expenses revenues net provision credit losses iv investment banking transaction backlog v expected interest income interest expense vi expense savings strategic locations initiatives vii expenses may incur including future litigation expense expenses investing consumer transaction banking businesses viii projected growth deposits funding asset liability management funding strategies related interest expense savings ix business initiatives including transaction banking new consumer financial products x planned 2021 parent vanilla debt issuances xi amount composition location gcla expect hold xii credit exposures xiii expected provisions credit losses including related cobranded credit card relationship general motors xiv adequacy allowance credit losses xv projected growth installment loan credit card businesses xvi objectives effectiveness business continuity plan bcp information security program risk management liquidity policies xvii resolution plan strategy implications stakeholders xviii design effectiveness resolution capital liquidity models triggers alerts framework xix results stress tests xx effect changes regulations future status activities reporting banking financial regulation xxi nsfr xxii expected tax rate xxiii future state liquidity regulatory capital ratios prospective capital distributions including dividends repurchases xxiv expected scb gsib surcharge xxv legal proceedings governmental investigations contingencies xxvi 1mdb settlements including asset recovery guarantee remediation activities xxvii effectiveness strategy respect brexit xxviii replacement ibors transition alternative riskfree reference rates xxix impact covid19 pandemic business results financial position liquidity xxx effectiveness management human capital including diversity goals xxxi plans people return offices goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis executive overview generated net earnings 946 billion 2020 increase 12 compared 847 billion 2019 diluted earnings per common share eps 2474 2020 increase 18 compared 2103 2019 return average common shareholders’ equity roe 111 2020 compared 100 2019 book value per common share 23615 december 2020 81 higher compared december 2019 2020 recorded net provisions litigation regulatory proceedings 342 billion reduced diluted eps 951 reduced roe 39 percentage points 2019 recorded net provisions litigation regulatory proceedings 124 billion reduced diluted eps 316 reduced roe 15 percentage points net revenues 4456 billion 2020 22 higher 2019 net revenues significantly higher fixed income currency commodities ficc equities within global markets driven strong client activity investment banking reflecting significantly higher net revenues equity debt underwriting net revenues consumer wealth management higher reflecting growth wealth management consumer banking increases partially offset lower net revenues asset management due significantly lower net revenues equity investments lending debt investments reflected impact challenging environment earlier year provision credit losses 310 billion 2020 compared 107 billion 2019 increase primarily due significantly higher provisions related wholesale loans result individual impairments ratings downgrades year well deterioration uncertainty broader economic environment incorporating accounting credit losses current expected credit losses cecl standard reflecting impact global outbreak coronavirus covid19 pandemic increase also included higher provisions related credit card loans due growth portfolio see note 3 consolidated financial statements information asu 201613 “financial instruments credit losses topic 326 measurement credit losses financial instruments” operating expenses 2898 billion 2020 16 higher 2019 primarily reflecting significantly higher net provisions litigation regulatory proceedings higher compensation benefits expenses reflecting improved financial performance higher transaction based expenses reflecting increase activity levels efficiency ratio total operating expenses divided total net revenues 2020 650 compared 681 2019 net provisions litigation regulatory proceedings increased efficiency ratio 2020 76 percentage points 2019 34 percentage points 2020 returned 372 billion capital common shareholders including 193 billion common share repurchases first quarter 180 billion common stock dividends december 2020 common equity tier 1 cet1 capital ratio 147 standardized capital rules 134 advanced capital rules see note 20 consolidated financial statements information capital ratios beginning 2020 announced strategic initiatives related expense efficiencies funding optimization emphasis improving profitability shareholder returns estimated yearend 2022 generate 13 billion annual runrate expense efficiencies create capacity fund growth ii 10 billion annual runrate interest expense savings funding optimization growth deposits reduction wholesale unsecured funding 2020 achieved approximately half expense efficiencies target 13 billion enabled us partially offset cost investment business people 2020 achieve interest expense savings 2020 remain focused achieving 10 billion interest expense savings yearend 2022 based current pricing consumer deposits well higher deposit balances goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis business environment beginning 2020 spread covid19 across globe accompanying temporary closures nonessential businesses stayathome requirements caused sharp contraction global economic activity widespread unemployment high levels volatility across financial assets global markets unprecedented decline global equity prices significant widening credit spreads global central banks responded quickly accommodative monetary policy reducing policy interest rates increasing large scale asset purchases establishment number facilities support functioning markets provide liquidity markets addition governments globally intervened fiscal policy mitigate impact including coronavirus aid relief economic security cares act us provided economic relief businesses individuals monetary fiscal interventions combined reopening businesses relaxation earlier lockdowns contributed sharp rebound global economic activity second half 2020 result investors became optimistic towards prospect quicker economic recovery return prepandemic levels effecting sharp increases equity prices tighter credit spreads late year medical professionals developed effective covid19 vaccines governments began distribute globally expected reduce virus spread aid economic recovery additionally us concluded presidential election second pandemicaid bill passed included additional unemployment benefits direct payments individuals despite broad improvements overall economy since pandemic began continues uncertainty related prospects economic growth virus resurgence vaccine distribution fiscal stimulus geopolitical risks see “results operations segment operating results” information operating environment business segments critical accounting policies fair value fair value hierarchy trading assets liabilities certain investments loans certain financial assets liabilities included consolidated balance sheets fair value ie markedtomarket related gains losses generally recognized consolidated statements earnings use fair value measure financial instruments fundamental risk management practices critical accounting policy fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date measure certain financial assets liabilities portfolio ie based net exposure market andor credit risks determining fair value hierarchy us generally accepted accounting principles us gaap gives highest priority unadjusted quoted prices active markets identical unrestricted assets liabilities level 1 inputs ii next priority inputs level 1 inputs observable either directly indirectly level 2 inputs iii lowest priority inputs cannot observed market activity level 3 inputs evaluating significance valuation input consider among factors portfolio’s net risk exposure input assets liabilities classified entirety based lowest level input significant fair value measurement fair values substantially financial assets liabilities based observable prices inputs classified levels 1 2 fair value hierarchy certain level 2 level 3 financial assets liabilities may require appropriate valuation adjustments market participant would require arrive fair value factors counterparty credit quality funding risk transfer restrictions liquidity bidoffer spreads instruments classified level 3 fair value hierarchy require one significant inputs observable level 3 financial assets represented 23 december 2020 december 2019 total assets see notes 4 10 consolidated financial statements information level 3 financial assets including changes level 3 financial assets related fair value measurements absent evidence contrary instruments classified level 3 fair value hierarchy initially valued transaction price considered best initial estimate fair value subsequent transaction date use methodologies determine fair value vary based type instrument estimating fair value level 3 financial instruments requires judgments made judgments include • determining appropriate valuation methodology andor model type level 3 financial instrument • determining model inputs based evaluation relevant empirical market data including prices evidenced market transactions interest rates credit spreads volatilities correlations • determining appropriate valuation adjustments including related illiquidity counterparty credit quality regardless methodology valuation inputs assumptions changed corroborated substantive evidence goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis controls valuation financial instruments market makers investment professionals revenueproducing units responsible pricing financial instruments control infrastructure independent revenueproducing units fundamental ensuring financial instruments appropriately valued marketclearing levels event difference opinion situations estimating fair value financial instruments requires judgment eg calibration market comparables trade comparison described final valuation decision made senior managers independent risk oversight control functions independent price verification critical ensuring financial instruments properly valued price verification financial instruments fair value classified levels 1 2 3 fair value hierarchy subject independent price verification process objective price verification informed independent opinion regard valuation financial instruments review instruments one significant inputs cannot corroborated external market data classified level 3 fair value hierarchy price verification strategies utilized independent risk oversight control functions include • trade comparison analysis trade data internal external available used determine relevant pricing inputs valuations • external price comparison valuations prices compared pricing data obtained third parties eg brokers dealers ihs markit bloomberg idc trace data obtained various sources compared ensure consistency validity broker dealer quotations thirdparty pricing vendors used valuation price verification greater priority generally given executable quotations • calibration market comparables marketbased transactions used corroborate valuation positions similar characteristics risks components • relative value analyses marketbased transactions analyzed determine similarity measured terms risk liquidity return one instrument relative another given instrument one maturity relative another • collateral analyses margin calls derivatives analyzed determine implied values used corroborate valuations • execution trades appropriate marketmaking desks instructed execute trades order provide evidence marketclearing levels • backtesting valuations corroborated comparison values realized upon sales see note 4 consolidated financial statements information fair value measurements review net revenues independent risk oversight control functions ensure adherence pricing policy combination daily procedures including explanation attribution net revenues based underlying factors process independently validate net revenues identify resolve potential fair value trade booking issues timely basis seek ensure risks properly categorized quantified review valuation models independent model risk management group model risk consisting quantitative professionals separate model developers performs independent model review validation process valuation models new changed models reviewed approved prior implementation models reviewed annually assess impact changes product market developments pricing theories see “risk management model risk management” information review validation valuation models allowance credit losses estimate record allowance credit losses related loans held investment accounted amortized cost adopted asu 201613 january 2020 replaced probable incurred credit loss model recognizing credit losses cecl model result allowance credit losses effective january 2020 reflects estimate credit losses remaining expected life loans also takes account forecasts future economic conditions see note 3 consolidated financial statements information adoption asu 201613 determine allowance credit losses classify loans accounted amortized cost wholesale consumer portfolios represent level developed documented methodology determine allowance credit losses allowance credit losses measured collective basis loans exhibit similar risk characteristics using modeled approach assetspecific basis loans share similar risk characteristics allowance credit losses also includes qualitative components allow management reflect uncertain nature economic forecasting capture uncertainty regarding model inputs account model imprecision concentration risk determination allowance credit losses entails significant judgment various risk factors risk factors wholesale loans include internal credit ratings industry default loss data expected life macroeconomic indicators eg unemployment rates gdp borrower’s capacity meet financial obligations borrower’s country risk industry loan seniority collateral type addition loans backed real estate risk factors include loantovalue ratio debt service ratio home price index risk factors installment credit card loans include fair isaac corporation fico credit scores delinquency status loan vintage macroeconomic indicators goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis estimate credit losses entails judgment collectability reporting dates uncertainties inherent judgments allowance credit losses subject governance process involves review approval senior management within independent risk oversight control functions personnel within independent risk oversight control functions responsible forecasting economic variables underlie economic scenarios used modeling expected credit losses use best information available determine estimate future adjustments allowance may necessary based among things changes economic environment variances actual results original assumptions used loans charged allowance loan losses deemed uncollectible also record allowance credit losses lending commitments held investment accounted amortized cost allowance determined using methodology allowance loan losses also taking consideration probability drawdowns funding whether commitments cancellable us see note 9 consolidated financial statements information allowance credit losses use estimates us gaap requires us make certain estimates assumptions addition estimates make connection fair value measurements allowance credit losses loans lending commitments held investment accounted amortized cost use estimates assumptions also important determining accounting goodwill identifiable intangible assets provisions losses may arise litigation regulatory proceedings including governmental investigations provisions losses may arise tax audits goodwill assessed impairment annually fourth quarter frequently events occur circumstances change indicate impairment may exist assessing goodwill impairment first qualitative assessment made determine whether likely estimated fair value reporting unit less estimated carrying value results qualitative assessment conclusive quantitative goodwill test performed alternatively quantitative goodwill test performed without performing qualitative assessment estimating fair value reporting units requires judgment critical inputs fair value estimates include projected earnings allocated equity inherent uncertainty projected earnings estimated carrying value reporting unit reflects allocation total shareholders’ equity represents estimated amount total shareholders’ equity required support activities reporting unit currently applicable regulatory capital requirements see note 12 consolidated financial statements information goodwill experience prolonged severe period weakness business environment financial markets performance common stock price additional increases capital requirements goodwill could impaired future identifiable intangible assets tested impairment events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable judgment required evaluate whether indications potential impairment occurred test intangible assets impairment required impairment recognized estimated undiscounted cash flows relating asset group less corresponding carrying value see note 12 consolidated financial statements information identifiable intangible assets also estimate provide potential losses may arise litigation regulatory proceedings extent losses probable reasonably estimated addition estimate upper end range reasonably possible aggregate loss excess related reserves litigation regulatory proceedings believe risk loss slight see notes 18 27 consolidated financial statements information certain judicial litigation regulatory proceedings significant judgment required making estimates final liabilities may ultimately materially different total estimated liability respect litigation regulatory proceedings determined casebycase basis represents estimate probable losses considering among factors progress case proceeding investigation experience others similar cases proceedings investigations opinions views legal counsel accounting income taxes recognize tax positions financial statements likely position sustained examination relevant taxing authority based technical merits position see note 24 consolidated financial statements information income taxes recent accounting developments see note 3 consolidated financial statements information recent accounting developments goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis results operations composition net revenues varied time financial markets scope operations changed composition net revenues also vary shorter term due fluctuations us global economic market conditions see “risk factors” part item 1a form 10k information impact economic market conditions results operations discussion 2019 financial results compared 2018 see part ii item 7 “management’s discussion analysis financial condition results operations” annual report form 10k year ended december 31 2019 financial overview table presents overview financial results selected financial ratios table • net earnings common represents net earnings applicable common shareholders calculated net earnings less preferred stock dividends • average equity average assets calculated dividing average total shareholders’ equity average total assets • dividend payout ratio calculated dividing dividends declared per common share diluted eps • roe calculated dividing net earnings common average monthly common shareholders’ equity tangible common shareholders’ equity calculated total shareholders’ equity less preferred stock goodwill identifiable intangible assets return average tangible common shareholders’ equity rote calculated dividing net earnings common average monthly tangible common shareholders’ equity believe tangible common shareholders’ equity meaningful measure investors use assess capital adequacy rote meaningful measures performance businesses consistently whether acquired developed internally tangible common shareholders’ equity rote nongaap measures may comparable similar nongaap measures used companies return average shareholders’ equity calculated dividing net earnings average monthly shareholders’ equity table presents average equity reconciliation average common shareholders’ equity average tangible common shareholders’ equity net revenues table presents net revenues line item table • investment banking consists revenues excluding net interest financial advisory underwriting assignments activities included investment banking segment • investment management consists revenues excluding net interest providing asset management services across major asset classes diverse set asset management clients included asset management segment well asset management services wealth advisory services certain transaction services wealth management clients included consumer wealth management segment • commissions fees consists revenues executing clearing client transactions major stock options futures exchanges worldwide well overthecounter otc transactions activities included global markets consumer wealth management segments • market making consists revenues excluding net interest client execution activities related making markets interest rate products credit products mortgages currencies commodities equity products activities included global markets segment • principal transactions consists revenues excluding net interest equity investing activities including revenues related consolidated investments included asset management segment lending activities included across four segments goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis operating environment 2020 covid19 pandemic broadly impacted operating environment contributing lower global equity prices wider credit spreads earlier year ensuing financial market volatility negative impact global economic activity counteracted part monetary fiscal support central banks governments globally contributed sharp rebound global equity prices tighter credit spreads marketmaking activities benefitted higher levels volatility higher client activity wider bidask spreads investment banking activities benefitted high levels industrywide underwriting volumes industrywide completed mergers acquisitions volumes decreased reflecting impact covid19 pandemic announcements first half 2020 ongoing efforts mitigate impact covid19 pandemic turn ineffective may lead decline marketmaking activity levels continued decline industrywide completed mergers acquisitions volumes decline industrywide underwriting volumes declines global equity markets widening credit spreads net revenues provision credit losses would likely negatively impacted see “segment operating results” information operating environment material trends uncertainties may impact results operations 2020 versus 2019 net revenues consolidated statements earnings 4456 billion 2020 22 higher 2019 reflecting significantly higher market making investment banking revenues higher investment management revenues commissions fees net interest income partially offset significantly lower principal transactions revenues noninterest revenues investment banking revenues consolidated statements earnings 914 billion 2020 34 higher 2019 due significantly higher revenues equity debt underwriting reflecting increase industrywide volumes increases partially offset slightly lower revenues financial advisory reflecting decrease industrywide completed merger acquisitions transactions investment management revenues consolidated statements earnings 692 billion 2020 12 higher 2019 primarily due higher management fees reflecting impact higher average assets supervision aus impact fullyear consolidation gs personal financial management partially offset lower average effective management fee due shifts mix client assets strategies addition incentive fees significantly higher primarily driven performance commissions fees consolidated statements earnings 355 billion 2020 19 higher 2019 reflecting increase listed cash equity volumes generally consistent market volumes market making revenues consolidated statements earnings 1555 billion 2020 53 higher 2019 primarily due significantly higher revenues equity products derivatives cash products credit products interest rate products commodities currencies principal transactions revenues consolidated statements earnings 465 billion 2020 23 lower 2019 reflecting significantly lower net gains investments private equities net losses debt investments partially offset significantly higher net gains investments public equities net interest income net interest income consolidated statements earnings 475 billion 2020 9 higher 2019 reflecting decrease interest expense primarily related interestbearing liabilities collateralized financings longterm borrowings deposits reflecting impact lower interest rates partially offset impact higher average balances deposits decrease interest expense largely offset decrease interest income primarily related collateralized agreements interestearning assets deposits banks reflecting impact lower interest rates see “statistical disclosures distribution assets liabilities shareholders’ equity” information sources net interest income provision credit losses provision credit losses consists provision credit losses loans lending commitments held investment accounted amortized cost see note 9 consolidated financial statements information provision credit losses table presents provision credit losses goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis 2020 versus 2019 provision credit losses consolidated statements earnings 310 billion 2020 compared 107 billion 2019 increase primarily due significantly higher provisions related wholesale loans result individual impairments approximately 115 billion primarily related borrowers diversified industrials technology media telecommunications natural resources industries ratings downgrades year well deterioration uncertainty broader economic environment incorporating accounting credit losses cecl standard reflecting impact covid19 pandemic increase also included higher provisions related credit card loans due growth portfolio see note 3 consolidated financial statements information asu 201613 operating expenses operating expenses primarily influenced compensation headcount levels business activity compensation benefits includes salaries yearend discretionary compensation amortization equity awards items benefits discretionary compensation significantly impacted among factors level net revenues overall financial performance prevailing labor markets business mix structure sharebased compensation programs external environment table presents operating expenses line item headcount table brokerage clearing exchange distribution fees renamed transaction based additionally includes expenses resulting completed transactions directly related client revenues expenses previously reported expenses 314 million 2020 55 million first quarter 2020 69 million second quarter 2020 100 million third quarter 2020 90 million fourth quarter 2020 261 million 2019 292 million 2018 previously reported amounts conformed current presentation 2020 versus 2019 operating expenses consolidated statements earnings 2898 billion 2020 16 higher 2019 efficiency ratio total operating expenses divided total net revenues 2020 650 compared 681 2019 net provisions litigation regulatory proceedings increased efficiency ratio 2020 76 percentage points 2019 34 percentage points increase operating expenses compared 2019 primarily reflected significantly higher net provisions litigation regulatory proceedings higher compensation benefits expenses reflecting improved financial performance addition transaction based expenses higher reflecting increase activity levels technology expenses higher expenses related consolidated investments including impairments also higher increase primarily depreciation amortization occupancy expenses increase also reflected higher charitable contributions included expenses included approximately 300 million goldman sachs gives approximately 125 million goldman sachs foundation 2020 increases partially offset significantly lower travel entertainment expenses included market development expenses lower occupancyrelated expenses net provisions litigation regulatory proceedings 2020 342 billion compared 124 billion 2019 headcount increased 6 compared december 2019 reflecting investments new business initiatives increase technology professionals provision taxes effective income tax rate 2020 242 full year income tax rate 200 2019 primarily due increase provisions nondeductible litigation cares act enacted march 2020 cares act includes retroactive prospective provisions enacted provide income tax relief liquidity businesses affected covid19 pandemic legislation includes corporate income tax provisions temporarily allow carryback net operating losses remove limitations use loss carryforwards increase interest expense deduction limitations allow accelerated depreciation deductions certain asset improvements cares act material impact effective income tax rate 2020 goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis july 2020 us internal revenue service us department treasury released final regulations include election exempt income subject high rate tax global intangible low taxed income gilti proposed regulations would conform hightax elections purposes gilti subpart f final proposed regulations material impact effective tax rate 2020 september 2020 base erosion antiabuse tax regulations released finalizing proposed regulations supplementing final regulations released 2019 final regulations material impact effective tax rate 2020 additionally july 2020 uk finance act 2020 finance act enacted finance act includes repeal two percentage point decrease uk corporate income tax rate scheduled become effective april 2020 impact legislation material impact effective income tax rate 2020 expect 2021 income tax rate approximately 21 excluding impact income tax benefits employee sharebased awards potential changes current income tax rates segment assets operating results segment assets table presents assets segment allocation process segment assets based activities segments allocation assets includes allocation global core liquid assets gcla consists unencumbered highly liquid securities cash generally included within cash equivalents collateralized agreements trading assets balance sheet due integrated nature segments estimates judgments made allocating assets see “risk management liquidity risk management” information gcla segment operating results table presents segment operating results net revenues segments include allocations interest income expense specific positions relation cash generated funding requirements positions see note 25 consolidated financial statements information business segments allocation common shareholders’ equity preferred stock dividends segment based estimated amount equity required support activities segment relevant regulatory capital requirements net earnings segment calculated applying firmwide tax rate segment’s pretax earnings compensation benefits expenses within segments reflect among factors overall performance well performance individual businesses consequently pretax margins one segment business may significantly affected performance business segments description segment operating results follows goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis investment banking investment banking generates revenues following • financial advisory includes strategic advisory assignments respect mergers acquisitions divestitures corporate defense activities restructurings spinoffs • underwriting includes public offerings private placements including local crossborder transactions acquisition financing wide range securities financial instruments including loans • corporate lending includes lending corporate clients including relationship lending middlemarket lending acquisition financing also provide transaction banking services certain corporate clients table presents investment banking assets table presents investment banking operating results table presents financial advisory underwriting transaction volumes table • volumes per dealogic • announced completed mergers acquisitions volumes based full credit advisors transaction equity equityrelated offerings debt offerings based full credit single book managers equal credit joint book managers transaction volumes may indicative net revenues given period addition transaction volumes prior periods may vary amounts previously reported due subsequent withdrawal change value transaction • equity equityrelated offerings includes rule 144a public common stock offerings convertible offerings rights offerings • debt offerings includes nonconvertible preferred stock mortgagebacked securities assetbacked securities taxable municipal debt includes publicly registered rule 144a issues excludes leveraged loans operating environment year covid19 pandemic broadly impacted economic environment mixed impact investment banking activity mergers acquisitions industrywide announced transactions negatively impacted pandemic primarily middle year contributing yearoveryear decline industrywide completed transactions underwriting equity valuations desire clients raise cash strengthen balance sheets combined lower rate environment contributed high levels activity across equity underwriting including initial public offerings higher volumes debt underwriting corporate clients increased borrowing revolving lines credit address liquidity needs beginning pandemic since paid borrowed funds following stabilization credit markets future industrywide announced completed mergers acquisitions volumes continue decline industrywide equity debt underwriting volumes decline credit spreads related hedges relationship lending portfolio continue tighten net revenues investment banking would likely negatively impacted addition deterioration creditworthiness borrowers would negatively impact provision credit losses 2020 versus 2019 net revenues investment banking 942 billion 2020 24 higher 2019 reflecting significantly higher net revenues underwriting increase partially offset significantly lower net revenues corporate lending slightly lower net revenues financial advisory goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis increase underwriting net revenues due significantly higher net revenues equity debt underwriting reflecting increase industrywide volumes decrease corporate lending net revenues primarily reflected net markdowns corporate loans 2020 compared net gains 2019 decrease financial advisory net revenues reflected decrease industrywide completed mergers acquisitions transactions primarily middle year provision credit losses 162 billion 2020 compared 333 million 2019 reflecting higher impairments related relationship lending middlemarket lending reserve increases result impact covid19 pandemic broader economic environment incorporating accounting credit losses cecl standard see note 3 consolidated financial statements information asu 201613 operating expenses 613 billion 2020 31 higher 2019 primarily due significantly higher net provisions litigation regulatory proceedings pretax earnings 167 billion 2020 35 lower 2019 net provisions litigation regulatory proceedings reduced roe 115 percentage points 2020 december 2020 investment banking transaction backlog increased significantly compared december 2019 due significantly higher estimated net revenues potential equity underwriting transactions primarily initial public offerings higher estimated net revenues potential advisory transactions estimated net revenues potential debt underwriting transactions essentially unchanged backlog represents estimate net revenues future transactions believe future revenue realization likely believe changes backlog may useful indicator client activity levels long term impact net revenues however time frame completion corresponding revenue recognition transactions backlog varies based nature assignment certain transactions may remain backlog longer periods time could occur light impact covid19 pandemic mergers acquisitions addition backlog subject certain limitations assumptions likelihood individual client transactions occur future transactions may cancelled modified transactions included estimate may also occur including underwriting transactions time frame discussion completion shortened current environment global markets global markets segment consists ficc generates revenues intermediation financing activities • ficc intermediation includes client execution activities related making markets cash derivative instruments detailed interest rate products government bonds including inflationlinked securities across maturities governmentbacked securities interest rate swaps options derivatives credit products investmentgrade highyield corporate securities credit derivatives exchangetraded funds etfs bank bridge loans municipal securities emerging market distressed debt trade claims mortgages commercial mortgagerelated securities loans derivatives residential mortgagerelated securities loans derivatives including us government agencyissued collateralized mortgage obligations securities loans assetbacked securities loans derivatives currencies currency options spotforwards derivatives g10 currencies emergingmarket products commodities commodity derivatives lesser extent physical commodities involving crude oil petroleum products natural gas base precious metals electricity coal agricultural commodity products information marketmaking activities see “marketmaking activities” • ficc financing includes providing financing clients securities purchased agreements resell resale agreements well structured credit warehouse lending including residential commercial mortgage lending assetbacked lending typically longer term nature goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis equities generates revenues intermediation financing activities • equities intermediation make markets equity securities equityrelated products including etfs convertible securities options futures overthecounter otc derivative instruments also structure make markets derivatives indices industry sectors financial measures individual company stocks exchangebased marketmaking activities include making markets stocks etfs futures options major exchanges worldwide addition generate commissions fees executing clearing institutional client transactions major stock options futures exchanges worldwide well otc transactions information marketmaking activities see “marketmaking activities” • equities financing includes prime brokerage equities financing activities including securities lending margin lending swaps earn fees providing clearing settlement custody services globally provide services principally involve borrowing lending securities cover institutional clients’ short sales borrowing securities cover short sales make deliveries market addition active participant brokertobroker securities lending thirdparty agency lending activities provide financing clients securities trading activities margin loans collateralized securities cash acceptable collateral addition execute swap transactions provide clients exposure securities indices marketmaking activities market maker facilitate transactions liquid less liquid markets primarily institutional clients corporations financial institutions investment funds governments assist clients meeting investment objectives managing risks role seek earn difference price market participant willing sell instrument us price another market participant willing buy us vice versa ie bidoffer spread addition maintain marketmaking positions typically short period time response anticipation client demand ii positions actively manage risk exposures arise marketmaking activities collectively inventory recorded trading assets long positions trading liabilities short positions consolidated balance sheets results influenced combination interconnected drivers including client activity levels transactional bidoffer spreads collectively client activity ii changes fair value inventory interest income interest expense related holding hedging funding inventory collectively marketmaking inventory changes due integrated nature marketmaking activities disaggregation net revenues client activity marketmaking inventory changes judgmental inherent complexities limitations amount composition net revenues vary time drivers impacted multiple interrelated factors affecting economic market conditions including volatility liquidity market changes interest rates currency exchange rates credit spreads equity prices commodity prices investor confidence macroeconomic concerns uncertainties general assuming marketmaking conditions remain constant increases client activity levels bidoffer spreads tend result increases net revenues decreases tend opposite effect however changes marketmaking conditions materially impact client activity levels bidoffer spreads well fair value inventory example decrease liquidity market could impact increasing bidoffer spread ii decreasing investor confidence thereby decreasing client activity levels iii widening credit spreads inventory positions table presents global markets assets table presents global markets operating results goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis table presents global markets net revenues line item consolidated statements earnings table • difference commissions fees consolidated statements earnings represents commissions fees included consumer wealth management segment • see “net revenues” information market making revenues commissions fees principal transactions revenues net interest income see note 25 consolidated financial statements net interest income business segment • primary driver net revenues ficc intermediation client activity operating environment 2020 global markets operated environment characterized strong client activity higher volatility wider bidask spreads compared 2019 clients reacted economic uncertainty amid covid19 pandemic repositioning investment portfolios hedging risks across asset classes initial stages pandemic equity prices decreased sharply credit spreads widened global economic activity declined response central banks governments globally intervened monetary easing fiscal stimulus support conjunction improved sentiment regarding pace economic recovery contributed sharp rebound global equity prices tighter credit spreads end 2020 sp 500 index 16 higher msci world index 14 higher end 2019 us investmentgrade credit spreads approximately 5 basis points tighter compared end 2019 additionally market volatility elevated average daily vix 29 2020 compared average 15 2019 macroeconomic conditions lead decline activity levels bidask spreads volatility net revenues global markets would likely negatively impacted 2020 versus 2019 net revenues global markets 2116 billion 2020 43 higher 2019 net revenues ficc 1158 billion 57 higher 2019 primarily due significantly higher net revenues ficc intermediation reflecting significantly higher net revenues across major businesses addition net revenues ficc financing higher driven resale agreements increase ficc intermediation net revenues reflected significantly higher client activity following provides information ficc intermediation net revenues business compared 2019 results • net revenues credit products interest rate products currencies mortgages reflected higher client activity • net revenues commodities reflected impact improved marketmaking conditions inventory higher client activity net revenues equities 957 billion 30 higher 2019 due significantly higher net revenues equities intermediation reflecting significantly higher net revenues derivatives cash products increase partially offset lower net revenues equities financing primarily reflecting higher net funding costs including impact lower yields global core liquid assets provision credit losses 274 million 2020 compared 35 million 2019 reflecting loan growth reserve increases result impact covid19 pandemic broader economic environment incorporating accounting credit losses cecl standard see note 3 consolidated financial statements information asu 201613 operating expenses 1281 billion 2020 18 higher 2019 primarily reflecting significantly higher net provisions litigation regulatory proceedings higher compensation benefits expenses reflecting improved financial performance higher transaction based expenses pretax earnings 808 billion 2020 compared 389 billion 2019 net provisions litigation regulatory proceedings reduced roe 40 percentage points 2020 goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis asset management manage client assets across broad range investment strategies asset classes diverse set institutional clients network thirdparty distributors around world including equity fixed income alternative investments provide investment solutions including managed fiduciary basis portfolio managers well managed variety thirdparty managers offer investment solutions variety structures including separately managed accounts mutual funds private partnerships comingled vehicles solutions begin identifying clients’ objectives continue portfolio construction ongoing asset allocation risk management investment realization addition managing client assets invest alternative investments across range asset classes seek deliver longterm accretive riskadjusted returns investing activities typically longer term include investments corporate equity credit real estate infrastructure assets asset management generates revenues following • management fees majority revenues management fees consists assetbased fees client assets manage information aus see “assets supervision” fees charge vary asset class distribution channel types services provided affected investment performance well asset inflows redemptions • incentive fees certain circumstances also receive incentive fees based percentage fund’s separately managed account’s return exceeds specified benchmark performance targets fees include overrides consist increased share income gains derived primarily private equity credit funds return fund’s investments life fund exceeds certain threshold returns • equity investments alternative investing activities relate public private equity investments corporate real estate infrastructure assets also make investments consolidated investment entities cies substantially engaged real estate investment activities • lending debt investments invest corporate debt provide financing real estate assets activities include investments mezzanine debt senior debt distressed debt securities table presents asset management assets table presents asset management operating results table presents equity investments net revenues equity type asset class operating environment early 2020 macroeconomic concerns covid19 pandemic led lower global equity prices wider credit spreads trends reversed remainder year widespread intervention central banks governments globally combined improving economic conditions contributed sharp rebound global equity prices tighter credit spreads provided favorable backdrop asset management activities investments ongoing efforts mitigate impact covid19 pandemic turn ineffective may lead decline asset prices widening credit spreads investors continuing transition asset classes typically generate lower fees investors withdrawing assets net revenues asset management would likely negatively impacted goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis 2020 versus 2019 net revenues asset management 798 billion 2020 11 lower 2019 reflecting significantly lower net revenues equity investments lending debt investments incentive fees significantly higher management fees institutional thirdparty distribution asset management clients higher decrease equity investments net revenues reflected significantly lower net gains investments private equities partially offset significantly higher net gains investments public equities net gains investments private equities 2020 primarily driven companyspecific events sales capital raises partially offset net markdowns driven corporate performance decrease lending debt investments primarily reflected net losses debt investments 2020 compared net gains 2019 lending debt investments net revenues included approximately 105 billion net interest income 2020 increase incentive fees primarily driven performance increase management fees reflected impact higher average assets supervision partially offset lower average effective management fee due shifts mix client assets strategies provision credit losses 442 million 2020 61 higher 2019 reflecting higher impairments related private credit real estate portfolios reserve increases result impact covid19 pandemic broader economic environment incorporating accounting credit losses cecl standard see note 3 consolidated financial statements information asu 201613 operating expenses 514 billion 2020 7 higher 2019 due higher compensation benefits expenses higher expenses related consolidated investments including impairments pretax earnings 240 billion 2020 38 lower 2019 year sold announced sale 4 billion gross equity investments related 2 billion expected reduction required capital consumer wealth management consumer wealth management helps clients achieve individual financial goals providing broad range wealth advisory banking services including financial planning investment management deposit taking lending services offered global network advisors via digital platforms wealth management wealth management provides tailored wealth advisory services clients across wealth spectrum operate globally serving individuals families family offices foundations endowments relationships established directly introduced corporations sponsor financial wellness programs employees offer personalized financial planning inclusive income liability management compensation benefits analysis trust estate structuring tax optimization philanthropic giving asset protection also provide customized investment advisory solutions offer structuring execution capabilities security derivative products across major global markets leverage broad openarchitecture investment platform global execution capabilities help clients achieve investment goals addition offer clients full range private banking services including variety deposit alternatives loans clients use finance investments financial nonfinancial assets bridge cash flow timing gaps provide liquidity flexibility needs wealth management generates revenues following • management fees includes fees related managing assets providing investing wealth advisory solutions providing financial planning counseling services via ayco personal finance management executing brokerage transactions wealth management clients • incentive fees certain circumstances also receive incentive fees wealth management clients based percentage fund’s return exceeds specified benchmark performance targets fees include overrides consist increased share income gains derived primarily private equity credit funds return fund’s investments life fund exceeds certain threshold returns • private banking lending includes net interest income allocated deposittaking net interest income earned lending activities wealth management clients goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis consumer banking consumer banking business issues unsecured loans digital platform marcus goldman sachs marcus credit cards finance purchases goods services also accept deposits marcus goldman sachs bank usa gs bank usa goldman sachs international bank gsib deposits include savings time deposits provide us diversified source funding consumer banking revenues consist net interest income earned unsecured loans issued consumers marcus credit card lending activities net interest income allocated consumer deposits table presents consumer wealth management assets table presents consumer wealth management operating results operating environment 2020 covid19 pandemic initially negatively impacted economic activity financial markets response central banks governments globally intervened widespread monetary fiscal stimulus support economy financial markets result global equity prices rebounded sharply finished year higher end 2019 addition unemployment retail spending improved throughout year initial effects pandemic ongoing efforts mitigate impact covid19 pandemic turn ineffective may lead decline asset prices investors continuing favor asset classes typically generate lower fees investors withdrawing assets consumers withdrawing deposits deterioration consumer credit net revenues provision credit losses consumer wealth management would likely negatively impacted 2020 versus 2019 net revenues consumer wealth management 600 billion 2020 15 higher 2019 net revenues wealth management 478 billion 10 higher 2019 primarily reflecting higher management fees primarily reflecting impact higher average aus higher transaction volumes impact fullyear consolidation gs personal financial management partially offset lower average effective management fee due shifts mix client assets strategies net revenues consumer banking 121 billion 40 higher 2019 reflecting higher credit card loan deposit balances provision credit losses 758 million 2020 79 higher 2019 reflecting growth credit card loans impact covid19 pandemic broader economic environment incorporating accounting credit losses cecl standard see note 3 consolidated financial statements information asu 201613 operating expenses 490 billion 2020 8 higher 2019 primarily due higher expenses related impact fullyear consolidation gs personal financial management credit card activities pretax earnings 337 million 2020 43 higher 2019 total client assets includes aus brokerage assets consumer deposits exceeded 1 trillion end 2020 goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis assets supervision aus includes institutional clients’ assets sourced thirdparty distributors included asset management segment well highnetworth clients’ assets included consumer wealth management segment earn fee managing assets discretionary basis includes net assets mutual funds hedge funds credit funds private equity funds real estate funds separately managed accounts institutional individual investors aus also includes client assets invested thirdparty managers private bank deposits advisory relationships earn fee advisory services investment discretion aus include selfdirected brokerage assets clients table presents information firmwide periodend aus segment asset class distribution channel region vehicle table • liquidity products includes money market funds private bank deposits • emea represents europe middle east africa asset classes alternative investment equity assets typically generate higher fees relative fixed income liquidity product assets average effective management fee excludes nonassetbased fees earned firmwide assets supervision 29 basis points 2020 32 basis points 2019 decrease reflected shifts mix client assets strategies earn management fees client assets manage also receive incentive fees based percentage fund’s separately managed account’s return exceeds specified benchmark performance targets incentive fees recognized probable significant reversal fees occur estimated unrecognized incentive fees 179 billion december 2020 163 billion december 2019 amounts based completion funds’ financial statements generally one quarter arrears fees recognized assuming decline fair value probable significant reversal fees occur generally fees longer subject fluctuations market value assets table presents changes aus table total aus net inflowsoutflows 2019 included 71 billion inflows substantially equity fixed income assets connection acquisitions standard poor’s investment advisory services spias gs personal financial management rocaton investment advisors rocaton spias rocaton included asset management segment gs personal financial management included consumer wealth management segment goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis table presents information average monthly firmwide aus segment asset class addition aus discretion alternative investments currently earn management fees nonfeeearning alternative assets table presents information aus alternative assets nonfeeearning alternative assets total alternative assets table • substantially corporate equity private equity • total alternative assets included uncalled capital available future investing 44 billion december 2020 32 billion december 2019 27 billion december 2018 • nonfeeearning alternative assets primarily includes investments hold balance sheet unfunded commitments unfunded commitments clients charge fees commitments credit facilities collateralized fund assets employee funds calculation nonfeeearning alternative assets may comparable similar calculations used companies beginning 2020 announced strategic objective growing thirdparty alternatives business established targets achieving net inflows 100 billion gross inflows 150 billion alternative assets five years 2020 raised approximately 40 billion thirdparty commitments alternative assets december 2020 approximately 13 billion commitments included aus generating fees remaining approximately 27 billion commitments included nonfeeearning alternative assets table approximately 20 billion begin earn fees become aus commitments drawn assets invested table presents information alternative investments asset management segment hold balance sheet goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis loans debt securities table presents concentration loans debt securities within alternative investments accounting classification region industry equity table presents concentration equity securities within alternative investments vintage region industry table • equity securities included 17 billion private equity positions 3 billion public equity positions converted private equity upon initial public offering underlying company • real estate equity securities consisted 3 multifamily 3 office 5 mixed use 7 real estate equity securities cie investments cie investments included assets held cies 19 billion funded liabilities approximately 10 billion december 2020 substantially liabilities nonrecourse thereby reducing equity risk table presents concentration cie assets net financings within alternative investments vintage region asset class geographic data see note 25 consolidated financial statements summary total net revenues pretax earnings net earnings geographic region goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis balance sheet funding sources balance sheet management one risk management disciplines ability manage size composition balance sheet asset base changes due client activity market fluctuations business opportunities size composition balance sheet also reflects factors including overall risk tolerance ii amount equity capital hold iii funding profile among factors see “equity capital management regulatory capital equity capital management” information equity capital management process although balance sheet fluctuates daytoday basis total assets quarterend yearend dates generally materially different occurring within reporting periods order ensure appropriate risk management seek maintain sufficiently liquid balance sheet processes place dynamically manage assets liabilities include balance sheet planning ii balance sheet limits iii monitoring key metrics iv scenario analyses balance sheet planning prepare balance sheet plan combines projected total assets composition assets expected funding sources threeyear time horizon plan reviewed quarterly may adjusted response changing business needs market conditions objectives planning process • develop balance sheet projections taking account general state financial markets expected business activity levels well regulatory requirements • allow treasury independent risk oversight control functions objectively evaluate balance sheet limit requests revenueproducing units context overall balance sheet constraints including liability profile equity capital levels key metrics • inform target amount tenor type funding raise based projected assets contractual maturities treasury independent risk oversight control functions along revenueproducing units review current prior period information expectations year prepare balance sheet plan specific information reviewed includes asset liability size composition limit utilization risk performance measures capital usage consolidated balance sheet plan including balance sheets business funding projections projected key metrics reviewed approved firmwide asset liability committee risk governance committee see “risk management overview structure risk management” overview risk management structure balance sheet limits firmwide asset liability committee risk governance committee responsibility review approve balance sheet limits set levels close actual operating levels rather levels reflect maximum risk appetite order ensure prompt escalation discussion among revenueproducing units treasury independent risk oversight control functions routine basis requests changes limits evaluated giving consideration impact key metrics compliance limits monitored revenueproducing units treasury well independent risk oversight control functions monitoring key metrics monitor key balance sheet metrics business consolidated basis including asset liability size composition limit utilization risk measures allocate assets businesses review analyze movements resulting new business activity well market fluctuations scenario analyses conduct various scenario analyses including part comprehensive capital analysis review ccar us doddfrank wall street reform consumer protection act stress tests dfast well resolution recovery planning see “equity capital management regulatory capital equity capital management” information scenario analyses scenarios cover short longterm time horizons using various macroeconomic firmspecific assumptions based range economic scenarios use analyses assist us developing longerterm balance sheet management strategy including level composition assets funding equity capital additionally analyses help us develop approaches maintaining appropriate funding liquidity capital across variety situations including severely stressed environment goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis balance sheet analysis metrics december 2020 total assets consolidated balance sheets 116 trillion increase 17006 billion december 2019 primarily reflecting increases customer receivables 4673 billion primarily reflecting higher client activity trading assets 3830 billion primarily due increases derivative instruments reflecting impact changes interest rates equity prices increases nonus government agency obligations reflecting clients’ activities collateralized agreements 2846 billion reflecting impact clients’ activities investments 2451 billion primarily reflecting increase us government obligations accounted availableforsale cash equivalents 2230 billion primarily reflecting impact activity december 2020 approximately 25 total assets held bank subsidiaries december 2020 total liabilities consolidated balance sheets 107 trillion increase 16439 billion december 2019 primarily reflecting increases deposits 6994 billion reflecting increases consumer transaction banking private bank deposits trading liabilities 4489 billion primarily due increases equities government obligations reflecting higher client activity increases derivative instruments reflecting impact changes interest rate equity price movements collateralized financings 2193 billion reflecting impact clients’ activities customer payables 1584 billion primarily reflecting higher client activity total securities sold agreements repurchase agreements accounted collateralized financings 12657 billion december 2020 11776 billion december 2019 24 higher december 2020 32 higher december 2019 average daily amount repurchase agreements respective quarters 31 higher december 2020 40 higher december 2019 average daily amount repurchase agreements respective years december 2020 increase repurchase agreements relative average daily amount repurchase agreements quarter year resulted higher levels clients’ activities end period level repurchase agreements fluctuates within periods primarily due providing clients access highly liquid collateral liquid government agency obligations collateralized financing activities table presents information balance sheet leverage ratios table • leverage ratio equals total assets divided total shareholders’ equity measures proportion equity debt use finance assets ratio different leverage ratios included note 20 consolidated financial statements • debttoequity ratio equals unsecured longterm borrowings divided total shareholders’ equity table presents information shareholders’ equity book value per common share including reconciliation common shareholders’ equity tangible common shareholders’ equity table • tangible common shareholders’ equity calculated total shareholders’ equity less preferred stock goodwill identifiable intangible assets believe tangible common shareholders’ equity meaningful measure investors use assess capital adequacy tangible common shareholders’ equity nongaap measure may comparable similar nongaap measures used companies • book value per common share tangible book value per common share based common shares outstanding restricted stock units granted employees future service requirements subject performance conditions collectively basic shares 3588 million december 2020 3618 million december 2019 believe tangible book value per common share tangible common shareholders’ equity divided basic shares meaningful measure investors use assess capital adequacy tangible book value per common share nongaap measure may comparable similar nongaap measures used companies goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis funding sources primary sources funding deposits collateralized financings unsecured short longterm borrowings shareholders’ equity seek maintain broad diversified funding sources globally across products programs markets currencies creditors avoid funding concentrations table presents information funding sources funding primarily raised us dollar euro british pound japanese yen generally distribute funding products sales force thirdparty distributors large diverse creditor base variety markets americas europe asia believe relationships creditors critical liquidity creditors include banks governments securities lenders corporations pension funds insurance companies mutual funds individuals imposed various internal guidelines monitor creditor concentration across funding programs deposits provide us diversified source funding reduce reliance wholesale funding raise deposits including savings demand time deposits private bank clients consumers transaction banking clients institutional clients internal thirdparty brokerdealers substantially deposits raised gs bank usa gsib see note 13 consolidated financial statements information deposits secured funding fund significant amount inventory portion investments secured basis secured funding includes collateralized financings consolidated balance sheets may also pledge inventory investments collateral securities borrowed securities lending agreement also use inventory investments cover transactions clients sold securities yet purchased secured funding less sensitive changes credit quality unsecured funding due posting collateral lenders nonetheless analyze refinancing risk secured funding activities taking account trade tenors maturity profiles counterparty concentrations collateral eligibility counterparty rollover probabilities seek mitigate refinancing risk executing term trades staggered maturities diversifying counterparties raising excess secured funding prefunding residual risk gcla seek raise secured funding term appropriate liquidity assets financed seek longer maturities secured funding collateralized asset classes may harder fund secured basis especially times market stress secured funding excluding funding collateralized liquid government agency obligations primarily executed tenors one month greater primarily executed term repurchase agreements securities loaned contracts weighted average maturity secured funding included collateralized financings consolidated balance sheets excluding funding collateralized liquid government agency obligations exceeded 120 days december 2020 assets may harder fund secured basis times market stress include certain financial instruments following categories mortgage assetbacked loans securities noninvestmentgrade corporate debt securities equity securities emerging market securities assets classified level 3 fair value hierarchy generally funded unsecured basis see notes 4 10 consolidated financial statements information classification financial instruments fair value hierarchy “unsecured longterm borrowings” information use unsecured longterm borrowings source funding also raise financing types collateralized financings secured loans notes gs bank usa access funding federal home loan bank outstanding borrowings federal home loan bank december 2020 527 million december 2019 additionally access funding federal reserve discount window however rely funding liquidity planning stress testing unsecured shortterm borrowings significant portion unsecured shortterm borrowings originally longterm debt scheduled mature within one year reporting date use unsecured shortterm borrowings including us nonus hybrid financial instruments commercial paper finance liquid assets cash management purposes accordance regulatory requirements group inc issue debt original maturity less one year subsidiaries see note 14 consolidated financial statements information unsecured shortterm borrowings goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis unsecured longterm borrowings unsecured longterm borrowings including structured notes raised syndicated us registered offerings us registered rule 144a mediumterm note programs offshore mediumterm note offerings debt offerings issue different tenors currencies products maximize diversification investor base table presents quarterly unsecured longterm borrowings maturity profile weighted average maturity unsecured longterm borrowings december 2020 approximately seven years mitigate refinancing risk seek limit principal amount debt maturing course monthly quarterly annual time horizon enter interest rate swaps convert portion unsecured longterm borrowings floatingrate obligations manage exposure interest rates see note 14 consolidated financial statements information unsecured longterm borrowings shareholders’ equity shareholders’ equity stable perpetual source funding see note 19 consolidated financial statements information shareholders’ equity capital management regulatory capital adequacy critical importance us place comprehensive capital management policy provides framework defines objectives establishes guidelines assist us maintaining appropriate level composition capital businessasusual stressed conditions equity capital management determine appropriate amount composition equity capital considering multiple factors including current future regulatory capital requirements results capital planning stress testing process results resolution capital models factors rating agency guidelines subsidiary capital requirements business environment conditions financial markets manage capital requirements levels capital usage principally setting limits balance sheet andor limits risk case firmwide business levels principally manage level composition equity capital issuances repurchases common stock may issue redeem repurchase preferred stock junior subordinated debt issued trusts subordinated debt forms capital business conditions warrant prior redemptions repurchases must receive approval board governors federal reserve system frb see notes 14 19 consolidated financial statements information preferred stock junior subordinated debt issued trusts subordinated debt capital planning stress testing process part capital planning project sources uses capital given range business environments including stressed conditions stress testing process designed identify measure material risks associated business activities including market risk credit risk operational risk well ability generate revenues capital planning process incorporates internal capital adequacy assessment objective ensuring appropriately capitalized relative risks businesses incorporate stress scenarios capital planning process goal holding sufficient capital ensure remain adequately capitalized experiencing severe stress event assessment capital adequacy viewed tandem assessment liquidity adequacy integrated overall risk management structure governance policy framework stress tests incorporate internally designed stress scenarios including internally developed severely adverse scenario required frb designed capture specific vulnerabilities risks provide information stress test processes summary results website described “business available information” part item 1 form 10k required frb’s ccar rules submit annual capital plan review frb purpose frb’s review ensure robust forwardlooking capital planning process accounts unique risks permits continued operation times economic financial stress goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis frb evaluates us based part whether capital necessary continue operating baseline severely adverse scenarios provided frb developed internally evaluation also takes account process identifying risk controls governance capital planning guidelines making capital planning decisions addition frb evaluates plan make capital distributions ie dividend payments repurchases redemptions stock subordinated debt capital securities issue capital across range macroeconomic scenarios firmspecific assumptions frb determines stress capital buffer scb applicable us based annual stress test scb standardized approach calculated difference starting minimum projected cet1 capital ratios supervisory severely adverse scenario ii planned common stock dividends fourth seventh quarters planning horizon expressed percentage riskweighted assets rwas submitted 2020 ccar capital plan april 2020 published summary annual dfast results june 2020 see “business available information” part item 1 form 10k respect 2020 ccar submission frb notified us scb beginning october 1 2020 66 bringing standardized cet1 capital ratio requirement 136 light impact covid19 pandemic economy frb required large bank holding companies bhcs suspend stock repurchases fourth quarter 2020 increase common stock dividends pay common stock dividends excess average net income prior four quarters frb also required large bhcs including us resubmit capital plans november 2020 updated scenarios provided frb released results resubmissions december 2020 frb change scb result resubmission extended period recalculate march 31 2021 frb also modified existing restrictions capital actions permitting stock repurchases common stock dividends aggregate exceed average net income prior four quarters requiring large bhcs increase common stock dividend first quarter 2021 plan maintain common preferred dividends resumed common stock repurchases first quarter 2021 complying capital restrictions addition continue deploying capital businesses returns accretive otherwise return shareholders permitted frb gs bank usa capital planning process required submit annual stress test results frb 2020 based growth gs bank usa’s average balance sheet required submit annual stress test results 2022 goldman sachs international gsi gsib goldman sachs bank europe se gsbe also capital planning stress testing process incorporates internally designed stress tests developed accordance guidelines respective regulators contingency capital plan part comprehensive capital management policy maintain contingency capital plan contingency capital plan provides framework analyzing responding perceived actual capital deficiency including limited identification drivers capital deficiency well mitigants potential actions outlines appropriate communication procedures follow crisis period including internal dissemination information well timely communication external stakeholders capital attribution assess businesses’ capital usage based internal assessment risks incorporates attribution relevant regulatory capital requirements regulatory capital requirements allocated using attributed equity framework takes consideration binding capital constraints binding capital constraint based results frb’s annual stress test includes standardized riskbased capital leverage ratios see “segment assets operating results segment operating results” information attributed equity segment effective january 1 2021 adjusted attributed equity framework line impact scb rule scb 66 became effective october 1 2020 standardized approach share repurchase program use share repurchase program help maintain appropriate level common equity repurchase program effected primarily regular openmarket purchases may include repurchase plans designed comply rule 10b51 accelerated share repurchases amounts timing determined primarily current projected capital position capital plan submitted frb part ccar amounts timing repurchases may also influenced general market conditions prevailing price trading volumes common stock goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis december 2020 remaining share authorization existing repurchase program 497 million shares see “market registrant’s common equity related stockholder matters issuer purchases equity securities” part ii item 5 form 10k note 19 consolidated financial statements information share repurchase program see information capital planning stress testing process resolution capital models connection resolution planning efforts established resolution capital adequacy positioning framework designed ensure major subsidiaries gs bank usa goldman sachs co llc gsco gsi gsib goldman sachs japan co ltd gsjcl goldman sachs asset management lp goldman sachs asset management international gsami gsbe access sufficient lossabsorbing capacity form equity subordinated debt unsecured senior debt able winddown following group inc bankruptcy filing accordance preferred resolution strategy addition established triggers alerts framework designed provide board directors group inc board information needed make informed decision whether commence bankruptcy proceedings group inc rating agency guidelines credit rating agencies assign credit ratings obligations group inc directly issues guarantees substantially senior unsecured debt obligations gsco gsi assigned long shortterm issuer ratings certain credit rating agencies gs bank usa gsib gsbe also assigned long shortterm issuer ratings well ratings long shortterm bank deposits addition credit rating agencies assigned ratings debt obligations certain subsidiaries group inc level composition equity capital among many factors considered determining credit ratings agency definition eligible capital methodology evaluating capital adequacy assessments generally based combination factors rather single calculation see “risk management liquidity risk management credit ratings” information credit ratings group inc gs bank usa gsib gsbe gsco gsi consolidated regulatory capital subject consolidated regulatory capital requirements calculated accordance regulations frb capital framework capital framework “advanced approach” banking organization designated global systemically important bank gsib capital requirements calculated capital framework include capital conservation buffer requirements comprised 25 buffer advanced capital rules stress capital buffer standardized capital rules countercyclical buffer gsib surcharge capital rules gsib surcharge 25 2020 2021 2022 expect gsib surcharge 30 beginning 2023 gsib surcharge countercyclical buffer future may differ due additional guidance regulators andor positional changes scb likely change year based results annual supervisory stress tests target standardized cet1 capital ratio medium term 130 135 including management buffers based upon execution previously announced strategic initiatives achievement capital efficiencies see note 20 consolidated financial statements information riskbased capital ratios leverage ratios capital framework total lossabsorbing capacity tlac also subject frb’s tlac related requirements failure comply tlac related requirements could result restrictions imposed frb could limit ability repurchase shares pay dividends make certain discretionary compensation payments table presents tlac external longterm debt requirements table • tlac rwas requirement includes 18 minimum ii 25 buffer iii 15 gsib surcharge method 1 iv countercyclical capital buffer frb set zero percent • tlac leverage exposure requirement includes 75 minimum ii 20 leverage exposure buffer • external longterm debt rwas requirement includes 6 minimum ii 25 gsib surcharge method 2 goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis • external longterm debt total leverage exposure 45 minimum table presents information tlac external longterm debt ratios table • tlac includes common preferred stock eligible longterm debt issued group inc eligible longterm debt represents unsecured debt remaining maturity least one year satisfies additional requirements • external longterm debt consists eligible longterm debt subject haircut due paid one two years • rwas represent advanced rwas december 2020 standardized rwas december 2019 accordance tlac rules higher advanced standardized rwas used calculation tlac external longterm debt ratios applicable requirements • leverage exposure consists average adjusted total assets certain offbalance sheet exposures december 2020 leverage exposure excluded average holdings us treasury securities average deposits federal reserve permitted frb temporary amendment temporary amendment effective march 31 2021 see “business regulation” part item 1 form 10k information tlac subsidiary capital requirements many subsidiaries including bank brokerdealer subsidiaries subject separate regulation capital requirements jurisdictions operate bank subsidiaries gs bank usa primary us banking subsidiary gsib gsbe primary nonus banking subsidiaries entities subject regulatory capital requirements see note 20 consolidated financial statements information regulatory capital requirements bank subsidiaries us regulated brokerdealer subsidiaries gsco primary us regulated brokerdealer subsidiary subject regulatory capital requirements including imposed sec financial industry regulatory authority inc addition gsco registered futures commission merchant subject regulatory capital requirements imposed cftc chicago mercantile exchange national futures association rule 15c31 sec rule 117 cftc specify uniform minimum net capital requirements defined registrants also effectively require significant part registrants’ assets kept relatively liquid form gsco elected calculate minimum capital requirements accordance “alternative net capital requirement” permitted rule 15c31 gsco regulatory net capital defined rule 15c31 2238 billion december 2020 2088 billion december 2019 exceeded amount required 1845 billion december 2020 1815 billion december 2019 addition alternative minimum net capital requirements gsco also required hold tentative net capital excess 1 billion net capital excess 500 million accordance market credit risk standards appendix e rule 15c31 gsco also required notify sec event tentative net capital less 5 billion december 2020 december 2019 gsco tentative net capital net capital excess minimum notification requirements nonus regulated brokerdealer subsidiaries principal nonus regulated brokerdealer subsidiaries include gsi gsjcl gsi uk brokerdealer regulated prudential regulation authority pra financial conduct authority fca gsi subject capital framework euregulated financial institutions prescribed eu fourth capital requirements directive eu capital requirements regulation crr capital regulations largely based basel committee banking supervision’s basel committee capital framework strengthening international capital standards basel iii table presents gsi’s riskbased capital requirements table riskbased capital requirements incorporate capital guidance received pra could change future goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis table presents information gsi’s riskbased capital ratios table cet1 capital tier 1 capital total capital december 2020 excluded gsi’s undistributed profits october 2020 december 2020 profits yet approved included regulatory capital pra june 2019 european commission finalized amendment crr establishes 3 leverage ratio requirement certain eu financial institutions leverage ratio compares crr’s definition tier 1 capital measure leverage exposure defined sum certain assets plus certain offbalance sheet exposures include measure derivatives securities financing transactions commitments guarantees less tier 1 capital deductions following brexit gsi become subject similar prarequired leverage ratio expected become effective january 2022 gsi leverage ratio 46 december 2020 december 2019 gsi’s leverage ratio december 2020 excluded gsi’s undistributed profits october 2020 december 2020 profits yet approved included regulatory capital pra leverage ratio based current interpretation understanding rule may evolve discuss interpretation application rule gsi’s regulators gsi also subject minimum requirement funds eligible liabilities issued affiliates requirement subject transitional period began phase january 2019 become fully effective beginning january 2022 december 2020 gsi compliance requirement gsjcl japanese brokerdealer regulated japan’s financial services agency gsjcl certain nonus subsidiaries also subject capital requirements promulgated authorities countries operate december 2020 december 2019 subsidiaries compliance local capital requirements regulatory matters regulatory matters businesses subject extensive regulation supervision worldwide regulations adopted considered regulators policy makers worldwide given many new proposed rules highly complex full impact regulatory reform known rules implemented market practices develop final regulations see “business regulation” part item 1 form 10k information laws rules regulations proposed laws rules regulations apply us operations matters brexit eu uk agreed withdrawal agreement withdrawal agreement became effective january 31 2020 transition period withdrawal agreement ended december 2020 eu law ceased apply uk effective december 31 2020 notwithstanding trade cooperation agreement eu uk reached end 2020 firms established uk including uk subsidiaries lost paneu “passports” generally treated entities countries outside eu whose access eu governed eu national law uk adopted eu financial services legislation effect december 31 2020 means uk financial services regime remain substantially eu financial services legislation however future uk may diverge eu legislation may decide adopt rules correspond eu legislation already operative uk prepared scenario uk financial services firms lost access eu markets accordingly managed continue servicing eu client base following manner • german bank subsidiary gsbe acts main operating subsidiary eu assumed certain functions longer efficiently effectively performed uk operating subsidiaries including gsi gsib gsami goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis • moved number relationships clients investment banking global markets wealth management businesses gsi gsib gsbe clients asset management business gsami gsbe meaningful portion global markets investment banking clients may choose continue serviced transact uk entities arrangements provided individual member states expect continue providing products services manner extent clients prefer coverage available received applicable crossborder licenses exemptions gsi available also set authorized branches gsi eu used global markets business domestic clients france spain sweden • set branches gsbe number jurisdictions eu enable investment banking global markets consumer wealth management personnel situated offices countries • intend use goldman sachs paris inc et cie primary brokerdealer entity eu clients primarily conduct certain activities gsbe may prevented undertaking activities related physical commodities related products • internal infrastructure buildout external connectivity financial market infrastructure required new eu entities complete gsbe connected operational eu exchange clearing settlement platforms • order service asset management clients received approval irish financial regulator central bank ireland collective investment fund alternative investment fund manager ireland replaced similar existing londonbased alternative investment fund manager replacement interbank offered rates ibors including libor central banks regulators number major jurisdictions example us uk eu switzerland japan convened working groups find implement transition suitable replacements ibors administrator libor proposed extend publication commonly used us dollar libor settings june 30 2023 cease publishing libor settings december 31 2021 us federal banking agencies issued guidance strongly encouraging banking organizations cease using us dollar libor reference rate new contracts soon practicable event december 31 2021 marketled working groups major jurisdictions noted already selected preferred alternative riskfree reference rates published expected continue publish consultations issues including methodologies fallback provisions contracts financial instruments linked ibors development term structures alternative riskfree reference rates critical financial markets transition use alternative riskfree reference rates place ibors october 2020 international swaps derivatives association isda launched ibor fallbacks protocol became effective january 2021 provides derivatives market participants new fallbacks legacy new derivatives contracts counterparties adhere fallbacks protocol engage bilateral amendments terms effective derivative contracts adhered fallbacks protocol eligible derivative contracts facilitating orderly transition ibors alternative riskfree reference rates us clients centralized libor transition program continues make progress focus • evaluating monitoring impacts across businesses including transactions products • ensuring financial instruments contracts impacted transition already contain appropriate fallback language amended either bilateral negotiation using industrywide tools protocols • enhancements infrastructure example models systems prepare smooth transition alternative riskfree reference rates • ensuring operational readiness offer support various alternative riskfree reference rate products • active participation central bank sector working groups including responding industry consultations • client education communication goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis part program sought systematically identify risks inherent transition including financial risks example earnings volatility stress due widening swap spreads loss funding sources result counterparties’ reluctance participate transitioning positions nonfinancial risks example inability negotiate fallbacks clients andor counterparties potential disputes relating interpretation implementation fallback provision operational impediments transition markets alternative riskfree reference rates continue develop liquidity allows begun participating alternative riskfree reference rate markets particular 2020 • issued debt deposits linked secured overnight financing rate sofr sterling overnight index average sonia • executed sofr soniabased derivative contracts make markets facilitate client activities • executed transactions market reduce libor exposures arising hedges fixedrate debt issuances replace alternative riskfree reference rate exposures addition 2020 alongside industry successfully transitioned discounting conventions centrally cleared euro interest rate derivatives euro overnight index average euro shortterm rate centrally cleared us dollar interest rate derivatives federal funds sofr chicago mercantile exchange london clearing house eurex exchange engaged range industry regulatory working groups example isda bank england’s working group sterling riskfree reference rates federal reserve’s alternative reference rates committee canadian alternative reference rate working group continue engage clients counterparties facilitate orderly transition alternative riskfree reference rates impact covid19 pandemic resurgence spread covid19 toward end 2020 2021 created greater uncertainty regarding economic outlook near term even early efforts distribute vaccines underway governments central banks continued aggressive providing fiscal monetary stimulus global economic recovery remains fragile continued successfully execute business continuity planning bcp strategy since initially activating first quarter 2020 response emergence covid19 pandemic priority safeguard employees seek ensure continuity business operations behalf clients business continuity response covid19 pandemic managed central team led chief administrative officer chief medical officer includes senior management within risk chief operating officers across regions businesses result bcp strategy majority employees worked remotely 2020 continue january 2021 order reopen offices employees initial restrictions began ease second quarter 2020 established policies protocols address safety considerations taking account readiness people communities facilities course pandemic extent employees worked offices varied based circumstances location evolved constant dialogue key stakeholders assess health safety conditions across office locations robust procedures place protect wellbeing employees controls around building access strict physical distancing measures enhanced cleaning regimes onsite covid19 testing systems infrastructure robust throughout covid19 pandemic enabling us conduct activities without disruption continue maintain regular active communication among senior management rest employees board decisionmaking processes remained disciplined rigorous throughout pandemic since beginning covid19 pandemic management committee senior leaders met regularly executive officers provided regular enhanced communications promote connectivity clients employees worldwide addition part vendor management processes ongoing dialogues thirdparty service providers intended ensure continue meet criteria business continuity goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis liquidity position 2020 remained strong gcla averaged 283 billion year continued access traditional funding sources normal course service debt obligations timely basis cet1 capital ratios standardized approach increased 147 december 2020 140 basis points compared december 2019 continued support clients managing capital suspended stock repurchases first quarter 2020 consistent frb’s requirement large bhcs extended suspension stock repurchases fourth quarter 2020 resumed stock repurchases first quarter 2021 see “balance sheet funding sources” “equity capital management regulatory capital” “liquidity risk management” information result covid19 pandemic apply greater degree judgment making certain accounting estimates assumptions process estimating allowance credit losses inherently judgmental nature given involves forecasts future economic conditions uncertainty severity duration impact covid19 pandemic made process challenging resulted greater subjectivity economic forecasts uncertainty also impacts estimation fair value less liquid financial instruments lack price transparency valuation involves judgment regarding estimated future cash flows significant unobservable inputs see note 9 consolidated financial statements information allowance credit losses note 4 consolidated financial statements information fair value measurements addition assessed goodwill impairment december 2020 determined impaired see note 12 consolidated financial statements information goodwill covid19 pandemic gave rise higher volatility levels financial markets correspondingly higher client activity levels assisted clients navigating unpredictable unprecedented operating environment providing complex risk intermediation financing solutions bespoke advice utilizing balance sheet necessary average daily valueatrisk var 2020 94 million 38 million higher 2019 maintained proactive approach managing market risk levels entails ongoing review monitoring exposures focusing ways mitigate risk respect credit risk improvement economic conditions second half 2020 significant contraction second quarter 2020 general helped stabilize conditions credit markets relationship lending drawn balance credit lines spiked early pandemic back prepandemic levels december 2020 borrowers general faced less challenging circumstances second half year credit risk remains high borrowers industries continue face significant disruptions due covid19 pandemic companies oil gas gaming lodging airlines industries throughout crisis remained highly focused monitoring credit exposures management margin calls disputes risk positions remained balanced controlled adequately provisioned terms counterparty risk sector exposure see “market risk management” “credit risk management” information actions response covid19 pandemic included granting forbearance certain corporate borrowers made requests defer payments approximately 880 million corporate loans approximately 155 million commercial real estate loans forbearance december 2020 continued provide relief consumers programs help manage financial challenges face result covid19 pandemic accommodations programs include providing borrowers installment credit card loans ability modify defer payments without incurring interest charges permitting marcus depositors access certificates deposit early without penalty december 2020 installment credit card loans gross carrying value approximately 120 million enrolled programs aggregate loans forbearance relief programs represented approximately 1 total loans goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis unpredictability trajectory covid19 pandemic significantly diminished visibility future operating environment sustained period weak economic conditions result pandemic would detrimental businesses would negatively affect factors important operating performance level client activity creditworthiness counterparties borrowers amount aus monitoring ongoing developments covid19 vaccines distributed administered take action best interests employees clients counterparties information risks associated covid19 pandemic see “business risk factors” part ii item 1a form 10k offbalance sheet arrangements contractual obligations offbalance sheet arrangements ordinary course business enter various types offbalance sheet arrangements involvement arrangements take many different forms including • purchasing retaining residual interests special purpose entities mortgagebacked assetbacked securitization vehicles • holding senior subordinated debt interests limited general partnerships preferred common stock nonconsolidated vehicles • entering interest rate foreign currency equity commodity credit derivatives including total return swaps • providing guarantees indemnifications commitments letters credit representations warranties enter arrangements variety business purposes including securitizations securitization vehicles purchase mortgages corporate bonds types financial assets critical functioning several significant investor markets including mortgagebacked assetbacked securities markets since offer investors access specific cash flows risks created securitization process also enter arrangements underwrite client securitization transactions provide secondary market liquidity make investments performing nonperforming debt distressed loans powerrelated assets equity securities real estate assets provide investors creditlinked assetrepackaged notes receive provide letters credit satisfy margin requirements facilitate clearance settlement process table presents information various offbalance sheet arrangements may found form 10k addition see note 3 consolidated financial statements information consolidation policies offbalance sheet arrangement disclosure form 10k variable interests obligations including contingent obligations arising variable interests nonconsolidated variable interest entities vies see note 17 consolidated financial statements guarantees letters credit lending commitments see note 18 consolidated financial statements derivatives see “risk management credit risk management credit exposures otc derivatives” notes 4 5 7 18 consolidated financial statements contractual obligations certain contractual obligations require us make future cash payments contractual obligations include time deposits secured longterm financings unsecured longterm borrowings interest payments operating lease payments obligations make future cash payments also include commitments guarantees related offbalance sheet arrangements excluded table see note 18 consolidated financial statements information commitments guarantees due uncertainty timing amounts ultimately paid liability unrecognized tax benefits excluded table see note 24 consolidated financial statements information unrecognized tax benefits table presents contractual obligations type goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis table presents contractual obligations expiration table • obligations maturing within one year financial statement date redeemable within one year financial statement date option holders excluded treated shortterm obligations see note 14 consolidated financial statements information shortterm borrowings • obligations repayable prior maturity option reflected contractual maturity dates obligations redeemable prior maturity option holders reflected earliest dates options become exercisable • december 2020 unsecured longterm borrowings maturities extending 2065 consisted principally senior borrowings included 1204 billion adjustments carrying value certain unsecured longterm borrowings resulting application hedge accounting see note 14 consolidated financial statements information unsecured longterm borrowings • december 2020 difference aggregate contractual principal amount related fair value longterm secured financings fair value option elected material • december 2020 fair value unsecured longterm borrowings fair value option elected exceeded aggregate contractual principal amount 445 million • interest payments represents estimated future contractual interest payments related unsecured longterm borrowings secured longterm financings time deposits based applicable interest rates december 2020 includes stated coupons structured notes • operating lease payments includes lease commitments office space expire various dates 2069 certain agreements subject periodic escalation provisions increases real estate taxes charges see note 15 consolidated financial statements information operating lease liabilities risk management risks inherent businesses include liquidity market credit operational model legal compliance conduct regulatory reputational risks include risks across risk categories regions global businesses well uncertain outcomes potential materially impact financial results liquidity reputation information risk management processes see “overview structure risk management” information areas risk see “liquidity risk management” “market risk management” “credit risk management” “operational risk management” “model risk management” “risk factors” part item 1a form 10k overview structure risk management overview believe effective risk management critical success accordingly established enterprise risk management framework employs comprehensive integrated approach risk management designed enable comprehensive risk management processes identify assess monitor manage risks assume conducting activities risk management structure built around three core components governance processes people governance risk management governance starts board directly committees including risk committee oversees risk management policies practices implemented enterprise risk management framework board also responsible annual review approval risk appetite statement risk appetite statement describes levels types risk willing accept avoid order achieve objectives included strategic business plan remaining compliance regulatory requirements board reviews strategic business plan ultimately responsible overseeing providing direction strategy risk appetite goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis board receives regular briefings firmwide risks including liquidity risk market risk credit risk operational risk model risk independent risk oversight control functions including chief risk officer compliance risk conduct risk compliance legal regulatory enforcement matters general counsel matters impacting reputation chair firmwide client business standards committee firmwide reputational risk committee chief risk officer reports chief executive officer risk committee board part review firmwide risk portfolio chief risk officer regularly advises risk committee board relevant risk metrics material exposures including risk limits thresholds established risk appetite statement implementation risk governance structure core risk management processes overseen enterprise risk reports chief risk officer responsible ensuring enterprise risk management framework provides board risk committees senior management consistent integrated approach managing various risks manner consistent risk appetite revenueproducing units well treasury engineering human capital management operations corporate workplace solutions considered first line defense accountable outcomes riskgenerating activities well assessing managing risks within risk appetite independent risk oversight control functions considered second line defense provide independent assessment oversight challenge risks taken first line defense well lead participate risk committees independent risk oversight control functions include compliance conflicts resolution controllers legal risk tax internal audit considered third line defense reports audit committee board administratively chief executive officer internal audit includes professionals broad range audit industry experience including risk management expertise internal audit responsible independently assessing validating effectiveness key controls including within risk management framework providing timely reporting audit committee board senior management regulators three lines defense structure promotes accountability first line risk takers provides framework effective challenge second line empowers independent review third line processes maintain various processes critical components risk management framework including risk identification assessment ii risk appetite limit threshold setting iii risk reporting monitoring iv risk decisionmaking • risk identification assessment believe identification assessment risks critical step providing board senior management transparency insight range materiality risks comprehensive data collection process including firmwide policies procedures require employees report escalate risk events approach risk identification assessment comprehensive across risk types dynamic forwardlooking reflect adapt changing risk profile business environment leverages subject matter expertise allows prioritization critical risks effectively assess risks maintain daily discipline marking substantially inventory current market levels carry inventory fair value changes valuation reflected immediately risk management systems net revenues believe discipline one effective tools assessing managing risk provides transparent realistic insight inventory exposures important part risk management process firmwide stress testing allows us quantify exposure tail risks highlight potential loss concentrations undertake riskreward analysis assess mitigate risk positions firmwide stress tests performed regular basis designed ensure comprehensive analysis vulnerabilities idiosyncratic risks combining financial nonfinancial risks including limited credit market liquidity funding operational compliance strategic systemic emerging risks single combined scenario also perform ad hoc stress tests anticipation market events conditions stress tests also used assess capital adequacy part capital planning stress testing process see “equity capital management regulatory capital equity capital management” information goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis • risk appetite limit threshold setting apply rigorous framework limits thresholds control monitor risk across transactions products businesses markets board directly indirectly risk committee approves limits thresholds included risk appetite statement firmwide business product levels addition firmwide enterprise risk committee responsible approving risk limits framework subject overall limits approved risk committee board monitoring limits risk governance committee responsible approving limits firmwide business product levels certain limits may set levels require periodic adjustment rather levels reflect maximum risk appetite fosters ongoing dialogue risk among first second lines defense committees senior management well rapid escalation riskrelated matters additionally delegated authority risk governance committee market risk sets limits certain product desk levels credit risk sets limits individual counterparties subsidiaries industries countries limits reviewed regularly amended permanent temporary basis reflect changing market conditions business conditions risk tolerance • risk reporting monitoring effective risk reporting risk decisionmaking depends ability get right information right people right time focus rigor effectiveness risk systems objective ensuring risk management technology systems provide us complete accurate timely information risk reporting monitoring processes designed take account information existing emerging risks thereby enabling risk committees senior management perform responsibilities appropriate level insight risk exposures furthermore limit threshold breach processes provide means timely escalation evaluate changes risk profile businesses including changes business mix jurisdictions operate monitoring risk factors firmwide level • risk decisionmaking governance structure provides protocol responsibility decisionmaking risk management issues ensures implementation decisions make extensive use risk committees meet regularly serve important means facilitate foster ongoing discussions manage mitigate risks maintain strong proactive communication risk culture collaboration decisionmaking among first second lines defense committees senior management first line defense responsible management risk dedicate extensive resources second line defense order ensure strong oversight structure appropriate segregation duties regularly reinforce strong culture escalation accountability across functions people even best technology serves tool helping make informed decisions real time risks taking ultimately effective risk management requires people interpret risk data ongoing timely basis adjust risk positions accordingly experience professionals understanding nuances limitations risk measure guides us assessing exposures maintaining within prudent levels reinforce culture effective risk management consistent risk appetite training development programs well way evaluate performance recognize reward people training development programs including certain sessions led senior leaders focused importance risk management client relationships reputational excellence part performance review process assess reputational excellence including employee exercises good risk management reputational judgment adheres code conduct compliance policies review reward processes designed communicate reinforce professionals link behavior people recognized need focus clients reputation need always act accordance highest standards goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis structure ultimate oversight risk responsibility board oversees risk directly committees including risk committee series committees specific risk management mandates oversight decisionmaking responsibilities risk management activities committee membership generally consists senior managers first second lines defense established procedures committees ensure appropriate information barriers place primary risk committees also additional subcommittees working groups described addition committees risk committees provide oversight different businesses activities products regions entities committees responsibility considering impact transactions activities oversee reputation membership risk committees reviewed regularly updated reflect changes responsibilities committee members accordingly length time members serve respective committees varies determined committee chairs based responsibilities members chart presents overview risk management governance structure management committee management committee oversees global activities provides oversight directly authority delegated committees established committee consists senior leaders chaired chief executive officer members management committee also members committees following committees principally involved firmwide risk management firmwide enterprise risk committee firmwide enterprise risk committee responsible overseeing financial nonfinancial risks part oversight committee responsible ongoing review approval monitoring enterprise risk management framework well risk limits framework committee cochaired chief financial officer chief risk officer appointed chairs chief executive officer reports management committee following primary committees report firmwide enterprise risk committee • firmwide risk committee firmwide risk committee responsible ongoing monitoring relevant financial risks related risk limits firmwide business product levels committee cochaired chairs firmwide enterprise risk committee • firmwide new activity committee firmwide new activity committee responsible reviewing new activities establishing process identify review previously approved activities significant changed complexity andor structure present different reputational suitability concerns time consider whether activities remain appropriate committee cochaired controller chief accounting officer head operations platform engineering global markets division appointed chairs firmwide enterprise risk committee • firmwide operational risk resilience committee firmwide operational risk resilience committee responsible overseeing operational risk ensuring business operational resilience assist firmwide operational risk resilience committee carrying mandate risk committees dedicated oversight technologyrelated risks including cyber security matters report firmwide operational risk resilience committee cochaired chief administrative officer deputy chief risk officer appointed chairs firmwide enterprise risk committee goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis • firmwide conduct committee firmwide conduct committee responsible ongoing approval monitoring frameworks policies govern conduct risks conduct risk people fail act manner consistent business principles related core values policies codes applicable laws regulations thereby falling short fulfilling responsibilities us clients colleagues market participants broader community committee chaired head regulatory affairs appointed chair chairs firmwide enterprise risk committee • risk governance committee risk governance committee delegated authority firmwide enterprise risk committee responsible ongoing approval monitoring risk frameworks policies parameters related core risk management processes well limits firmwide business product levels addition committee reviews results stress tests scenario analyses assist risk governance committee carrying mandate number risk committees dedicated oversight stress testing model risks volcker rule compliance report risk governance committee chaired chief risk officer appointed chair chairs firmwide enterprise risk committee firmwide client business standards committee firmwide client business standards committee responsible overseeing relationships clients client service experience related business standards well clientrelated reputational matters committee chaired president chief operating officer appointed chair chief executive officer reports management committee periodically provides updates receives guidance public responsibilities committee board following committees report jointly firmwide enterprise risk committee firmwide client business standards committee • firmwide reputational risk committee firmwide reputational risk committee responsible assessing reputational risks arising transactions identified potential heightened reputational risk pursuant criteria established firmwide reputational risk committee chaired president chief operating officer appointed chair chief executive officer vicechairs head regulatory affairs head conflicts resolution appointed vicechairs chair firmwide reputational risk committee periodically provides updates receives guidance public responsibilities committee board • firmwide suitability committee firmwide suitability committee responsible setting standards policies product transaction client suitability providing forum consistency across functions regions products suitability assessments committee also reviews suitability matters escalated committees committee cochaired chief compliance officer cohead emea ficc sales appointed chairs chair firmwide client business standards committee • firmwide investment policy committee firmwide investment policy committee periodically reviews investing lending activities portfolio basis including review risk management controls sets business standards policies types investments committee cochaired cohead asset management division cohead global markets division chief risk officer appointed chairs president chief operating officer chief financial officer • firmwide capital committee firmwide capital committee provides approval oversight debtrelated transactions including principal commitments capital committee aims ensure business reputational suitability standards underwritings capital commitments maintained global basis committee cochaired head credit risk market risk cohead financing group appointed chairs firmwide enterprise risk committee goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis • firmwide commitments committee firmwide commitments committee reviews underwriting distribution activities respect equity equityrelated product offerings sets maintains policies procedures designed ensure legal reputational regulatory business standards maintained global basis addition reviewing specific transactions committee periodically conducts general strategic reviews sectors products establishes policies connection transaction practices committee cochaired cohead industrials group investment banking division chief debt underwriting officer emea managing director investment banking division appointed chairs chair firmwide client business standards committee firmwide asset liability committee firmwide asset liability committee reviews approves strategic direction financial resources including capital liquidity funding balance sheet committee oversight responsibility asset liability management including interest rate currency risk funds transfer pricing capital allocation incentives credit ratings committee makes recommendations adjustments asset liability management financial resource allocation light current events risks exposures regulatory requirements approves related policies committee cochaired chief financial officer global treasurer appointed chairs chief executive officer reports management committee conflicts management conflicts interest approach dealing fundamental client relationships reputation longterm success term “conflict interest” universally accepted meaning conflicts arise many forms within business businesses responsibility identifying potential conflicts well complying policies procedures shared employees multilayered approach resolving conflicts addressing reputational risk senior management oversees policies related conflicts resolution conjunction conflicts resolution legal compliance firmwide client business standards committee internal committees formulates policies standards principles assists making judgments regarding appropriate resolution particular conflicts resolving potential conflicts necessarily depends facts circumstances particular situation application experienced informed judgment general matter conflicts resolution reviews financing advisory assignments investment banking certain investing lending activities addition various transaction oversight committees firmwide capital commitments suitability committees also review new underwritings loans investments structured products groups committees work internal external counsel compliance evaluate address actual potential conflicts resolution reports president chief operating officer regularly assess policies procedures address conflicts interest effort conduct business accordance highest ethical standards compliance applicable laws rules regulations compliance risk management compliance risk legal regulatory sanctions material financial loss damage reputation arising failure comply requirements applicable laws rules regulations internal policies procedures compliance risk inherent activities conduct businesses compliance risk management program administered compliance assesses compliance regulatory reputational risk monitors compliance new amended laws rules regulations designs implements controls policies procedures training conducts independent testing investigates surveils monitors compliance risks breaches leads responses regulatory examinations audits inquiries monitor review business practices assess whether meet exceed minimum regulatory legal standards markets jurisdictions conduct business goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis liquidity risk management overview liquidity risk unable fund meet liquidity needs event firmspecific broader industry market liquidity stress events place comprehensive conservative set liquidity funding policies principal objective able fund enable core businesses continue serve clients generate revenues even adverse circumstances treasury reports chief financial officer primary responsibility developing managing executing liquidity funding strategy within risk appetite liquidity risk independent revenueproducing units treasury reports chief risk officer primary responsibility assessing monitoring managing liquidity risk firmwide oversight across global businesses establishment stress testing limits frameworks liquidity risk management principles manage liquidity risk according three principles hold sufficient excess liquidity form gcla cover outflows stressed period ii maintain appropriate assetliability management iii maintain viable contingency funding plan gcla liquidity maintain meet broad range potential cash outflows collateral needs stressed environment primary liquidity principle prefund estimated potential cash collateral needs liquidity crisis hold liquidity form unencumbered highly liquid securities cash believe securities held gcla would readily convertible cash matter days liquidation entering repurchase agreements maturities resale agreements cash would allow us meet immediate obligations without needing sell assets depend additional funding creditsensitive markets gcla reflects following principles • first days weeks liquidity crisis critical company’s survival • focus must maintained potential cash collateral outflows disruptions financing flows businesses diverse liquidity needs determined many factors including market movements collateral requirements client commitments change dramatically difficult funding environment • liquidity crisis creditsensitive funding including unsecured debt certain deposits types secured financing agreements may unavailable terms eg interest rates collateral provisions tenor availability types secured financing may change certain deposits may withdrawn • result policy prefund liquidity estimate may needed crisis hold unencumbered securities larger funding balances businesses would otherwise require believe liquidity stronger greater balances highly liquid unencumbered securities even though increases total assets funding costs maintain gcla across group inc goldman sachs funding llc funding ihc group inc’s major brokerdealer bank subsidiaries asset types clearing agents provide us sufficient operating liquidity ensure timely settlement major markets even difficult funding environment addition gcla maintain cash balances securities several entities primarily use specific currencies entities jurisdictions immediate access parent company liquidity assetliability management liquidity risk management policies designed ensure sufficient amount financing even funding markets experience persistent stress manage maturities diversity funding across markets products counterparties seek maintain diversified funding profile appropriate tenor taking consideration characteristics liquidity profile assets approach assetliability management includes • conservatively managing overall characteristics funding book focus maintaining longterm diversified sources funding excess current requirements see “balance sheet funding sources funding sources” information • actively managing monitoring asset base particular focus liquidity holding period ability fund assets secured basis assess funding requirements ability liquidate assets stressed environment appropriately managing risk enables us determine appropriate funding products tenors see “balance sheet funding sources balance sheet management” information balance sheet management process “ funding sources secured funding” information asset classes may harder fund secured basis goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis • raising secured unsecured financing long tenor relative liquidity profile assets reduces risk liabilities come due advance ability generate liquidity sale assets maintain highly liquid balance sheet holding period certain assets may materially shorter contractual maturity dates goal ensure maintain sufficient liquidity fund assets meet contractual contingent obligations normal times well periods market stress dynamic balance sheet management process use actual projected asset balances determine secured unsecured funding requirements funding plans reviewed approved firmwide asset liability committee addition independent risk oversight control functions analyze firmwide asset liability committee reviews consolidated total capital position unsecured longterm borrowings plus total shareholders’ equity maintain level longterm funding sufficient meet longterm financing requirements liquidity crisis would first use gcla order avoid reliance asset sales gcla however recognize orderly asset sales may prudent necessary severe persistent liquidity crisis subsidiary funding policies majority unsecured funding raised group inc provides necessary funds funding ihc subsidiaries regulated meet asset financing liquidity capital requirements addition group inc provides regulated subsidiaries necessary capital meet regulatory requirements benefits approach subsidiary funding enhanced control greater flexibility meet funding requirements subsidiaries funding also raised subsidiary level variety products including deposits secured funding unsecured borrowings intercompany funding policies assume subsidiary’s funds securities freely available parent funding ihc subsidiaries unless legally provided ii additional regulatory tax restrictions particular many subsidiaries subject laws authorize regulatory bodies block reduce flow funds subsidiaries group inc funding ihc regulatory action kind could impede access funds group inc needs make payments obligations accordingly assume capital provided regulated subsidiaries available group inc subsidiaries financing provided regulated subsidiaries available group inc funding ihc maturity financing group inc provided substantial amounts equity subordinated indebtedness directly indirectly regulated subsidiaries example december 2020 group inc 3454 billion equity subordinated indebtedness invested gsco principal us registered brokerdealer 4212 billion invested gsi regulated uk brokerdealer 332 billion invested gsjcl regulated japanese brokerdealer 3430 billion invested gs bank usa regulated new york statechartered bank 413 billion invested gsib regulated uk bank 406 billion invested gsbe regulated german bank group inc also provided directly indirectly 11196 billion unsubordinated loans including secured loans 4798 billion 1665 billion collateral cash deposits entities substantially gsco gsi gsjcl december 2020 addition december 2020 group inc significant amounts capital invested loans regulated subsidiaries contingency funding plan maintain contingency funding plan provide framework analyzing responding liquidity crisis situation periods market stress contingency funding plan outlines list potential risk factors key reports metrics reviewed ongoing basis assist assessing severity managing liquidity crisis andor market dislocation contingency funding plan also describes detail potential responses assessments indicate entered liquidity crisis include prefunding estimate potential cash collateral needs well utilizing secondary sources liquidity mitigants action items address specific risks may arise also described assigned individuals responsible execution contingency funding plan identifies key groups individuals responsibilities include fostering effective coordination control distribution information implementing liquidity maintenance activities managing internal external communication critical management crisis period market stress goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis stress tests order determine appropriate size gcla model liquidity outflows range scenarios time horizons one primary internal liquidity risk models referred modeled liquidity outflow quantifies liquidity risks 30day stress scenario also consider factors including limited assessment potential intraday liquidity needs additional internal liquidity risk model referred intraday liquidity model results longterm stress testing models resolution liquidity models applicable regulatory requirements qualitative assessment condition well financial markets results modeled liquidity outflow intraday liquidity model longterm stress testing models resolution liquidity models reported senior management regular basis also perform firmwide stress tests see “overview structure risk management” information firmwide stress tests modeled liquidity outflow modeled liquidity outflow based conducting multiple scenarios include combinations marketwide firmspecific stress scenarios characterized following qualitative elements • severely challenged market environments includes low consumer corporate confidence financial political instability adverse changes market values including potential declines equity markets widening credit spreads • firmspecific crisis potentially triggered material losses reputational damage litigation andor ratings downgrade following key modeling elements modeled liquidity outflow • liquidity needs 30day scenario • twonotch downgrade longterm senior unsecured credit ratings • changing conditions funding markets limit access unsecured secured funding • support additional government funding facilities although access various central bank funding programs assume reliance additional sources funding liquidity crisis • combination contractual outflows upcoming maturities unsecured debt contingent outflows including limited withdrawal customer credit balances prime brokerage business increase variation margin requirements due adverse changes value exchangetraded otccleared derivatives withdrawals deposits contractual maturity intraday liquidity model intraday liquidity model measures intraday liquidity needs using scenario analysis characterized qualitative elements modeled liquidity outflow model assesses risk increased intraday liquidity requirements scenario access sources intraday liquidity may become constrained longterm stress testing utilize longerterm stress tests take forward view liquidity position prolonged stress periods experience severe liquidity stress recover environment continues challenging focused ensuring conservative assetliability management prepare prolonged period potential stress seeking maintain diversified funding profile appropriate tenor taking consideration characteristics liquidity profile assets resolution liquidity models connection resolution planning efforts established resolution liquidity adequacy positioning framework estimates liquidity needs major subsidiaries stressed environment liquidity needs measured using modeled liquidity outflow assumptions include certain additional interaffiliate exposures also established resolution liquidity execution need framework measures liquidity needs major subsidiaries stabilize winddown following group inc bankruptcy filing accordance preferred resolution strategy addition established triggers alerts framework designed provide board information needed make informed decision whether commence bankruptcy proceedings group inc limits use liquidity risk limits various levels across liquidity risk types manage size liquidity exposures limits measured relative acceptable levels risk given liquidity risk tolerance see “overview structure risk management” information limit approval process limits monitored treasury liquidity risk liquidity risk responsible identifying escalating senior management andor appropriate risk committee timely basis instances limits exceeded goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis gcla unencumbered metrics gcla based results internal liquidity risk models described well consideration factors including limited qualitative assessment condition well financial markets believe liquidity position december 2020 december 2019 appropriate strictly limit gcla narrowly defined list securities cash highly liquid even difficult funding environment include potential sources excess liquidity gcla less liquid unencumbered securities committed credit facilities table presents information gcla table • us dollardenominated gcla consists unencumbered us government agency obligations including highly liquid us agency mortgagebacked obligations eligible collateral federal reserve open market operations ii certain overnight us dollar cash deposits • nonus dollardenominated gcla consists nonus government obligations unencumbered german french japanese uk government obligations certain overnight cash deposits highly liquid currencies maintain gcla enable us meet current potential liquidity requirements parent company group inc subsidiaries modeled liquidity outflow intraday liquidity model incorporate requirement group inc well standalone requirement major brokerdealer bank subsidiaries funding ihc required provide necessary liquidity group inc ordinary course business also obligated provide capital liquidity support major subsidiaries event material financial distress failure liquidity held directly major brokerdealer bank subsidiaries intended use subsidiary meet liquidity requirements assumed available group inc funding ihc unless legally provided ii additional regulatory tax restrictions addition modeled liquidity outflow intraday liquidity model also incorporate broader assessment standalone liquidity requirements subsidiaries hold portion gcla directly group inc funding ihc support requirements unencumbered assets addition gcla significant amount unencumbered cash financial instruments including government obligations highgrade money market securities corporate obligations marginable equities loans cash deposits included gcla fair value unencumbered assets averaged 21406 billion three months ended december 2020 20601 billion three months ended december 2019 20760 billion year ended december 2020 20203 billion year ended december 2019 consider assets liquid enough eligible gcla liquidity regulatory framework bhc subject minimum liquidity coverage ratio lcr rule approved us federal bank regulatory agencies lcr rule requires organizations maintain adequate ratio eligible highquality liquid assets hqla expected net cash outflows acute shortterm liquidity stress scenario eligible hqla excludes hqla held subsidiaries excess minimum requirement subject transfer restrictions required maintain minimum lcr 100 expect fluctuations client activity business mix market environment impact lcr goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis table presents information average daily lcr october 2020 us federal bank regulatory agencies issued final rule establishes net stable funding ratio nsfr requirement large us banking organizations rule become effective july 1 2021 requires banking organizations ensure access stable funding oneyear time horizon rule also requires disclosure ratio semiannual basis description banking organization’s stable funding sources beginning 2023 following provides information subsidiary liquidity regulatory requirements • gs bank usa gs bank usa subject minimum lcr 100 lcr rule approved us federal bank regulatory agencies december 2020 gs bank usa’s lcr exceeded minimum requirement nsfr requirement described also apply gs bank usa • gsi subject minimum lcr 100 lcr rule approved uk regulatory authorities gsi’s average monthly lcr trailing twelvemonth period ended december 2020 exceeded minimum requirement • subsidiaries monitor local regulatory liquidity requirements subsidiaries ensure compliance many subsidiaries requirements either changed likely change future due implementation basel committee’s framework liquidity risk measurement standards monitoring well regulatory developments implementation rules amendments adopted regulatory authorities could impact liquidity funding requirements practices future credit ratings rely short longterm debt capital markets fund significant portion daytoday operations cost availability debt financing influenced credit ratings credit ratings also important competing certain markets otc derivatives seek engage longerterm transactions see “risk factors” part item 1a form 10k information risks associated reduction credit ratings table presents unsecured credit ratings outlook group inc table • ratings outlook dbrs inc dbrs fitch inc fitch moody’s investors service moody’s rating investment information inc ri standard poor’s ratings services sp • ratings trust preferred relate guaranteed preferred beneficial interests issued goldman sachs capital • dbrs fitch moody’s sp ratings preferred stock include apex issued goldman sachs capital ii goldman sachs capital iii january 2021 moody’s upgraded group inc’s longterm debt ratings a3 a2 shortterm debt ratings p2 p1 returned outlook ratings review stable goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis table presents unsecured credit ratings outlook gs bank usa gsib gsbe gsco gsi believe credit ratings primarily based credit rating agencies’ assessment • liquidity market credit operational risk management practices • level variability earnings • capital base • franchise reputation management • corporate governance • external operating economic environment including cases assumed level government support systemic considerations potential resolution certain derivatives transacted bilateral agreements counterparties may require us post collateral terminate transactions based changes credit ratings manage gcla ensure would among potential requirements able make additional collateral termination payments may required event twonotch reduction longterm credit ratings well collateral called counterparties available see note 7 consolidated financial statements information derivatives creditrelated contingent features additional collateral termination payments related net derivative liabilities bilateral agreements could called counterparties event one twonotch downgrade credit ratings cash flows global financial institution cash flows complex bear little relation net earnings net assets consequently believe traditional cash flow analysis less meaningful evaluating liquidity position liquidity assetliability management policies described cash flow analysis may however helpful highlighting certain macro trends strategic initiatives businesses year ended december 2020 cash equivalents increased 2230 billion 15584 billion end 2020 primarily due net cash provided financing activities partially offset net cash used investing activities operating activities net cash provided financing activities primarily reflected increase net deposits reflecting increases consumer transaction banking private bank deposits net cash used investing activities primarily reflected increase net purchases investments reflecting increase us government obligations accounted availableforsale increase net lending activities net cash used operating activities primarily reflected increase trading assets net customer receivables payables collateralized transactions increase collateralized agreements partially offset increase collateralized financings partially offset increase trading liabilities result clients’ activities year ended december 2019 cash equivalents increased 300 billion 13355 billion end 2019 primarily due net cash provided operating activities financing activities partially offset net cash used investing activities net cash provided operating activities primarily reflected cash provided collateralized transactions decrease collateralized agreements increase collateralized financings result clients’ activities partially offset increase trading assets result client activity net cash provided financing activities primarily reflected increase consumer deposits partially offset net repayments unsecured longterm borrowings common stock repurchases net cash used investing activities primarily reflected net purchases investments increase loans analysis cash flows year ended december 2018 see part ii item 7 “management’s discussion analysis financial condition results operations” annual report form 10k year ended december 31 2019 goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis market risk management overview market risk loss value inventory investments loans financial assets liabilities accounted fair value due changes market conditions hold positions primarily market making clients investing financing activities therefore positions change based client demands investment opportunities since positions accounted fair value fluctuate daily basis related gains losses included consolidated statements earnings employ variety risk measures described respective sections monitor market risk categories market risk include following • interest rate risk results exposures changes level slope curvature yield curves volatilities interest rates prepayment speeds credit spreads • equity price risk results exposures changes prices volatilities individual equities baskets equities equity indices • currency rate risk results exposures changes spot prices forward prices volatilities currency rates • commodity price risk results exposures changes spot prices forward prices volatilities commodities crude oil petroleum products natural gas electricity precious base metals market risk independent revenueproducing units reports chief risk officer primary responsibility assessing monitoring managing market risk firmwide oversight across global businesses managers revenueproducing units market risk discuss market information positions estimated loss scenarios ongoing basis managers revenueproducing units accountable managing risk within prescribed limits managers indepth knowledge positions markets instruments available hedge exposures market risk management process managing market risk includes critical components risk management framework described “overview structure risk management” well following • monitoring compliance established market risk limits reporting exposures • diversifying exposures • controlling position sizes • evaluating mitigants economic hedges related securities derivatives market risk management systems enable us perform independent calculation var stress measures capture risk measures individual position levels attribute risk measures individual risk factors position report many different views risk measures eg desk business product type entity produce ad hoc analyses timely manner risk measures produce risk measures monitor established market risk limits measures reflect extensive range scenarios results aggregated product business firmwide levels use variety risk measures estimate size potential losses moderate extreme market moves short longterm time horizons primary risk measures var used shorterterm periods stress tests risk reports detail key risks drivers changes desk business distributed daily senior management revenueproducing units independent risk oversight control functions goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis valueatrisk var potential loss value due adverse market movements defined time horizon specified confidence level assets liabilities included var see “financial statement linkages market risk measures” typically employ oneday time horizon 95 confidence level use single var model captures risks including interest rates equity prices currency rates commodity prices var facilitates comparison across portfolios different risk characteristics var also captures diversification aggregated risk firmwide level aware inherent limitations var therefore use variety risk measures market risk management process inherent limitations var include • var estimate potential losses longer time horizons moves may extreme • var take account relative liquidity different risk positions • previous moves market risk factors may produce accurate predictions future market moves comprehensively capture exposures relevant risks var calculation use historical simulations full valuation market factors position level simultaneously shocking relevant market factors position market factors include spot prices credit spreads funding spreads yield curves volatility correlation updated periodically based changes composition positions well variations market conditions sample five years historical data generate scenarios var calculation historical data weighted relative importance data reduces time gives greater importance recent observations reflects current asset volatilities improves accuracy estimates potential loss result even positions included var unchanged var would increase increasing market volatility vice versa given reliance historical data var effective estimating risk exposures markets sudden fundamental changes shifts market conditions var measure include • positions best measured monitored using sensitivity measures • impact changes counterparty credit spreads derivatives well changes credit spreads financial liabilities fair value option elected perform daily backtesting var model ie comparing daily net revenues positions included var measure calculated prior business day firmwide level businesses major regulated subsidiaries stress testing stress testing method determining effect various hypothetical stress scenarios use stress testing examine risks specific portfolios well potential impact significant risk exposures use variety stress testing techniques calculate potential loss wide range market moves portfolios including firmwide stress tests sensitivity analysis scenario analysis results various stress tests analyzed together risk management purposes see “overview structure risk management” information firmwide stress tests sensitivity analysis used quantify impact market move single risk factor across positions eg equity prices credit spreads using variety defined market shocks ranging could expected oneday time horizon could take many months occur also use sensitivity analysis quantify impact default single entity captures risk large concentrated exposures scenario analysis used quantify impact specified event including event impacts multiple risk factors simultaneously example sovereign stress testing calculate potential direct exposure associated sovereign positions well corresponding debt equity currency exposures associated nonsovereign positions may impacted sovereign distress conducting scenario analysis often consider number possible outcomes scenario ranging moderate severely adverse market impacts addition stress tests constructed using historical events forwardlooking hypothetical scenarios unlike var measures implied probability calculated specified confidence level may implied probability stress testing scenarios occur instead stress testing used model moderate extreme moves underlying market factors estimating potential loss generally assume positions cannot reduced hedged although experience demonstrates generally able goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis limits use market risk limits various levels manage size market exposures limits set based var range stress tests relevant exposures see “overview structure risk management” information limit approval process market risk responsible monitoring limits identifying escalating senior management andor appropriate risk committee timely basis instances limits exceeded eg due positional changes market conditions increased volatilities changes correlations instances remediated reduction positions hold andor temporary permanent increase limit metrics analyze var firmwide level variety detailed levels including risk category business region diversification effect tables represents difference total var sum vars four risk categories effect arises four market risk categories perfectly correlated table presents average daily var average daily var increased 94 million 2020 56 million 2019 due increases equity prices interest rates currency rates commodity prices categories partially offset increase diversification effect overall increase primarily due higher levels volatility table presents periodend var periodend var increased 91 million december 2020 70 million december 2019 due increases interest rates equity prices currency rates commodity prices categories partially offset increase diversification effect overall increase primarily due increased exposures 2020 firmwide var risk limit exceeded 16 occasions occurred first half 2020 primarily due higher levels volatility permanent changes firmwide var risk limit period however temporary increases firmwide var risk limit result market environment 2019 firmwide var risk limit exceeded raised reduced table presents high low var chart presents daily var 2020 table presents number business days frequency distribution daily net revenues positions included var daily net revenues positions included var compared var calculated end prior business day net losses incurred single day positions exceeded 95 oneday var ie var exception two occasions 2020 exceed 95 oneday var 2019 goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis periods significantly positive net revenue days net revenue loss days expect fewer var exceptions normal conditions business model generally produces positive net revenues periods franchise revenues adversely affected generally loss days resulting var exceptions daily net revenues positions included var used determine var exceptions reflect impact intraday activity including bidoffer net revenues likely positive nature sensitivity measures certain portfolios individual positions included var appropriate risk measure sensitivity measures use analyze market risk described 10 sensitivity measures table presents market risk asset category positions accounted fair value included var table • market risk positions determined estimating potential reduction net revenues 10 decline value positions • equity positions relate private restricted public equity securities including interests funds invest corporate equities real estate interests hedge funds • debt positions include interests funds invest corporate mezzanine senior debt instruments loans backed commercial residential real estate corporate bank loans corporate debt including acquired portfolios distressed loans • funded equity debt positions included consolidated balance sheets investments loans see note 8 consolidated financial statements information investments note 9 consolidated financial statements information loans • measures reflect diversification effect across asset categories across market risk measures credit funding spread sensitivity derivatives financial liabilities var excludes impact changes counterparty credit spreads credit spreads unsecured funding spreads derivatives well changes credit spreads debt valuation adjustment financial liabilities fair value option elected estimated sensitivity one basis point increase credit spreads counterparty unsecured funding spreads derivatives including hedges loss 3 million december 2020 2 million december 2019 addition estimated sensitivity one basis point increase credit spreads financial liabilities fair value option elected gain 22 million december 2020 29 million december 2019 however actual net impact change credit spreads also affected liquidity duration convexity sensitivity linear changes yields financial liabilities fair value option elected well relative performance hedges undertaken interest rate sensitivity loans accounted amortized cost 9969 billion december 2020 8920 billion december 2019 substantially floating interest rates estimated sensitivity 100 basis point increase interest rates loans 737 million december 2020 681 million december 2019 additional interest income twelvemonth period take account potential impact increase costs fund loans see note 9 consolidated financial statements information loans accounted amortized cost market risk considerations make investments securities accounted availableforsale heldtomaturity equity method included investments consolidated balance sheets see note 8 consolidated financial statements information direct investments real estate accounted cost less accumulated depreciation see note 12 consolidated financial statements information assets goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis financial statement linkages market risk measures employ variety risk measures described respective sections monitor market risk across consolidated balance sheets consolidated statements earnings related gains losses positions included market making principal transactions interest income interest expense consolidated statements earnings debt valuation adjustment consolidated statements comprehensive income table presents certain assets liabilities consolidated balance sheets market risk measures used assess assets liabilities assets liabilities market risk measures collateralized agreements fair value var customer receivables fair value 10 sensitivity measures trading assets var credit spread sensitivity investments fair value var 10 sensitivity measures loans var 10 sensitivity measures interest rate sensitivity deposits fair value var credit spread sensitivity collateralized financings fair value var trading liabilities var credit spread sensitivity unsecured borrowings fair value var credit spread sensitivity credit risk management overview credit risk represents potential loss due default deterioration credit quality counterparty eg otc derivatives counterparty borrower issuer securities instruments hold exposure credit risk comes mostly client transactions otc derivatives loans lending commitments credit risk also comes cash placed banks securities financing transactions ie resale repurchase agreements securities borrowing lending activities customer receivables credit risk independent revenueproducing units reports chief risk officer primary responsibility assessing monitoring managing credit risk firmwide oversight across global businesses addition hold positions give rise credit risk eg bonds secondary bank loans credit risks captured component market risk measures monitored managed market risk also enter derivatives manage market risk exposures derivatives also give rise credit risk monitored managed credit risk credit risk management process managing credit risk includes critical components risk management framework described “overview structure risk management” well following • monitoring compliance established credit risk limits reporting credit exposures credit concentrations • establishing approving underwriting standards • assessing likelihood counterparty default payment obligations • measuring current potential credit exposure losses resulting counterparty default • using credit risk mitigants including collateral hedging • maximizing recovery active workout restructuring claims also perform credit reviews include initial ongoing analyses counterparties substantially credit exposures core process annual counterparty credit review credit review independent analysis capacity willingness counterparty meet financial obligations resulting internal credit rating determination internal credit ratings also incorporates assumptions respect nature outlook counterparty’s industry economic environment senior personnel expertise specific industries inspect approve credit reviews internal credit ratings risk assessment process may also include applicable reviewing certain key metrics including limited delinquency status collateral values fico credit scores risk factors goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis credit risk management systems capture credit exposure individual counterparties aggregate basis counterparties subsidiaries systems also provide management comprehensive information aggregate credit risk product internal credit rating industry country region risk measures measure credit risk based potential loss event nonpayment counterparty using current potential exposure derivatives securities financing transactions current exposure represents amount presently owed us taking account applicable netting collateral arrangements potential exposure represents estimate future exposure could arise life transaction based market movements within specified confidence level potential exposure also takes account netting collateral arrangements loans lending commitments primary measure function notional amount position stress tests conduct regular stress tests calculate credit exposures including potential concentrations would result applying shocks counterparty credit ratings credit risk factors eg currency rates interest rates equity prices shocks cover wide range moderate extreme market movements including shocks multiple risk factors consistent occurrence severe market economic event case sovereign default estimate direct impact default sovereign credit exposures changes credit exposures arising potential market moves response default impact credit market deterioration corporate borrowers counterparties may result sovereign default unlike potential exposure calculated within specified confidence level stress testing generally assume probability events occurring also perform firmwide stress tests see “overview structure risk management” information firmwide stress tests supplement regular stress tests described also conduct tailored stress tests ad hoc basis response specific market events deem significant also utilize stress tests estimate indirect impact certain hypothetical events country exposures impact credit market deterioration corporate borrowers counterparties along shocks risk factors described parameters shocks vary based scenario reflected stress test review estimated losses produced stress tests order understand magnitude highlight potential loss concentrations assess mitigate exposures necessary limits use credit risk limits various levels well underwriting standards manage size nature credit exposures limits industries countries based risk appetite designed allow regular monitoring review escalation management credit risk concentrations see “overview structure risk management” information limit approval process credit risk responsible monitoring limits identifying escalating senior management andor appropriate risk committee timely basis instances limits exceeded risk mitigants reduce credit exposures derivatives securities financing transactions may enter netting agreements counterparties permit us offset receivables payables counterparties may also reduce credit risk counterparties entering agreements enable us obtain collateral upfront contingent basis andor terminate transactions counterparty’s credit rating falls specified level monitor fair value collateral ensure credit exposures appropriately collateralized seek minimize exposures significant positive correlation creditworthiness counterparties market value collateral receive loans lending commitments depending credit quality borrower characteristics transaction employ variety potential risk mitigants risk mitigants include collateral provisions guarantees covenants structural seniority bank loan claims certain lending commitments provisions legal documentation allow us adjust loan amounts pricing structure terms market conditions change type structure risk mitigants employed significantly influence degree credit risk involved loan lending commitment sufficient visibility counterparty’s financial strength believe counterparty requires support parent may obtain thirdparty guarantees counterparty’s obligations may also mitigate credit risk using credit derivatives participation agreements goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis credit exposures december 2020 aggregate credit exposure increased compared december 2019 primarily reflecting increases cash deposits central banks otc derivatives percentage credit exposures arising noninvestmentgrade counterparties based internally determined public rating agency equivalents increased compared december 2019 primarily reflecting increase noninvestmentgrade credit exposure related otc derivatives loans lending commitments credit exposure counterparties defaulted 2020 higher compared credit exposure counterparties defaulted 2019 exposure primarily related loans lending commitments credit exposure counterparties defaulted 2020 remained low representing approximately 1 total credit exposure estimated losses associated defaults recognized earnings credit exposures described cash equivalents credit exposure cash equivalents arises unrestricted cash includes interestbearing noninterestbearing deposits mitigate risk credit loss place substantially deposits highly rated banks central banks table presents credit exposure unrestricted cash equivalents concentration industry region internally determined public rating agency equivalents table excludes cash segregated regulatory purposes 2452 billion december 2020 2278 billion december 2019 otc derivatives credit exposure otc derivatives arises primarily marketmaking activities market maker enter derivative transactions provide liquidity clients facilitate transfer hedging risks also enter derivatives manage market risk exposures manage credit exposure otc derivatives using credit risk process measures limits risk mitigants described generally enter otc derivatives transactions bilateral collateral arrangements require daily exchange collateral credit risk essential component fair value include credit valuation adjustment cva fair value derivatives reflect counterparty credit risk described note 7 consolidated financial statements cva function present value expected exposure probability counterparty default assumed recovery upon default table presents net credit exposure otc derivatives concentration industry region table • otc derivative assets included consolidated balance sheets reported netbycounterparty basis ie net receivable given counterparty legal right setoff exists enforceable netting agreement counterparty netting accounted fair value net cash collateral received enforceable credit support agreements cash collateral netting • collateral represents cash collateral fair value securities collateral primarily us nonus government agency obligations received credit support agreements consider determining credit risk collateral eligible netting us gaap goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis table presents distribution net credit exposure otc derivatives tenor table • tenor based remaining contractual maturity • netting includes counterparty netting across tenor categories collateral consider determining credit risk including collateral eligible netting us gaap counterparty netting within tenor category included within tenor category tables present distribution net credit exposure otc derivatives tenor internally determined public rating agency equivalents lending activities manage lending activities using credit risk process measures limits risk mitigants described lending positions including secondary trading positions riskmanaged component market risk fourth quarter 2020 conformed classification lending portfolio note 9 consolidated financial statements prior period amounts conformed current presentation table presents loans lending commitments goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis corporate loans lending commitments include term loans revolving lines credit letter credit facilities bridge loans principally used operating general corporate purposes connection acquisitions corporate loans may secured unsecured depending loan purpose risk profile borrower factors table presents credit exposure corporate loans lending commitments concentration industry region internally determined public rating agency equivalents credit metrics table credit exposure excludes 320 billion december 2020 410 billion december 2019 relating issued letters credit classified guarantees consolidated financial statements see note 18 consolidated financial statements information guarantees wealth management wealth management loans lending commitments extended private bank clients including wealth management clients loans used finance investments financial nonfinancial assets bridge cash flow timing gaps provide liquidity needs substantially loans secured securities residential real estate commercial real estate assets table presents credit exposure wealth management loans lending commitments concentration region internally determined public rating agency equivalents credit metrics table otherunrated loans primarily include loans backed residential real estate risk assessment process loans include reviewing certain key metrics loantovalue ratio delinquency status goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis commercial real estate commercial real estate loans lending commitments include originated loans lending commitments extended private bank clients directly indirectly secured hotels retail stores multifamily housing complexes commercial industrial properties commercial real estate loans lending commitments also includes loans lending commitments extended clients warehouse assets directly indirectly backed commercial real estate addition commercial real estate includes loans purchased us table presents credit exposure commercial real estate loans lending commitments concentration region internally determined public rating agency equivalents credit metrics table credit exposure includes loans lending commitments 788 billion december 2020 541 billion december 2019 extended clients warehouse assets directly indirectly backed commercial real estate addition also credit exposure certain commercial real estate loans held securitization 503 million december 2020 155 billion december 2019 loans included trading assets consolidated balance sheets residential real estate residential real estate loans lending commitments extended clients extended private bank clients warehouse assets directly indirectly secured residential real estate also includes loans purchased us table presents credit exposure residential real estate loans lending commitments concentration region internally determined public rating agency equivalents credit metrics table • credit exposure includes loans lending commitments 571 billion december 2020 417 billion december 2019 extended clients warehouse assets directly indirectly secured residential real estate • otherunrated primarily includes loans purchased us risk assessment process loans includes reviewing certain key metrics loantovalue ratio delinquency status collateral values expected cash flows risk factors addition also exposure residential real estate loans held securitization 557 billion december 2020 470 billion december 2019 loans included trading assets consolidated balance sheets goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis installment credit card lending originate unsecured installment loans credit card loans pursuant revolving lines credit consumers americas credit card lines cancellable us therefore result credit exposure table presents credit exposure originated installment credit card funded loans concentration five concentrated us states see note 9 consolidated financial statements information credit quality indicators installment credit card loans lending commitments extended clients warehouse assets directly indirectly secured consumer loans including auto loans private student loans also includes unsecured consumer credit card loans purchased us table presents credit exposure loans lending commitments concentration region internally determined public rating agency equivalents credit metrics table • credit exposure includes loans lending commitments extended clients warehouse assets 728 billion december 2020 609 billion december 2019 • otherunrated primarily includes consumer credit card loans purchased us risk assessment process loans includes reviewing certain key metrics expected cash flows delinquency status risk factors addition also exposure loans held securitization 420 million december 2020 347 million december 2019 loans included trading assets consolidated balance sheets credit hedges mitigate credit risk associated lending activities obtain credit protection certain loans lending commitments credit default swaps singlename indexbased contracts issuance creditlinked notes addition sumitomo mitsui financial group inc provides us credit loss protection certain approved loan commitments goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis securities financing transactions enter securities financing transactions order among things facilitate client activities invest excess cash acquire securities cover short positions finance certain activities bear credit risk related resale agreements securities borrowed extent cash advanced value securities pledged delivered counterparty exceeds value collateral received also credit exposure repurchase agreements securities loaned extent value securities pledged delivered counterparty transactions exceeds amount cash collateral received securities collateral transactions primarily includes us nonus government agency obligations table presents credit exposure securities financing transactions concentration industry region internally determined public rating agency equivalents table reflects netting agreements collateral consider determining credit risk credit exposures exposed credit risk receivables brokers dealers clearing organizations customers counterparties receivables brokers dealers clearing organizations primarily consist initial margin placed clearing organizations receivables related sales securities traded yet settled receivables generally minimal credit risk due low probability clearing organization default shortterm nature receivables related securities settlements receivables customers counterparties generally consist collateralized receivables related customer securities transactions generally minimal credit risk due value collateral received shortterm nature receivables table presents credit exposures concentration industry region internally determined public rating agency equivalents table reflects collateral consider determining credit risk selected exposures credit market exposures described heightened focus given recent events broad market concerns credit exposure represents potential loss due default deterioration credit quality counterparty borrower market exposure represents potential loss value long short positions due changes market prices goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis country exposures liquidity pressures prompted argentine government default restructure local foreign obligations 2020 economic challenges persist country still needs secure new financial terms imf december 2020 total credit exposure argentina 164 million nonsovereign counterparties borrowers primarily related loans lending commitments total market exposure argentina december 2020 material restructuring lebanon’s sovereign debt sharp currency depreciation led concerns financial political stability december 2020 total credit exposure lebanon 196 million related loans lending commitments nonsovereign borrowers total market exposure lebanon december 2020 material zambia’s sovereign debt default ongoing liquidity pressures aggravated covid19 pandemic led concerns zambia’s financial stability december 2020 total credit market exposure zambia material venezuela delayed payments sovereign debt political situation remains unclear december 2020 total credit market exposure venezuela material comprehensive framework monitor measure assess country exposures determine risk appetite determine country risk location counterparty issuer underlier’s assets generate revenue country headquartered jurisdiction claim could enforced andor government whose policies affect ability repay obligations monitor credit exposure specific country individual counterparty level well aggregate country level see “stress tests” information stress tests designed estimate direct indirect impact events involving countries industry exposures decline oil prices led market concerns regarding creditworthiness certain companies oil gas industry december 2020 credit exposure oil gas companies related loans lending commitments 1130 billion 298 billion loans 832 billion lending commitments exposure included 496 billion exposure noninvestmentgrade counterparties 211 billion related loans 285 billion related lending commitments 76 secured addition exposure clients oil gas industry arising derivatives december 2020 credit exposure related derivatives receivables oil gas companies 222 billion 455 million investmentgrade counterparties 177 billion noninvestmentgrade counterparties taking consideration benefit 800 million hedges net credit exposure 1272 billion december 2020 market exposure related oil gas companies 137 billion primarily investmentgrade issuers underliers exposure consisted 317 million related debt 171 billion related credit derivatives 24 million related equities sharp decline economic activity result covid19 pandemic resulted significant impact gaming lodging industry december 2020 credit exposure gaming lodging companies including hotel owners operators related loans lending commitments 214 billion 863 million loans 128 billion lending commitments exposure included 169 billion exposure noninvestmentgrade counterparties 709 million related loans 977 million related lending commitments 84 secured addition extend loans secured hotel properties december 2020 exposure related loans lending commitments 131 billion noninvestmentgrade counterparties addition exposure clients gaming lodging industry arising derivatives december 2020 credit exposure related derivatives receivables gaming lodging companies 232 million noninvestmentgrade counterparties december 2020 market exposure related gaming lodging companies 95 million primarily noninvestmentgrade issuers underliers exposure consisted 103 million related debt 175 million related credit derivatives 167 million related equities goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis concerns surrounding covid19 pandemic resulted sharp decline travel significantly impacted airline industry december 2020 credit exposure airline companies related loans lending commitments 154 billion 112 billion loans 416 million lending commitments noninvestmentgrade counterparties 84 secured addition exposure clients airline industry arising derivatives december 2020 credit exposure related derivatives receivables airline companies 401 million 152 million investmentgrade counterparties 249 million noninvestmentgrade counterparties taking consideration benefit 278 million hedges net credit exposure 166 billion december 2020 market exposure related airline companies 210 million substantially noninvestmentgrade issuers underliers exposure consisted 114 million related debt 307 million related credit derivatives 17 million related equities operational risk management overview operational risk adverse outcome resulting inadequate failed internal processes people systems external events exposure operational risk arises routine processing errors well extraordinary incidents major systems failures legal regulatory matters potential types loss events related internal external operational risk include • clients products business practices • execution delivery process management • business disruption system failures • employment practices workplace safety • damage physical assets • internal fraud • external fraud operational risk independent revenueproducing units reports chief risk officer primary responsibility developing implementing formalized framework assessing monitoring managing operational risk goal maintaining exposure operational risk levels within risk appetite operational risk management process managing operational risk includes critical components risk management framework described “overview structure risk management” including comprehensive data collection process well firmwide policies procedures operational risk events combine topdown bottomup approaches manage measure operational risk topdown perspective senior management assesses firmwide businesslevel operational risk profiles bottomup perspective first second lines defense responsible risk identification risk management daytoday basis including escalating operational risks senior management maintain comprehensive control framework designed provide wellcontrolled environment minimize operational risks firmwide operational risk resilience committee responsible overseeing operational risk ensuring business operational resilience operational risk management framework part designed comply operational risk measurement rules capital framework evolved based changing needs businesses regulatory guidance established policies require employees report escalate operational risk events operational risk events identified policies require events documented analyzed determine whether changes required systems andor processes mitigate risk future events use operational risk management applications capture organize operational risk event data key metrics one key risk identification assessment tools operational risk control selfassessment process performed managers process consists identification rating operational risks forwardlooking basis related controls results process analyzed evaluate operational risk exposures identify businesses activities products heightened levels operational risk goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis risk measurement measure operational risk exposure using statistical modeling scenario analyses involve qualitative quantitative assessments internal external operational risk event data internal control factors businesses operational risk measurement also incorporates assessment business environment factors including • evaluations complexity business activities • degree automation processes • new activity information • legal regulatory environment • changes markets products services including diversity sophistication customers counterparties results scenario analyses used monitor changes operational risk determine business lines may heightened exposure operational risk analyses used determination appropriate level operational risk capital hold also perform firmwide stress tests see “overview structure risk management” information firmwide stress tests types operational risks increased reliance technology thirdparty relationships resulted increased operational risks information cyber security risk thirdparty risk business resilience risk manage risks follows information cyber security risk information cyber security risk compromising confidentiality integrity availability data systems leading adverse impact us reputation clients andor broader financial system seek minimize occurrence impact unauthorized access disruption use information andor information systems deploy operate preventive detective controls processes mitigate emerging evolving information security cyber security threats including monitoring network known vulnerabilities signs unauthorized attempts access data systems increased information risk diversification data across external service providers including use variety cloudprovided hosted services applications see “risk factors” part item 1a form 10k information cyber security risk thirdparty risk thirdparty risk including vendor risk adverse impact due reliance third parties performing services activities behalf risks may include legal regulatory information security reputational operational risks inherent engaging third party identify manage report key thirdparty risks conduct due diligence across multiple risk domains including information security cyber security resilience additional thirdparty dependencies thirdparty risk program monitors reviews reassesses thirdparty risks ongoing basis see “risk factors” part item 1a form 10k information thirdparty risk business resilience risk business resilience risk disruption critical processes monitor threats assess risks seek ensure state readiness event significant operational disruption normal operations critical functions dependencies critical facilities systems third parties data andor personnel approach bcp lens business operational resilience framework defines fundamental principles bcp crisis management ensure critical functions continue operate event disruption business continuity program comprehensive consistent firmwide uptodate incorporating new information techniques technologies become available resilience recovery plans incorporate test specific measurable recovery time objectives accordance local market best practices regulatory requirements specific scenarios see “regulatory matters” information impact covid19 pandemic see “business continuity information security” part item 1 form 10k information business continuity goldman sachs 2020 form 10k goldman sachs group inc subsidiaries management’s discussion analysis model risk management overview model risk potential adverse consequences decisions made based model outputs may incorrect used inappropriately rely quantitative models across business activities primarily value certain financial assets liabilities monitor manage risk measure monitor regulatory capital model risk independent revenueproducing units model developers model owners model users reports chief risk officer primary responsibility assessing monitoring managing model risk firmwide oversight across global businesses provides periodic updates senior management risk committees risk committee board model risk management framework managed governance structure risk management controls encompass standards designed ensure maintain comprehensive model inventory including risk assessment classification sound model development practices independent review modelspecific usage controls firmwide model risk control committee oversees model risk management framework model review validation process model risk consists quantitative professionals perform independent review validation approval models review includes analysis model documentation independent testing assessment appropriateness methodology used verification compliance model development implementation standards regularly refine enhance models reflect changes market economic conditions business mix models reviewed annual basis new models significant changes existing models assumptions approved prior implementation model validation process incorporates review models trade risk parameters across broad range scenarios including extreme conditions order critically evaluate verify • model’s conceptual soundness including reasonableness model assumptions suitability intended use • testing strategy utilized model developers ensure models function intended • suitability calculation techniques incorporated model • model’s accuracy reflecting characteristics related product significant risks • model’s consistency models similar products • model’s sensitivity input parameters assumptions see “critical accounting policies fair value review valuation models” “liquidity risk management” “market risk management” “credit risk management” “operational risk management” information use models within areas goldman sachs 2020 form 10k goldman sachs group inc subsidiaries item 7aitem 7 management’s discussion analysis financial condition results operations management’s discussion analysis financial condition results operations set forth caption “management’s discussion analysis” pages 24 45 1999 annual report shareholders incorporated herein reference information read conjunction consolidated financial statements notes thereto incorporated reference item 8 annual report form 10k item 7ananitem 7 management’s discussion analysis financial condition results operations introduction goldman sachs group inc group inc parent company delaware corporation together consolidated subsidiaries collectively firm leading global investment banking securities investment management firm provides wide range financial services substantial diversified client base includes corporations financial institutions governments individuals founded 1869 firm headquartered new york maintains offices major financial centers around world report activities four business segments investment banking institutional client services investing lending investment management see “results operations” information business segments use terms “goldman sachs” “the firm” “we” “us” “our” mean group inc consolidated subsidiaries references “this form 10k” annual report form 10k year ended december 31 2016 references “the 2015 form 10k” annual report form 10k year ended december 31 2015 references “the consolidated financial statements” “supplemental financial information” part ii item 8 form 10k references 2016 2015 2014 refer years ended dates context requires december 31 2016 december 31 2015 december 31 2014 respectively reference future year refers year ending december 31 year certain reclassifications made previously reported amounts conform current presentation discussion analysis financial condition results operations included information may constitute “forwardlooking statements” within meaning safe harbor provisions us private securities litigation reform act 1995 forwardlooking statements historical facts instead represent beliefs regarding future events many nature inherently uncertain outside control statements include statements historical information statements current condition may relate future plans objectives results among things may also include statements effect changes capital leverage liquidity longterm debt total lossabsorbing capacity rules applicable banks bank holding companies impact us doddfrank wall street reform consumer protection act doddfrank act businesses operations various legal proceedings governmental investigations mortgagerelated contingencies set forth notes 27 18 respectively consolidated financial statements well statements results doddfrank act firm stress tests statements objectives effectiveness business continuity plan information security program risk management liquidity policies statements resolution plan resolution strategy implications debtholders stakeholders statements trends growth opportunities businesses statements future status activities reporting us nonus banking financial regulation statements possible effects uk referendum vote leave european union eu statements investment banking transaction backlog identifying statements manner alerting possibility actual results financial condition may differ possibly materially anticipated results financial condition indicated forwardlooking statements important factors could cause actual results financial condition differ indicated forwardlooking statements include among others described “risk factors” part item 1a form 10k “cautionary statement pursuant us private securities litigation reform act 1995” part item 1 form 10k goldman sachs group inc subsidiaries management’s discussion analysis executive overview 2016 versus 2015 generated net earnings 740 billion diluted earnings per common share 1629 2016 increase 22 34 respectively compared 608 billion 1214 per share 2015 return average common shareholders’ equity roe 94 2016 compared 74 2015 book value per common share 18247 december 2016 67 higher compared end 2015 net revenues 3061 billion 2016 9 lower 2015 due significantly lower net revenues investing lending lower net revenues investment banking institutional client services investment management results reflected impact challenging operating environment first half year particularly first quarter although environment improved second half year operating expenses 2030 billion 2016 19 lower 2015 primarily due significantly lower noncompensation expenses primarily reflecting significantly lower net provisions mortgagerelated litigation regulatory matters prior year included provisions settlement agreement residential mortgagebacked securities working group us financial fraud enforcement task force rmbs working group well lower market development expenses professional fees reflecting expense savings initiatives compensation benefits expenses also lower reflecting decrease net revenues impact expense savings initiatives continued maintain strong capital ratios liquidity returning 720 billion capital shareholders 2016 year repurchased 366 million shares common stock total cost 607 billion paid common stock dividends 113 billion common equity tier 1 ratio calculated accordance standardized approach basel iii advanced approach case reflecting applicable transitional provisions 145 131 respectively global core liquid assets 226 billion december 2016 see note 20 consolidated financial statements information capital ratios see “risk management liquidity risk management” information global core liquid assets context challenging environment first half 2016 completed initiative identified areas operate efficiently resulting reduction approximately 900 million annual run rate compensation 2016 net savings initiative severance related costs approximately 500 million 2015 versus 2014 generated net earnings 608 billion diluted earnings per common share 1214 2015 decrease 28 29 respectively compared 848 billion 1707 per share 2014 roe 74 2015 compared 112 2014 2015 recorded provisions settlement agreement rmbs working group 337 billion 299 billion aftertax reduced diluted earnings per common share 653 roe 38 percentage points see note 27 consolidated financial statements part ii item 8 2015 form 10k information book value per common share 17103 december 2015 49 higher compared end 2014 2015 repurchased 221 million shares common stock total cost 420 billion net revenues 3382 billion 2015 2 lower 2014 significantly lower net revenues investing lending largely offset higher net revenues investment banking slightly higher net revenues investment management net revenues institutional client services essentially unchanged compared 2014 operating expenses 2504 billion 2015 13 higher 2014 due significantly higher noncompensation expenses primarily reflecting significantly higher net provisions mortgagerelated litigation regulatory matters compensation benefits expenses essentially unchanged compared prior year december 2015 common equity tier 1 ratio calculated accordance standardized approach basel iii advanced approach case reflecting applicable transitional provisions 136 124 respectively addition global core liquid assets 199 billion december 2015 goldman sachs group inc subsidiaries management’s discussion analysis business environment global 2016 real gross domestic product gdp growth appeared slow advanced economies appeared mixed emerging market economies compared 2015 advanced economies growth lower us euro area uk japan emerging markets growth slowed china appeared slow india real gdp appeared contract less brazil russia 2015 monetary policy divergence continued 2016 us federal reserve increased target interest rate monetary policy remained accommodative europe japan june referendum passed uk exit eu november us held presidential election market reaction outcomes events generally positive expectations price crude oil wti increased 45 2016 fourth quarter opec members announced agreement reduce oil production investment banking industrywide mergers acquisitions activity remained strong 2016 declined compared level activity 2015 industrywide volumes equity underwriting declined compared strong 2015 industrywide debt underwriting volumes increased compared prior year united states us real gdp increased 16 2016 compared increase 26 2015 growth total fixed investment consumer expenditures declined measures consumer confidence mixed average compared prior year increased significantly fourth quarter unemployment rate declined 47 end 2016 labor market indicators suggest us economy close full employment housing starts sales prices increased compared 2015 measures inflation also increased us federal reserve raised target rate federal funds rate december meeting range 050 075 yield 10year us treasury note increased 18 basis points 2016 245 equity markets dow jones industrial average sp 500 index nasdaq composite index increased 13 10 8 respectively 2016 europe euro area real gdp increased 17 2016 compared increase 19 2015 growth consumer spending declined growth fixed investment government consumption increased measures inflation remained subdued prompting european central bank ecb announce multiple easing measures first quarter cutting deposit rate 10 basis points 040 lowering main refinancing operations rate 5 basis points 000 well launching new series targeted longerterm refinancing operations increasing volume monthly purchases bonds adding investment grade nonfinancial corporate bonds list bonds purchased asset purchase program december ecb announced extension asset purchase program least end 2017 although pace purchases lower euro depreciated 3 us dollar uk real gdp increased 18 2016 compared increase 22 2015 following passage uk referendum bank england announced monetary easing package comprised 25 basis points cut official bank rate £70 billion asset purchases term funding scheme british pound depreciated 16 us dollar 2016 reaching lowest level us dollar 30 years yields 10year government bonds region generally decreased year equity markets ftse 100 index dax index cac 40 index euro stoxx 50 index increased 14 7 5 1 respectively 2016 goldman sachs group inc subsidiaries management’s discussion analysis asia japan real gdp increased 10 2016 compared increase 12 2015 2016 bank japan introduced negative interest rate policy first quarter altered framework quantitative qualitative easing program third quarter shifting purchasing set quantities assets targeting 0 yield 10year japanese government bonds yield 10year japanese government bonds declined negative territory year us dollar depreciated 3 japanese yen nikkei 225 index ended year essentially unchanged china real gdp increased 67 2016 compared increase 69 2015 2016 people’s bank china announced cuts reserve requirement ratio measures inflation increased us dollar appreciated 7 chinese yuan equity markets shanghai composite index decreased 12 2016 hang seng index ended year essentially unchanged india real gdp appeared increase 68 2016 compared increase 72 2015 rate inflation essentially unchanged 2015 us dollar appreciated 3 indian rupee bse sensex index increased 2 2016 markets brazil real gdp appeared contract 34 2016 compared contraction 38 2015 us dollar depreciated 18 brazilian real bovespa index increased 39 russia real gdp appeared contract 02 2016 compared contraction 28 2015 us dollar depreciated 16 russian ruble micex index increased 27 2016 critical accounting policies fair value fair value hierarchy financial instruments owned fair value financial instruments sold yet purchased fair value ie inventory well certain financial assets financial liabilities reflected consolidated statements financial condition fair value ie markedtomarket related gains losses generally recognized consolidated statements earnings use fair value measure financial instruments fundamental risk management practices critical accounting policy fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date measure certain financial assets financial liabilities portfolio ie based net exposure market andor credit risks determining fair value hierarchy us generally accepted accounting principles us gaap gives highest priority unadjusted quoted prices active markets identical unrestricted assets liabilities level 1 inputs ii next priority inputs level 1 inputs observable either directly indirectly level 2 inputs iii lowest priority inputs cannot observed market activity level 3 inputs evaluating significance valuation input consider among factors portfolio’s net risk exposure input assets liabilities classified entirety based lowest level input significant fair value measurement fair values substantially financial assets financial liabilities based observable prices inputs classified levels 1 2 fair value hierarchy certain level 2 level 3 financial assets financial liabilities may require appropriate valuation adjustments market participant would require arrive fair value factors counterparty credit quality funding risk transfer restrictions liquidity bidoffer spreads goldman sachs group inc subsidiaries management’s discussion analysis instruments categorized within level 3 fair value hierarchy require one significant inputs observable december 2016 december 2015 level 3 financial assets represented 27 28 respectively total assets see notes 5 8 consolidated financial statements information level 3 financial assets including changes level 3 financial assets related fair value measurements absent evidence contrary instruments classified within level 3 fair value hierarchy initially valued transaction price considered best initial estimate fair value subsequent transaction date use methodologies determine fair value vary based type instrument estimating fair value level 3 financial instruments requires judgments made judgments include • determining appropriate valuation methodology andor model type level 3 financial instrument • determining model inputs based evaluation relevant empirical market data including prices evidenced market transactions interest rates credit spreads volatilities correlations • determining appropriate valuation adjustments including related illiquidity counterparty credit quality regardless methodology valuation inputs assumptions changed corroborated substantive evidence controls valuation financial instruments market makers investment professionals revenueproducing units responsible pricing financial instruments control infrastructure independent revenueproducing units fundamental ensuring financial instruments appropriately valued marketclearing levels event difference opinion situations estimating fair value financial instruments requires judgment eg calibration market comparables trade comparison described final valuation decision made senior managers control support functions independent price verification critical ensuring financial instruments properly valued price verification financial instruments fair value levels 1 2 3 fair value hierarchy subject independent price verification process objective price verification informed independent opinion regard valuation financial instruments review instruments one significant inputs cannot corroborated external market data classified within level 3 fair value hierarchy price verification strategies utilized independent control support functions include • trade comparison analysis trade data internal external available used determine relevant pricing inputs valuations • external price comparison valuations prices compared pricing data obtained third parties eg brokers dealers markit bloomberg idc trace data obtained various sources compared ensure consistency validity broker dealer quotations thirdparty pricing vendors used valuation price verification greater priority generally given executable quotations • calibration market comparables marketbased transactions used corroborate valuation positions similar characteristics risks components • relative value analyses marketbased transactions analyzed determine similarity measured terms risk liquidity return one instrument relative another given instrument one maturity relative another • collateral analyses margin calls derivatives analyzed determine implied values used corroborate valuations • execution trades appropriate trading desks instructed execute trades order provide evidence marketclearing levels • backtesting valuations corroborated comparison values realized upon sales see notes 5 8 consolidated financial statements information fair value measurements review net revenues independent control support functions ensure adherence pricing policy combination daily procedures including explanation attribution net revenues based underlying factors process independently validate net revenues identify resolve potential fair value trade booking issues timely basis seek ensure risks properly categorized quantified goldman sachs group inc subsidiaries management’s discussion analysis review valuation models independent model risk management group model risk management consisting quantitative professionals separate model developers performs independent model review validation process valuation models new changed models reviewed approved prior put use models evaluated reapproved annually assess impact changes product market developments pricing theories see “risk management model risk management” information review validation valuation models goodwill identifiable intangible assets goodwill cost acquired companies excess fair value net assets including identifiable intangible assets acquisition date goodwill assessed impairment annually fourth quarter frequently events occur circumstances change indicate impairment may exist first assessing qualitative factors determine whether likely fair value reporting unit less carrying amount results qualitative assessment conclusive quantitative goodwill test performed comparing estimated fair value reporting unit estimated net book value fourth quarter 2016 assessed goodwill impairment using qualitative assessment qualitative assessment required management make judgments evaluate several factors included limited performance indicators firm industry events macroeconomic indicators fair value indicators based evaluation factors determined likely fair value reporting units exceeded respective carrying amount notwithstanding results qualitative assessment since 2015 quantitative goodwill test determined estimated fair value fixed income currency commodities client execution reporting unit substantially excess carrying value also performed quantitative test reporting unit fourth quarter 2016 quantitative test estimated fair value fixed income currency commodities client execution reporting unit substantially exceeded carrying value therefore determined goodwill reporting units impaired estimating fair value reporting units requires management make judgments critical inputs fair value estimates include projected earnings attributed equity inherent uncertainty projected earnings net book value reporting unit reflects allocation total shareholders’ equity represents estimated amount total shareholders’ equity required support activities reporting unit currently applicable regulatory capital requirements see “equity capital management regulatory capital” information capital requirements experience prolonged severe period weakness business environment financial markets additional increases capital requirements goodwill could impaired future addition significant changes inputs quantitative goodwill test could cause estimated fair value reporting units decline could result impairment goodwill future see note 13 consolidated financial statements information goodwill identifiable intangible assets amortize identifiable intangible assets estimated useful lives generally using straightline method identifiable intangible assets tested impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable prolonged severe period market weakness significant changes regulation could adversely impact businesses impair value identifiable intangible assets addition certain events could indicate potential impairment identifiable intangible assets including weaker business performance resulting decrease customer base decreases revenues customer contracts relationships management judgment required evaluate whether indications potential impairment occurred test intangible assets impairment required impairment generally calculated difference estimated fair value carrying value asset group recognized total estimated undiscounted cash flows relating asset group less corresponding carrying value see note 13 consolidated financial statements information identifiable intangible assets goldman sachs group inc subsidiaries management’s discussion analysis recent accounting developments see note 3 consolidated financial statements information recent accounting developments use estimates use generally accepted accounting principles requires management make certain estimates assumptions addition estimates make connection fair value measurements accounting goodwill identifiable intangible assets use estimates assumptions also important determining provisions losses may arise litigation regulatory proceedings including governmental investigations tax audits allowance losses loans lending commitments held investment estimate provide potential losses may arise litigation regulatory proceedings extent losses probable reasonably estimated addition estimate upper end range reasonably possible aggregate loss excess related reserves litigation regulatory proceedings believe risk loss slight see notes 18 27 consolidated financial statements information certain judicial litigation regulatory proceedings significant judgment required making estimates final liabilities may ultimately materially different total estimated liability respect litigation regulatory proceedings determined casebycase basis represents estimate probable losses considering among factors progress case proceeding investigation experience others similar cases proceedings investigations opinions views legal counsel accounting income taxes recognize tax positions financial statements likely position sustained examination relevant taxing authority based technical merits position see note 24 consolidated financial statements information accounting income taxes also estimate record allowance credit losses related loans receivable lending commitments held investment management’s estimate loan losses entails judgment loan collectability reporting dates uncertainties inherent judgments see note 9 consolidated financial statements information allowance losses loans lending commitments held investment results operations composition net revenues varied time financial markets scope operations changed composition net revenues also vary shorter term due fluctuations us global economic market conditions see “risk factors” part item 1a form 10k information impact economic market conditions results operations financial overview table presents overview financial results selected financial ratios table • net earnings applicable common shareholders 2016 includes benefit 266 million reflected preferred stock dividends related exchange apex shares series e series f preferred stock 2016 see note 19 consolidated financial statements information • roe calculated dividing net earnings applicable common shareholders average monthly common shareholders’ equity table presents average common shareholders’ equity • return average total shareholders’ equity calculated dividing net earnings average monthly total shareholders’ equity • dividend payout ratio calculated dividing dividends declared per common share diluted earnings per common share goldman sachs group inc subsidiaries management’s discussion analysis net revenues table presents net revenues line item consolidated statements earnings table • investment banking comprised revenues excluding net interest financial advisory underwriting assignments well derivative transactions directly related assignments activities included investment banking segment • investment management comprised revenues excluding net interest providing investment management services diverse set clients well wealth advisory services certain transaction services highnetworth individuals families activities included investment management segment • commissions fees comprised revenues executing clearing client transactions major stock options futures exchanges worldwide well overthecounter otc transactions activities included institutional client services investment management segments • market making comprised revenues excluding net interest client execution activities related making markets interest rate products credit products mortgages currencies commodities equity products activities included institutional client services segment • principal transactions comprised revenues excluding net interest investing activities origination loans provide financing clients addition principal transactions includes revenues related consolidated investments activities included investing lending segment operating environment first quarter 2016 business activities negatively impacted challenging trends operating environment including concerns uncertainties global economic growth central bank activity well higher levels volatility contributed significant price pressure beginning year across equity fixed income markets factors negatively impacted investor conviction risk appetite marketmaking activities industrywide equity underwriting mergers acquisitions activity investment banking activities results principal transactions also reflected impact difficult market economic conditions start second quarter 2016 concerns global economic growth moderated conditions improved many businesses including rebound investment banking activities improved results principal transactions however later second quarter market became increasingly focused political uncertainty economic implications surrounding potential exit uk eu impacting marketmaking activities operating environment improved second half 2016 global equity markets steadily increased credit spreads tightened providing favorable backdrop business activities investment management activities assets supervision continued increase 2016 mix average assets supervision shifted slightly compared 2015 longterm assets supervision liquidity products trend macroeconomic concerns continues long term marketmaking activity levels investment banking activity levels assets supervision decline investors continue trend favoring assets supervision typically generate lower fees net revenues would likely negatively impacted see “segment operating results” information operating environment material trends uncertainties may impact results operations 2015 operating environment marketmaking activities positively impacted diverging central bank monetary policies us euro area first quarter increased volatility levels contributed strong client activity levels currencies interest rate products equity products however remainder 2015 concerns global growth uncertainty us federal reserve’s interest rate policy along lower global equity prices widening highyield credit spreads declining commodity prices contributed lower levels client activity particularly mortgages credit difficult marketmaking conditions goldman sachs group inc subsidiaries management’s discussion analysis operating environment investment banking activities 2015 reflected strong industrywide mergers acquisitions activity addition investment management reflected environment generally characterized strong client net inflows offset declines equity fixed income asset prices although principal transactions 2015 benefited favorable companyspecific events including sales initial public offerings financings decline global equity prices widening highyield credit spreads second half 2015 impacted results 2016 versus 2015 net revenues consolidated statements earnings 3061 billion 2016 9 lower 2015 reflecting impact challenging operating environment first half year particularly first quarter although environment improved second half year decrease net revenues primarily due significantly lower principal transactions revenues lower investment banking revenues net interest income investment management revenues addition commissions fees slightly lower results partially offset slightly higher marketmaking revenues noninterest revenues investment banking revenues consolidated statements earnings 627 billion 2016 11 lower compared strong 2015 revenues financial advisory lower compared strong 2015 reflecting decrease industrywide transactions revenues underwriting lower compared strong 2015 due significantly lower revenues equity underwriting reflecting decrease industrywide volumes revenues debt underwriting significantly higher reflecting significantly higher revenues assetbacked activity higher revenues leveraged finance activity investment management revenues consolidated statements earnings 541 billion 2016 8 lower 2015 primarily reflecting significantly lower incentive fees compared strong 2015 addition management fees slightly lower reflecting shifts mix client assets strategies partially offset impact higher average assets supervision commissions fees consolidated statements earnings 321 billion 2016 3 lower 2015 reflecting lower listed cash equity volumes asia europe consistent market volumes regions marketmaking revenues consolidated statements earnings 993 billion 2016 4 higher 2015 due significantly higher revenues interest rate products credit products results partially offset significantly lower revenues equity cash products lower revenues currencies mortgages equity derivative products commodities principal transactions revenues consolidated statements earnings 320 billion 2016 36 lower 2015 primarily due significantly lower revenues investments equities primarily reflecting significant decrease net gains private equities driven companyspecific events corporate performance addition revenues debt securities loans significantly lower compared 2015 reflecting significantly lower revenues related relationship lending activities due impact changes credit spreads economic hedges losses related hedges 596 million 2016 compared gains 329 million 2015 decrease partially offset higher net gains investments debt instruments see note 9 consolidated financial statements information economic hedges related relationship lending activities net interest income net interest income consolidated statements earnings 259 billion 2016 16 lower 2015 reflecting increase interest expense primarily due impact higher interest rates interestbearing liabilities interestbearing deposits collateralized financings increases total average longterm borrowings total average interestbearing deposits increase interest expense partially offset higher interest income related collateralized agreements reflecting impact higher interest rates loans receivable reflecting increase total average balances impact higher interest rates see “statistical disclosures distribution assets liabilities shareholders’ equity” information sources net interest income 2015 versus 2014 net revenues consolidated statements earnings 3382 billion 2015 2 lower 2014 reflecting significantly lower principal transactions revenues net interest income largely offset higher marketmaking revenues investment banking revenues well slightly higher investment management revenues commissions fees essentially unchanged compared 2014 goldman sachs group inc subsidiaries management’s discussion analysis noninterest revenues investment banking revenues consolidated statements earnings 703 billion 2015 9 higher 2014 due significantly higher revenues financial advisory reflecting strong client activity particularly us industrywide completed mergers acquisitions increased significantly compared prior year revenues underwriting lower compared strong 2014 revenues debt underwriting lower compared 2014 reflecting significantly lower leveraged finance activity revenues equity underwriting also lower reflecting significantly lower revenues initial public offerings convertible offerings partially offset significantly higher revenues secondary offerings investment management revenues consolidated statements earnings 587 billion 2015 2 higher 2014 due slightly higher management fees primarily reflecting higher average assets supervision higher transaction revenues commissions fees consolidated statements earnings 332 billion 2015 essentially unchanged compared 2014 marketmaking revenues consolidated statements earnings 952 billion 2015 14 higher 2014 excluding gain 289 million 2014 related extinguishment certain junior subordinated debt marketmaking revenues 18 higher 2014 reflecting significantly higher revenues interest rate products currencies equity cash products equity derivatives increases partially offset significantly lower revenues mortgages commodities credit products principal transactions revenues consolidated statements earnings 502 billion 2015 24 lower 2014 decrease primarily due lower revenues investments equities principally reflecting sale metro international trade services metro fourth quarter 2014 lower net gains investments private equities driven corporate performance addition revenues debt securities loans significantly lower reflecting lower net gains investments net interest income net interest income consolidated statements earnings 306 billion 2015 24 lower 2014 decrease compared 2014 due lower interest income resulting reduction interest income related financial instruments owned fair value partially offset impact increase total average loans receivable decrease interest income partially offset decrease interest expense primarily reflected lower interest expense related financial instruments sold yet purchased fair value interestbearing liabilities partially offset higher interest expense related longterm borrowings see “supplemental financial information statistical disclosures distribution assets liabilities shareholders’ equity” information sources net interest income operating expenses operating expenses primarily influenced compensation headcount levels business activity compensation benefits includes salaries discretionary compensation amortization equity awards items benefits discretionary compensation significantly impacted among factors level net revenues overall financial performance prevailing labor markets business mix structure sharebased compensation programs external environment addition see “use estimates” additional information expenses may arise litigation regulatory proceedings context challenging environment first half 2016 completed initiative identified areas operate efficiently resulting reduction approximately 900 million annual run rate compensation 2016 net savings initiative severance related costs approximately 500 million table presents operating expenses total staff includes employees consultants temporary staff goldman sachs group inc subsidiaries management’s discussion analysis table expenses 2015 includes provisions 337 billion recorded settlement agreement rmbs working group see note 27 consolidated financial statements part ii item 8 2015 form 10k information 2016 versus 2015 operating expenses consolidated statements earnings 2030 billion 2016 19 lower 2015 compensation benefits expenses consolidated statements earnings 1165 billion 2016 8 lower 2015 reflecting decrease net revenues impact expense savings initiatives ratio compensation benefits net revenues 2016 381 compared 375 2015 total staff decreased 7 2016 due expense savings initiatives noncompensation expenses consolidated statements earnings 866 billion 2016 30 lower 2015 primarily due significantly lower net provisions mortgagerelated litigation regulatory matters included expenses addition market development expenses professional fees lower compared 2015 reflecting expense savings initiatives net provisions litigation regulatory proceedings 2016 396 million compared 401 billion 2015 primarily related net provisions mortgagerelated matters 2016 included 114 million charitable contribution goldman sachs gives donoradvised fund compensation reduced fund charitable contribution goldman sachs gives ask participating managing directors make recommendations regarding potential charitable recipients contribution 2015 versus 2014 operating expenses consolidated statements earnings 2504 billion 2015 13 higher 2014 compensation benefits expenses consolidated statements earnings 1268 billion 2015 essentially unchanged compared 2014 ratio compensation benefits net revenues 2015 375 compared 368 2014 total staff increased 8 2015 primarily due activity levels certain businesses continued investment regulatory compliance noncompensation expenses consolidated statements earnings 1236 billion 2015 30 higher 2014 due significantly higher net provisions mortgagerelated litigation regulatory matters included expenses increase partially offset lower depreciation amortization expenses primarily reflecting lower impairment charges related consolidated investments reduction expenses related sale metro fourth quarter 2014 net provisions litigation regulatory proceedings 2015 401 billion compared 754 million 2014 primarily comprised net provisions mortgagerelated matters 2015 included 148 million charitable contribution goldman sachs gives donoradvised fund compensation reduced fund charitable contribution goldman sachs gives ask participating managing directors make recommendations regarding potential charitable recipients contribution provision taxes effective income tax rate 2016 282 307 2015 decline compared 2015 primarily due impact nondeductible provisions mortgagerelated litigation regulatory matters 2015 partially offset impact changes tax law deferred tax assets mix earnings increase related higher enacted tax rates impacting certain uk subsidiaries 2016 effective income tax rate 2015 307 314 2014 decline compared 2014 reflected reductions related change mix earnings impact changes tax law deferred tax assets settlements tax audits determination certain nonus earnings would permanently reinvested abroad increase related impact nondeductible provisions mortgagerelated litigation regulatory matters september 2016 uk government enacted budget reduce corporate income tax base rate 1 percentage point effective april 1 2020 2016 remeasured deferred income tax assets accordingly change material impact effective tax rate year ended december 2016 expect material impact future effective tax rate goldman sachs group inc subsidiaries management’s discussion analysis october 2016 us department treasury issued rules section 385 internal revenue code could circumstances recharacterize debt equity us federal income tax purposes rules contain exclusions applicable among things debt instruments issued regulated financial companies nonus subsidiaries certain us subsidiaries holder debt instrument included consolidated us tax return ordinary business transactions rules also contain exclusions applicable members regulated financial group subsidiaries held merchant banking authority grandfathered commodities complementary activities bank holding company act 1956 exceptions would exclude recharacterization substantially debt instruments issued us expect rules material impact financial condition results operations effective income tax rate cash flows segment operating results table presents net revenues operating expenses pretax earnings segments table • operating expenses includes provisions 337 billion recorded institutional client services 2015 settlement agreement rmbs working group see note 27 consolidated financial statements part ii item 8 2015 form 10k information • operating expenses allocated segments except charitable contributions 114 million 2016 148 million 2015 137 million 2014 net revenues segments include allocations interest income interest expense specific securities commodities positions relation cash generated funding requirements underlying positions see note 25 consolidated financial statements information business segments cost drivers taken whole compensation headcount levels business activity broadly similar business segments compensation benefits expenses within segments reflect among factors overall performance well performance individual businesses consequently pretax margins one segment business may significantly affected performance business segments description segment operating results follows investment banking investment banking segment comprised financial advisory includes strategic advisory assignments respect mergers acquisitions divestitures corporate defense activities restructurings spinoffs risk management derivative transactions directly related client advisory assignments underwriting includes public offerings private placements including local crossborder transactions acquisition financing wide range securities financial instruments including loans derivative transactions directly related client underwriting activities table presents operating results investment banking segment table presents financial advisory underwriting transaction volumes source thomson reuters goldman sachs group inc subsidiaries management’s discussion analysis table • announced completed mergers acquisitions volumes based full credit advisors transaction equity equityrelated offerings debt offerings based full credit single book managers equal credit joint book managers transaction volumes may indicative net revenues given period addition transaction volumes prior periods may vary amounts previously reported due subsequent withdrawal change value transaction • equity equityrelated offerings includes rule 144a public common stock offerings convertible offerings rights offerings • debt offerings includes nonconvertible preferred stock mortgagebacked securities assetbacked securities taxable municipal debt includes publicly registered rule 144a issues excludes leveraged loans operating environment mergers acquisitions industrywide completed activity remained strong 2016 industrywide announced activity continued robust year declined industry compared level activity 2015 underwriting industrywide equity underwriting volumes decreased significantly compared 2015 due continued weak backdrop new issuances compares strong activity levels 2015 benefited favorable equity market conditions first half year industrywide debt underwriting volumes 2016 increased compared 2015 future industrywide activity levels mergers acquisitions equity underwriting continue downward trend industrywide activity levels debt underwriting decline net revenues investment banking would likely continue negatively impacted 2015 investment banking operated environment characterized strong industrywide mergers acquisitions activity industrywide activity debt equity underwriting declined compared 2014 2016 versus 2015 net revenues investment banking 627 billion 2016 11 lower compared strong 2015 net revenues financial advisory 293 billion 16 lower compared strong 2015 reflecting decrease industrywide transactions net revenues underwriting 334 billion 6 lower compared strong 2015 due significantly lower net revenues equity underwriting reflecting decrease industrywide volumes net revenues debt underwriting significantly higher reflecting significantly higher net revenues assetbacked activity higher net revenues leveraged finance activity operating expenses 344 billion 2016 7 lower 2015 due decreased compensation benefits expenses reflecting lower net revenues pretax earnings 284 billion 2016 14 lower 2015 december 2016 investment banking transaction backlog lower compared strong level backlog end 2015 primarily due lower estimated net revenues potential advisory transactions significantly lower estimated net revenues potential debt underwriting transactions principally reflecting decreases mergers acquisitions activity acquisitionrelated financing respectively estimated net revenues potential equity underwriting transactions slightly lower compared end 2015 investment banking transaction backlog represents estimate future net revenues investment banking transactions believe future revenue realization likely believe changes investment banking transaction backlog may useful indicator client activity levels long term impact net revenues however time frame completion corresponding revenue recognition transactions backlog varies based nature assignment certain transactions may remain backlog longer periods time others may enter leave within reporting period addition transaction backlog subject certain limitations assumptions likelihood individual client transactions occur future transactions may cancelled modified transactions included estimate may also occur 2015 versus 2014 net revenues investment banking 703 billion 2015 9 higher 2014 net revenues financial advisory 347 billion 40 higher 2014 reflecting strong client activity particularly us industrywide completed mergers acquisitions increased significantly compared prior year net revenues underwriting 356 billion 11 lower compared strong 2014 net revenues debt underwriting lower compared 2014 reflecting significantly lower leveraged finance activity net revenues equity underwriting also lower reflecting significantly lower net revenues initial public offerings convertible offerings partially offset significantly higher net revenues secondary offerings operating expenses 371 billion 2015 essentially unchanged compared 2014 pretax earnings 331 billion 2015 19 higher 2014 goldman sachs group inc subsidiaries management’s discussion analysis december 2015 investment banking transaction backlog higher compared end 2014 primarily due significantly higher estimated net revenues potential debt underwriting transactions principally related leveraged finance transactions higher estimated net revenues potential advisory transactions reflecting continued high level mergers acquisitions activity estimated net revenues potential equity underwriting transactions slightly higher compared end 2014 institutional client services institutional client services segment comprised fixed income currency commodities client execution includes client execution activities related making markets cash derivative instruments interest rate products credit products mortgages currencies commodities • interest rate products government bonds including inflationlinked securities across maturities governmentbacked securities repurchase agreements interest rate swaps options derivatives • credit products investmentgrade corporate securities highyield securities credit derivatives exchangetraded funds bank bridge loans municipal securities emerging market distressed debt trade claims • mortgages commercial mortgagerelated securities loans derivatives residential mortgagerelated securities loans derivatives including us government agencyissued collateralized mortgage obligations securities loans assetbacked securities loans derivatives • currencies currency options spotforwards derivatives g10 currencies emergingmarket products • commodities commodity derivatives lesser extent physical commodities involving crude oil petroleum products natural gas base precious metals electricity coal agricultural commodity products equities includes client execution activities related making markets equity products commissions fees executing clearing institutional client transactions major stock options futures exchanges worldwide well otc transactions equities also includes securities services business provides financing securities lending prime brokerage services institutional clients including hedge funds mutual funds pension funds foundations generates revenues primarily form interest rate spreads fees market maker facilitate transactions liquid less liquid markets primarily institutional clients corporations financial institutions investment funds governments assist clients meeting investment objectives managing risks role seek earn difference price market participant willing sell instrument us price another market participant willing buy us vice versa ie bidoffer spread addition maintain inventory typically short period time response anticipation client demand also hold inventory actively manage risk exposures arise marketmaking activities marketmaking inventory recorded financial instruments owned fair value long positions financial instruments sold yet purchased fair value short positions consolidated statements financial condition results influenced combination interconnected drivers including client activity levels transactional bidoffer spreads collectively client activity ii changes fair value inventory interest income interest expense related holding hedging funding inventory collectively marketmaking inventory changes due integrated nature marketmaking activities disaggregation net revenues client activity marketmaking inventory changes judgmental inherent complexities limitations amount composition net revenues vary time drivers impacted multiple interrelated factors affecting economic market conditions including volatility liquidity market changes interest rates currency exchange rates credit spreads equity prices commodity prices investor confidence macroeconomic concerns uncertainties general assuming marketmaking conditions remain constant increases client activity levels bidoffer spreads tend result increases net revenues decreases tend opposite effect however changes marketmaking conditions materially impact client activity levels bidoffer spreads well fair value inventory example decrease liquidity market could impact increasing bidoffer spread ii decreasing investor confidence thereby decreasing client activity levels iii wider credit spreads inventory positions goldman sachs group inc subsidiaries management’s discussion analysis table presents operating results institutional client services segment table presents net revenues institutional client services segment line item consolidated statements earnings see “net revenues” information marketmaking revenues commissions fees net interest income table • difference commissions fees consolidated statements earnings represents commissions fees included investment management segment • see note 25 consolidated financial statements net interest income business segment • primary driver net revenues fixed income currency commodities client execution periods table attributable client activity operating environment challenging trends operating environment institutional client services existed throughout second half 2015 continued first quarter 2016 including concerns uncertainties global economic growth central bank activity concerns contributed significant price pressure across equity fixed income markets volatility peaked february vix reaching 28 global equity markets materially declined first half first quarter dow jones industrial average shanghai composite index nikkei 225 index 10 25 21 respectively lowest points credit spreads highyield issuers widened 100 basis points early first quarter driven energy sector oil natural gas prices continued downward trend began middle 2015 reaching low 26 per barrel wti 164 per million british thermal units respectively concerns global economic growth moderated beginning second quarter however market became increasingly focused political uncertainty economic implications surrounding potential exit uk eu response “leave vote” msci world index declined 7 two days volumes generally spiked largely reversed shortly thereafter addition nikkei 225 index shanghai composite index 18 17 respectively first half 2016 challenging environment including low interest rates impacted client sentiment risk appetite marketmaking conditions remained difficult second half 2016 operating environment improved global equity markets steadily increased msci world index 6 sp 500 index 7 period addition equity markets asia generally rebounded nikkei 225 index 23 shanghai composite index 6 average volatility equity markets lower second half 2016 compared beginning year credit commodity markets us investment grade highyield credit spreads tightened nearly 40 basis points 150 basis points respectively second half 2016 oil natural gas prices increased approximately 54 per barrel wti 372 per million british thermal units respectively trends drove improved client sentiment marketmaking conditions second half 2016 trend macroeconomic concerns continues long term activity levels decline net revenues institutional client services would likely continue negatively impacted see “business environment” information economic market conditions global operating environment year goldman sachs group inc subsidiaries management’s discussion analysis 2015 operating environment institutional client services positively impacted diverging central bank monetary policies us euro area first quarter increased volatility levels contributed strong client activity levels currencies interest rate products equity products marketmaking conditions improved however remainder 2015 concerns global growth uncertainty us federal reserve’s interest rate policy along lower global equity prices widening highyield credit spreads declining commodity prices contributed lower levels client activity particularly mortgages credit difficult marketmaking conditions 2016 versus 2015 net revenues institutional client services 1447 billion 2016 5 lower 2015 net revenues fixed income currency commodities client execution 756 billion 2016 3 higher 2015 increase primarily driven impact changes marketmaking conditions inventory following provides details fixed income currency commodities client execution net revenues business compared 2015 results • net revenues credit products significantly higher reflecting improved marketmaking conditions including generally tighter spreads higher client activity levels compared low activity 2015 • net revenues interest rate products higher reflecting higher client activity levels • net revenues mortgages significantly lower reflecting less favorable marketmaking conditions including generally wider spreads • net revenues currencies lower reflecting less favorable marketmaking conditions emerging markets products compared 2015 included strong first quarter 2015 • net revenues commodities lower reflecting significantly lower client activity net revenues equities 691 billion 12 lower 2015 primarily due significantly lower net revenues equities client execution reflecting significantly lower net revenues cash products primarily asia well lower net revenues derivatives commissions fees slightly lower reflecting lower listed cash equity volumes asia europe consistent market volumes regions net revenues securities services essentially unchanged compared 2015 elect fair value option certain unsecured borrowings 2015 fair value net gain attributable impact changes credit spreads borrowings 255 million 214 million 41 million related fixed income currency commodities client execution equities client execution respectively 2016 adopted requirement asu 201601 present separately gains losses comprehensive income amount included accumulated comprehensive loss 2016 loss 844 million 544 million net tax see note 3 consolidated financial statements information asu 201601 operating expenses 971 billion 2016 30 lower 2015 primarily due significantly lower net provisions mortgagerelated litigation regulatory matters decreased compensation benefits expenses reflecting lower net revenues pretax earnings 475 billion 2016 compared 121 billion 2015 versus 2014 net revenues institutional client services 1515 billion 2015 essentially unchanged compared 2014 net revenues fixed income currency commodities client execution 732 billion 2015 13 lower 2014 excluding gain 168 million 2014 related extinguishment certain junior subordinated debt net revenues fixed income currency commodities client execution 12 lower 2014 decrease primarily driven impact changes marketmaking conditions inventory following provides details fixed income currency commodities client execution net revenues business compared 2014 results • net revenues mortgages credit products significantly lower reflecting challenging marketmaking conditions generally low levels activity 2015 • net revenues commodities significantly lower primarily reflecting less favorable marketmaking conditions compared 2014 included strong first quarter 2014 • net revenues interest rate products currencies significantly higher reflecting higher volatility levels contributed higher client activity levels particularly first quarter 2015 goldman sachs group inc subsidiaries management’s discussion analysis net revenues equities 783 billion 2015 16 higher 2014 excluding gain 121 million 30 million 91 million included equities client execution securities services respectively 2014 related extinguishment certain junior subordinated debt net revenues equities 18 higher 2014 primarily due significantly higher net revenues equities client execution across major regions reflecting significantly higher results derivatives cash products higher net revenues securities services reflecting impact higher average customer balances improved securities lending spreads commissions fees essentially unchanged compared 2014 elect fair value option certain unsecured borrowings fair value net gain attributable impact changes credit spreads borrowings 255 million 214 million 41 million related fixed income currency commodities client execution equities client execution respectively 2015 compared net gain 144 million 108 million 36 million related fixed income currency commodities client execution equities client execution respectively 2014 operating expenses 1394 billion 2015 28 higher 2014 due significantly higher net provisions mortgagerelated litigation regulatory matters partially offset decreased compensation benefits expenses pretax earnings 121 billion 2015 72 lower 2014 investing lending investing lending includes investing activities origination loans including relationship lending activities provide financing clients investments loans typically longerterm nature make investments consolidated directly indirectly funds manage debt securities loans public private equity securities infrastructure real estate entities also make unsecured loans individuals online platform table presents operating results investing lending segment operating environment following difficult market conditions impact challenging macroeconomic environment corporate performance particularly energy sector first quarter 2016 market conditions improved rest year macroeconomic concerns moderated global equity markets increased 2016 contributing net gains investments public equities corporate performance rebounded difficult start year macroeconomic concerns negatively affect corporate performance companyspecific events global equity markets decline net revenues investing lending would likely negatively impacted although net revenues investing lending 2015 benefited favorable companyspecific events including sales initial public offerings financings decline global equity prices widening highyield credit spreads second half 2015 impacted results 2016 versus 2015 net revenues investing lending 408 billion 2016 25 lower 2015 decrease primarily due significantly lower net revenues investments equities primarily reflecting significant decrease net gains private equities driven companyspecific events corporate performance addition net revenues debt securities loans lower compared 2015 reflecting significantly lower net revenues related relationship lending activities due impact changes credit spreads economic hedges losses related hedges 596 million 2016 compared gains 329 million 2015 decrease partially offset higher net gains investments debt instruments higher net interest income see note 9 consolidated financial statements information economic hedges related relationship lending activities operating expenses 239 billion 2016 essentially unchanged compared 2015 pretax earnings 169 billion 2016 44 lower 2015 versus 2014 net revenues investing lending 544 billion 2015 20 lower 2014 decrease primarily due lower net revenues investments equities principally reflecting sale metro fourth quarter 2014 lower net gains investments private equities driven corporate performance addition net revenues debt securities loans significantly lower reflecting lower net gains investments goldman sachs group inc subsidiaries management’s discussion analysis operating expenses 240 billion 2015 15 lower 2014 due lower depreciation amortization expenses primarily reflecting lower impairment charges related consolidated investments reduction expenses related sale metro fourth quarter 2014 pretax earnings 303 billion 2015 24 lower 2014 investment management investment management provides investment management services offers investment products primarily separately managed accounts commingled vehicles mutual funds private investment funds across major asset classes diverse set institutional individual clients investment management also offers wealth advisory services including portfolio management financial counseling brokerage transaction services highnetworth individuals families assets supervision aus include client assets earn fee managing assets discretionary basis includes net assets mutual funds hedge funds credit funds private equity funds including real estate funds separately managed accounts institutional individual investors assets supervision also include client assets invested thirdparty managers bank deposits advisory relationships earn fee advisory services investment discretion assets supervision include selfdirected brokerage assets clients longterm assets supervision represent assets supervision excluding liquidity products liquidity products represent money market bank deposit assets supervision typically generate fees percentage net asset value vary asset class distribution channel affected investment performance well asset inflows redemptions asset classes alternative investment equity assets typically generate higher fees relative fixed income liquidity product assets average effective management fee excludes nonassetbased fees earned assets supervision 35 basis points 2016 39 basis points 2015 40 basis points 2014 decreases reflected shifts mix client assets strategies certain circumstances also entitled receive incentive fees based percentage fund’s separately managed account’s return exceeds specified benchmark performance targets incentive fees recognized material contingencies resolved table presents operating results investment management segment tables present periodend assets supervision asset class distribution channel table alternative investments primarily includes hedge funds credit funds private equity real estate currencies commodities asset allocation strategies table presents summary changes assets supervision table • total longterm aus net inflowsoutflows 2015 includes 18 billion fixed income equity alternative investments asset inflows connection acquisition pacific global advisors’ solutions business goldman sachs group inc subsidiaries management’s discussion analysis • total aus net inflowsoutflows 2014 includes 19 billion fixed income asset inflows connection acquisition deutsche asset wealth management’s stable value business 6 billion liquidity products inflows connection acquisition rbs asset management’s money market funds table presents average monthly assets supervision asset class operating environment following challenging first quarter 2016 market conditions continued improve higher asset prices resulting full year appreciation client assets equity fixed income assets also assets supervision increased 2016 net inflows primarily fixed income assets liquidity products mix average assets supervision shifted slightly compared 2015 longterm assets supervision liquidity products management fees impacted many factors including inflows advisory services outflows activelymanaged mutual funds future asset prices decline investors continue trend favoring assets typically generate lower fees investors withdraw assets net revenues investment management would likely negatively impacted 2015 investment management operated environment generally characterized strong client net inflows offset declines equity fixed income asset prices resulted depreciation value client assets particularly third quarter 2015 mix average assets supervision shifted slightly longterm assets supervision liquidity products compared 2014 2016 versus 2015 net revenues investment management 579 billion 2016 7 lower 2015 decrease primarily reflected significantly lower incentive fees compared strong 2015 addition management fees slightly lower reflecting shifts mix client assets strategies partially offset impact higher average assets supervision year total assets supervision increased 127 billion 138 trillion longterm assets supervision increased 75 billion including net inflows 42 billion primarily fixed income assets net market appreciation 33 billion primarily equity fixed income assets addition liquidity products increased 52 billion operating expenses 465 billion 2016 4 lower 2015 due decreased compensation benefits expenses reflecting lower net revenues pretax earnings 113 billion 2016 17 lower 2015 versus 2014 net revenues investment management 621 billion 2015 3 higher 2014 due slightly higher management fees primarily reflecting higher average assets supervision higher transaction revenues 2015 total assets supervision increased 74 billion 125 trillion longterm assets supervision increased 51 billion including net inflows 71 billion includes 18 billion asset inflows connection acquisition pacific global advisors’ solutions business net market depreciation 20 billion primarily fixed income equity assets addition liquidity products increased 23 billion operating expenses 484 billion 2015 4 higher 2014 due increased compensation benefits expenses reflecting higher net revenues pretax earnings 137 billion 2015 2 lower 2014 geographic data see note 25 consolidated financial statements summary total net revenues pretax earnings net earnings geographic region goldman sachs group inc subsidiaries management’s discussion analysis balance sheet funding sources balance sheet management one risk management disciplines ability manage size composition balance sheet asset base changes due client activity market fluctuations business opportunities size composition balance sheet also reflects factors including overall risk tolerance ii amount equity capital hold iii funding profile among factors see “equity capital management regulatory capital equity capital management” information equity capital management process although balance sheet fluctuates daytoday basis total assets quarterend yearend dates generally materially different occurring within reporting periods order ensure appropriate risk management seek maintain sufficiently liquid balance sheet processes place dynamically manage assets liabilities include balance sheet planning ii businessspecific limits iii monitoring key metrics iv scenario analyses balance sheet planning prepare balance sheet plan combines projected total assets composition assets expected funding sources oneyear time horizon plan reviewed semiannually may adjusted response changing business needs market conditions objectives planning process • develop balance sheet projections taking account general state financial markets expected business activity levels well regulatory requirements • allow business risk managers independent control support functions objectively evaluate balance sheet limit requests business managers context overall balance sheet constraints including liability profile equity capital levels key metrics • inform target amount tenor type funding raise based projected assets contractual maturities business risk managers independent control support functions meet business managers review current prior period information discuss expectations year prepare balance sheet plan specific information reviewed includes asset liability size composition limit utilization risk performance measures capital usage consolidated balance sheet plan including balance sheets business funding projections projected key metrics reviewed approved firmwide finance committee see “overview structure risk management” overview risk management structure businessspecific limits firmwide finance committee sets asset liability limits business limits set levels close actual operating levels rather levels reflect maximum risk appetite order ensure prompt escalation discussion among business managers independent control support functions routine basis firmwide finance committee reviews approves balance sheet limits semiannual basis may also approve changes limits frequent basis response changing business needs market conditions addition risk governance committee sets aged inventory limits certain financial instruments disincentive hold inventory longer periods time requests changes limits evaluated giving consideration impact key firm metrics compliance limits monitored daily basis business risk managers well managers independent control support functions monitoring key metrics monitor key balance sheet metrics daily business consolidated basis including asset liability size composition limit utilization risk measures allocate assets businesses review analyze movements resulting new business activity well market fluctuations goldman sachs group inc subsidiaries management’s discussion analysis scenario analyses conduct various scenario analyses including part comprehensive capital analysis review ccar doddfrank act stress tests dfast well resolution recovery planning see “equity capital management regulatory capital equity capital management” information scenario analyses scenarios cover shortterm longterm time horizons using various macroeconomic firmspecific assumptions based range economic scenarios use analyses assist us developing longerterm balance sheet management strategy including level composition assets funding equity capital additionally analyses help us develop approaches maintaining appropriate funding liquidity capital across variety situations including severely stressed environment balance sheet allocation addition preparing consolidated statements financial condition accordance us gaap prepare balance sheet generally allocates assets businesses nongaap presentation may comparable similar nongaap presentations used companies believe presenting assets basis meaningful consistent way management views manages risks associated assets better enables investors assess liquidity assets table presents balance sheet allocation following description captions table • global core liquid assets cash maintain liquidity meet broad range potential cash outflows collateral needs stressed environment see “liquidity risk management” details composition sizing “global core liquid assets” gcla addition gcla maintain unrestricted operating cash balances primarily use specific currencies entities jurisdictions immediate access parent company liquidity • secured client financing provide collateralized financing client positions including margin loans secured client collateral securities borrowed resale agreements primarily collateralized government obligations segregate cash securities regulatory purposes related client activity securities segregated inventory well collateral obtained securities borrowed resale agreements secured client financing arrangements generally shortterm accounted fair value amounts approximate fair value include daily margin requirements mitigate counterparty credit risk • institutional client services institutional client services maintain inventory positions facilitate market making fixed income equity currency commodity products additionally part marketmaking activities enter resale securities borrowing arrangements obtain securities use inventory cover transactions clients sold securities yet purchased receivables institutional client services primarily relate securities transactions • investing lending investing lending make investments originate loans provide financing clients investments loans typically longerterm nature make investments directly indirectly funds manage debt securities loans public private equity securities infrastructure real estate entities investments also make unsecured loans individuals online platform debt includes 1423 billion 1729 billion december 2016 december 2015 respectively direct loans primarily extended corporate private wealth management clients accounted fair value loans receivable comprised loans held investment accounted amortized cost net allowance loan losses see note 9 consolidated financial statements information loans receivable goldman sachs group inc subsidiaries management’s discussion analysis • assets generally less liquid nonfinancial assets including property leasehold improvements equipment goodwill identifiable intangible assets income taxrelated receivables equitymethod investments assets classified held sale miscellaneous receivables table presents reconciliation balance sheet allocation us gaap balance sheet table • total assets institutional client services investing lending represent inventory related assets amounts differ total assets business segment disclosed note 25 consolidated financial statements total assets disclosed note 25 include allocations gcla cash secured client financing assets • see “balance sheet analysis metrics” explanations changes balance sheet december 2015 december 2016 balance sheet analysis metrics december 2016 total assets consolidated statements financial condition 86017 billion essentially unchanged december 2015 reflecting increase cash equivalents 2827 billion offset decrease financial instruments owned fair value 1755 billion net decrease collateralized agreements 1042 billion increase cash equivalents primarily due increase deposits reflecting acquisition ge capital bank’s online deposit platform decrease financial instruments owned fair value primarily reflected decreases us government federal agency obligations equities convertible debentures money market instruments related marketmaking activity net decrease collateralized agreements reflected impact firm client activity december 2016 total liabilities consolidated statements financial condition 77327 billion essentially unchanged december 2015 reflecting increases deposits 2658 billion unsecured longterm borrowings 1366 billion offset decreases payables customers counterparties 2089 billion securities sold agreements repurchase fair value 1425 billion liabilities accrued expenses 453 billion increase deposits reflected acquisition ge capital bank’s online deposit platform increase unsecured longterm borrowings due net new issuances decrease payables customers counterparties reflected changes client activity decrease securities sold agreements repurchase fair value reflected impact firm client activity decrease liabilities accrued expenses primarily reflected payments related settlement agreement rmbs working group december 2016 total securities sold agreements repurchase accounted collateralized financings 7182 billion 5 lower 9 lower daily average amount repurchase agreements quarter ended year ended december 2016 respectively decrease repurchase agreements relative daily average 2016 resulted impact firm client activity end year goldman sachs group inc subsidiaries management’s discussion analysis december 2015 total securities sold agreements repurchase accounted collateralized financings 8607 billion 3 higher daily average amount repurchase agreements quarter ended year ended december 2015 increase repurchase agreements relative daily average 2015 resulted increase firm financing client activity end year level repurchase agreements fluctuates within periods primarily due providing clients access highly liquid collateral us government federal agency investmentgrade sovereign obligations collateralized financing activities table presents information assets unsecured longterm borrowings shareholders’ equity leverage ratios table • leverage ratio equals total assets divided total shareholders’ equity measures proportion equity debt use finance assets ratio different tier 1 leverage ratio included note 20 consolidated financial statements • debt equity ratio equals unsecured longterm borrowings divided total shareholders’ equity table presents information shareholders’ equity book value per common share including reconciliation total shareholders’ equity tangible common shareholders’ equity table • tangible common shareholders’ equity equals total shareholders’ equity less preferred stock goodwill identifiable intangible assets believe tangible common shareholders’ equity meaningful measure investors use assess capital adequacy tangible common shareholders’ equity nongaap measure may comparable similar nongaap measures used companies • book value per common share tangible book value per common share based common shares outstanding restricted stock units granted employees future service requirements collectively basic shares 4148 million 4416 million december 2016 december 2015 respectively believe tangible book value per common share tangible common shareholders’ equity divided basic shares meaningful measure investors use assess capital adequacy tangible book value per common share nongaap measure may comparable similar nongaap measures used companies funding sources primary sources funding secured financings unsecured longterm shortterm borrowings deposits seek maintain broad diversified funding sources globally across products programs markets currencies creditors avoid funding concentrations raise funding number different products including • collateralized financings repurchase agreements securities loaned secured financings • longterm unsecured debt including structured notes syndicated us registered offerings us registered rule 144a mediumterm note programs offshore mediumterm note offerings debt offerings • savings demand time deposits internal thirdparty brokerdealers well retail institutional customers • shortterm unsecured debt subsidiary level us nonus hybrid financial instruments methods goldman sachs group inc subsidiaries management’s discussion analysis funding primarily raised us dollar euro british pound japanese yen generally distribute funding products sales force thirdparty distributors large diverse creditor base variety markets americas europe asia believe relationships creditors critical liquidity creditors include banks governments securities lenders pension funds insurance companies mutual funds individuals imposed various internal guidelines monitor creditor concentration across funding programs secured funding fund significant amount inventory secured basis including repurchase agreements securities loaned secured financings december 2016 december 2015 secured funding included “collateralized financings” consolidated statements financial condition 10086 billion 11444 billion respectively may also pledge inventory collateral securities borrowed securities lending agreement collateral derivative transactions also use inventory cover transactions clients sold securities yet purchased secured funding less sensitive changes credit quality unsecured funding due posting collateral lenders nonetheless continually analyze refinancing risk secured funding activities taking account trade tenors maturity profiles counterparty concentrations collateral eligibility counterparty rollover probabilities seek mitigate refinancing risk executing term trades staggered maturities diversifying counterparties raising excess secured funding prefunding residual risk gcla seek raise secured funding term appropriate liquidity assets financed seek longer maturities secured funding collateralized asset classes may harder fund secured basis especially times market stress secured funding excluding funding collateralized liquid government obligations primarily executed tenors one month greater assets may harder fund secured basis times market stress include certain financial instruments following categories mortgage assetbacked loans securities noninvestmentgrade corporate debt securities equities convertible debentures emerging market securities assets classified level 3 fair value hierarchy generally funded unsecured basis see notes 5 6 consolidated financial statements information classification financial instruments fair value hierarchy “unsecured longterm borrowings” information use unsecured longterm borrowings source funding weighted average maturity secured funding included “collateralized financings” consolidated statements financial condition excluding funding collateralized highly liquid securities eligible inclusion gcla exceeded 120 days december 2016 majority secured funding securities eligible inclusion gcla executed term repurchase agreements securities loaned contracts also raise financing types collateralized financings secured loans notes goldman sachs bank usa gs bank usa access funding federal home loan bank fhlb december 2016 outstanding borrowings fhlb 243 billion gs bank usa also access funding federal reserve bank discount window rely funding liquidity planning stress testing maintain policies procedures necessary access funding test discount window borrowing procedures unsecured longterm borrowings issue unsecured longterm borrowings source funding inventory assets finance portion gcla issue different tenors currencies products maximize diversification investor base table presents quarterly unsecured longterm borrowings maturity profile december 2016 weighted average maturity unsecured longterm borrowings december 2016 approximately eight years mitigate refinancing risk seek limit principal amount debt maturing one day week year enter interest rate swaps convert portion unsecured longterm borrowings floatingrate obligations order manage exposure interest rates see note 16 consolidated financial statements information unsecured longterm borrowings goldman sachs group inc subsidiaries management’s discussion analysis deposits provide us diversified source liquidity reduce reliance wholesale funding growing source deposit base comprised retail deposits primarily used finance lending activity inventory portion gcla raise deposits primarily gs bank usa goldman sachs international bank gsib december 2016 december 2015 deposits 12410 billion 9752 billion respectively see note 14 consolidated financial statements information deposits unsecured shortterm borrowings significant portion unsecured shortterm borrowings originally longterm debt scheduled mature within one year reporting date use unsecured shortterm borrowings including hybrid financial instruments finance liquid assets cash management purposes light regulatory developments group inc longer issues debt original maturity less one year subsidiaries december 2016 december 2015 unsecured shortterm borrowings including current portion unsecured longterm borrowings 3927 billion 4279 billion respectively see note 15 consolidated financial statements information unsecured shortterm borrowings equity capital management regulatory capital adequacy critical importance us place comprehensive capital management policy provides framework defines objectives establishes guidelines assist us maintaining appropriate level composition capital businessasusual stressed conditions equity capital management determine appropriate level composition equity capital considering multiple factors including current future consolidated regulatory capital requirements results capital planning stress testing process factors rating agency guidelines subsidiary capital requirements business environment conditions financial markets manage capital requirements levels capital usage principally setting limits balance sheet assets andor limits risk case consolidated business levels principally manage level composition equity capital issuances repurchases common stock may also time issue repurchase preferred stock junior subordinated debt issued trusts subordinated debt forms capital business conditions warrant prior repurchases must receive confirmation board governors federal reserve system federal reserve board object capital actions see notes 16 19 consolidated financial statements information preferred stock junior subordinated debt issued trusts subordinated debt capital planning stress testing process part capital planning project sources uses capital given range business environments including stressed conditions stress testing process designed identify measure material risks associated business activities including market risk credit risk operational risk well ability generate revenues goldman sachs group inc subsidiaries management’s discussion analysis following description capital planning stress testing process • capital planning capital planning process incorporates internal capital adequacy assessment objective ensuring appropriately capitalized relative risks business incorporate stress scenarios capital planning process goal holding sufficient capital ensure remain adequately capitalized experiencing severe stress event assessment capital adequacy viewed tandem assessment liquidity adequacy integrated overall risk management structure governance policy framework capital planning process also includes internal riskbased capital assessment incorporates market risk credit risk operational risk market risk calculated using valueatrisk var calculations supplemented riskbased addons include risks related rare events tail risks credit risk utilizes assumptions counterparties’ probability default size losses event default operational risk calculated based scenarios incorporating multiple types operational failures well considering internal external actual loss experience backtesting market risk credit risk used gauge effectiveness models capturing measuring relevant risks • stress testing stress tests incorporate internally designed stress scenarios including internally developed severely adverse scenario required ccar dfast designed capture specific vulnerabilities risks provide additional information stress test processes summary results website described “business available information” part item 1 form 10k required federal reserve board’s annual ccar rules submit capital plan review federal reserve board purpose federal reserve board’s review ensure robust forwardlooking capital planning process accounts unique risks permits continued operation times economic financial stress federal reserve board evaluates us based part whether capital necessary continue operating baseline stress scenarios provided federal reserve board developed internally evaluation also takes account process identifying risk controls governance capital planning guidelines making capital planning decisions addition federal reserve board evaluates plan make capital distributions ie dividend payments repurchases redemptions stock subordinated debt capital securities issue capital across range macroeconomic scenarios firmspecific assumptions addition dfast rules require us conduct stress tests semiannual basis publish summary certain results federal reserve board also conducts annual stress tests publishes summary certain results submitted 2016 ccar results april 2016 federal reserve board informed us object capital actions including potential repurchase outstanding common stock potential increase quarterly common stock dividend possible issuance redemption modification capital securities third quarter 2016 second quarter 2017 published summary annual dfast results june 2016 see “business available information” part item 1 form 10k september 2016 submitted semiannual dfast results federal reserve board subsequently published summary internally developed severely adverse scenario results october 2016 see “business available information” part item 1 form 10k required submit 2017 ccar results federal reserve board april 5 2017 addition rules adopted federal reserve board doddfrank act require gs bank usa conduct stress tests annual basis publish summary certain results gs bank usa submitted 2016 annual dfast stress results federal reserve board april 2016 published summary results june 2016 see “business available information” part item 1 form 10k goldman sachs group inc subsidiaries management’s discussion analysis goldman sachs international gsi also capital planning stress testing process incorporates internally designed stress tests required prudential regulation authority’s pra internal capital adequacy assessment process contingency capital plan part comprehensive capital management policy maintain contingency capital plan contingency capital plan provides framework analyzing responding perceived actual capital deficiency including limited identification drivers capital deficiency well mitigants potential actions outlines appropriate communication procedures follow crisis period including internal dissemination information well timely communication external stakeholders capital attribution assess businesses’ capital usage based upon internal assessment risks incorporates attribution relevant regulatory capital requirements regulatory capital requirements allocated using attributed equity framework takes consideration binding capital constraints also attribute riskweighted assets rwas business segments december 2016 approximately twothirds rwas calculated accordance standardized capital rules basel iii advanced rules subject transitional provisions attributed institutional client services segment substantially remaining rwas attributed investing lending segment manage levels capital usage based upon balance sheet risk limits well capital return analyses businesses based capital attribution share repurchase program use share repurchase program help maintain appropriate level common equity repurchase program effected primarily regular openmarket purchases may include repurchase plans designed comply rule 10b51 amounts timing determined primarily current projected capital position capital plan submitted federal reserve board part ccar amounts timing repurchases may also influenced general market conditions prevailing price trading volumes common stock december 2016 remaining share authorization existing repurchase program 266 million shares however permitted make repurchases extent repurchases objected federal reserve board see “market registrant’s common equity related stockholder matters issuer purchases equity securities” part ii item 5 form 10k note 19 consolidated financial statements additional information share repurchase program see information capital planning stress testing process resolution recovery plans required federal reserve board fdic submit periodic plan describes strategy rapid orderly resolution event material financial distress failure resolution plan also required federal reserve board submit submitted periodic basis global recovery plan outlines steps management could take reduce risk maintain sufficient liquidity conserve capital times prolonged stress april 2016 federal reserve board fdic provided feedback 2015 resolution plans eight systemically important domestic banking institutions provided guidance related 2017 resolution plan submissions plan jointly found deficient ie noncredible facilitate orderly resolution us bankruptcy code fdic identified deficiencies fdic federal reserve board also identified certain shortcomings response feedback received september 2016 submitted status report actions address shortcomings separate public section explains actions high level 2017 resolution plan due july 1 2017 also required address shortcomings take account additional guidance addition gs bank usa required submit resolution plan fdic accordingly submitted 2015 resolution plan september 1 2015 gs bank usa yet received supervisory feedback 2015 resolution plan july 2016 gs bank usa received notification fdic resolution plan submission date extended october 1 2017 2016 resolution plan requirement satisfied submission 2017 resolution plan goldman sachs group inc subsidiaries management’s discussion analysis rating agency guidelines credit rating agencies assign credit ratings obligations group inc directly issues guarantees substantially senior unsecured obligations goldman sachs co gsco gsi assigned long shortterm issuer ratings certain credit rating agencies gs bank usa gsib also assigned long shortterm issuer ratings well ratings longterm shortterm bank deposits addition credit rating agencies assigned ratings debt obligations certain subsidiaries group inc level composition equity capital among many factors considered determining credit ratings agency definition eligible capital methodology evaluating capital adequacy assessments generally based combination factors rather single calculation see “liquidity risk management credit ratings” information credit ratings group inc gs bank usa gsib gsco gsi consolidated regulatory capital subject federal reserve board’s revised riskbased capital leverage regulations subject certain transitional provisions revised capital framework regulations largely based basel committee banking supervision’s basel committee capital framework strengthening international capital standards basel iii also implement certain provisions doddfrank act revised capital framework “advanced approach” banking organization calculate common equity tier 1 cet1 tier 1 capital total capital ratios accordance standardized approach market risk rules set revised capital framework together standardized capital rules ii advanced approach market risk rules set revised capital framework together basel iii advanced rules described note 20 consolidated financial statements lower ratio calculated ii ratio compliance minimum ratio requirements assessed ratios calculated accordance basel iii advanced rules lower calculated accordance standardized capital rules therefore basel iii advanced ratios applied us december 2016 december 2015 see note 20 consolidated financial statements information capital ratios december 2016 december 2015 additional information revised capital framework minimum capital ratios capital buffers table presents minimum required ratios december 2016 well estimated minimum ratios expect apply end transitional provisions beginning january 2019 table • minimum ratios december 2016 reflect 25 phasein capital conservation buffer 0625 ii 25 phasein global systemically important bank gsib buffer 075 iii countercyclical capital buffer zero percent • estimated minimum ratios january 2019 reflect fully phasedin capital conservation buffer 25 ii fully phasedin gsib buffer 25 iii countercyclical capital buffer zero percent gsib buffer 25 estimated based 2016 financial data reduction 30 buffer effective january 1 2016 gsib countercyclical buffers future may differ estimates due additional guidance regulators andor positional changes result minimum ratios subject january 1 2019 could higher amounts presented table • december 2016 order meet quantitative requirements “wellcapitalized” federal reserve board’s regulations must meet higher required minimum total capital ratio 100 • tier 1 leverage ratio defined tier 1 capital divided quarterly average adjusted total assets includes adjustments goodwill identifiable intangible assets certain investments nonconsolidated financial institutions see note 20 consolidated financial statements information capital conservation buffer current gsib buffer countercyclical capital buffer minimum required supplementary leverage ratio 50 january 1 2018 see “supplementary leverage ratio” information goldman sachs group inc subsidiaries management’s discussion analysis fully phasedin capital ratios table presents capital ratios calculated accordance standardized capital rules basel iii advanced rules fully phasedin basis although fully phasedin capital ratios applicable 2019 believe ratios table meaningful measures regulators investors use assess ability meet future regulatory capital requirements fully phasedin basel iii advanced standardized capital ratios nongaap measures may comparable similar nongaap measures used companies ratios based current interpretation expectations understanding revised capital framework may evolve discuss interpretation application framework regulators table • deductions goodwill identifiable intangible assets net deferred tax liabilities include goodwill 367 billion 366 billion december 2016 december 2015 respectively identifiable intangible assets 429 million 491 million december 2016 december 2015 respectively net associated deferred tax liabilities 108 billion 110 billion december 2016 december 2015 respectively • deductions investments nonconsolidated financial institutions represent amount investments capital nonconsolidated financial institutions exceed certain prescribed thresholds decrease december 2015 december 2016 primarily reflects reductions fund investments • deduction investments covered funds represents aggregate investments applicable covered funds permitted volcker rule purchased december 2013 substantially investments covered funds purchased connection marketmaking activities deduction subject transition period see “regulatory developments” information volcker rule • adjustments within cet1 primarily include overfunded portion defined benefit pension plan obligation net associated deferred tax liabilities disallowed deferred tax assets credit valuation adjustments derivative liabilities debt valuation adjustments required credit riskbased deductions • qualifying subordinated debt subordinated debt issued group inc original maturity five years greater outstanding amount subordinated debt qualifying tier 2 capital reduced upon reaching remaining maturity five years see note 16 consolidated financial statements additional information subordinated debt see note 20 consolidated financial statements information transitional capital ratios represent ratios applicable us december 2016 december 2015 goldman sachs group inc subsidiaries management’s discussion analysis supplementary leverage ratio revised capital framework includes supplementary leverage ratio requirement advanced approach banking organizations amendments revised capital framework us federal bank regulatory agencies approved final rule implements supplementary leverage ratio aligned definition leverage established basel committee supplementary leverage ratio compares tier 1 capital measure leverage exposure consists total daily average assets quarter certain offbalancesheet exposures include measure derivatives exposures commitments less certain balance sheet deductions revised capital framework requires minimum supplementary leverage ratio 50 comprised minimum requirement 30 20 buffer us bank holding companies deemed gsibs effective january 1 2018 december 2016 december 2015 supplementary leverage ratio 64 59 respectively based tier 1 capital fully phasedin basis 8181 billion 7946 billion respectively divided total leverage exposure 127 trillion consists total daily average assets quarter 884 billion certain offbalancesheet exposures 392 billion less certain balance sheet deductions 5 billion 134 trillion consists total daily average assets quarter 878 billion certain offbalancesheet exposures 471 billion less certain balance sheet deductions 6 billion respectively within total leverage exposure adjustments quarterly average assets periods primarily comprised offbalancesheet exposures related derivatives secured financing transactions commitments guarantees supplementary leverage ratio based current interpretation understanding us federal bank regulatory agencies’ final rule may evolve discuss interpretation application rule regulators subsidiary capital requirements many subsidiaries including gs bank usa brokerdealer subsidiaries subject separate regulation capital requirements jurisdictions operate gs bank usa gs bank usa subject regulatory capital requirements calculated substantially manner applicable bank holding companies calculates capital ratios accordance riskbased capital leverage requirements applicable state member banks based revised capital framework see note 20 consolidated financial statements information revised capital framework relates gs bank usa including gs bank usa’s capital ratios required minimum ratios addition federal reserve board rules commencing january 1 2018 order considered “wellcapitalized” depository institution gs bank usa must supplementary leverage ratio 60 greater supplementary leverage ratio compares tier 1 capital measure leverage exposure defined total daily average assets quarter certain offbalancesheet exposures include measure derivatives exposures commitments less certain balance sheet deductions december 2016 gs bank usa’s supplementary leverage ratio 73 based tier 1 capital fully phasedin basis 2448 billion divided total leverage exposure 333 billion consists total daily average assets quarter 170 billion certain offbalancesheet exposures 163 billion less certain balance sheet deductions 20 million december 2015 gs bank usa’s supplementary leverage ratio 71 based tier 1 capital fully phasedin basis 2302 billion divided total leverage exposure 324 billion total daily average assets quarter 134 billion certain offbalancesheet exposures 190 billion less certain balance sheet deductions 5 million supplementary leverage ratio based current interpretation understanding rule may evolve discuss interpretation application regulators gsi regulated uk brokerdealer gsi one principal nonus regulated subsidiaries regulated pra financial conduct authority gsi subject revised capital framework euregulated financial institutions prescribed eu fourth capital requirements directive crd iv eu capital requirements regulation crr capital regulations largely based basel iii goldman sachs group inc subsidiaries management’s discussion analysis table presents gsi’s minimum required ratios minimum ratios table incorporate capital guidance received pra could change future gsi’s future capital requirements may also impacted developments introduction capital buffers described “minimum capital ratios capital buffers” december 2016 gsi cet1 ratio 129 tier 1 capital ratio 129 total capital ratio 172 ratios includes approximately 71 basis points attributable profit year ended december 2016 ratios finalized upon completion gsi’s 2016 audit december 2015 gsi cet1 ratio 129 tier 1 capital ratio 129 total capital ratio 176 november 2016 european commission proposed amendments crr implement 3 minimum leverage ratio requirement certain eu financial institutions leverage ratio compares crr’s definition tier 1 capital measure leverage exposure defined sum assets plus certain offbalancesheet exposures include measure derivatives exposures securities financing transactions commitments less tier 1 capital deductions required minimum ratio expected become effective gsi earlier january 1 2018 december 2016 december 2015 gsi leverage ratio 38 36 respectively ratio december 2016 includes approximately 21 basis points attributable profit year ended december 2016 leverage ratio based current interpretation understanding rule may evolve discuss interpretation application rule gsi’s regulators subsidiaries capital requirements several subsidiaries may increase future due various developments arising basel committee doddfrank act governmental entities regulators see note 20 consolidated financial statements information capital requirements regulated subsidiaries subject separate regulatory capital requirements may hold capital satisfy local tax legal guidelines rating agency requirements entities assigned credit ratings internal policies including policies concerning minimum amount capital subsidiary hold based underlying level risk certain instances group inc may limited ability access capital held certain subsidiaries result regulatory tax constraints december 2016 december 2015 group inc’s equity investment subsidiaries 9277 billion 8552 billion respectively compared total shareholders’ equity 8689 billion 8673 billion respectively capital invested nonus subsidiaries generally exposed foreign exchange risk substantially managed combination derivatives nonus denominated debt see note 7 consolidated financial statements information net investment hedges used hedge risk guarantees subsidiaries group inc guaranteed payment obligations gsco gs bank usa case subject certain exceptions regulatory developments businesses subject significant evolving regulation doddfrank act enacted july 2010 significantly altered financial regulatory regime within operate addition reforms adopted considered regulators policy makers worldwide given many new proposed rules highly complex full impact regulatory reform known rules implemented market practices develop final regulations increased regulation limitations activities including doddfrank act prohibition “proprietary trading” limitation sponsorship investment “covered funds” defined volcker rule addition increased regulation restrictions otc derivatives markets transactions particularly related swaps securitybased swaps goldman sachs group inc subsidiaries management’s discussion analysis see “business regulation” part item 1 form 10k information laws rules regulations proposed laws rules regulations apply us operations addition see note 20 consolidated financial statements information regulatory developments relate regulatory capital leverage ratios volcker rule provisions doddfrank act referred “volcker rule” became effective july 2015 subject conformance period applicable volcker rule prohibits “proprietary trading” permits activities underwriting market making riskmitigation hedging requires extensive compliance program includes additional reporting recordkeeping requirements initial implementation rules material impact financial condition results operations cash flows however rule highly complex impact may change market practices develop addition prohibition proprietary trading volcker rule limits sponsorship investment covered funds banking entities including group inc subsidiaries also limits certain types transactions us sponsored funds similar limitations transactions depository institutions affiliates described “business regulation” part item 1 form 10k covered funds include private equity funds certain credit real estate funds hedge funds certain investment structures limitation investments covered funds requires us reduce investment fund 3 less fund’s net asset value reduce aggregate investment funds 3 less tier 1 capital investments applicable covered funds purchased december 2013 required deducted tier 1 capital see “equity capital management regulatory capital fully phasedin capital ratios” information tier 1 capital deduction investments covered funds continue manage existing interests funds taking account conformance period volcker rule plan continue conduct investing lending activities ways permissible volcker rule current investment funds nav 647 billion order compliant volcker rule required reduce interests funds end conformance period see note 6 consolidated financial statements information investment funds nav conformance period covered funds although net revenues interests private equity credit real estate hedge funds may vary period aggregate net revenues investments approximately 3 5 aggregate total net revenues last 10 years 5 years respectively total lossabsorbing capacity december 2016 federal reserve board adopted final rule establishes new total lossabsorbing capacity tlac related requirements us bank holding companies designated gsibs rule effective january 2019 phasein period designed event gsib’s failure sufficient external lossabsorbing capacity available order authorities implement orderly resolution gsib rule establishes minimum tlac requirements ii establishes minimum eligible longterm debt requirements iii prohibits certain holding company transactions iv caps amount gsib liabilities eligible longterm debt expect compliant tlac requirements effective date see “business regulation” part item 1 form 10k information federal reserve board’s tlac rule goldman sachs group inc subsidiaries management’s discussion analysis regulatory developments september 2016 final margin rules issued us federal bank regulatory agencies cftc uncleared swaps became effective rules phase march 2017 variation margin requirements september 2020 initial margin requirements depending level swaps securitybased swaps andor exempt foreign exchange derivative transaction activity swap dealer relevant counterparty final rules us federal bank regulatory agencies generally apply interaffiliate transactions limited relief available initial margin requirements affiliates cftc final rules interaffiliate transactions exempt initial margin requirements certain exceptions variation margin requirements still apply expect margin requirements continue increase rules phase japanese regulators implemented broadly similar rules regulators major jurisdictions expected next several quarters see “business regulation” part item 1 form 10k information regulations may impact us future offbalancesheet arrangements contractual obligations offbalancesheet arrangements various types offbalancesheet arrangements enter ordinary course business involvement arrangements take many different forms including • purchasing retaining residual interests special purpose entities mortgagebacked assetbacked securitization vehicles • holding senior subordinated debt interests limited general partnerships preferred common stock nonconsolidated vehicles • entering interest rate foreign currency equity commodity credit derivatives including total return swaps • entering operating leases • providing guarantees indemnifications commitments letters credit representations warranties enter arrangements variety business purposes including securitizations securitization vehicles purchase mortgages corporate bonds types financial assets critical functioning several significant investor markets including mortgagebacked assetbacked securities markets since offer investors access specific cash flows risks created securitization process also enter arrangements underwrite client securitization transactions provide secondary market liquidity make investments performing nonperforming debt equity real estate assets provide investors creditlinked assetrepackaged notes receive provide letters credit satisfy margin requirements facilitate clearance settlement process financial interests derivative transactions nonconsolidated entities generally accounted fair value manner financial instruments except cases apply equity method accounting goldman sachs group inc subsidiaries management’s discussion analysis table presents information various offbalancesheet arrangements may found form 10k addition see note 3 consolidated financial statements information consolidation policies contractual obligations certain contractual obligations require us make future cash payments contractual obligations include unsecured longterm borrowings secured longterm financings time deposits contractual interest payments included consolidated statements financial condition obligations make future cash payments also include certain offbalancesheet contractual obligations purchase obligations minimum rental payments noncancelable leases commitments guarantees table presents contractual obligations commitments guarantees type table presents contractual obligations commitments guarantees period expiration goldman sachs group inc subsidiaries management’s discussion analysis table • 2017 column includes total 149 billion investment commitments covered funds defined volcker rule subject volcker rule conformance period expect substantially commitments called see note 6 consolidated financial statements information volcker rule conformance period • obligations maturing within one year financial statement date redeemable within one year financial statement date option holders excluded treated shortterm obligations • obligations repayable prior maturity option reflected contractual maturity dates obligations redeemable prior maturity option holders reflected earliest dates options become exercisable • amounts included table necessarily reflect actual future cash flow requirements arrangements commitments guarantees represent notional amounts may expire unused reduced cancelled counterparty’s request • due uncertainty timing amounts ultimately paid liability unrecognized tax benefits excluded see note 24 consolidated financial statements information unrecognized tax benefits • december 2016 unsecured longterm borrowings includes 743 billion adjustments carrying value certain unsecured longterm borrowings resulting application hedge accounting • december 2016 aggregate contractual principal amount secured longterm financings unsecured longterm borrowings fair value option elected exceeded related fair value 361 million 156 billion respectively • contractual interest payments represents estimated future interest payments related unsecured longterm borrowings secured longterm financings time deposits based applicable interest rates december 2016 includes stated coupons structured notes see notes 15 18 consolidated financial statements information shortterm borrowings commitments guarantees respectively december 2016 unsecured longterm borrowings 18909 billion maturities extending 2056 consisted principally senior borrowings see note 16 consolidated financial statements information unsecured longterm borrowings december 2016 future minimum rental payments net minimum sublease rentals noncancelable leases 194 billion lease commitments office space expire various dates 2069 certain agreements subject periodic escalation provisions increases real estate taxes charges see note 18 consolidated financial statements information leases occupancy expenses include costs associated office space held excess current requirements excess space cost charged earnings incurred held potential growth replace currently occupied space may exit future regularly evaluate current future space capacity relation current projected staffing levels 2016 incurred exit costs approximately 68 million related office space held excess current requirements additional occupancy expenses excess office space material 2016 may incur exit costs future extent reduce space capacity ii commit occupy new properties locations operate consequently dispose existing space held potential growth exit costs may material results operations given period risk management risks inherent business include liquidity market credit operational model legal regulatory reputational risks information risk management processes see “ overview structure risk management” risks include risks across risk categories regions global businesses well uncertain outcomes potential materially impact financial results liquidity reputation information areas risk see “ liquidity risk management” “ market risk management” “ credit risk management” “ operational risk management” “ model risk management” “risk factors” part item 1a form 10k goldman sachs group inc subsidiaries management’s discussion analysis overview structure risk management overview believe effective risk management primary importance success accordingly comprehensive risk management processes monitor evaluate manage risks assume conducting activities include liquidity market credit operational model legal compliance regulatory reputational risk exposures risk management framework built around three core components governance processes people governance risk management governance starts board plays important role reviewing approving risk management policies practices directly committees including risk committee board also receives regular briefings firmwide risks including market risk liquidity risk credit risk operational risk model risk independent control support functions including chief risk officer compliance risk head compliance legal regulatory matters general counsel matters impacting reputation chair firmwide client business standards committee chief risk officer part review firmwide risk portfolio regularly advises risk committee board relevant risk metrics material exposures next senior levels leaders experienced risk managers sophisticated detailed understanding risks take senior management senior managers revenueproducing units independent control support functions lead participate riskoriented committees independent control support functions include compliance conflicts resolution group conflicts controllers credit risk management advisory credit risk management human capital management legal liquidity risk management analysis liquidity risk management market risk management analysis market risk management model risk management operations operational risk management analysis operational risk management tax technology treasury governance structure provides protocol responsibility decisionmaking risk management issues ensures implementation decisions make extensive use riskrelated committees meet regularly serve important means facilitate foster ongoing discussions identify manage mitigate risks maintain strong communication risk culture collaboration decisionmaking among revenueproducing units independent control support functions committees senior management believe first line defense managing risk rests managers revenueproducing units dedicate extensive resources independent control support functions order ensure strong oversight structure appropriate segregation duties regularly reinforce strong culture escalation accountability across divisions functions processes maintain various processes procedures critical components risk management first foremost daily discipline marking substantially inventory current market levels carry inventory fair value changes valuation reflected immediately risk management systems net revenues believe discipline one effective tools assessing managing risk provides transparent realistic insight financial exposures also apply rigorous framework limits control risk across transactions products businesses markets includes approval limits firmwide business product levels risk committee board addition firmwide risk committee responsible approving risk limits framework subject overall limits approved risk committee board variety levels monitoring limits daily basis risk governance committee delegated authority firmwide risk committee responsible approving limits firmwide business product levels certain limits may set levels require periodic adjustment rather levels reflect maximum risk appetite fosters ongoing dialogue risk among revenueproducing units independent control support functions committees senior management well rapid escalation riskrelated matters see “liquidity risk management” “market risk management” “credit risk management” information risk limits goldman sachs group inc subsidiaries management’s discussion analysis active management positions another important process proactive mitigation market credit exposures minimizes risk required take outsized actions periods stress also focus rigor effectiveness risk systems goal risk management technology get right information right people right time requires systems comprehensive reliable timely devote significant time resources risk management technology ensure consistently provides us complete accurate timely information people even best technology serves tool helping make informed decisions real time risks taking ultimately effective risk management requires people interpret risk data ongoing timely basis adjust risk positions accordingly revenueproducing units independent control support functions experience professionals understanding nuances limitations risk measure guide us assessing exposures maintaining within prudent levels reinforce culture effective risk management training development programs well way evaluate performance recognize reward people training development programs including certain sessions led senior leaders focused importance risk management client relationships reputational excellence part annual performance review process assess reputational excellence including employee exercises good risk management reputational judgment adheres code conduct compliance policies review reward processes designed communicate reinforce professionals link behavior people recognized need focus clients reputation need always act accordance highest standards firm structure ultimate oversight risk responsibility board oversees risk directly committees including risk committee within firm series committees specific risk management mandates oversight decisionmaking responsibilities risk management activities committee membership generally consists senior managers revenueproducing units independent control support functions established procedures committees ensure appropriate information barriers place primary risk committees also additional subcommittees working groups described addition committees riskoriented committees provide oversight different businesses activities products regions legal entities firmwide regional divisional committees responsibility considering impact transactions activities oversee reputation membership risk committees reviewed regularly updated reflect changes responsibilities committee members accordingly length time members serve respective committees varies determined committee chairs based responsibilities members addition independent control support functions report chief executive officer presidents cochief operating officers chief financial officer chief risk officer responsible daytoday oversight monitoring risk illustrated chart described greater detail following sections internal audit reports audit committee board includes professionals broad range audit industry experience including risk management expertise responsible independently assessing validating key controls within risk management framework goldman sachs group inc subsidiaries management’s discussion analysis chart presents overview risk management governance structure including reporting relationships independent control support functions management committee management committee oversees global activities including independent control support functions provides oversight directly authority delegated committees established committee comprised senior leaders chaired chief executive officer members management committee also members firmwide divisional regional committees following committees principally involved firmwide risk management firmwide client business standards committee firmwide client business standards committee assesses makes determinations regarding business standards practices reputational risk management client relationships client service chaired one presidents cochief operating officers appointed chair chief executive officer reports management committee also responsibility overseeing recommendations business standards committee periodically updates receives guidance public responsibilities committee board committee also established certain committees report including divisional client business standards committees riskrelated committees following riskrelated committees report firmwide client business standards committee • firmwide new activity committee firmwide new activity committee responsible reviewing new activities establishing process identify review previously approved activities significant changed complexity andor structure present different reputational suitability concerns time consider whether activities remain appropriate committee cochaired global treasurer chief administrative officer investment management division appointed cochairs chair firmwide client business standards committee • firmwide reputational risk committee firmwide reputational risk committee responsible assessing reputational risks arising transactions identified requiring mandatory escalation firmwide reputational risk committee otherwise potential heightened reputational risk committee chaired one presidents cochief operating officers appointed chair chief executive officer vicechairs head compliance head conflicts resolution group appointed vicechairs chair firmwide client business standards committee • firmwide suitability committee firmwide suitability committee responsible setting standards policies product transaction client suitability providing forum consistency across divisions regions products suitability assessments committee also reviews suitability matters escalated committees committee cochaired deputy head compliance chief strategy officer securities division cohead fixed income currency commodities sales appointed cochairs chair firmwide client business standards committee goldman sachs group inc subsidiaries management’s discussion analysis firmwide risk committee firmwide risk committee globally responsible ongoing monitoring management financial risks firmwide risk committee approves risk limits framework metrics methodologies reviews results stress tests scenario analyses provides oversight model risk committee cochaired chief financial officer chief risk officer appointed cochairs chief executive officer reports management committee following primary committees report firmwide risk committee • credit policy committee credit policy committee establishes reviews broad firmwide credit policies parameters implemented credit risk management committee cochaired deputy chief risk officer head credit risk management securities division appointed cochairs chief risk officer • firmwide finance committee firmwide finance committee oversight responsibility liquidity risk size composition balance sheet capital base credit ratings committee regularly reviews liquidity balance sheet funding position capitalization approves related policies makes recommendations adjustments made light current events risks exposures regulatory requirements part oversight among things committee reviews approves balance sheet limits size gcla committee cochaired chief risk officer global treasurer appointed cochairs firmwide risk committee • firmwide investment policy committee firmwide investment policy committee reviews approves sets policies provides oversight certain illiquid principal investments including review risk management controls types investments committee cochaired head merchant banking division cohead securities division deputy general counsel appointed cochairs presidents cochief operating officers chief financial officer • firmwide model risk control committee firmwide model risk control committee responsible oversight development implementation model risk controls includes governance policies procedures related reliance financial models committee chaired deputy chief risk officer appointed chair firmwide risk committee • firmwide operational risk committee firmwide operational risk committee provides oversight ongoing development implementation operational risk policies framework methodologies monitors effectiveness operational risk management committee cochaired managing directors credit risk management operational risk management appointed cochairs chief risk officer • firmwide technology risk committee firmwide technology risk committee reviews matters related design development deployment use technology committee oversees cyber security matters well technology risk management frameworks methodologies monitors effectiveness committee cochaired chief information officer head global investment research appointed cochairs firmwide risk committee • firmwide volcker oversight committee firmwide volcker oversight committee responsible oversight periodic review implementation volcker rule compliance program approved board volcker rulerelated matters committee cochaired deputy chief risk officer deputy head compliance appointed cochairs firmwide risk committee • global business resilience committee global business resilience committee responsible oversight business resilience initiatives promoting increased levels security resilience reviewing certain operating risks related business resilience committee chaired chief administrative officer appointed chair firmwide risk committee • risk governance committee risk governance committee delegated authority firmwide risk committee globally responsible ongoing approval monitoring risk frameworks policies parameters limits firmwide business product levels committee chaired chief risk officer appointed chair cochairs firmwide risk committee goldman sachs group inc subsidiaries management’s discussion analysis following committees report jointly firmwide risk committee firmwide client business standards committee • firmwide capital committee firmwide capital committee provides approval oversight debtrelated transactions including principal commitments capital committee aims ensure business reputational standards underwritings capital commitments maintained global basis committee cochaired head credit risk management investment banking division investment management division merchant banking division head europe middle east africa emea financing group cochairs firmwide capital committee appointed cochairs firmwide risk committee • firmwide commitments committee firmwide commitments committee reviews underwriting distribution activities respect equity equityrelated product offerings sets maintains policies procedures designed ensure legal reputational regulatory business standards maintained global basis addition reviewing specific transactions committee periodically conducts general strategic reviews sectors products establishes policies connection transaction practices committee cochaired chairman financial institutions group investment banking division cohead industrials group investment banking division chief underwriting officer managing director risk management appointed cochairs chair firmwide client business standards committee conflicts management conflicts interest approach dealing fundamental client relationships reputation longterm success term “conflict interest” universally accepted meaning conflicts arise many forms within business businesses responsibility identifying potential conflicts well complying policies procedures shared entire firm multilayered approach resolving conflicts addressing reputational risk senior management oversees policies related conflicts resolution conjunction conflicts legal compliance firmwide client business standards committee internal committees formulates policies standards principles assists making judgments regarding appropriate resolution particular conflicts resolving potential conflicts necessarily depends facts circumstances particular situation application experienced informed judgment general matter conflicts reviews financing advisory assignments investment banking certain investing lending activities firm addition various transaction oversight committees firmwide capital commitments suitability committees also review new underwritings loans investments structured products groups committees work internal external counsel compliance evaluate address actual potential conflicts reports one presidents cochief operating officers regularly assess policies procedures address conflicts interest effort conduct business accordance highest ethical standards compliance applicable laws rules regulations goldman sachs group inc subsidiaries management’s discussion analysis liquidity risk management overview liquidity risk unable fund firm meet liquidity needs event firmspecific broader industry market liquidity stress events liquidity critical importance us failures financial institutions occurred large part due insufficient liquidity accordingly place comprehensive conservative set liquidity funding policies principal objective able fund firm enable core businesses continue serve clients generate revenues even adverse circumstances treasury primary responsibility assessing monitoring managing liquidity funding strategy treasury independent revenueproducing units reports chief financial officer liquidity risk management independent risk management function responsible control oversight liquidity risk management framework including stress testing limit governance liquidity risk management independent revenueproducing units treasury reports chief risk officer liquidity risk management principles manage liquidity risk according three principles hold sufficient excess liquidity form global core liquid assets gcla cover outflows stressed period ii maintain appropriate assetliability management iii maintain viable contingency funding plan global core liquid assets gcla liquidity maintain meet broad range potential cash outflows collateral needs stressed environment important liquidity policy prefund estimated potential cash collateral needs liquidity crisis hold liquidity form unencumbered highly liquid securities cash believe securities held gcla would readily convertible cash matter days liquidation entering repurchase agreements maturities resale agreements cash would allow us meet immediate obligations without needing sell assets depend additional funding creditsensitive markets gcla reflects following principles • first days weeks liquidity crisis critical company’s survival • focus must maintained potential cash collateral outflows disruptions financing flows businesses diverse liquidity needs determined many factors including market movements collateral requirements client commitments change dramatically difficult funding environment • liquidity crisis creditsensitive funding including unsecured debt types secured financing agreements may unavailable terms eg interest rates collateral provisions tenor availability types secured financing may change • result policy prefund liquidity estimate may needed crisis hold unencumbered securities larger debt balances businesses would otherwise require believe liquidity stronger greater balances highly liquid unencumbered securities even though increases total assets funding costs maintain gcla across major brokerdealer bank subsidiaries asset types clearing agents provide us sufficient operating liquidity ensure timely settlement major markets even difficult funding environment addition gcla maintain cash balances several entities primarily use specific currencies entities jurisdictions immediate access parent company liquidity believe gcla provides us resilient source funds would available advance potential cash collateral outflows gives us significant flexibility managing difficult funding environment assetliability management liquidity risk management policies designed ensure sufficient amount financing even funding markets experience persistent stress manage maturities diversity funding across markets products counterparties seek maintain longdated diversified funding profile taking consideration characteristics liquidity profile assets goldman sachs group inc subsidiaries management’s discussion analysis approach assetliability management includes • conservatively managing overall characteristics funding book focus maintaining longterm diversified sources funding excess current requirements see “balance sheet funding sources funding sources” additional details • actively managing monitoring asset base particular focus liquidity holding period ability fund assets secured basis assess funding requirements ability liquidate assets stressed environment appropriately managing risk enables us determine appropriate funding products tenors see “balance sheet funding sources balance sheet management” detail balance sheet management process “ funding sources secured funding” detail asset classes may harder fund secured basis • raising secured unsecured financing long tenor relative liquidity profile assets reduces risk liabilities come due advance ability generate liquidity sale assets maintain highly liquid balance sheet holding period certain assets may materially shorter contractual maturity dates goal ensure maintain sufficient liquidity fund assets meet contractual contingent obligations normal times well periods market stress dynamic balance sheet management process use actual projected asset balances determine secured unsecured funding requirements funding plans reviewed approved firmwide finance committee quarterly basis addition senior managers independent control support functions regularly analyze firmwide finance committee reviews consolidated total capital position unsecured longterm borrowings plus total shareholders’ equity maintain level longterm funding sufficient meet longterm financing requirements liquidity crisis would first use gcla order avoid reliance asset sales gcla however recognize orderly asset sales may prudent necessary severe persistent liquidity crisis subsidiary funding policies majority unsecured funding raised group inc lends necessary funds subsidiaries regulated meet asset financing liquidity capital requirements addition group inc provides regulated subsidiaries necessary capital meet regulatory requirements benefits approach subsidiary funding enhanced control greater flexibility meet funding requirements subsidiaries funding also raised subsidiary level variety products including secured funding unsecured borrowings deposits intercompany funding policies assume unless legally provided subsidiary’s funds securities freely available parent subsidiaries particular many subsidiaries subject laws authorize regulatory bodies block reduce flow funds subsidiaries group inc regulatory action kind could impede access funds group inc needs make payments obligations accordingly assume capital provided regulated subsidiaries available group inc subsidiaries financing provided regulated subsidiaries available maturity financing group inc provided substantial amounts equity subordinated indebtedness directly indirectly regulated subsidiaries example december 2016 group inc 3009 billion equity subordinated indebtedness invested gsco principal us registered brokerdealer 3694 billion invested gsi regulated uk brokerdealer 262 billion invested goldman sachs japan co ltd gsjcl regulated japanese brokerdealer 2661 billion invested gs bank usa regulated new york statechartered bank 377 billion invested gsib regulated uk bank group inc also provided directly indirectly 9777 billion unsubordinated loans including secured loans 4990 billion 1960 billion collateral cash deposits entities substantially gsco gsi gsjcl gs bank usa december 2016 addition december 2016 group inc significant amounts capital invested loans regulated subsidiaries goldman sachs group inc subsidiaries management’s discussion analysis contingency funding plan maintain contingency funding plan provide framework analyzing responding liquidity crisis situation periods market stress contingency funding plan outlines list potential risk factors key reports metrics reviewed ongoing basis assist assessing severity managing liquidity crisis andor market dislocation contingency funding plan also describes detail potential responses assessments indicate entered liquidity crisis include prefunding estimate potential cash collateral needs well utilizing secondary sources liquidity mitigants action items address specific risks may arise also described assigned individuals responsible execution contingency funding plan identifies key groups individuals foster effective coordination control distribution information critical management crisis period market stress contingency funding plan also details responsibilities groups individuals include making disseminating key decisions coordinating contingency activities throughout duration crisis period market stress implementing liquidity maintenance activities managing internal external communication liquidity stress tests order determine appropriate size gcla use internal liquidity model referred modeled liquidity outflow captures quantifies liquidity risks also consider factors including limited assessment potential intraday liquidity needs additional internal liquidity model referred intraday liquidity model results longterm stress testing models applicable regulatory requirements qualitative assessment condition financial markets firm results modeled liquidity outflow intraday liquidity model longterm stress testing models reported senior management regular basis modeled liquidity outflow modeled liquidity outflow based conducting multiple scenarios include combinations marketwide firmspecific stress scenarios characterized following qualitative elements • severely challenged market environments including low consumer corporate confidence financial political instability adverse changes market values including potential declines equity markets widening credit spreads • firmspecific crisis potentially triggered material losses reputational damage litigation executive departure andor ratings downgrade following critical modeling parameters modeled liquidity outflow • liquidity needs 30day scenario • twonotch downgrade longterm senior unsecured credit ratings • combination contractual outflows upcoming maturities unsecured debt contingent outflows eg actions though contractually required may deem necessary crisis assume contingent outflows occur within initial days weeks crisis • issuance equity unsecured debt • support additional government funding facilities although access various central bank funding programs assume reliance additional sources funding liquidity crisis • asset liquidation gcla potential contractual contingent cash collateral outflows covered modeled liquidity outflow include unsecured funding • contractual upcoming maturities unsecured longterm debt commercial paper unsecured funding products assume unable issue new unsecured debt rollover maturing debt • contingent repurchases outstanding longterm debt commercial paper hybrid financial instruments ordinary course business market maker deposits • contractual upcoming maturities term deposits assume unable raise new term deposits rollover maturing term deposits • contingent partial withdrawals deposits contractual maturity withdrawal assumptions reflect among factors type deposit whether deposit insured uninsured relationship depositor goldman sachs group inc subsidiaries management’s discussion analysis secured funding • contractual portion upcoming contractual maturities secured funding due either inability refinance ability refinance wider haircuts ie terms require us post additional collateral assumptions reflect among factors quality underlying collateral counterparty roll probabilities assessment counterparty’s likelihood continuing provide funding secured basis maturity trade counterparty concentration • contingent adverse changes value financial assets pledged collateral financing transactions would necessitate additional collateral postings transactions otc derivatives • contingent collateral postings counterparties due adverse changes value otc derivatives excluding cleared settled central counterparties otccleared • contingent outflows cash collateral related otc derivatives excluding otccleared including impact trade terminations collateral substitutions collateral disputes loss rehypothecation rights collateral calls termination payments required twonotch downgrade credit ratings collateral called counterparties available exchangetraded otccleared derivatives • contingent variation margin postings required due adverse changes value outstanding exchangetraded otccleared derivatives • contingent increase initial margin guaranty fund requirements derivative clearing houses customer cash securities • contingent liquidity outflows associated prime brokerage business including withdrawals customer credit balances reduction customer short positions may serve funding source long positions firm securities • contingent liquidity outflows associated reduction composition change firm short positions may serve funding source long positions unfunded commitments • contingent draws unfunded commitments draw assumptions reflect among things type commitment counterparty • upcoming large cash outflows tax payments intraday liquidity model intraday liquidity model measures intraday liquidity needs using scenario analysis characterized qualitative elements modeled liquidity outflow model assesses risk increased intraday liquidity requirements scenario access sources intraday liquidity may become constrained following key modeling elements intraday liquidity model • liquidity needs oneday settlement period • delays receipt counterparty cash payments • reduction availability intraday credit lines thirdparty clearing agents • higher settlement volumes due increase activity longterm stress testing utilize longerterm stress test take forward view liquidity position prolonged stress period experience severe liquidity stress recover environment continues challenging focused ensuring conservative assetliability management prepare prolonged period potential stress seeking maintain longdated diversified funding profile taking consideration characteristics liquidity profile assets also perform stress tests regular basis part routine risk management processes conduct tailored stress tests ad hoc productspecific basis response market developments model review validation treasury regularly refines modeled liquidity outflow intraday liquidity model stress testing models reflect changes market economic conditions business mix changes including model assumptions assessed approved liquidity risk management model risk management responsible independent review validation liquidity models see “model risk management” information review validation models goldman sachs group inc subsidiaries management’s discussion analysis limits use liquidity limits various levels across liquidity risk types manage size liquidity exposures limits measured relative acceptable levels risk given liquidity risk tolerance purpose firmwide limits assist senior management monitoring controlling overall liquidity profile risk committee board firmwide finance committee approve liquidity risk limits firmwide level limits reviewed frequently amended required approvals permanent temporary basis appropriate reflect changing market business conditions liquidity risk limits monitored treasury liquidity risk management treasury responsible identifying escalating timely basis instances limits exceeded gcla unencumbered metrics gcla based results internal liquidity risk models described well consideration factors including limited assessment potential intraday liquidity needs qualitative assessment condition financial markets firm believe liquidity position december 2016 december 2015 appropriate december 2016 december 2015 fair value securities certain overnight cash deposits included gcla totaled 22607 billion 19912 billion respectively increase gcla december 2015 december 2016 primarily result acquisition ge capital bank’s online deposit platform april 2016 see note 14 consolidated financial statements information acquisition fair value gcla averaged 21110 billion 18775 billion years ended december 2016 december 2015 respectively table presents average fair value securities certain overnight cash deposits included gcla us dollardenominated gcla composed unencumbered us government federal agency obligations including highly liquid us federal agency mortgagebacked obligations eligible collateral federal reserve open market operations ii certain overnight us dollar cash deposits nonus dollardenominated gcla composed unencumbered german french japanese uk government obligations certain overnight cash deposits highly liquid currencies strictly limit gcla narrowly defined list securities cash highly liquid even difficult funding environment include potential sources excess liquidity gcla less liquid unencumbered securities committed credit facilities table presents average fair value gcla asset class maintain gcla enable us meet current potential liquidity requirements parent company group inc subsidiaries modeled liquidity outflow intraday liquidity model incorporate consolidated requirement group inc well standalone requirement major brokerdealer bank subsidiaries liquidity held directly major subsidiaries intended use subsidiary meet liquidity requirements assumed available group inc unless legally provided ii additional regulatory tax restrictions addition modeled liquidity outflow intraday liquidity model also incorporate broader assessment standalone liquidity requirements subsidiaries hold portion gcla directly group inc support requirements table presents average gcla group inc major brokerdealer bank subsidiaries goldman sachs group inc subsidiaries management’s discussion analysis unencumbered assets addition gcla significant amount unencumbered cash financial instruments including government obligations highgrade money market securities corporate obligations marginable equities loans cash deposits included gcla beginning january 2016 consistent changes manner management views unencumbered assets included certain loans within unencumbered assets fair value unencumbered assets averaged 14233 billion 9036 billion years ended december 2016 december 2015 respectively loans included december 2015 fair value unencumbered assets would increased 4445 billion consider assets liquid enough eligible gcla liquidity regulatory framework final rules minimum liquidity standards approved us federal bank regulatory agencies call liquidity coverage ratio lcr designed ensure banking organizations maintain adequate level unencumbered highquality liquid assets hqla based expected net cash outflows acute shortterm liquidity stress scenario gcla substantially composition assets qualify hqla rules lcr became effective us january 1 2015 phasein period whereby firms 80 minimum 2015 increased 10 per year 2017 december 2016 federal reserve board issued final rule requires bank holding companies disclose quarterly basis beginning second quarter 2017 lcr averages quarter quantitative qualitative information certain components lcr calculation projected net cash outflows three months ended december 2016 average lcr exceeded fully phasedin minimum requirement based interpretation understanding finalized framework may evolve review interpretation application regulators addition second quarter 2016 us federal bank regulatory agencies issued proposed rule calls net stable funding ratio nsfr large us banking organizations proposal would require banking organizations ensure access stable funding oneyear time horizon proposed nsfr requirement effective date january 1 2018 including quarterly disclosure ratio well description banking organization’s stable funding sources based interpretation current proposal estimate december 2016 nsfr slightly lower proposed requirement however expect compliant requirement effective date following information subsidiary liquidity regulatory requirements • gs bank usa gs bank usa subject minimum liquidity standards lcr rule approved us federal bank regulatory agencies became effective january 1 2015 phasein 2017 described us federal bank regulatory agencies’ proposed rule nsfr described would also apply gs bank usa • gsi lcr rule issued uk regulatory authorities became effective uk october 1 2015 phasein period whereby certain financial institutions including gsi required 80 minimum ratio initially increasing 90 january 1 2017 100 january 1 2018 • subsidiaries monitor local regulatory liquidity requirements subsidiaries ensure compliance many subsidiaries requirements either changed likely change future due implementation basel committee’s framework liquidity risk measurement standards monitoring well regulatory developments implementation rules amendments adopted applicable regulatory authorities could impact liquidity funding requirements practices future goldman sachs group inc subsidiaries management’s discussion analysis credit ratings rely shortterm longterm debt capital markets fund significant portion daytoday operations cost availability debt financing influenced credit ratings credit ratings also important competing certain markets otc derivatives seek engage longerterm transactions see “risk factors” part item 1a form 10k information risks associated reduction credit ratings table presents unsecured credit ratings outlook group inc dbrs inc dbrs fitch inc fitch moody’s investors service moody’s standard poor’s ratings services sp rating investment information inc ri table • ratings trust preferred relate guaranteed preferred beneficial interests issued goldman sachs capital • dbrs fitch moody’s sp ratings preferred stock include apex issued goldman sachs capital ii goldman sachs capital iii table presents unsecured credit ratings outlook gs bank usa gsib gsco gsi fitch moody’s sp fourth quarter 2016 fitch changed outlook gsib gsi positive stable additionally sp upgraded longterm debt ratings gs bank usa gsib gsco gsi changed outlook watch positive stable believe credit ratings primarily based credit rating agencies’ assessment • liquidity market credit operational risk management practices • level variability earnings • capital base • franchise reputation management • corporate governance • external operating economic environment including cases assumed level government support systemic considerations potential resolution certain derivatives transacted bilateral agreements counterparties may require us post collateral terminate transactions based changes credit ratings assess impact bilateral agreements determining collateral termination payments would occur assuming downgrade rating agencies downgrade one rating agency depending agency’s relative ratings us time downgrade may impact comparable impact downgrade rating agencies manage gcla ensure would among potential requirements able make additional collateral termination payments may required event twonotch reduction longterm credit ratings well collateral called counterparties available table presents additional collateral termination payments related net derivative liabilities bilateral agreements could called reporting date counterparties event onenotch twonotch downgrade credit ratings goldman sachs group inc subsidiaries management’s discussion analysis cash flows global financial institution cash flows complex bear little relation net earnings net assets consequently believe traditional cash flow analysis less meaningful evaluating liquidity position liquidity assetliability management policies described cash flow analysis may however helpful highlighting certain macro trends strategic initiatives businesses year ended december 2016 cash equivalents increased 2827 billion 12171 billion end 2016 generated 927 billion net cash investing activities primarily net cash acquired business acquisitions generated 1900 billion net cash financing activities operating activities primarily increases deposits net issuances unsecured longterm borrowings partially offset repurchases common stock year ended december 2015 cash equivalents increased 1841 billion 9344 billion end 2015 used 1857 billion net cash investing activities primarily due funding loans receivable generated 3699 billion net cash financing activities operating activities primarily net issuances longterm borrowings bank deposits partially offset repurchases common stock year ended december 2014 cash equivalents decreased 384 billion 7503 billion end 2014 used 2284 billion net cash operating investing activities reflects initiative reduce balance sheet funding loans receivable generated 1900 billion net cash financing activities increase bank deposits net proceeds issuances unsecured longterm borrowings partially offset repurchases common stock market risk management overview market risk loss value inventory well certain financial assets financial liabilities due changes market conditions employ variety risk measures described respective sections monitor market risk hold inventory primarily market making clients investing lending activities inventory therefore changes based client demands investment opportunities inventory accounted fair value therefore fluctuates daily basis related gains losses included “market making” “other principal transactions” categories market risk include following • interest rate risk results exposures changes level slope curvature yield curves volatilities interest rates mortgage prepayment speeds credit spreads • equity price risk results exposures changes prices volatilities individual equities baskets equities equity indices • currency rate risk results exposures changes spot prices forward prices volatilities currency rates • commodity price risk results exposures changes spot prices forward prices volatilities commodities crude oil petroleum products natural gas electricity precious base metals market risk management independent revenueproducing units reports chief risk officer primary responsibility assessing monitoring managing market risk monitor control risks strong firmwide oversight independent control support functions across global businesses managers revenueproducing units market risk management discuss market information positions estimated risk loss scenarios ongoing basis managers revenueproducing units accountable managing risk within prescribed limits managers indepth knowledge positions markets instruments available hedge exposures goldman sachs group inc subsidiaries management’s discussion analysis market risk management process manage market risk diversifying exposures controlling position sizes establishing economic hedges related securities derivatives process includes • accurate timely exposure information incorporating multiple risk metrics • dynamic limit setting framework • constant communication among revenueproducing units risk managers senior management risk measures market risk management produces risk measures monitors established market risk limits measures reflect extensive range scenarios results aggregated product business firmwide levels use variety risk measures estimate size potential losses moderate extreme market moves shortterm longterm time horizons primary risk measures var used shorterterm periods stress tests risk reports detail key risks drivers changes desk business distributed daily senior management revenueproducing units independent control support functions valueatrisk var potential loss value due adverse market movements defined time horizon specified confidence level assets liabilities included var see “financial statement linkages market risk measures” typically employ oneday time horizon 95 confidence level use single var model captures risks including interest rates equity prices currency rates commodity prices var facilitates comparison across portfolios different risk characteristics var also captures diversification aggregated risk firmwide level aware inherent limitations var therefore use variety risk measures market risk management process inherent limitations var include • var estimate potential losses longer time horizons moves may extreme • var take account relative liquidity different risk positions • previous moves market risk factors may produce accurate predictions future market moves calculating var use historical simulations full valuation approximately 70000 market factors var calculated position level based simultaneously shocking relevant market risk factors position sample five years historical data generate scenarios var calculation historical data weighted relative importance data reduces time gives greater importance recent observations reflects current asset volatilities improves accuracy estimates potential loss result even positions included var unchanged var would increase increasing market volatility vice versa given reliance historical data var effective estimating risk exposures markets sudden fundamental changes shifts market conditions var measure include • positions best measured monitored using sensitivity measures • impact changes counterparty credit spreads derivatives well changes credit spreads unsecured borrowings fair value option elected perform daily backtesting var model ie comparing daily trading net revenues var measure calculated prior business day firmwide level businesses major regulated subsidiaries stress testing stress testing method determining effect various hypothetical stress scenarios firm use stress testing examine risks specific portfolios well potential impact significant risk exposures across firm use variety stress testing techniques calculate potential loss wide range market moves portfolios including sensitivity analysis scenario analysis firmwide stress tests results various stress tests analyzed together risk management purposes sensitivity analysis used quantify impact market move single risk factor across positions eg equity prices credit spreads using variety defined market shocks ranging could expected oneday time horizon could take many months occur also use sensitivity analysis quantify impact default single entity captures risk large concentrated exposures goldman sachs group inc subsidiaries management’s discussion analysis scenario analysis used quantify impact specified event including event impacts multiple risk factors simultaneously example sovereign stress testing calculate potential direct exposure associated sovereign inventory well corresponding debt equity currency exposures associated nonsovereign inventory may impacted sovereign distress conducting scenario analysis typically consider number possible outcomes scenario ranging moderate severely adverse market impacts addition stress tests constructed using historical events forwardlooking hypothetical scenarios firmwide stress testing combines market credit operational liquidity risks single combined scenario firmwide stress tests primarily used assess capital adequacy part capital planning stress testing process however also ensure firmwide stress testing integrated risk governance framework includes selecting appropriate scenarios use capital planning stress testing process see “equity capital management regulatory capital equity capital management” information unlike var measures implied probability calculated specified confidence level generally implied probability stress test scenarios occur instead stress tests used model moderate extreme moves underlying market factors estimating potential loss generally assume positions cannot reduced hedged although experience demonstrates generally able stress test scenarios conducted regular basis part routine risk management process ad hoc basis response market events concerns stress testing important part risk management process allows us quantify exposure tail risks highlight potential loss concentrations undertake riskreward analysis assess mitigate risk positions limits use risk limits various levels including firmwide business product govern risk appetite controlling size exposures market risk limits set based var range stress tests relevant exposures limits reviewed frequently amended permanent temporary basis reflect changing market conditions business conditions tolerance risk committee board risk governance committee delegated authority firmwide risk committee approve market risk limits sublimits firmwide business product levels consistent risk appetite addition market risk management delegated authority risk governance committee sets market risk limits sublimits certain product desk levels purpose firmwide limits assist senior management controlling overall risk profile sublimits set approved level risk limits sublimits set desired maximum amount exposure may managed particular business daytoday basis without additional levels senior management approval effectively leaving daytoday decisions individual desk managers traders accordingly sublimits management tool designed ensure appropriate escalation rather establish maximum risk tolerance sublimits also distribute risk among various businesses manner consistent level activity client demand taking account relative performance area market risk limits monitored daily market risk management responsible identifying escalating timely basis instances limits exceeded risk limit exceeded eg due positional changes market conditions increased volatilities changes correlations escalated senior managers market risk management andor appropriate risk committee instances remediated inventory reduction andor temporary permanent increase risk limit model review validation var stress testing models regularly reviewed market risk management enhanced order incorporate changes composition positions included market risk measures well variations market conditions prior implementing significant changes assumptions andor models model risk management performs model validations significant changes var stress testing models reviewed chief risk officer chief financial officer approved firmwide risk committee see “model risk management” information review validation models goldman sachs group inc subsidiaries management’s discussion analysis systems made significant investment technology monitor market risk including • independent calculation var stress measures • risk measures calculated individual position levels • attribution risk measures individual risk factors position • ability report many different views risk measures eg desk business product type legal entity • ability produce ad hoc analyses timely manner metrics analyze var firmwide level variety detailed levels including risk category business region tables present risk category average daily var periodend var well high low var period diversification effect tables represents difference total var sum vars four risk categories effect arises four market risk categories perfectly correlated table presents average daily var average daily var decreased 63 million 2016 76 million 2015 primarily reflecting decrease currency rates category principally due reduced exposures decrease commodity prices category due lower levels volatility reduced exposures average daily var increased 76 million 2015 72 million 2014 reflecting increase currency rates category due higher levels volatility partially offset decrease interest rates category due decreased exposures table presents periodend var daily var increased 82 million december 2016 67 million december 2015 primarily reflecting increase equity prices category principally due increased exposures decrease diversification benefit across risk categories partially offset decrease currency rates category principally due lower levels volatility daily var decreased 67 million december 2015 77 million december 2014 primarily reflecting decreases interest rates commodity prices categories due decreased exposures increase diversification benefit across risk categories addition currency rates equity prices categories increased due higher levels volatility 2016 2014 firmwide var risk limit exceeded raised reduced 2015 firmwide var risk limit temporarily raised two occasions order facilitate client transactions separately march 2015 firmwide var risk limit reduced reflecting lower risk utilization last year table presents high low var risk category high low total var 83 million 47 million respectively year ended december 2016 goldman sachs group inc subsidiaries management’s discussion analysis chart reflects daily var last four quarters chart presents frequency distribution daily trading net revenues substantially positions included var 2016 daily trading net revenues compared var calculated end prior business day trading losses incurred single day exceed 95 oneday var 2016 2015 ie var exception exceeded 95 oneday var one occasion 2014 periods significantly positive net revenue days net revenue loss days expect fewer var exceptions normal conditions business model generally produces positive net revenues periods franchise revenues adversely affected generally loss days resulting var exceptions daily marketmaking revenues used determine var exceptions reflect impact intraday activity including bidoffer net revenues likely positive nature sensitivity measures certain portfolios individual positions included var appropriate risk measure sensitivity measures use analyze market risk described 10 sensitivity measures table presents market risk positions included var market risk positions determined estimating potential reduction net revenues 10 decline value positions equity positions relate private restricted public equity securities including interests funds invest corporate equities real estate interests hedge funds debt positions include interests funds invest corporate mezzanine senior debt instruments loans backed commercial residential real estate corporate bank loans corporate debt including acquired portfolios distressed loans equity debt positions consolidated statements financial condition included “financial instruments owned fair value” see note 6 consolidated financial statements information cash instruments measures reflect diversification benefits across asset categories across market risk measures credit spread sensitivity derivatives financial liabilities var excludes impact changes counterparty credit spreads derivatives well changes credit spreads financial liabilities fair value option elected estimated sensitivity one basis point increase credit spreads counterparty derivatives gain 2 million 3 million including hedges december 2016 december 2015 respectively addition estimated sensitivity one basis point increase credit spreads financial liabilities fair value option elected gain 25 million 17 million december 2016 december 2015 respectively however actual net impact change credit spreads also affected liquidity duration convexity sensitivity linear changes yields financial liabilities fair value option elected well relative performance hedges undertaken goldman sachs group inc subsidiaries management’s discussion analysis interest rate sensitivity “loans receivable” december 2016 december 2015 4967 billion 4541 billion respectively substantially floating interest rates december 2016 december 2015 estimated sensitivity 100 basis point increase interest rates loans 405 million 396 million respectively additional interest income twelvemonth period take account potential impact increase costs fund loans see note 9 consolidated financial statements information loans receivable market risk considerations december 2016 december 2015 commitments held loans obtained credit loss protection sumitomo mitsui financial group inc see note 18 consolidated financial statements information lending commitments addition make investments accounted equity method also make direct investments real estate included “other assets” direct investments real estate accounted cost less accumulated depreciation see note 13 consolidated financial statements information “other assets” financial statement linkages market risk measures employ variety risk measures described respective sections monitor market risk across consolidated statements financial condition consolidated statements earnings related gains losses positions included “market making” “other principal transactions” “interest income” “interest expense” consolidated statements earnings “debt valuation adjustment” consolidated statements comprehensive income table presents certain categories consolidated statements financial condition market risk measures used assess assets liabilities certain categories consolidated statements financial condition incorporated one risk measure categories consolidated statements financial condition included market risk measures market risk measures collateralized agreements • securities purchased agreements resell fair value • securities borrowed fair value • var receivables • certain secured loans fair value • loans receivable • var • interest rate sensitivity financial instruments owned fair value • var • 10 sensitivity measures • credit spread sensitivity derivatives deposits fair value • credit spread sensitivity financial liabilities collateralized financings • securities sold agreements repurchase fair value • securities loaned fair value • secured financings fair value • var financial instruments sold yet purchased fair value • var • credit spread sensitivity derivatives unsecured shortterm borrowings unsecured longterm borrowings fair value • var • credit spread sensitivity financial liabilities credit risk management overview credit risk represents potential loss due default deterioration credit quality counterparty eg otc derivatives counterparty borrower issuer securities instruments hold exposure credit risk comes mostly client transactions otc derivatives loans lending commitments credit risk also comes cash placed banks securities financing transactions ie resale repurchase agreements securities borrowing lending activities receivables brokers dealers clearing organizations customers counterparties goldman sachs group inc subsidiaries management’s discussion analysis credit risk management independent revenueproducing units reports chief risk officer primary responsibility assessing monitoring managing credit risk credit policy committee firmwide risk committee establish review credit policies parameters addition hold positions give rise credit risk eg bonds held inventory secondary bank loans credit risks captured component market risk measures monitored managed market risk management consistent inventory positions also enter derivatives manage market risk exposures derivatives also give rise credit risk monitored managed credit risk management credit risk management process effective management credit risk requires accurate timely information high level communication knowledge customers countries industries products process managing credit risk includes • approving transactions setting communicating credit exposure limits • establishing approving underwriting standards • monitoring compliance established credit exposure limits • assessing likelihood counterparty default payment obligations • measuring current potential credit exposure losses resulting counterparty default • reporting credit exposures senior management board regulators • using credit risk mitigants including collateral hedging • communicating collaborating independent control support functions operations legal compliance part risk assessment process credit risk management performs credit reviews include initial ongoing analyses counterparties substantially credit exposures core process annual counterparty credit review credit review independent analysis capacity willingness counterparty meet financial obligations resulting internal credit rating determination internal credit ratings also incorporates assumptions respect nature outlook counterparty’s industry economic environment senior personnel within credit risk management expertise specific industries inspect approve credit reviews internal credit ratings risk assessment process may also include applicable reviewing certain key metrics delinquency status collateral values credit scores risk factors global credit risk management systems capture credit exposure individual counterparties aggregate basis counterparties subsidiaries economic groups systems also provide management comprehensive information aggregate credit risk product internal credit rating industry country region risk measures limits measure credit risk based potential loss event nonpayment counterparty using current potential exposure derivatives securities financing transactions current exposure represents amount presently owed us taking account applicable netting collateral arrangements potential exposure represents estimate future exposure could arise life transaction based market movements within specified confidence level potential exposure also takes account netting collateral arrangements loans lending commitments primary measure function notional amount position use credit limits various levels eg counterparty economic group industry country well underwriting standards control size nature credit exposures limits counterparties economic groups reviewed regularly revised reflect changing risk appetites given counterparty group counterparties limits industries countries based risk tolerance designed allow regular monitoring review escalation management credit risk concentrations risk committee board risk governance committee delegated authority firmwide risk committee approve credit risk limits firmwide business product levels credit risk management delegated authority risk governance committee sets credit limits individual counterparties economic groups industries countries policies authorized firmwide risk committee risk governance committee credit policy committee prescribe level formal approval required us assume credit exposure counterparty across product areas taking account applicable netting provisions collateral credit risk mitigants goldman sachs group inc subsidiaries management’s discussion analysis stress tests use regular stress tests calculate credit exposures including potential concentrations would result applying shocks counterparty credit ratings credit risk factors eg currency rates interest rates equity prices shocks include wide range moderate extreme market movements stress tests include shocks multiple risk factors consistent occurrence severe market economic event case sovereign default estimate direct impact default sovereign credit exposures changes credit exposures arising potential market moves response default impact credit market deterioration corporate borrowers counterparties may result sovereign default unlike potential exposure calculated within specified confidence level stress test generally assumed probability events occurring perform stress tests regular basis part routine risk management processes conduct tailored stress tests ad hoc basis response market developments stress tests conducted jointly market liquidity risk functions model review validation potential credit exposure stress testing models changes models assumptions reviewed model risk management see “model risk management” information review validation models risk mitigants reduce credit exposures derivatives securities financing transactions may enter netting agreements counterparties permit us offset receivables payables counterparties may also reduce credit risk counterparties entering agreements enable us obtain collateral upfront contingent basis andor terminate transactions counterparty’s credit rating falls specified level monitor fair value collateral daily basis ensure credit exposures appropriately collateralized seek minimize exposures significant positive correlation creditworthiness counterparties market value collateral receive loans lending commitments depending credit quality borrower characteristics transaction employ variety potential risk mitigants risk mitigants include collateral provisions guarantees covenants structural seniority bank loan claims certain lending commitments provisions legal documentation allow us adjust loan amounts pricing structure terms market conditions change type structure risk mitigants employed significantly influence degree credit risk involved loan lending commitment sufficient visibility counterparty’s financial strength believe counterparty requires support parent may obtain thirdparty guarantees counterparty’s obligations may also mitigate credit risk using credit derivatives participation agreements credit exposures december 2016 credit exposures increased compared december 2015 primarily reflecting increase cash deposits central banks percentage credit exposures arising noninvestmentgrade counterparties based internally determined public rating agency equivalents decreased compared december 2015 reflecting increase investmentgrade credit exposure related cash deposits central banks decrease noninvestmentgrade loans lending commitments 2016 number counterparty defaults increased compared 2015 defaults primarily occurred within loans lending commitments total number counterparty defaults remained low representing less 05 counterparties estimated losses associated counterparty defaults higher compared 2015 material credit exposures described cash equivalents credit exposure cash equivalents arises unrestricted cash includes interestbearing noninterestbearing deposits mitigate risk credit loss place substantially deposits highlyrated banks central banks unrestricted cash 10706 billion 7511 billion december 2016 december 2015 respectively excludes cash segregated regulatory purposes 1465 billion 1833 billion december 2016 december 2015 respectively goldman sachs group inc subsidiaries management’s discussion analysis otc derivatives credit exposure otc derivatives arises primarily marketmaking activities market maker enter derivative transactions provide liquidity clients facilitate transfer hedging risks also enter derivatives manage market risk exposures manage credit exposure otc derivatives using credit risk process measures limits risk mitigants described derivatives reported netbycounterparty basis ie net payable receivable derivative assets liabilities given counterparty legal right setoff exists enforceable netting agreement derivatives accounted fair value net cash collateral received posted enforceable credit support agreements generally enter otc derivatives transactions bilateral collateral arrangements require daily exchange collateral credit risk essential component fair value include credit valuation adjustment cva fair value derivatives reflect counterparty credit risk described note 7 consolidated financial statements cva function present value expected exposure probability counterparty default assumed recovery upon default table presents distribution exposure otc derivatives tenor effect collateral netting agreements table • tenor based expected duration mortgagerelated credit derivatives generally remaining contractual maturity derivatives • receivable payable balances counterparty tenor category netted within tenor category • receivable payable balances counterparty across tenor categories netted enforceable netting agreements cash collateral received netted enforceable credit support agreements • net credit exposure represents otc derivative assets included “financial instruments owned fair value” less cash collateral fair value securities collateral primarily us government federal agency obligations nonus government agency obligations received credit support agreements management considers determining credit risk collateral eligible netting us gaap tables present distribution exposure otc derivatives tenor internally determined public rating agency equivalents goldman sachs group inc subsidiaries management’s discussion analysis lending financing activities manage lending financing activities using credit risk process measures limits risk mitigants described lending positions including secondary trading positions riskmanaged component market risk • lending activities lending activities include lending investmentgrade noninvestmentgrade corporate borrowers loans lending commitments associated activities principally used operating liquidity general corporate purposes connection contingent acquisitions corporate loans may secured unsecured depending loan purpose risk profile borrower factors lending activities also include extending loans borrowers secured commercial real estate see tables information credit exposures associated lending activities • securities financing transactions enter securities financing transactions order among things facilitate client activities invest excess cash acquire securities cover short positions finance certain firm activities bear credit risk related resale agreements securities borrowed extent cash advanced value securities pledged delivered counterparty exceeds value collateral received also credit exposure repurchase agreements securities loaned extent value securities pledged delivered counterparty transactions exceeds amount cash collateral received securities collateral obtained securities financing transactions primarily includes us government federal agency obligations nonus government agency obligations approximately 29 billion 27 billion december 2016 december 2015 respectively credit exposure related securities financing transactions reflecting netting agreements collateral management considers determining credit risk december 2016 december 2015 substantially credit exposure related securities financing transactions investmentgrade financial institutions funds governments primarily located americas emea • credit exposures exposed credit risk receivables brokers dealers clearing organizations customers counterparties receivables brokers dealers clearing organizations primarily comprised initial margin placed clearing organizations receivables related sales securities traded yet settled receivables generally minimal credit risk due low probability clearing organization default shortterm nature receivables related securities settlements receivables customers counterparties generally comprised collateralized receivables related customer securities transactions generally minimal credit risk due value collateral received shortterm nature receivables net credit exposure related activities approximately 31 billion 33 billion december 2016 december 2015 respectively primarily comprised initial margin cash securities placed investmentgrade clearing organizations regional breakdown net credit exposure related activities approximately 44 americas approximately 42 45 emea approximately 14 11 asia december 2016 december 2015 respectively addition extend loans lending commitments private wealth management clients primarily secured residential real estate securities assets also purchase performing distressed loans backed residential real estate consumer loans gross exposure related loans lending commitments approximately 28 billion december 2016 december 2015 regional breakdown net credit exposure related activities approximately 90 84 americas approximately 8 14 emea approximately 2 asia december 2016 december 2015 respectively fair value collateral received loans lending commitments generally exceeded gross carrying amount december 2016 december 2015 goldman sachs group inc subsidiaries management’s discussion analysis credit exposure industry region credit quality tables present credit exposure related cash otc derivatives loans lending commitments excluding credit exposures described “securities financing transactions” “other credit exposures” broken industry region credit quality selected exposures section provides information credit market exposure certain countries heightened focus due recent events broad market concerns credit exposure represents potential loss due default deterioration credit quality counterparty borrower market exposure represents potential loss value long short inventory due changes market prices current levels oil prices continue raise concerns venezuela nigeria sovereign debt political situation iraq led ongoing concerns economic stability debt crisis mozambique resulted suspension funding international monetary fund world bank well credit rating downgrades addition currency trading restrictions malaysia negatively impacted investor confidence raised concerns potential restrictions total credit market exposure iraq venezuela nigeria mozambique malaysia december 2016 material goldman sachs group inc subsidiaries management’s discussion analysis comprehensive framework monitor measure assess country exposures determine risk appetite determine country risk location counterparty issuer underlier’s assets generate revenue country headquartered jurisdiction claim could enforced andor government whose policies affect ability repay obligations monitor credit exposure specific country individual counterparty level well aggregate country level use regular stress tests described calculate credit exposures including potential concentrations would result applying shocks counterparty credit ratings credit risk factors supplement regular stress tests also conduct tailored stress tests ad hoc basis response specific market events deem significant stress tests designed estimate direct impact event credit market exposures resulting shocks risk factors including limited currency rates interest rates equity prices also utilize stress tests estimate indirect impact certain hypothetical events country exposures impact credit market deterioration corporate borrowers counterparties along shocks risk factors described parameters shocks vary based scenario reflected stress test review estimated losses produced stress tests order understand magnitude highlight potential loss concentrations assess mitigate exposures necessary see “stress tests” “liquidity risk management liquidity stress tests” “market risk management market risk management process stress testing” information stress tests operational risk management overview operational risk loss resulting inadequate failed internal processes people systems external events exposure operational risk arises routine processing errors well extraordinary incidents major systems failures legal regulatory matters potential types loss events related internal external operational risk include • clients products business practices • execution delivery process management • business disruption system failures • employment practices workplace safety • damage physical assets • internal fraud • external fraud maintain comprehensive control framework designed provide wellcontrolled environment minimize operational risks firmwide operational risk committee provides oversight ongoing development implementation operational risk policies framework operational risk management risk management function independent revenueproducing units reports chief risk officer responsible developing implementing policies methodologies formalized framework operational risk management goal minimizing exposure operational risk operational risk management process managing operational risk requires timely accurate information well strong control culture seek manage operational risk • training supervision development people • active participation senior management identifying mitigating key operational risks • independent control support functions monitor operational risk daily basis implementation extensive policies procedures controls designed prevent occurrence operational risk events • proactive communication revenue producing units independent control support functions • network systems facilitate collection data used analyze assess operational risk exposure combine topdown bottomup approaches manage measure operational risk topdown perspective senior management assesses firmwide businesslevel operational risk profiles bottomup perspective revenueproducing units independent control support functions responsible risk identification risk management daytoday basis including escalating operational risks senior management operational risk management framework part designed comply operational risk measurement rules revised capital framework evolved based changing needs businesses regulatory guidance goldman sachs group inc subsidiaries management’s discussion analysis operational risk management framework comprises following practices • risk identification assessment • risk measurement • risk monitoring reporting internal audit performs independent review operational risk management framework including key controls processes applications annual basis assess effectiveness framework risk identification assessment core operational risk management framework risk identification assessment comprehensive data collection process including firmwide policies procedures operational risk events established policies require revenueproducing units independent control support functions report escalate operational risk events operational risk events identified policies require events documented analyzed determine whether changes required systems andor processes mitigate risk future events addition systems capture internal operational risk event data key metrics transaction volumes statistical information performance trends use internally developed operational risk management application aggregate organize information one key risk identification assessment tools operational risk control selfassessment process performed managers revenueproducing units independent control support functions process consists identification rating operational risks forwardlooking basis related controls results process analyzed evaluate operational risk exposures identify businesses activities products heightened levels operational risk measurement measure operational risk exposure twelvemonth time horizon using statistical modeling scenario analyses involve qualitative assessments potential frequency extent potential operational risk losses businesses operational risk measurement incorporates qualitative quantitative assessments factors including • internal external operational risk event data • assessments internal controls • evaluations complexity business activities • degree potential automation processes • new activity information • legal regulatory environment • changes markets products services including diversity sophistication customers counterparties • liquidity capital markets reliability infrastructure supports capital markets results scenario analyses used monitor changes operational risk determine business lines may heightened exposure operational risk analyses ultimately used determination appropriate level operational risk capital hold risk monitoring reporting evaluate changes operational risk profile firm businesses including changes business mix jurisdictions operate monitoring factors noted firmwide level preventive detective internal controls designed reduce frequency severity operational risk losses probability operational risk events monitor results assessments independent internal audits internal controls also provide periodic operational risk reports senior management risk committees board addition established thresholds monitor impact operational risk event including single loss events cumulative losses twelvemonth period well escalation protocols also provide periodic operational risk reports include incidents breach escalation thresholds senior management firmwide divisional risk committees risk committee board model review validation statistical models utilized operational risk management subject independent review validation model risk management see “model risk management” information review validation models goldman sachs group inc subsidiaries management’s discussion analysis model risk management overview model risk potential adverse consequences decisions made based model outputs may incorrect used inappropriately rely quantitative models across business activities primarily value certain financial assets liabilities monitor manage risk measure monitor regulatory capital model risk management framework managed governance structure risk management controls encompass standards designed ensure maintain comprehensive model inventory including risk assessment classification sound model development practices independent review modelspecific usage controls firmwide risk committee firmwide model risk control committee oversee model risk management framework model risk management independent model developers model owners model users reports chief risk officer responsible identifying reporting significant risks associated models provides periodic updates senior management risk committees risk committee board model review validation model risk management consists quantitative professionals perform independent review validation approval models review includes analysis model documentation independent testing assessment appropriateness methodology used verification compliance model development implementation standards model risk management reviews existing models annual basis well new models significant changes models model validation process incorporates review models trade risk parameters across broad range scenarios including extreme conditions order critically evaluate verify • model’s conceptual soundness including reasonableness model assumptions suitability intended use • testing strategy utilized model developers ensure models function intended • suitability calculation techniques incorporated model • model’s accuracy reflecting characteristics related product significant risks • model’s consistency models similar products • model’s sensitivity input parameters assumptions see “critical accounting policies fair value review valuation models” “liquidity risk management” “market risk management” “credit risk management” “operational risk management” information use models within areas item 7aitem 7 management’s discussion analysis financial condition results operations introduction goldman sachs group inc group inc parent company delaware corporation together consolidated subsidiaries leading global investment banking securities investment management firm provides wide range financial services substantial diversified client base includes corporations financial institutions governments individuals founded 1869 headquartered new york maintain offices major financial centers around world use terms “the firm” “we” “us” “our” mean group inc consolidated subsidiaries report activities four business segments investment banking institutional client services investing lending investment management see “results operations” information business segments references “this form 10k” annual report form 10k year ended december 31 2017 references “the consolidated financial statements” “supplemental financial information” part ii item 8 form 10k references 2017 2016 2015 refer years ended dates context requires december 31 2017 december 31 2016 december 31 2015 respectively reference future year refers year ending december 31 year certain reclassifications made previously reported amounts conform current presentation discussion analysis financial condition results operations included information may constitute “forwardlooking statements” within meaning safe harbor provisions us private securities litigation reform act 1995 forwardlooking statements historical facts instead represent beliefs regarding future events many nature inherently uncertain outside control statements include statements historical information statements current conditions may relate future plans objectives results among things may also include statements effect changes capital leverage liquidity longterm debt total lossabsorbing capacity rules applicable banks bank holding companies bhcs impact us doddfrank wall street reform consumer protection act doddfrank act businesses operations various legal proceedings governmental investigations mortgagerelated contingencies set forth notes 27 18 respectively consolidated financial statements well statements results doddfrank act firm stress tests statements objectives effectiveness business continuity plan information security program risk management liquidity policies statements resolution plan resolution strategy implications debtholders stakeholders statements design effectiveness resolution capital liquidity models triggers alerts framework statements trends growth opportunities businesses statements future status activities reporting us nonus banking financial regulation statements investment banking transaction backlog statements estimated effects tax cuts jobs act tax legislation statements average liquidity coverage ratio lcr statements strategic growth initiatives identifying statements manner alerting possibility actual results financial condition may differ possibly materially anticipated results financial condition indicated forwardlooking statements important factors could cause actual results financial condition differ indicated forwardlooking statements include among others described “risk factors” part item 1a form 10k “cautionary statement pursuant us private securities litigation reform act 1995” part item 1 form 10k goldman sachs group inc subsidiaries management’s discussion analysis executive overview 2017 versus 2016 generated net earnings 429 billion diluted earnings per common share 901 2017 decrease 42 45 respectively compared 740 billion 1629 per share 2016 return average common shareholders’ equity 49 2017 compared 94 2016 book value per common share 18100 december 2017 08 lower compared december 2016 fourth quarter 2017 recorded 440 billion estimated income tax expense related tax legislation excluding expense diluted earnings per common share 1976 return average common shareholders’ equity 108 2017 see “results operations financial overview” information nongaap measures including calculation diluted earnings per common share return average common shareholders’ equity excluding estimated impact tax legislation see “results operations provision taxes” information tax legislation net revenues 3207 billion 2017 5 higher 2016 due significantly higher net revenues investing lending higher net revenues investment banking investment management increases partially offset lower net revenues institutional client services primarily reflecting significantly lower net revenues fixed income currency commodities client execution ficc client execution operating expenses 2094 billion 2017 3 higher 2016 due slightly higher noncompensation expenses compensation benefits expenses returned 790 billion capital common shareholders 2017 including 672 billion common share repurchases 118 billion common stock dividends common equity tier 1 cet1 ratio calculated accordance standardized approach basel iii advanced approach case reflecting applicable transitional provisions 121 109 respectively december 2017 see note 20 consolidated financial statements information capital ratios 2017 announced strategic growth initiatives emphasis growing earnings returns accomplish initiatives continue make investments businesses including technology talent exploring new opportunities estimate initiatives could generate 5 billion incremental net revenues 25 billion incremental pretax earnings 2020 2016 versus 2015 generated net earnings 740 billion diluted earnings per common share 1629 2016 increase 22 34 respectively compared 608 billion 1214 per share 2015 return average common shareholders’ equity 94 2016 compared 74 2015 book value per common share 18247 december 2016 67 higher compared december 2015 net revenues 3061 billion 2016 9 lower 2015 due significantly lower net revenues investing lending lower net revenues investment banking institutional client services investment management results reflected impact challenging operating environment first half 2016 particularly first quarter although environment improved second half year operating expenses 2030 billion 2016 19 lower 2015 primarily due significantly lower noncompensation expenses primarily reflecting significantly lower net provisions mortgagerelated litigation regulatory matters 2015 included provisions related settlement agreement residential mortgagebacked securities working group us financial fraud enforcement task force rmbs working group well lower market development expenses professional fees reflecting expense savings initiatives compensation benefits expenses also lower reflecting decrease net revenues impact expense savings initiatives returned 720 billion capital common shareholders 2016 including 607 billion common share repurchases 113 billion common stock dividends cet1 ratio calculated accordance standardized approach basel iii advanced approach case reflecting applicable transitional provisions 145 131 respectively december 2016 see note 20 consolidated financial statements information capital ratios goldman sachs group inc subsidiaries management’s discussion analysis business environment global 2017 real gross domestic product gdp growth appeared generally increase compared 2016 advanced emerging market economies advanced economies real gdp growth higher us euro area japan decreased slightly uk emerging markets real gdp growth increased slightly china appeared decrease india real gdp appeared grow russia brazil compared contractions 2016 broadly global macroeconomic data remained strong throughout 2017 volatility equity fixed income currency commodity markets low major elections held france uk germany china none events resulted significant volatility across markets major central banks continued gradually tighten stance monetary policy us federal reserve increased target interest rate three times began process balance sheet normalization investment banking industrywide announced completed mergers acquisitions transactions remained solid 2017 although volumes declined compared 2016 industrywide offerings equity underwriting increased significantly compared 2016 industrywide debt underwriting offerings remained strong particularly leveraged finance activity united states us real gdp increased 23 2017 compared increase 15 2016 growth business fixed investment increased measures consumer confidence stronger average compared prior year unemployment rate declined 41 december 2017 housing starts sales prices increased compared 2016 measures inflation mixed us federal reserve increased target rate federal funds rate 25 basis points march june december meetings end year target range 125 150 september us federal reserve formally announced process balance sheet normalization previously us federal reserve reinvested proceeds maturity bonds balance sheet since october 2017 6 billion us treasury securities 4 billion agency debt mortgagebacked securities matured month without reinvestment proceeds monthly allowances expected rise gradually time peak levels 30 billion 20 billion respectively yield 10year us treasury note decreased 5 basis points 2017 240 price natural gas decreased 21 compared end 2016 295 per million british thermal units price crude oil wti increased 12 approximately 60 per barrel equity markets nasdaq composite index dow jones industrial average sp 500 index increased 28 25 19 respectively 2017 europe euro area real gdp increased 25 2017 compared increase 17 2016 net exports improved growth consumer spending fixed investment slowed slightly measures inflation remained subdued prompting european central bank ecb announce extension asset purchase program fourth quarter 2017 although pace monthly asset purchases decreased 60 billion 30 billion beginning january 2018 ecb maintained main refinancing operations rate 000 deposit rate 040 euro appreciated 14 us dollar yields 10year government bonds euro area generally increased year equity markets dax index cac 40 index euro stoxx 50 index increased 13 9 6 respectively 2017 process negotiating arrangement withdrawal uk eu began resulting agreement certain issues december negotiations shifted transitional arrangements uk real gdp increased 17 2017 compared increase 19 2016 inflation increased materially 2017 prompting bank england raise official bank rate 25 basis points november british pound appreciated 10 us dollar 2017 yields 10year government bonds uk decreased slightly year equity markets ftse 100 index increased 8 2017 asia japan real gdp increased 16 2017 compared increase 09 2016 bank japan maintained negative interest rate policy continued target yield 10year japanese government bonds approximately 0 yield 10year japanese government bonds essentially unchanged us dollar depreciated 4 japanese yen nikkei 225 index increased 19 2017 china real gdp increased 69 2017 compared increase 67 2016 people’s bank china slightly tightened stance monetary policy early 2017 measures inflation decreased us dollar depreciated 6 chinese yuan equity markets hang seng index shanghai composite index increased 36 7 respectively 2017 india real gdp appeared increase 62 2017 compared increase 79 2016 rate inflation decreased compared 2016 us dollar depreciated 6 indian rupee bse sensex index increased 28 2017 goldman sachs group inc subsidiaries management’s discussion analysis markets brazil real gdp appeared increase 11 2017 compared contraction 35 2016 us dollar appreciated 2 brazilian real bovespa index increased 27 russia real gdp appeared increase 15 2017 compared contraction 02 2016 us dollar depreciated 6 russian ruble micex index decreased 6 2017 critical accounting policies fair value fair value hierarchy financial instruments owned financial instruments sold yet purchased ie inventory well certain financial assets financial liabilities included consolidated statements financial condition fair value ie markedtomarket related gains losses generally recognized consolidated statements earnings use fair value measure financial instruments fundamental risk management practices critical accounting policy fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date measure certain financial assets financial liabilities portfolio ie based net exposure market andor credit risks determining fair value hierarchy us generally accepted accounting principles us gaap gives highest priority unadjusted quoted prices active markets identical unrestricted assets liabilities level 1 inputs ii next priority inputs level 1 inputs observable either directly indirectly level 2 inputs iii lowest priority inputs cannot observed market activity level 3 inputs evaluating significance valuation input consider among factors portfolio’s net risk exposure input assets liabilities classified entirety based lowest level input significant fair value measurement fair values substantially financial assets financial liabilities based observable prices inputs classified levels 1 2 fair value hierarchy certain level 2 level 3 financial assets financial liabilities may require appropriate valuation adjustments market participant would require arrive fair value factors counterparty credit quality funding risk transfer restrictions liquidity bidoffer spreads instruments classified level 3 fair value hierarchy require one significant inputs observable december 2017 december 2016 level 3 financial assets represented 21 27 respectively total assets see notes 5 8 consolidated financial statements information level 3 financial assets including changes level 3 financial assets related fair value measurements absent evidence contrary instruments classified level 3 fair value hierarchy initially valued transaction price considered best initial estimate fair value subsequent transaction date use methodologies determine fair value vary based type instrument estimating fair value level 3 financial instruments requires judgments made judgments include • determining appropriate valuation methodology andor model type level 3 financial instrument • determining model inputs based evaluation relevant empirical market data including prices evidenced market transactions interest rates credit spreads volatilities correlations • determining appropriate valuation adjustments including related illiquidity counterparty credit quality regardless methodology valuation inputs assumptions changed corroborated substantive evidence controls valuation financial instruments market makers investment professionals revenueproducing units responsible pricing financial instruments control infrastructure independent revenueproducing units fundamental ensuring financial instruments appropriately valued marketclearing levels event difference opinion situations estimating fair value financial instruments requires judgment eg calibration market comparables trade comparison described final valuation decision made senior managers control support functions independent price verification critical ensuring financial instruments properly valued goldman sachs group inc subsidiaries management’s discussion analysis price verification financial instruments fair value classified levels 1 2 3 fair value hierarchy subject independent price verification process objective price verification informed independent opinion regard valuation financial instruments review instruments one significant inputs cannot corroborated external market data classified level 3 fair value hierarchy price verification strategies utilized independent control support functions include • trade comparison analysis trade data internal external available used determine relevant pricing inputs valuations • external price comparison valuations prices compared pricing data obtained third parties eg brokers dealers markit bloomberg idc trace data obtained various sources compared ensure consistency validity broker dealer quotations thirdparty pricing vendors used valuation price verification greater priority generally given executable quotations • calibration market comparables marketbased transactions used corroborate valuation positions similar characteristics risks components • relative value analyses marketbased transactions analyzed determine similarity measured terms risk liquidity return one instrument relative another given instrument one maturity relative another • collateral analyses margin calls derivatives analyzed determine implied values used corroborate valuations • execution trades appropriate trading desks instructed execute trades order provide evidence marketclearing levels • backtesting valuations corroborated comparison values realized upon sales see notes 5 8 consolidated financial statements information fair value measurements review net revenues independent control support functions ensure adherence pricing policy combination daily procedures including explanation attribution net revenues based underlying factors process independently validate net revenues identify resolve potential fair value trade booking issues timely basis seek ensure risks properly categorized quantified review valuation models independent model risk management group model risk management consisting quantitative professionals separate model developers performs independent model review validation process valuation models new changed models reviewed approved prior put use models evaluated reapproved annually assess impact changes product market developments pricing theories see “risk management model risk management” information review validation valuation models goodwill identifiable intangible assets goodwill cost acquired companies excess fair value net assets including identifiable intangible assets acquisition date goodwill assessed impairment annually fourth quarter frequently events occur circumstances change indicate impairment may exist assessing goodwill impairment first qualitative factors assessed determine whether likely estimated fair value reporting unit less estimated carrying value results qualitative assessment conclusive quantitative goodwill test performed comparing estimated fair value reporting unit estimated carrying value fourth quarter 2017 assessed goodwill impairment reporting units performing qualitative assessment qualitative assessment required management make judgments evaluate several factors included limited performance indicators firm industry events macroeconomic indicators fair value indicators based evaluation factors determined likely estimated fair value reporting units exceeded respective estimated carrying value therefore determined goodwill reporting unit impaired quantitative goodwill test required see note 13 consolidated financial statements information goodwill estimating fair value reporting units requires management make judgments critical inputs fair value estimates include projected earnings attributed equity inherent uncertainty projected earnings estimated net book value reporting unit reflects allocation total shareholders’ equity represents estimated amount total shareholders’ equity required support activities reporting unit currently applicable regulatory capital requirements see “equity capital management regulatory capital” information capital requirements goldman sachs group inc subsidiaries management’s discussion analysis experience prolonged severe period weakness business environment financial markets performance additional increases capital requirements goodwill could impaired future addition significant changes inputs quantitative goodwill test could cause estimated fair value reporting units decline could result impairment goodwill future identifiable intangible assets amortize identifiable intangible assets estimated useful lives generally using straightline method identifiable intangible assets tested impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable prolonged severe period market weakness significant changes regulation could adversely impact businesses impair value identifiable intangible assets addition certain events could indicate potential impairment identifiable intangible assets including weaker business performance resulting decrease customer base decreases revenues customer contracts relationships management judgment required evaluate whether indications potential impairment occurred test intangible assets impairment required impairment generally calculated difference estimated fair value carrying value asset group recognized total estimated undiscounted cash flows relating asset group less corresponding carrying value see note 13 consolidated financial statements information identifiable intangible assets recent accounting developments see note 3 consolidated financial statements information recent accounting developments use estimates us gaap requires management make certain estimates assumptions addition estimates make connection fair value measurements accounting goodwill identifiable intangible assets use estimates assumptions also important determining income tax expense related tax legislation provisions losses may arise litigation regulatory proceedings including governmental investigations allowance losses loans receivable lending commitments held investment provisions losses may arise tax audits estimate provide potential losses may arise litigation regulatory proceedings extent losses probable reasonably estimated addition estimate upper end range reasonably possible aggregate loss excess related reserves litigation regulatory proceedings believe risk loss slight see notes 18 27 consolidated financial statements information certain judicial litigation regulatory proceedings significant judgment required making estimates final liabilities may ultimately materially different total estimated liability respect litigation regulatory proceedings determined casebycase basis represents estimate probable losses considering among factors progress case proceeding investigation experience others similar cases proceedings investigations opinions views legal counsel accounting income taxes recorded estimated impact tax legislation made assumptions judgments regarding interpretations tax legislation addition accounting income taxes recognize tax positions financial statements likely position sustained examination relevant taxing authority based technical merits position see note 24 consolidated financial statements information income taxes also estimate record allowance losses related loans receivable lending commitments held investment management’s estimate loan losses entails judgment loan collectability reporting dates uncertainties inherent judgments see note 9 consolidated financial statements information allowance losses loans receivable lending commitments held investment goldman sachs group inc subsidiaries management’s discussion analysis results operations composition net revenues varied time financial markets scope operations changed composition net revenues also vary shorter term due fluctuations us global economic market conditions see “risk factors” part item 1a form 10k information impact economic market conditions results operations financial overview table presents overview financial results selected financial ratios table • dividend payout ratio calculated dividing dividends declared per common share diluted earnings per common share • net earnings applicable common shareholders 2016 included benefit 266 million reflected preferred stock dividends related exchange apex shares series e series f preferred stock see note 19 consolidated financial statements information • return average common shareholders’ equity calculated dividing net earnings applicable common shareholders average monthly common shareholders’ equity return average total shareholders’ equity calculated dividing net earnings average monthly total shareholders’ equity table presents average common total shareholders’ equity • 2017 recorded 440 billion estimated income tax expense related tax legislation excluding expense diluted earnings per common share 1976 return average common shareholders’ equity 108 2017 believe presenting results excluding tax legislation meaningful excluding item increases comparability periodtoperiod results see “results operations provision taxes” information tax legislation diluted earnings per common share return average common shareholders’ equity excluding estimated impact tax legislation nongaap measures may comparable similar nongaap measures used companies tables present calculation net earnings applicable common shareholders diluted earnings per common share average common shareholders’ equity excluding estimated impact tax legislation • 2017 required adopted asu 201609 “compensation stock compensation topic 718 improvements employee sharebased payment accounting” impact adoption reduction provision taxes 719 million 2017 increased diluted earnings per common share approximately 175 return average common shareholders’ equity approximately 10 percentage points see note 3 consolidated financial statements information asu • 2015 recorded provisions 337 billion related settlement agreement rmbs working group reduced diluted earnings per common share 653 return average common shareholders’ equity 38 percentage points 2015 see note 27 consolidated financial statements part ii item 8 annual report form 10k year ended december 31 2015 information goldman sachs group inc subsidiaries management’s discussion analysis net revenues table presents net revenues line item consolidated statements earnings table • investment banking consists revenues excluding net interest financial advisory underwriting assignments well derivative transactions directly related assignments activities included investment banking segment • investment management consists revenues excluding net interest providing investment management services diverse set clients well wealth advisory services certain transaction services highnetworth individuals families activities included investment management segment • commissions fees consists revenues executing clearing client transactions major stock options futures exchanges worldwide well overthecounter otc transactions activities included institutional client services investment management segments • market making consists revenues excluding net interest client execution activities related making markets interest rate products credit products mortgages currencies commodities equity products activities included institutional client services segment • principal transactions consists revenues excluding net interest investing activities origination loans provide financing clients addition principal transactions includes revenues related consolidated investments activities included investing lending segment operating environment 2017 generally higher asset prices tighter credit spreads supportive industrywide underwriting activities investment management performance principal transactions however low levels volatility equity fixed income currency commodity markets continued negatively affect marketmaking activities particularly fixed income currency commodity products price natural gas decreased significantly 2017 price oil increased compared end 2016 trend low volatility continues long term marketmaking activity levels remain low investment banking activity levels asset prices assets supervision decline net revenues would likely negatively impacted see “segment operating results” information operating environment material trends uncertainties may impact results operations first half 2016 included challenging trends operating environment business activities including concerns uncertainties global economic growth central bank activity political uncertainty economic implications surrounding potential exit uk eu second half 2016 operating environment improved global equity markets steadily increased investment grade highyield credit spreads tightened trends provided favorable backdrop business activities 2017 versus 2016 net revenues consolidated statements earnings 3207 billion 2017 5 higher 2016 due significantly higher principal transactions revenues higher investment banking revenues investment management revenues net interest income increases partially offset significantly lower market making revenues lower commissions fees noninterest revenues investment banking revenues consolidated statements earnings 737 billion 2017 18 higher 2016 revenues financial advisory higher compared 2016 reflecting increase completed mergers acquisitions transactions revenues underwriting significantly higher compared 2016 due significantly higher revenues debt underwriting primarily reflecting increase industrywide leveraged finance activity equity underwriting reflecting increase industrywide secondary offerings goldman sachs group inc subsidiaries management’s discussion analysis investment management revenues consolidated statements earnings 580 billion 2017 7 higher 2016 due higher management fees reflecting higher average assets supervision higher transaction revenues commissions fees consolidated statements earnings 305 billion 2017 5 lower 2016 reflecting decline listed cash equity volumes us market volumes us also declined market making revenues consolidated statements earnings 766 billion 2017 23 lower 2016 due significantly lower revenues commodities currencies credit products interest rate products equity derivative products results partially offset significantly higher revenues equity cash products significantly improved results mortgages principal transactions revenues consolidated statements earnings 526 billion 2017 64 higher 2016 primarily reflecting significant increase net gains private equities positively impacted companyspecific events corporate performance addition net gains public equities significantly higher global equity prices increased year net interest income net interest income consolidated statements earnings 293 billion 2017 13 higher 2016 reflecting increase interest income primarily due impact higher interest rates collateralized agreements higher interest income loans receivable due higher yields increase total average loans receivable increase total average financial instruments owned impact higher interest rates interestearning assets deposits banks increase interest income partially offset higher interest expense primarily due impact higher interest rates interestbearing liabilities increase total average longterm borrowings impact higher interest rates interestbearing deposits shortterm borrowings collateralized financings see “statistical disclosures distribution assets liabilities shareholders’ equity” information sources net interest income 2016 versus 2015 net revenues consolidated statements earnings 3061 billion 2016 9 lower 2015 reflecting impact challenging operating environment first half 2016 particularly first quarter although environment improved second half year decrease net revenues primarily due significantly lower principal transactions revenues lower investment banking revenues net interest income investment management revenues addition commissions fees slightly lower results partially offset slightly higher market making revenues noninterest revenues investment banking revenues consolidated statements earnings 627 billion 2016 11 lower compared strong 2015 revenues financial advisory lower compared strong 2015 reflecting decrease industrywide transactions revenues underwriting lower compared strong 2015 due significantly lower revenues equity underwriting reflecting decrease industrywide volumes revenues debt underwriting significantly higher reflecting significantly higher revenues assetbacked activity higher revenues leveraged finance activity investment management revenues consolidated statements earnings 541 billion 2016 8 lower 2015 primarily reflecting significantly lower incentive fees compared strong 2015 addition management fees slightly lower reflecting shifts mix client assets strategies partially offset impact higher average assets supervision commissions fees consolidated statements earnings 321 billion 2016 3 lower 2015 reflecting lower listed cash equity volumes asia europe consistent market volumes regions market making revenues consolidated statements earnings 993 billion 2016 4 higher 2015 due significantly higher revenues interest rate products credit products results partially offset significantly lower revenues equity cash products lower revenues currencies mortgages equity derivative products commodities goldman sachs group inc subsidiaries management’s discussion analysis principal transactions revenues consolidated statements earnings 320 billion 2016 36 lower 2015 primarily due significantly lower revenues investments equities primarily reflecting significant decrease net gains private equities driven companyspecific events corporate performance addition revenues debt securities loans significantly lower compared 2015 reflecting significantly lower revenues related relationship lending activities due impact changes credit spreads economic hedges losses related hedges 596 million 2016 compared gains 329 million 2015 decrease partially offset higher net gains investments debt instruments see note 9 consolidated financial statements information economic hedges related relationship lending activities net interest income net interest income consolidated statements earnings 259 billion 2016 16 lower 2015 reflecting increase interest expense primarily due impact higher interest rates interestbearing liabilities interestbearing deposits collateralized financings increases total average longterm borrowings total average interestbearing deposits increase interest expense partially offset higher interest income related collateralized agreements reflecting impact higher interest rates loans receivable reflecting increase total average balances impact higher interest rates see “statistical disclosures distribution assets liabilities shareholders’ equity” information sources net interest income operating expenses operating expenses primarily influenced compensation headcount levels business activity compensation benefits includes salaries discretionary compensation amortization equity awards items benefits discretionary compensation significantly impacted among factors level net revenues overall financial performance prevailing labor markets business mix structure sharebased compensation programs external environment addition see “use estimates” information expenses may arise litigation regulatory proceedings context challenging environment completed initiative 2016 identified areas operate efficiently resulting reduction approximately 900 million annual run rate compensation 2016 net savings initiative severance related costs approximately 500 million table presents operating expenses total staff including employees consultants temporary staff table expenses 2015 included 337 billion recorded settlement agreement rmbs working group see note 27 consolidated financial statements part ii item 8 annual report form 10k year ended december 31 2015 information 2017 versus 2016 operating expenses consolidated statements earnings 2094 billion 2017 3 higher 2016 compensation benefits expenses consolidated statements earnings 1185 billion 2017 2 higher 2016 ratio compensation benefits net revenues 2017 370 compared 381 2016 noncompensation expenses consolidated statements earnings 909 billion 2017 5 higher 2016 primarily driven investments fund growth increase compared 2016 reflected higher expenses related consolidated investments digital lending deposit platform marcus goldman sachs marcus increases primarily included depreciation amortization expenses market development expenses addition technology expenses increased reflecting higher expenses related cloudbased services software depreciation professional fees increased primarily related consulting costs increases partially offset lower net provisions litigation regulatory proceedings lower occupancy expenses primarily related exit costs 2016 net provisions litigation regulatory proceedings 2017 188 million compared 396 million 2016 2017 included 127 million charitable contribution goldman sachs gives donoradvised fund compensation reduced fund charitable contribution goldman sachs gives ask participating managing directors make recommendations regarding potential charitable recipients contribution goldman sachs group inc subsidiaries management’s discussion analysis december 2017 total staff increased 6 compared december 2016 reflecting investments technology marcus support regulatory efforts 2016 versus 2015 operating expenses consolidated statements earnings 2030 billion 2016 19 lower 2015 compensation benefits expenses consolidated statements earnings 1165 billion 2016 8 lower 2015 reflecting decrease net revenues impact expense savings initiatives ratio compensation benefits net revenues 2016 381 compared 375 2015 noncompensation expenses consolidated statements earnings 866 billion 2016 30 lower 2015 primarily due significantly lower net provisions mortgagerelated litigation regulatory matters included expenses addition market development expenses professional fees lower compared 2015 reflecting expense savings initiatives net provisions litigation regulatory proceedings 2016 396 million compared 401 billion 2015 primarily related net provisions mortgagerelated matters 2016 included 114 million charitable contribution goldman sachs gives compensation reduced fund charitable contribution goldman sachs gives ask participating managing directors make recommendations regarding potential charitable recipients contribution december 2016 total staff decreased 7 compared december 2015 due expense savings initiatives provision taxes effective income tax rate 2017 615 282 2016 increase compared 2016 reflected estimated impact tax legislation enacted december 22 2017 among things lowers us corporate income tax rates january 1 2018 implements territorial tax system imposes repatriation tax deemed repatriated earnings foreign subsidiaries estimated impact tax legislation increase income tax expense 440 billion 332 billion due repatriation tax 108 billion due effects implementation territorial tax system remeasurement us deferred tax assets lower enacted corporate tax rates impact tax legislation may differ estimate possibly materially due among things refinement calculations based updated information ii changes interpretations assumptions iii guidance may issued iv actions may take result tax legislation excluding estimated impact tax legislation effective income tax rate 2017 220 282 2016 decrease primarily due tax benefits settlement employee sharebased awards accordance asu 201609 impact settlements 2017 reduction provision taxes 719 million reduction effective income tax rate 64 percentage points see note 3 consolidated financial statements information asu effective income tax rate excluding estimated impact tax legislation nongaap measure may comparable similar nongaap measures used companies believe presenting effective income tax rate excluding estimated impact tax legislation meaningful excluding item increases comparability periodtoperiod results table presents calculation effective income tax rate excluding estimated impact tax legislation effective income tax rate 2016 282 307 2015 decline compared 2015 primarily due impact nondeductible provisions mortgagerelated litigation regulatory matters 2015 partially offset impact changes tax law deferred tax assets mix earnings increase related higher enacted tax rates impacting certain uk subsidiaries 2016 effective january 1 2018 tax legislation reduced us corporate tax rate 21 percent eliminated tax deductions certain expenses enacted two new taxes base erosion antiabuse tax beat global intangible low taxed income gilti beat alternative minimum tax applies banks pay 2 percent total deductible expenses certain foreign subsidiaries gilti 105 percent tax allowable credits foreign taxes paid annual earnings profits certain foreign subsidiaries based current understanding rules impact beat gilti expected material effective income tax rate goldman sachs group inc subsidiaries management’s discussion analysis segment operating results table presents net revenues operating expenses pretax earnings segments table • operating expenses included 337 billion recorded institutional client services 2015 related settlement agreement rmbs working group see note 27 consolidated financial statements part ii item 8 annual report form 10k year ended december 31 2015 information • operating expenses allocated segments except charitable contributions 127 million 2017 114 million 2016 148 million 2015 net revenues segments include allocations interest income interest expense specific securities commodities positions relation cash generated funding requirements underlying positions see note 25 consolidated financial statements information business segments cost drivers taken whole compensation headcount levels business activity broadly similar business segments compensation benefits expenses within segments reflect among factors overall performance well performance individual businesses consequently pretax margins one segment business may significantly affected performance business segments description segment operating results follows investment banking investment banking segment consists financial advisory includes strategic advisory assignments respect mergers acquisitions divestitures corporate defense activities restructurings spinoffs risk management derivative transactions directly related client advisory assignments underwriting includes public offerings private placements including local crossborder transactions acquisition financing wide range securities financial instruments including loans derivative transactions directly related client underwriting activities table presents operating results investment banking segment table presents financial advisory underwriting transaction volumes goldman sachs group inc subsidiaries management’s discussion analysis table • volumes per dealogic prior periods conformed reflect volumes per dealogic • announced completed mergers acquisitions volumes based full credit advisors transaction equity equityrelated offerings debt offerings based full credit single book managers equal credit joint book managers transaction volumes may indicative net revenues given period addition transaction volumes prior periods may vary amounts previously reported due subsequent withdrawal change value transaction • equity equityrelated offerings includes rule 144a public common stock offerings convertible offerings rights offerings • debt offerings includes nonconvertible preferred stock mortgagebacked securities assetbacked securities taxable municipal debt includes publicly registered rule 144a issues excludes leveraged loans operating environment 2017 industrywide announced completed mergers acquisitions transactions remained solid increasing slightly compared 2016 although volumes declined compared prior year underwriting generally higher equity prices tighter credit spreads 2017 continued contribute relatively favorable financing environment industrywide debt underwriting offerings remained strong particularly leveraged finance activity industrywide equity underwriting offerings increased significantly 2017 compared weak backdrop new issuances 2016 future industrywide mergers acquisitions transactions decline volumes continue decline industrywide activity levels debt underwriting equity underwriting decline net revenues investment banking would likely negatively impacted 2016 investment banking operated environment characterized robust industrywide mergers acquisitions activity industrywide equity underwriting volumes decreased significantly compared strong levels 2015 industrywide debt underwriting volumes increased compared 2015 2017 versus 2016 net revenues investment banking 737 billion 2017 18 higher 2016 net revenues financial advisory 319 billion 9 higher 2016 reflecting increase completed mergers acquisitions transactions net revenues underwriting 418 billion 25 higher 2016 due significantly higher net revenues debt underwriting primarily reflecting increase industrywide leveraged finance activity equity underwriting reflecting increase industrywide secondary offerings operating expenses 353 billion 2017 3 higher 2016 due increased compensation benefits expenses reflecting higher net revenues pretax earnings 385 billion 2017 36 higher 2016 december 2017 investment banking transaction backlog increased compared end 2016 due significantly higher estimated net revenues potential debt underwriting transactions significantly higher estimated net revenues potential equity underwriting transactions primarily initial public offerings increases partially offset lower estimated net revenues potential advisory transactions principally related mergers acquisitions investment banking transaction backlog represents estimate future net revenues investment banking transactions believe future revenue realization likely believe changes investment banking transaction backlog may useful indicator client activity levels long term impact net revenues however time frame completion corresponding revenue recognition transactions backlog varies based nature assignment certain transactions may remain backlog longer periods time others may enter leave within reporting period addition transaction backlog subject certain limitations assumptions likelihood individual client transactions occur future transactions may cancelled modified transactions included estimate may also occur 2016 versus 2015 net revenues investment banking 627 billion 2016 11 lower compared strong 2015 net revenues financial advisory 293 billion 16 lower compared strong 2015 reflecting decrease industrywide transactions net revenues underwriting 334 billion 6 lower compared strong 2015 due significantly lower net revenues equity underwriting reflecting decrease industrywide volumes net revenues debt underwriting significantly higher reflecting significantly higher net revenues assetbacked activity higher net revenues leveraged finance activity goldman sachs group inc subsidiaries management’s discussion analysis operating expenses 344 billion 2016 7 lower 2015 due decreased compensation benefits expenses reflecting lower net revenues pretax earnings 284 billion 2016 14 lower 2015 december 2016 investment banking transaction backlog lower compared strong level backlog end 2015 primarily due lower estimated net revenues potential advisory transactions significantly lower estimated net revenues potential debt underwriting transactions principally reflecting decreases mergers acquisitions activity acquisitionrelated financing respectively estimated net revenues potential equity underwriting transactions slightly lower compared end 2015 institutional client services institutional client services segment consists fixed income currency commodities client execution includes client execution activities related making markets cash derivative instruments interest rate products credit products mortgages currencies commodities • interest rate products government bonds including inflationlinked securities across maturities governmentbacked securities repurchase agreements interest rate swaps options derivatives • credit products investmentgrade corporate securities highyield securities credit derivatives exchangetraded funds bank bridge loans municipal securities emerging market distressed debt trade claims • mortgages commercial mortgagerelated securities loans derivatives residential mortgagerelated securities loans derivatives including us government agencyissued collateralized mortgage obligations securities loans assetbacked securities loans derivatives • currencies currency options spotforwards derivatives g10 currencies emergingmarket products • commodities commodity derivatives lesser extent physical commodities involving crude oil petroleum products natural gas base precious metals electricity coal agricultural commodity products equities includes client execution activities related making markets equity products commissions fees executing clearing institutional client transactions major stock options futures exchanges worldwide well otc transactions equities also includes securities services business provides financing securities lending prime brokerage services institutional clients including hedge funds mutual funds pension funds foundations generates revenues primarily form interest rate spreads fees marketmaking activities market maker facilitate transactions liquid less liquid markets primarily institutional clients corporations financial institutions investment funds governments assist clients meeting investment objectives managing risks role seek earn difference price market participant willing sell instrument us price another market participant willing buy us vice versa ie bidoffer spread addition maintain inventory typically short period time response anticipation client demand also hold inventory actively manage risk exposures arise marketmaking activities marketmaking inventory recorded financial instruments owned long positions financial instruments sold yet purchased short positions consolidated statements financial condition results influenced combination interconnected drivers including client activity levels transactional bidoffer spreads collectively client activity ii changes fair value inventory interest income interest expense related holding hedging funding inventory collectively marketmaking inventory changes due integrated nature marketmaking activities disaggregation net revenues client activity marketmaking inventory changes judgmental inherent complexities limitations amount composition net revenues vary time drivers impacted multiple interrelated factors affecting economic market conditions including volatility liquidity market changes interest rates currency exchange rates credit spreads equity prices commodity prices investor confidence macroeconomic concerns uncertainties goldman sachs group inc subsidiaries management’s discussion analysis general assuming marketmaking conditions remain constant increases client activity levels bidoffer spreads tend result increases net revenues decreases tend opposite effect however changes marketmaking conditions materially impact client activity levels bidoffer spreads well fair value inventory example decrease liquidity market could impact increasing bidoffer spread ii decreasing investor confidence thereby decreasing client activity levels iii wider credit spreads inventory positions table presents operating results institutional client services segment table presents net revenues institutional client services segment line item consolidated statements earnings see “net revenues” information market making revenues commissions fees net interest income table • difference commissions fees consolidated statements earnings represents commissions fees included investment management segment • see note 25 consolidated financial statements net interest income business segment • primary driver net revenues ficc client execution periods table client activity operating environment low volatility levels equity fixed income currency commodity markets consistent theme 2017 impacting operating environment institutional client services throughout year 2017 average vix declined 1110 compared 1584 2016 us european interest rates experienced historically low volatility levels volatility g10 currencies near 10year lows continued negatively affect client activity across businesses particularly ficc client execution 2017 although marketmaking conditions remained challenging including price natural gas decreasing 21 compared end 2016 295 per million british thermal units positives financial markets global equity markets continued increase msci world index 22 2017 credit spreads continued generally tighten 2017 addition price oil increased 12 compared end 2016 approximately 60 per barrel wti trend low volatility continues long term activity levels remain low net revenues institutional client services would likely continue negatively impacted see “business environment” information economic market conditions global operating environment year first half 2016 included challenging trends operating environment institutional client services including concerns uncertainties global economic growth central bank activity political uncertainty economic implications surrounding potential exit uk eu second half 2016 operating environment improved global equity markets steadily increased investment grade highyield credit spreads tightened trends drove improved client sentiment marketmaking conditions second half 2016 goldman sachs group inc subsidiaries management’s discussion analysis 2017 versus 2016 net revenues institutional client services 1190 billion 2017 18 lower 2016 net revenues ficc client execution 530 billion 2017 30 lower 2016 reflecting significantly lower client activity approximately onethird decline ficc client execution net revenues due significantly lower results commodities following provides details ficc client execution net revenues business compared 2016 results • net revenues commodities significantly lower reflecting impact challenging marketmaking conditions inventory • net revenues interest rate products significantly lower reflecting lower client activity • net revenues currencies significantly lower reflecting lower client activity impact challenging marketmaking conditions inventory • net revenues credit products significantly lower reflecting lower client activity • net revenues mortgages significantly higher reflecting impact favorable marketmaking conditions inventory including generally tighter spreads compared challenging 2016 net revenues equities 660 billion 4 lower 2016 primarily due lower commissions fees reflecting decline listed cash equity volumes us market volumes us also declined addition net revenues equities client execution lower reflecting lower net revenues derivatives partially offset higher net revenues cash products net revenues securities services essentially unchanged operating expenses 969 billion 2017 essentially unchanged compared 2016 due decreased compensation benefits expenses reflecting lower net revenues largely offset increased technology expenses reflecting higher expenses related cloudbased services software depreciation increased consulting costs pretax earnings 221 billion 2017 54 lower 2016 versus 2015 net revenues institutional client services 1447 billion 2016 5 lower 2015 net revenues ficc client execution 756 billion 2016 3 higher 2015 increase primarily driven impact changes market making conditions inventory following provides details ficc client execution net revenues business compared 2015 results • net revenues credit products significantly higher reflecting improved marketmaking conditions including generally tighter spreads higher client activity levels compared low activity 2015 • net revenues interest rate products higher reflecting higher client activity levels • net revenues mortgages significantly lower reflecting less favorable marketmaking conditions including generally wider spreads • net revenues currencies lower reflecting less favorable marketmaking conditions emerging markets products compared 2015 included strong first quarter 2015 • net revenues commodities lower reflecting significantly lower client activity net revenues equities 691 billion 12 lower 2015 primarily due significantly lower net revenues equities client execution reflecting significantly lower net revenues cash products primarily asia well lower net revenues derivatives commissions fees slightly lower reflecting lower listed cash equity volumes asia europe consistent market volumes regions net revenues securities services essentially unchanged compared 2015 elect fair value option certain unsecured borrowings 2015 fair value net gain attributable impact changes credit spreads borrowings 255 million 214 million 41 million related ficc client execution equities client execution respectively 2016 adopted requirement asu 201601 present separately gains losses comprehensive income amount included accumulated comprehensive loss 2016 loss 844 million 544 million net tax see note 3 consolidated financial statements information asu 201601 operating expenses 971 billion 2016 30 lower 2015 primarily due significantly lower net provisions mortgagerelated litigation regulatory matters decreased compensation benefits expenses reflecting lower net revenues pretax earnings 475 billion 2016 compared 121 billion 2015 goldman sachs group inc subsidiaries management’s discussion analysis investing lending investing lending includes investing activities origination loans including relationship lending activities provide financing clients investments loans typically longerterm nature make investments consolidated including merchant banking business special situations group debt securities loans public private equity securities infrastructure real estate entities investments made indirectly funds manage also make unsecured secured loans retail clients digital platforms marcus goldman sachs private bank select gs select respectively table presents operating results investing lending segment operating environment 2017 generally higher global equity prices tighter credit spreads contributed favorable environment equity debt investments results also reflected net gains companyspecific events including sales corporate performance environment contrasts 2016 first quarter 2016 market conditions difficult corporate performance particularly energy sector impacted challenging macroeconomic environment however market conditions improved rest 2016 macroeconomic concerns moderated macroeconomic concerns negatively affect companyspecific events corporate performance global equity markets decline credit spreads widen net revenues investing lending would likely negatively impacted 2017 versus 2016 net revenues investing lending 658 billion 2017 61 higher 2016 net revenues equity securities 458 billion including 382 billion net gains private equities 762 million net gains public equities net revenues equity securities 78 higher 2016 primarily reflecting significant increase net gains private equities positively impacted companyspecific events corporate performance addition net gains public equities significantly higher global equity prices increased year 458 billion net revenues equity securities approximately 60 driven net gains companyspecific events sales public equities net revenues debt securities loans 200 billion 33 higher 2016 reflecting significantly higher net interest income 2017 included approximately 180 billion net interest income net revenues debt securities loans 2017 also included impairment approximately 130 million secured loan operating expenses 280 billion 2017 17 higher 2016 due increased compensation benefits expenses reflecting higher net revenues increased expenses related consolidated investments increased expenses related marcus pretax earnings 379 billion 2017 compared 169 billion 2016 versus 2015 net revenues investing lending 408 billion 2016 25 lower 2015 net revenues equity securities 257 billion including 217 billion net gains private equities 402 million net gains public equities net revenues equity securities 32 lower 2015 primarily reflecting significant decrease net gains private equities driven companyspecific events corporate performance net revenues debt securities loans 151 billion 9 lower 2015 reflecting significantly lower net revenues related relationship lending activities due impact changes credit spreads economic hedges losses related hedges 596 million 2016 compared gains 329 million 2015 decrease partially offset higher net gains investments debt instruments higher net interest income see note 9 consolidated financial statements information economic hedges related relationship lending activities operating expenses 239 billion 2016 essentially unchanged compared 2015 pretax earnings 169 billion 2016 44 lower 2015 goldman sachs group inc subsidiaries management’s discussion analysis investment management investment management provides investment management services offers investment products primarily separately managed accounts commingled vehicles mutual funds private investment funds across major asset classes diverse set institutional individual clients investment management also offers wealth advisory services provided subsidiary ayco company lp including portfolio management financial planning counseling brokerage transaction services highnetworth individuals families assets supervision aus include client assets earn fee managing assets discretionary basis includes net assets mutual funds hedge funds credit funds private equity funds including real estate funds separately managed accounts institutional individual investors assets supervision also include client assets invested thirdparty managers bank deposits advisory relationships earn fee advisory services investment discretion assets supervision include selfdirected brokerage assets clients longterm assets supervision represent assets supervision excluding liquidity products liquidity products represent money market bank deposit assets supervision typically generate fees percentage net asset value vary asset class distribution channel affected investment performance well asset inflows redemptions asset classes alternative investment equity assets typically generate higher fees relative fixed income liquidity product assets average effective management fee excludes nonassetbased fees earned assets supervision 35 basis points 2017 2016 39 basis points 2015 certain circumstances also entitled receive incentive fees based percentage fund’s separately managed account’s return exceeds specified benchmark performance targets table presents operating results investment management segment table presents periodend assets supervision asset class table alternative investments primarily includes hedge funds credit funds private equity real estate currencies commodities asset allocation strategies table presents periodend assets supervision distribution channel table presents summary changes assets supervision table • total aus net inflowsoutflows 2017 included 23 billion inflows 20 billion total longterm aus 3 billion liquidity products connection acquisition portion verus investors’ outsourced chief investment officer business verus acquisition 5 billion equity asset outflows connection divestiture local australianfocused investment capabilities fund platform australian divestiture • total longterm aus net inflowsoutflows 2015 included 18 billion fixed income equity alternative investments asset inflows connection acquisition pacific global advisors’ solutions business goldman sachs group inc subsidiaries management’s discussion analysis table presents average monthly assets supervision asset class operating environment 2017 investment management operated environment characterized generally higher asset prices resulting appreciation equity fixed income assets addition longterm assets supervision increased net inflows primarily fixed income alternative investment assets increases partially offset net outflows liquidity products result mix average assets supervision 2017 shifted slightly liquidity products longterm assets supervision compared mix end 2016 future asset prices decline investors favor assets typically generate lower fees investors withdraw assets net revenues investment management would likely negatively impacted following challenging first quarter 2016 market conditions improved remainder 2016 higher asset prices resulting full year appreciation equity fixed income assets also assets supervision increased 2016 net inflows primarily fixed income assets liquidity products mix average assets supervision shifted slightly compared 2015 longterm assets supervision liquidity products management fees impacted many factors including inflows advisory services outflows activelymanaged mutual funds 2017 versus 2016 net revenues investment management 622 billion 2017 7 higher 2016 due higher management fees reflecting higher average assets supervision higher transaction revenues year total assets supervision increased 115 billion 149 trillion longterm assets supervision increased 128 billion including net market appreciation 86 billion primarily equity fixed income assets net inflows 42 billion includes 20 billion inflows connection verus acquisition 5 billion equity asset outflows connection australian divestiture primarily fixed income alternative investment assets liquidity products decreased 13 billion includes 3 billion inflows connection verus acquisition operating expenses 480 billion 2017 3 higher 2016 primarily due increased compensation benefits expenses reflecting higher net revenues pretax earnings 142 billion 2017 25 higher 2016 versus 2015 net revenues investment management 579 billion 2016 7 lower 2015 decrease primarily reflected significantly lower incentive fees compared strong 2015 addition management fees slightly lower reflecting shifts mix client assets strategies partially offset impact higher average assets supervision 2016 total assets supervision increased 127 billion 138 trillion longterm assets supervision increased 75 billion including net inflows 42 billion primarily fixed income assets net market appreciation 33 billion primarily equity fixed income assets addition liquidity products increased 52 billion operating expenses 465 billion 2016 4 lower 2015 due decreased compensation benefits expenses reflecting lower net revenues pretax earnings 113 billion 2016 17 lower 2015 geographic data see note 25 consolidated financial statements summary total net revenues pretax earnings net earnings geographic region goldman sachs group inc subsidiaries management’s discussion analysis balance sheet funding sources balance sheet management one risk management disciplines ability manage size composition balance sheet asset base changes due client activity market fluctuations business opportunities size composition balance sheet also reflects factors including overall risk tolerance ii amount equity capital hold iii funding profile among factors see “equity capital management regulatory capital equity capital management” information equity capital management process although balance sheet fluctuates daytoday basis total assets quarterend yearend dates generally materially different occurring within reporting periods order ensure appropriate risk management seek maintain sufficiently liquid balance sheet processes place dynamically manage assets liabilities include balance sheet planning ii balance sheet limits iii monitoring key metrics iv scenario analyses balance sheet planning prepare balance sheet plan combines projected total assets composition assets expected funding sources threeyear time horizon plan reviewed quarterly may adjusted response changing business needs market conditions objectives planning process • develop balance sheet projections taking account general state financial markets expected business activity levels well regulatory requirements • allow business risk managers independent control support functions objectively evaluate balance sheet limit requests business managers context overall balance sheet constraints including liability profile equity capital levels key metrics • inform target amount tenor type funding raise based projected assets contractual maturities business risk managers independent control support functions along business managers review current prior period information expectations year prepare balance sheet plan specific information reviewed includes asset liability size composition limit utilization risk performance measures capital usage consolidated balance sheet plan including balance sheets business funding projections projected key metrics reviewed approved firmwide finance committee see “risk management overview structure risk management” overview risk management structure balance sheet limits firmwide finance committee responsibility reviewing approving balance sheet limits set levels close actual operating levels rather levels reflect maximum risk appetite order ensure prompt escalation discussion among business managers independent control support functions routine basis firmwide finance committee reviews approves balance sheet limits quarterly basis may also approve changes limits frequent basis response changing business needs market conditions addition risk governance committee sets aged inventory limits certain financial instruments disincentive hold inventory longer periods time requests changes limits evaluated giving consideration impact key metrics compliance limits monitored daily basis business risk managers well managers independent control support functions monitoring key metrics monitor key balance sheet metrics daily business consolidated basis including asset liability size composition limit utilization risk measures allocate assets businesses review analyze movements resulting new business activity well market fluctuations scenario analyses conduct various scenario analyses including part comprehensive capital analysis review ccar doddfrank act stress tests dfast well resolution recovery planning see “equity capital management regulatory capital equity capital management” information scenario analyses scenarios cover shortterm longterm time horizons using various macroeconomic firmspecific assumptions based range economic scenarios use analyses assist us developing longerterm balance sheet management strategy including level composition assets funding equity capital additionally analyses help us develop approaches maintaining appropriate funding liquidity capital across variety situations including severely stressed environment goldman sachs group inc subsidiaries management’s discussion analysis balance sheet allocation addition preparing consolidated statements financial condition accordance us gaap prepare balance sheet generally allocates assets businesses nongaap presentation may comparable similar nongaap presentations used companies believe presenting assets basis meaningful consistent way management views manages risks associated assets better enables investors assess liquidity assets table presents balance sheet allocation 2017 aggregated global core liquid assets gcla cash securities segregated regulatory purposes related client activity previously included secured client financing previously reported amounts conformed current presentation following description captions table • gcla segregated assets maintain liquidity meet broad range potential cash outflows collateral needs stressed environment see “risk management liquidity risk management” details composition sizing gcla also segregate cash securities regulatory purposes related client activity securities segregated inventory well collateral obtained securities borrowed resale agreements addition maintain unrestricted operating cash balances primarily use specific currencies entities jurisdictions immediate access parent company liquidity • secured client financing provide collateralized financing client positions including margin loans secured client collateral securities borrowed resale agreements primarily collateralized government obligations secured client financing arrangements generally shortterm accounted fair value amounts approximate fair value include daily margin requirements mitigate counterparty credit risk • institutional client services institutional client services maintain inventory positions facilitate market making fixed income equity currency commodity products additionally part marketmaking activities enter resale securities borrowing arrangements obtain securities use inventory cover transactions clients sold securities yet purchased receivables institutional client services primarily relate securities transactions • investing lending investing lending make investments originate loans provide financing clients also make unsecured secured loans retail clients investments loans typically longerterm nature addition make investments directly indirectly funds manage debt securities loans public private equity securities infrastructure real estate entities investments december 2017 total equity included 207 billion private equity securities acquired 2017 regional composition total equity approximately 54 55 americas 18 europe middle east africa emea 28 27 asia december 2017 december 2016 respectively investing lending primarily includes receivables customers counterparties table presents details loans receivable consists loans held investment accounted amortized cost net allowance loan losses see note 9 consolidated financial statements information loans receivable goldman sachs group inc subsidiaries management’s discussion analysis assets generally less liquid nonfinancial assets including property leasehold improvements equipment goodwill identifiable intangible assets income taxrelated receivables miscellaneous receivables table presents reconciliation balance sheet allocation us gaap balance sheet table • total assets institutional client services investing lending represent inventory related assets amounts differ total assets business segment disclosed note 25 consolidated financial statements total assets disclosed note 25 include allocations gcla segregated assets secured client financing assets • see “balance sheet analysis metrics” explanations changes balance sheet december 2016 december 2017 balance sheet analysis metrics december 2017 total assets consolidated statements financial condition 91678 billion increase 5661 billion december 2016 primarily reflecting increases financial instruments owned 2004 billion loans receivable 1626 billion receivables customers counterparties 1233 billion increase financial instruments owned primarily reflected higher client activity increase availableforsale securities us government agency obligations corporate loans debt securities partially offset impact currency movements derivative valuations increase loans receivable primarily reflected increase loans corporate borrowers loans backed real estate increase receivables customers counterparties reflected client activity december 2017 total liabilities consolidated statements financial condition 83453 billion increase 6126 billion december 2016 primarily reflecting increases unsecured longterm borrowings 2860 billion collateralized financings 2344 billion deposits 1451 billion partially offset decrease payables customers counterparties 1257 billion increase unsecured longterm borrowings primarily due net new issuances increase collateralized financings reflected impact client firm activity increase deposits reflected increases institutional deposits marcus deposits decrease payables customers counterparties reflected client activity december 2017 december 2016 total securities sold agreements repurchase accounted collateralized financings 8472 billion 7182 billion respectively 2 lower 5 lower daily average amount repurchase agreements quarters ended december 2017 december 2016 respectively 1 lower 9 lower daily average amount repurchase agreements years ended december 2017 december 2016 respectively decrease repurchase agreements relative daily averages 2017 2016 resulted impact firm client activity end years table presents information balance sheet leverage ratios goldman sachs group inc subsidiaries management’s discussion analysis table • leverage ratio equals total assets divided total shareholders’ equity measures proportion equity debt use finance assets ratio different tier 1 leverage ratio included note 20 consolidated financial statements • debt equity ratio equals unsecured longterm borrowings divided total shareholders’ equity table presents information shareholders’ equity book value per common share including reconciliation total shareholders’ equity tangible common shareholders’ equity table • tangible common shareholders’ equity equals total shareholders’ equity less preferred stock goodwill identifiable intangible assets believe tangible common shareholders’ equity meaningful measure investors use assess capital adequacy tangible common shareholders’ equity nongaap measure may comparable similar nongaap measures used companies • book value per common share tangible book value per common share december 2017 reduced 1131 due estimated impact tax legislation see “results operations financial overview” “ provision taxes” information enactment tax legislation • book value per common share tangible book value per common share based common shares outstanding restricted stock units granted employees future service requirements collectively basic shares 3889 million 4148 million december 2017 december 2016 respectively believe tangible book value per common share tangible common shareholders’ equity divided basic shares meaningful measure investors use assess capital adequacy tangible book value per common share nongaap measure may comparable similar nongaap measures used companies funding sources primary sources funding secured financings unsecured longterm shortterm borrowings deposits seek maintain broad diversified funding sources globally across products programs markets currencies creditors avoid funding concentrations raise funding number different products including • collateralized financings repurchase agreements securities loaned secured financings • longterm unsecured debt including structured notes syndicated us registered offerings us registered rule 144a mediumterm note programs offshore mediumterm note offerings debt offerings • savings demand time deposits internal thirdparty brokerdealers well retail institutional clients • shortterm unsecured debt subsidiary level us nonus hybrid financial instruments methods funding primarily raised us dollar euro british pound japanese yen generally distribute funding products sales force thirdparty distributors large diverse creditor base variety markets americas europe asia believe relationships creditors critical liquidity creditors include banks governments securities lenders corporations pension funds insurance companies mutual funds individuals imposed various internal guidelines monitor creditor concentration across funding programs goldman sachs group inc subsidiaries management’s discussion analysis secured funding fund significant amount inventory secured basis including repurchase agreements securities loaned secured financings december 2017 december 2016 secured funding included collateralized financings consolidated statements financial condition 12430 billion 10086 billion respectively may also pledge inventory collateral securities borrowed securities lending agreement collateral derivative transactions also use inventory cover transactions clients sold securities yet purchased secured funding less sensitive changes credit quality unsecured funding due posting collateral lenders nonetheless continually analyze refinancing risk secured funding activities taking account trade tenors maturity profiles counterparty concentrations collateral eligibility counterparty rollover probabilities seek mitigate refinancing risk executing term trades staggered maturities diversifying counterparties raising excess secured funding prefunding residual risk gcla seek raise secured funding term appropriate liquidity assets financed seek longer maturities secured funding collateralized asset classes may harder fund secured basis especially times market stress secured funding excluding funding collateralized liquid government agency obligations primarily executed tenors one month greater primarily executed term repurchase agreements securities loaned contracts weighted average maturity secured funding included collateralized financings consolidated statements financial condition excluding funding collateralized liquid government agency obligations exceeded 120 days december 2017 assets may harder fund secured basis times market stress include certain financial instruments following categories mortgage assetbacked loans securities noninvestmentgrade corporate debt securities equity securities emerging market securities assets classified level 3 fair value hierarchy generally funded unsecured basis see notes 5 6 consolidated financial statements information classification financial instruments fair value hierarchy “unsecured longterm borrowings” information use unsecured longterm borrowings source funding also raise financing types collateralized financings secured loans notes goldman sachs bank usa gs bank usa access funding federal home loan bank december 2017 december 2016 outstanding borrowings federal home loan bank 340 billion 243 billion respectively gs bank usa also access funding federal reserve bank discount window rely funding liquidity planning stress testing maintain policies procedures necessary access funding test discount window borrowing procedures unsecured longterm borrowings issue unsecured longterm borrowings source funding inventory assets finance portion gcla issue different tenors currencies products maximize diversification investor base table presents quarterly unsecured longterm borrowings maturity profile december 2017 weighted average maturity unsecured longterm borrowings december 2017 approximately eight years mitigate refinancing risk seek limit principal amount debt maturing one day week year enter interest rate swaps convert portion unsecured longterm borrowings floatingrate obligations manage exposure interest rates see note 16 consolidated financial statements information unsecured longterm borrowings deposits provide us diversified source funding reduce reliance wholesale funding growing source deposit base consists retail deposits primarily used finance lending activity inventory portion gcla raise deposits primarily gs bank usa goldman sachs international bank gsib december 2017 december 2016 deposits 13860 billion 12410 billion respectively see note 14 consolidated financial statements information deposits goldman sachs group inc subsidiaries management’s discussion analysis unsecured shortterm borrowings significant portion unsecured shortterm borrowings originally longterm debt scheduled mature within one year reporting date use unsecured shortterm borrowings including hybrid financial instruments finance liquid assets cash management purposes light regulatory developments group inc longer issues debt original maturity less one year subsidiaries december 2017 december 2016 unsecured shortterm borrowings including current portion unsecured longterm borrowings 4692 billion 3927 billion respectively see note 15 consolidated financial statements information unsecured shortterm borrowings equity capital management regulatory capital adequacy critical importance us place comprehensive capital management policy provides framework defines objectives establishes guidelines assist us maintaining appropriate level composition capital businessasusual stressed conditions equity capital management determine appropriate level composition equity capital considering multiple factors including current future consolidated regulatory capital requirements results capital planning stress testing process resolution capital models factors rating agency guidelines subsidiary capital requirements business environment conditions financial markets manage capital requirements levels capital usage principally setting limits balance sheet assets andor limits risk case consolidated business levels principally manage level composition equity capital issuances repurchases common stock may also time issue repurchase preferred stock junior subordinated debt issued trusts subordinated debt forms capital business conditions warrant prior repurchases must receive confirmation board governors federal reserve system federal reserve board frb object capital action see notes 16 19 consolidated financial statements information preferred stock junior subordinated debt issued trusts subordinated debt capital planning stress testing process part capital planning project sources uses capital given range business environments including stressed conditions stress testing process designed identify measure material risks associated business activities including market risk credit risk operational risk well ability generate revenues following description capital planning stress testing process • capital planning capital planning process incorporates internal capital adequacy assessment objective ensuring appropriately capitalized relative risks businesses incorporate stress scenarios capital planning process goal holding sufficient capital ensure remain adequately capitalized experiencing severe stress event assessment capital adequacy viewed tandem assessment liquidity adequacy integrated overall risk management structure governance policy framework capital planning process also includes internal riskbased capital assessment incorporates market risk credit risk operational risk market risk calculated using valueatrisk var calculations supplemented riskbased addons include risks related rare events tail risks credit risk utilizes assumptions counterparties’ probability default size losses event default operational risk calculated based scenarios incorporating multiple types operational failures well considering internal external actual loss experience backtesting market risk credit risk used gauge effectiveness models capturing measuring relevant risks • stress testing stress tests incorporate internally designed stress scenarios including internally developed severely adverse scenario required ccar dfast designed capture specific vulnerabilities risks provide information stress test processes summary results website described “business available information” part item 1 form 10k required frb’s annual ccar rules submit capital plan review frb purpose frb’s review ensure robust forwardlooking capital planning process accounts unique risks permits continued operation times economic financial stress goldman sachs group inc subsidiaries management’s discussion analysis frb evaluates us based part whether capital necessary continue operating baseline stress scenarios provided frb developed internally evaluation also takes account process identifying risk controls governance capital planning guidelines making capital planning decisions addition frb evaluates plan make capital distributions ie dividend payments repurchases redemptions stock subordinated debt capital securities issue capital across range macroeconomic scenarios firmspecific assumptions addition dfast rules require us conduct stress tests semiannual basis publish summary certain results frb also conducts annual stress tests publishes summary certain results respect 2017 ccar submission frb informed us object capital actions capital actions included potential repurchase outstanding common stock 870 billion potential issue redeem capital securities twelvemonth period beginning july 2017 potential increase common stock dividend 005 per share second quarter 2018 however expect utilize entire share repurchase authorization june 2018 amount timing capital actions based among things current projected capital position capital deployment opportunities published summary annual dfast results june 2017 see “business available information” part item 1 form 10k october 2017 submitted semiannual dfast results frb published summary results internally developed severely adverse scenario see “business available information” part item 1 form 10k required submit 2018 ccar results frb april 5 2018 addition rules adopted frb doddfrank act require gs bank usa conduct stress tests annual basis publish summary certain results gs bank usa submitted 2017 annual dfast results frb april 2017 published summary annual dfast results june 2017 see “business available information” part item 1 form 10k goldman sachs international gsi gsib also capital planning stress testing process incorporates internally designed stress tests required prudential regulation authority’s pra internal capital adequacy assessment process contingency capital plan part comprehensive capital management policy maintain contingency capital plan contingency capital plan provides framework analyzing responding perceived actual capital deficiency including limited identification drivers capital deficiency well mitigants potential actions outlines appropriate communication procedures follow crisis period including internal dissemination information well timely communication external stakeholders capital attribution assess businesses’ capital usage based upon internal assessment risks incorporates attribution relevant regulatory capital requirements regulatory capital requirements allocated using attributed equity framework takes consideration binding capital constraints also attribute riskweighted assets rwas business segments december 2017 approximately 60 55 rwas calculated accordance standardized capital rules basel iii advanced rules respectively subject transitional provisions attributed institutional client services segment substantially remaining rwas attributed investing lending segment manage levels capital usage based upon balance sheet risk limits well capital return analyses businesses based capital attribution share repurchase program use share repurchase program help maintain appropriate level common equity repurchase program effected primarily regular openmarket purchases may include repurchase plans designed comply rule 10b51 amounts timing determined primarily current projected capital position capital plan submitted frb part ccar amounts timing repurchases may also influenced general market conditions prevailing price trading volumes common stock goldman sachs group inc subsidiaries management’s discussion analysis december 2017 remaining share authorization existing repurchase program 476 million shares however permitted make repurchases extent repurchases objected frb see “market registrant’s common equity related stockholder matters issuer purchases equity securities” part ii item 5 form 10k note 19 consolidated financial statements information share repurchase program see information capital planning stress testing process resolution capital models connection resolution planning efforts established resolution capital adequacy positioning rcap framework designed ensure major subsidiaries gs bank usa goldman sachs co llc gsco gsi gsib goldman sachs japan co ltd gsjcl goldman sachs asset management lp goldman sachs asset management international access sufficient lossabsorbing capacity form equity subordinated debt unsecured senior debt able winddown following group inc bankruptcy filing accordance preferred resolution strategy addition established triggers alerts framework designed provide board directors group inc board information needed make informed decision whether commence bankruptcy proceedings group inc rating agency guidelines credit rating agencies assign credit ratings obligations group inc directly issues guarantees substantially senior unsecured debt obligations gsco gsi assigned long shortterm issuer ratings certain credit rating agencies gs bank usa gsib also assigned long shortterm issuer ratings well ratings longterm shortterm bank deposits addition credit rating agencies assigned ratings debt obligations certain subsidiaries group inc level composition equity capital among many factors considered determining credit ratings agency definition eligible capital methodology evaluating capital adequacy assessments generally based combination factors rather single calculation see “risk management liquidity risk management credit ratings” information credit ratings group inc gs bank usa gsib gsco gsi consolidated regulatory capital subject frb’s riskbased capital leverage regulations subject certain transitional provisions capital framework regulations largely based basel committee banking supervision’s basel committee capital framework strengthening international capital standards basel iii also implement certain provisions doddfrank act capital framework “advanced approach” banking organization designated global systemically important bank gsib calculate cet1 tier 1 capital total capital ratios accordance standardized approach market risk rules set capital framework together standardized capital rules ii advanced approach market risk rules set capital framework together basel iii advanced rules described note 20 consolidated financial statements lower capital ratio calculated ii ratio compliance minimum ratio requirements assessed capital ratios calculated accordance basel iii advanced rules lower calculated accordance standardized capital rules therefore basel iii advanced ratios applied us december 2017 december 2016 see note 20 consolidated financial statements information capital ratios december 2017 december 2016 information capital framework goldman sachs group inc subsidiaries management’s discussion analysis minimum capital ratios capital buffers table presents minimum required ratios table • minimum capital ratios december 2017 reflect 50 phasein capital conservation buffer 25 ii 50 phasein gsib buffer 25 based 2015 financial data iii countercyclical capital buffer zero percent • tier 1 leverage ratio defined tier 1 capital divided quarterly average adjusted total assets includes adjustments goodwill identifiable intangible assets certain investments nonconsolidated financial institutions minimum capital ratios applicable us january 2019 reflect fully phasedin capital conservation buffer countercyclical capital buffer determined frb fully phasedin gsib buffer gsib buffer applicable us january 2019 25 based financial data year ended december 2017 gsib countercyclical buffers future may differ due additional guidance regulators andor positional changes minimum required supplementary leverage ratio 50 january 1 2018 see “supplementary leverage ratio” information see note 20 consolidated financial statements information capital buffers fully phasedin capital ratios table presents capital ratios calculated accordance standardized capital rules basel iii advanced rules fully phasedin basis although deductions adjustments regulatory capital table fully phasedin january 2018 believe fully phasedin capital ratios meaningful measures regulators investors use assess ability meet future regulatory capital requirements fully phasedin capital ratios nongaap measures may comparable similar nongaap measures used companies goldman sachs group inc subsidiaries management’s discussion analysis table • deduction goodwill identifiable intangible assets net deferred tax liabilities included goodwill 367 billion december 2017 december 2016 identifiable intangible assets 373 million 429 million december 2017 december 2016 respectively net associated deferred tax liabilities 704 million 108 billion december 2017 december 2016 respectively • deduction investments nonconsolidated financial institutions represents amount investments capital nonconsolidated financial institutions exceed certain prescribed thresholds decrease december 2016 december 2017 primarily reflects reductions fund investments • deduction investments covered funds represents aggregate investments applicable covered funds excluding investments subject extended conformance period deduction subject transition period see “business regulation” part item 1 form 10k information volcker rule • adjustments within cet1 primarily include overfunded portion defined benefit pension plan obligation net associated deferred tax liabilities disallowed deferred tax assets credit valuation adjustments derivative liabilities debt valuation adjustments required credit riskbased deductions • qualifying subordinated debt subordinated debt issued group inc original maturity five years greater outstanding amount subordinated debt qualifying tier 2 capital reduced upon reaching remaining maturity five years see note 16 consolidated financial statements information subordinated debt see note 20 consolidated financial statements information transitional capital ratios represent ratios applicable us december 2017 december 2016 supplementary leverage ratio capital framework includes supplementary leverage ratio requirement advanced approach banking organizations amendments capital framework us federal bank regulatory agencies approved final rule implements supplementary leverage ratio aligned definition leverage established basel committee supplementary leverage ratio compares tier 1 capital measure leverage exposure consists daily average total assets quarter certain offbalancesheet exposures less certain balance sheet deductions capital framework requires minimum supplementary leverage ratio 50 consisting minimum requirement 30 20 buffer us bhcs deemed gsibs effective january 1 2018 table presents supplementary leverage ratio calculated fully phasedin basis table offbalancesheet exposures consists derivatives securities financing transactions commitments guarantees subsidiary capital requirements many subsidiaries including gs bank usa brokerdealer subsidiaries subject separate regulation capital requirements jurisdictions operate gs bank usa gs bank usa subject regulatory capital requirements calculated substantially manner applicable bhcs calculates capital ratios accordance riskbased capital leverage requirements applicable state member banks based capital framework see note 20 consolidated financial statements information capital framework relates gs bank usa including gs bank usa’s capital ratios required minimum ratios goldman sachs group inc subsidiaries management’s discussion analysis addition frb rules commencing january 1 2018 order considered “wellcapitalized” depository institution gs bank usa must supplementary leverage ratio 60 greater supplementary leverage ratio compares tier 1 capital measure leverage exposure defined daily average total assets quarter certain offbalancesheet exposures less certain balance sheet deductions table presents gs bank usa’s supplementary leverage ratio calculated fully phasedin basis table offbalancesheet exposures consists derivatives securities financing transactions commitments guarantees gsi regulated uk brokerdealer gsi one principal nonus regulated subsidiaries regulated pra financial conduct authority gsi subject capital framework euregulated financial institutions prescribed eu fourth capital requirements directive crd iv eu capital requirements regulation crr capital regulations largely based basel iii table presents gsi’s minimum required capital ratios minimum capital ratios table incorporate capital guidance received pra could change future gsi’s future capital requirements may also impacted developments introduction capital buffers described “minimum capital ratios capital buffers” december 2017 gsi cet1 ratio 110 tier 1 capital ratio 136 total capital ratio 160 ratios included approximately 67 basis points attributable amounts finalized upon issuance gsi’s 2017 annual audited financial statements december 2016 gsi cet1 ratio 129 tier 1 capital ratio 129 total capital ratio 172 november 2016 european commission proposed amendments crr implement 3 minimum leverage ratio requirement certain eu financial institutions leverage ratio compares crr’s definition tier 1 capital measure leverage exposure defined sum certain assets plus certain offbalancesheet exposures include measure derivatives securities financing transactions commitments guarantees less tier 1 capital deductions required minimum leverage ratio expected become effective gsi earlier january 1 2021 december 2017 december 2016 gsi leverage ratio 41 38 respectively ratio december 2017 included approximately 20 basis points attributable amounts finalized upon issuance gsi’s 2017 annual audited financial statements leverage ratio based current interpretation understanding rule may evolve discuss interpretation application rule gsi’s regulators subsidiaries capital requirements several subsidiaries may increase future due various developments arising basel committee doddfrank act governmental entities regulators see note 20 consolidated financial statements information capital requirements regulated subsidiaries subject separate regulatory capital requirements may hold capital satisfy local tax legal guidelines rating agency requirements entities assigned credit ratings internal policies including policies concerning minimum amount capital subsidiary hold based underlying level risk certain instances group inc may limited ability access capital held certain subsidiaries result regulatory tax constraints december 2017 december 2016 group inc’s equity investment subsidiaries 9388 billion 9277 billion respectively compared total shareholders’ equity 8224 billion 8689 billion respectively capital invested nonus subsidiaries generally exposed foreign exchange risk substantially managed combination derivatives nonus denominated debt see note 7 consolidated financial statements information net investment hedges used hedge risk guarantees subsidiaries group inc guaranteed payment obligations gsco gs bank usa case subject certain exceptions goldman sachs group inc subsidiaries management’s discussion analysis regulatory matters developments businesses subject significant evolving regulation doddfrank act enacted july 2010 significantly altered financial regulatory regime within operate addition reforms adopted considered regulators policy makers worldwide given many new proposed rules highly complex full impact regulatory reform known rules implemented market practices develop final regulations see “business regulation” part item 1 form 10k information laws rules regulations proposed laws rules regulations apply us operations addition see note 20 consolidated financial statements information regulatory developments relate regulatory capital leverage ratios resolution recovery plans required frb fdic submit periodic plan describes strategy rapid orderly resolution event material financial distress failure resolution plan also required frb submit periodic recovery plan outlines steps management could take reduce risk maintain sufficient liquidity conserve capital times prolonged stress december 2017 frb fdic provided feedback 2017 resolution plan determined satisfactorily addressed shortcomings identified prior submissions frb fdic identify deficiencies 2017 resolution plan frb fdic note one shortcoming must addressed next resolution plan submission frb fdic extended next resolution plan filing deadline one year july 1 2019 see “business available information” part item 1 form 10k part resolution planning efforts put place capital liquidity support agreement clsa among group inc goldman sachs funding llc funding ihc major subsidiaries see “risk factors” part item 1a form 10k information clsa additionally part preferred resolution strategy established rcap resolution liquidity adequacy positioning rlap resolution liquidity execution need rlen triggers alerts frameworks see “equity capital management regulatory capital equity capital management” information rcap triggers alerts frameworks see “liquidity risk management liquidity stress tests” information rlap rlen triggers alerts frameworks addition gs bank usa required submit periodic resolution plans fdic gs bank usa’s next resolution plan due july 1 2018 offbalancesheet arrangements contractual obligations offbalancesheet arrangements various types offbalancesheet arrangements enter ordinary course business involvement arrangements take many different forms including • purchasing retaining residual interests special purpose entities mortgagebacked assetbacked securitization vehicles • holding senior subordinated debt interests limited general partnerships preferred common stock nonconsolidated vehicles • entering interest rate foreign currency equity commodity credit derivatives including total return swaps • entering operating leases • providing guarantees indemnifications commitments letters credit representations warranties enter arrangements variety business purposes including securitizations securitization vehicles purchase mortgages corporate bonds types financial assets critical functioning several significant investor markets including mortgagebacked assetbacked securities markets since offer investors access specific cash flows risks created securitization process also enter arrangements underwrite client securitization transactions provide secondary market liquidity make investments performing nonperforming debt distressed loans powerrelated assets equity securities real estate assets provide investors creditlinked assetrepackaged notes receive provide letters credit satisfy margin requirements facilitate clearance settlement process financial interests derivative transactions nonconsolidated entities generally accounted fair value manner financial instruments except cases apply equity method accounting goldman sachs group inc subsidiaries management’s discussion analysis table presents information various offbalancesheet arrangements may found form 10k addition see note 3 consolidated financial statements information consolidation policies type offbalancesheet arrangement disclosure form 10k variable interests obligations including contingent obligations arising variable interests nonconsolidated variable interest entities vies see note 12 consolidated financial statements leases see “contractual obligations” note 18 consolidated financial statements guarantees letters credit lending commitments see note 18 consolidated financial statements derivatives see “risk management credit risk management credit exposures otc derivatives” notes 4 5 7 18 consolidated financial statements contractual obligations certain contractual obligations require us make future cash payments contractual obligations include time deposits secured longterm financings unsecured longterm borrowings contractual interest payments subordinated liabilities consolidated vies minimum rental payments noncancelable leases obligations make future cash payments also include commitments guarantees related offbalancesheet arrangements excluded table see note 18 consolidated financial statements information commitments guarantees due uncertainty timing amounts ultimately paid liability unrecognized tax benefits excluded table see note 24 consolidated financial statements information unrecognized tax benefits table presents contractual obligations type table presents contractual obligations period expiration table • obligations maturing within one year financial statement date redeemable within one year financial statement date option holders excluded treated shortterm obligations see note 15 consolidated financial statements information shortterm borrowings • obligations repayable prior maturity option reflected contractual maturity dates obligations redeemable prior maturity option holders reflected earliest dates options become exercisable • december 2017 unsecured longterm borrowings maturities extending 2057 consisted principally senior borrowings included 561 billion adjustments carrying value certain unsecured longterm borrowings resulting application hedge accounting see note 16 consolidated financial statements information unsecured longterm borrowings • december 2017 difference aggregate contractual principal amount related fair value longterm secured financings fair value option elected material • december 2017 aggregate contractual principal amount unsecured longterm borrowings fair value option elected exceeded related fair value 169 billion • contractual interest payments represents estimated future interest payments related unsecured longterm borrowings secured longterm financings time deposits based applicable interest rates december 2017 includes stated coupons structured notes • future minimum rental payments net minimum sublease rentals noncancelable leases lease commitments office space expire various dates 2069 certain agreements subject periodic escalation provisions increases real estate taxes charges see note 18 consolidated financial statements information leases goldman sachs group inc subsidiaries management’s discussion analysis risk management risks inherent businesses include liquidity market credit operational model legal compliance conduct regulatory reputational risks information risk management processes see “overview structure risk management” risks include risks across risk categories regions global businesses well uncertain outcomes potential materially impact financial results liquidity reputation information areas risk see “liquidity risk management” “market risk management” “credit risk management” “operational risk management” “model risk management” “risk factors” part item 1a form 10k overview structure risk management overview believe effective risk management primary importance success accordingly established enterprise risk management erm framework employs comprehensive integrated approach risk management designed enable comprehensive risk management processes identify assess monitor manage risks assume conducting activities risks include liquidity market credit operational model legal compliance conduct regulatory reputational risk exposures risk management structure built around three core components governance processes people governance risk management governance starts board directly committees including risk committee oversees risk management policies practices implemented erm framework board also responsible annual review approval risk appetite statement risk appetite statement describes levels types risk willing accept avoid order achieve strategic business objectives remaining compliance regulatory requirements board receives regular briefings firmwide risks including liquidity risk market risk credit risk operational risk model risk independent control support functions including chief risk officer compliance risk conduct risk head compliance legal regulatory matters general counsel matters impacting reputation chair firmwide client business standards committee chief risk officer part review firmwide risk portfolio regularly advises risk committee board relevant risk metrics material exposures including risk limits thresholds established risk appetite statement next senior levels leaders experienced risk managers sophisticated detailed understanding risks take senior management senior managers revenueproducing units independent control support functions lead participate riskoriented committees independent control support functions include compliance conflicts resolution group conflicts controllers credit risk management human capital management legal liquidity risk management analysis liquidity risk management market risk management analysis market risk management model risk management operations operational risk management analysis operational risk management tax technology treasury governance structure provides protocol responsibility decisionmaking risk management issues ensures implementation decisions make extensive use riskrelated committees meet regularly serve important means facilitate foster ongoing discussions identify manage mitigate risks maintain strong communication risk culture collaboration decisionmaking among revenueproducing units independent control support functions committees senior management revenueproducing units responsible management risk dedicate extensive resources independent control support functions order ensure strong oversight structure appropriate segregation duties regularly reinforce strong culture escalation accountability across functions goldman sachs group inc subsidiaries management’s discussion analysis processes maintain various processes procedures critical components risk management framework including identifying assessing monitoring limiting risks effectively assess monitor risks maintain daily discipline marking substantially inventory current market levels carry inventory fair value changes valuation reflected immediately risk management systems net revenues believe discipline one effective tools assessing managing risk provides transparent realistic insight inventory exposures also apply rigorous framework limits thresholds control monitor risk across transactions products businesses markets board directly indirectly risk committee approves limits thresholds included risk appetite statement firmwide business product levels addition firmwide risk committee responsible approving risk limits framework subject overall limits approved risk committee board variety levels monitoring limits daily basis risk governance committee delegated authority firmwide risk committee responsible approving limits firmwide business product levels certain limits may set levels require periodic adjustment rather levels reflect maximum risk appetite fosters ongoing dialogue risk among revenueproducing units independent control support functions committees senior management well rapid escalation riskrelated matters see “liquidity risk management” “market risk management” “credit risk management” information risk limits active management positions another important process proactive mitigation market credit exposures minimizes risk required take outsized actions periods stress effective risk reporting risk decisionmaking depends ability get right information right people right time focus rigor effectiveness risk systems objective ensuring risk management technology systems comprehensive reliable timely devote significant time resources risk management technology ensure consistently provides us complete accurate timely information people even best technology serves tool helping make informed decisions real time risks taking ultimately effective risk management requires people interpret risk data ongoing timely basis adjust risk positions accordingly revenueproducing units independent control support functions experience professionals understanding nuances limitations risk measure guide us assessing exposures maintaining within prudent levels reinforce culture effective risk management consistent risk appetite statement training development programs well way evaluate performance recognize reward people training development programs including certain sessions led senior leaders focused importance risk management client relationships reputational excellence part annual performance review process assess reputational excellence including employee exercises good risk management reputational judgment adheres code conduct compliance policies review reward processes designed communicate reinforce professionals link behavior people recognized need focus clients reputation need always act accordance highest standards structure ultimate oversight risk responsibility board oversees risk directly committees including risk committee series committees specific risk management mandates oversight decisionmaking responsibilities risk management activities committee membership generally consists senior managers revenueproducing units independent control support functions established procedures committees ensure appropriate information barriers place primary risk committees also additional subcommittees working groups described addition committees riskoriented committees provide oversight different businesses activities products regions entities committees responsibility considering impact transactions activities oversee reputation membership risk committees reviewed regularly updated reflect changes responsibilities committee members accordingly length time members serve respective committees varies determined committee chairs based responsibilities members goldman sachs group inc subsidiaries management’s discussion analysis addition independent control support functions report chief executive officer presidents cochief operating officers chief financial officer chief risk officer responsible daytoday oversight monitoring risk illustrated chart described greater detail following sections internal audit reports audit committee board includes professionals broad range audit industry experience including risk management expertise responsible independently assessing validating key controls within risk management framework chart presents overview risk management governance structure including reporting relationships independent control support functions management committee management committee oversees global activities including independent control support functions provides oversight directly authority delegated committees established committee consists senior leaders chaired chief executive officer members management committee also members committees following committees principally involved firmwide risk management firmwide client business standards committee firmwide client business standards committee assesses makes determinations regarding business standards practices reputational risk management client relationships client service chaired one presidents cochief operating officers appointed chair chief executive officer reports management committee periodically updates receives guidance public responsibilities committee board committee also established certain committees report including divisional client business standards committees riskrelated committees following riskrelated committees report firmwide client business standards committee • firmwide reputational risk committee firmwide reputational risk committee responsible assessing reputational risks arising transactions identified requiring mandatory escalation firmwide reputational risk committee otherwise potential heightened reputational risk committee chaired one presidents cochief operating officers appointed chair chief executive officer vicechairs head compliance head conflicts resolution group appointed vicechairs chair firmwide client business standards committee • firmwide suitability committee firmwide suitability committee responsible setting standards policies product transaction client suitability providing forum consistency across functions regions products suitability assessments committee also reviews suitability matters escalated committees committee cochaired deputy head compliance cochief operating officer fixed income currency commodities appointed cochairs chair firmwide client business standards committee goldman sachs group inc subsidiaries management’s discussion analysis firmwide risk committee firmwide risk committee globally responsible ongoing monitoring management financial risks firmwide risk committee approves financial risk limits framework metrics methodologies reviews results stress tests scenario analyses committee cochaired chief financial officer chief risk officer appointed cochairs chief executive officer reports management committee following primary committees report firmwide risk committee • firmwide finance committee firmwide finance committee oversight responsibility liquidity risk size composition balance sheet capital base credit ratings committee regularly reviews liquidity balance sheet funding position capitalization approves related policies makes recommendations adjustments made light current events risks exposures regulatory requirements part oversight among things committee reviews approves balance sheet limits size gcla committee cochaired chief risk officer global treasurer appointed cochairs firmwide risk committee • firmwide investment policy committee firmwide investment policy committee reviews approves sets policies provides oversight certain illiquid principal investments including review risk management controls types investments committee cochaired head merchant banking division cohead securities division deputy general counsel appointed cochairs presidents cochief operating officers chief financial officer • firmwide volcker oversight committee firmwide volcker oversight committee responsible oversight periodic review implementation volcker rule compliance program approved board volcker rulerelated matters committee cochaired deputy chief risk officer deputy head compliance appointed cochairs firmwide risk committee • risk governance committee risk governance committee delegated authority firmwide risk committee globally responsible ongoing approval monitoring risk frameworks policies parameters limits firmwide business product levels committee chaired chief risk officer appointed chair cochairs firmwide risk committee following committees report jointly firmwide risk committee firmwide client business standards committee • firmwide capital committee firmwide capital committee provides approval oversight debtrelated transactions including principal commitments capital committee aims ensure business reputational standards underwritings capital commitments maintained global basis committee cochaired head americas credit risk management head emea financing group cochairs firmwide capital committee appointed cochairs firmwide risk committee • firmwide commitments committee firmwide commitments committee reviews underwriting distribution activities respect equity equityrelated product offerings sets maintains policies procedures designed ensure legal reputational regulatory business standards maintained global basis addition reviewing specific transactions committee periodically conducts general strategic reviews sectors products establishes policies connection transaction practices committee cochaired cohead industrials group investment banking division chief underwriting officer managing director risk management appointed cochairs chair firmwide client business standards committee firmwide enterprise risk committee firmwide enterprise risk committee responsible ongoing review approval monitoring erm framework providing oversight aggregate financial nonfinancial risks committee cochaired one presidents cochief operating officers chief risk officer appointed cochairs chief executive officer reports management committee following primary committees report firmwide enterprise risk committee • firmwide new activity committee firmwide new activity committee responsible reviewing new activities establishing process identify review previously approved activities significant changed complexity andor structure present different reputational suitability concerns time consider whether activities remain appropriate committee cochaired head regulatory control cohead emea ficc sales appointed cochairs chairs firmwide enterprise risk committee goldman sachs group inc subsidiaries management’s discussion analysis • firmwide model risk control committee firmwide model risk control committee responsible oversight development implementation model risk controls includes governance policies procedures related reliance financial models committee chaired deputy chief risk officer appointed chair chairs firmwide enterprise risk committee • firmwide conduct operational risk committee firmwide conduct operational risk committee globally responsible ongoing approval monitoring frameworks policies parameters limits govern conduct operational risks committee cochaired managing director global compliance head operational risk management appointed cochairs chairs firmwide enterprise risk committee • firmwide technology risk committee firmwide technology risk committee reviews matters related design development deployment use technology committee oversees cyber security matters well technology risk management frameworks methodologies monitors effectiveness committee cochaired chief information officer head global investment research appointed cochairs chairs firmwide enterprise risk committee • global business resilience committee global business resilience committee responsible oversight business resilience initiatives promoting increased levels security resilience reviewing certain operating risks related business resilience committee chaired chief administrative officer appointed chair chairs firmwide enterprise risk committee conflicts management conflicts interest approach dealing fundamental client relationships reputation longterm success term “conflict interest” universally accepted meaning conflicts arise many forms within business businesses responsibility identifying potential conflicts well complying policies procedures shared entire firm multilayered approach resolving conflicts addressing reputational risk senior management oversees policies related conflicts resolution conjunction conflicts legal compliance firmwide client business standards committee internal committees formulates policies standards principles assists making judgments regarding appropriate resolution particular conflicts resolving potential conflicts necessarily depends facts circumstances particular situation application experienced informed judgment general matter conflicts reviews financing advisory assignments investment banking certain investing lending activities addition various transaction oversight committees firmwide capital commitments suitability committees also review new underwritings loans investments structured products groups committees work internal external counsel compliance evaluate address actual potential conflicts reports one presidents cochief operating officers regularly assess policies procedures address conflicts interest effort conduct business accordance highest ethical standards compliance applicable laws rules regulations goldman sachs group inc subsidiaries management’s discussion analysis liquidity risk management overview liquidity risk unable fund firm meet liquidity needs event firmspecific broader industry market liquidity stress events liquidity critical importance us failures financial institutions occurred large part due insufficient liquidity accordingly place comprehensive conservative set liquidity funding policies principal objective able fund firm enable core businesses continue serve clients generate revenues even adverse circumstances treasury primary responsibility assessing monitoring managing liquidity funding strategy treasury independent revenueproducing units reports chief financial officer liquidity risk management independent risk management function responsible control oversight liquidity risk management framework including stress testing limit governance liquidity risk management independent revenueproducing units treasury reports chief risk officer liquidity risk management principles manage liquidity risk according three principles hold sufficient excess liquidity form gcla cover outflows stressed period ii maintain appropriate assetliability management iii maintain viable contingency funding plan global core liquid assets gcla liquidity maintain meet broad range potential cash outflows collateral needs stressed environment important liquidity policy prefund estimated potential cash collateral needs liquidity crisis hold liquidity form unencumbered highly liquid securities cash believe securities held gcla would readily convertible cash matter days liquidation entering repurchase agreements maturities resale agreements cash would allow us meet immediate obligations without needing sell assets depend additional funding creditsensitive markets gcla reflects following principles • first days weeks liquidity crisis critical company’s survival • focus must maintained potential cash collateral outflows disruptions financing flows businesses diverse liquidity needs determined many factors including market movements collateral requirements client commitments change dramatically difficult funding environment • liquidity crisis creditsensitive funding including unsecured debt certain deposits types secured financing agreements may unavailable terms eg interest rates collateral provisions tenor availability types secured financing may change certain deposits may withdrawn • result policy prefund liquidity estimate may needed crisis hold unencumbered securities larger debt balances businesses would otherwise require believe liquidity stronger greater balances highly liquid unencumbered securities even though increases total assets funding costs maintain gcla across group inc funding ihc group inc’s major brokerdealer bank subsidiaries asset types clearing agents provide us sufficient operating liquidity ensure timely settlement major markets even difficult funding environment addition gcla maintain cash balances securities several entities primarily use specific currencies entities jurisdictions immediate access parent company liquidity believe gcla provides us resilient source funds would available advance potential cash collateral outflows gives us significant flexibility managing difficult funding environment assetliability management liquidity risk management policies designed ensure sufficient amount financing even funding markets experience persistent stress manage maturities diversity funding across markets products counterparties seek maintain diversified funding profile appropriate tenor taking consideration characteristics liquidity profile assets approach assetliability management includes • conservatively managing overall characteristics funding book focus maintaining longterm diversified sources funding excess current requirements see “balance sheet funding sources funding sources” details goldman sachs group inc subsidiaries management’s discussion analysis • actively managing monitoring asset base particular focus liquidity holding period ability fund assets secured basis assess funding requirements ability liquidate assets stressed environment appropriately managing risk enables us determine appropriate funding products tenors see “balance sheet funding sources balance sheet management” details balance sheet management process “ funding sources secured funding” details asset classes may harder fund secured basis • raising secured unsecured financing long tenor relative liquidity profile assets reduces risk liabilities come due advance ability generate liquidity sale assets maintain highly liquid balance sheet holding period certain assets may materially shorter contractual maturity dates goal ensure maintain sufficient liquidity fund assets meet contractual contingent obligations normal times well periods market stress dynamic balance sheet management process use actual projected asset balances determine secured unsecured funding requirements funding plans reviewed approved firmwide finance committee quarterly basis addition senior managers independent control support functions regularly analyze firmwide finance committee reviews consolidated total capital position unsecured longterm borrowings plus total shareholders’ equity maintain level longterm funding sufficient meet longterm financing requirements liquidity crisis would first use gcla order avoid reliance asset sales gcla however recognize orderly asset sales may prudent necessary severe persistent liquidity crisis subsidiary funding policies majority unsecured funding raised group inc lends necessary funds funding ihc subsidiaries regulated meet asset financing liquidity capital requirements addition group inc provides regulated subsidiaries necessary capital meet regulatory requirements benefits approach subsidiary funding enhanced control greater flexibility meet funding requirements subsidiaries funding also raised subsidiary level variety products including deposits secured funding unsecured borrowings intercompany funding policies assume subsidiary’s funds securities freely available parent funding ihc subsidiaries unless legally provided ii additional regulatory tax restrictions particular many subsidiaries subject laws authorize regulatory bodies block reduce flow funds subsidiaries group inc funding ihc regulatory action kind could impede access funds group inc needs make payments obligations accordingly assume capital provided regulated subsidiaries available group inc subsidiaries financing provided regulated subsidiaries available group inc funding ihc maturity financing group inc provided substantial amounts equity subordinated indebtedness directly indirectly regulated subsidiaries example december 2017 group inc 2960 billion equity subordinated indebtedness invested gsco principal us registered brokerdealer 3719 billion invested gsi regulated uk brokerdealer 269 billion invested gsjcl regulated japanese brokerdealer 2756 billion invested gs bank usa regulated new york statechartered bank 386 billion invested gsib regulated uk bank group inc also provided directly indirectly 11498 billion unsubordinated loans including secured loans 5059 billion 1338 billion collateral cash deposits entities substantially gsco gsi gsjcl gs bank usa december 2017 addition december 2017 group inc significant amounts capital invested loans regulated subsidiaries contingency funding plan maintain contingency funding plan provide framework analyzing responding liquidity crisis situation periods market stress contingency funding plan outlines list potential risk factors key reports metrics reviewed ongoing basis assist assessing severity managing liquidity crisis andor market dislocation contingency funding plan also describes detail potential responses assessments indicate entered liquidity crisis include prefunding estimate potential cash collateral needs well utilizing secondary sources liquidity mitigants action items address specific risks may arise also described assigned individuals responsible execution goldman sachs group inc subsidiaries management’s discussion analysis contingency funding plan identifies key groups individuals foster effective coordination control distribution information critical management crisis period market stress contingency funding plan also details responsibilities groups individuals include making disseminating key decisions coordinating contingency activities throughout duration crisis period market stress implementing liquidity maintenance activities managing internal external communication liquidity stress tests order determine appropriate size gcla use internal liquidity model referred modeled liquidity outflow captures quantifies liquidity risks also consider factors including limited assessment potential intraday liquidity needs additional internal liquidity model referred intraday liquidity model results longterm stress testing models resolution liquidity models applicable regulatory requirements qualitative assessment condition well financial markets results modeled liquidity outflow intraday liquidity model longterm stress testing models resolution liquidity models reported senior management regular basis modeled liquidity outflow modeled liquidity outflow based conducting multiple scenarios include combinations marketwide firmspecific stress scenarios characterized following qualitative elements • severely challenged market environments including low consumer corporate confidence financial political instability adverse changes market values including potential declines equity markets widening credit spreads • firmspecific crisis potentially triggered material losses reputational damage litigation executive departure andor ratings downgrade following critical modeling parameters modeled liquidity outflow • liquidity needs 30day scenario • twonotch downgrade longterm senior unsecured credit ratings • combination contractual outflows upcoming maturities unsecured debt contingent outflows eg actions though contractually required may deem necessary crisis assume contingent outflows occur within initial days weeks crisis • issuance equity unsecured debt • support additional government funding facilities although access various central bank funding programs assume reliance additional sources funding liquidity crisis • asset liquidation gcla potential contractual contingent cash collateral outflows covered modeled liquidity outflow include unsecured funding • contractual upcoming maturities unsecured longterm debt commercial paper unsecured funding products assume unable issue new unsecured debt rollover maturing debt • contingent repurchases outstanding longterm debt commercial paper hybrid financial instruments ordinary course business market maker deposits • contractual upcoming maturities term deposits assume unable raise new term deposits rollover maturing term deposits • contingent partial withdrawals deposits contractual maturity withdrawal assumptions reflect among factors type deposit whether deposit insured uninsured relationship depositor secured funding • contractual portion upcoming contractual maturities secured funding due either inability refinance ability refinance wider haircuts ie terms require us post additional collateral assumptions reflect among factors quality underlying collateral counterparty roll probabilities assessment counterparty’s likelihood continuing provide funding secured basis maturity trade counterparty concentration • contingent adverse changes value financial assets pledged collateral financing transactions would necessitate additional collateral postings transactions otc derivatives • contingent collateral postings counterparties due adverse changes value otc derivatives excluding cleared settled central counterparties otccleared goldman sachs group inc subsidiaries management’s discussion analysis • contingent outflows cash collateral related otc derivatives excluding otccleared including impact trade terminations collateral substitutions collateral disputes loss rehypothecation rights collateral calls termination payments required twonotch downgrade credit ratings collateral called counterparties available exchangetraded otccleared derivatives • contingent variation margin postings required due adverse changes value outstanding exchangetraded otccleared derivatives • contingent increase initial margin guaranty fund requirements derivative clearing houses customer cash securities • contingent liquidity outflows associated prime brokerage business including withdrawals customer credit balances reduction customer short positions may serve funding source long positions securities • contingent liquidity outflows associated reduction composition change short positions may serve funding source long positions unfunded commitments • contingent draws unfunded commitments draw assumptions reflect among things type commitment counterparty • upcoming large cash outflows tax payments intraday liquidity model intraday liquidity model measures intraday liquidity needs using scenario analysis characterized qualitative elements modeled liquidity outflow model assesses risk increased intraday liquidity requirements scenario access sources intraday liquidity may become constrained following key modeling elements intraday liquidity model • liquidity needs oneday settlement period • delays receipt counterparty cash payments • reduction availability intraday credit lines thirdparty clearing agents • higher settlement volumes due increase activity longterm stress testing utilize longerterm stress tests take forward view liquidity position prolonged stress periods experience severe liquidity stress recover environment continues challenging focused ensuring conservative assetliability management prepare prolonged period potential stress seeking maintain diversified funding profile appropriate tenor taking consideration characteristics liquidity profile assets also perform stress tests regular basis part routine risk management processes conduct tailored stress tests ad hoc productspecific basis response market developments resolution liquidity models connection resolution planning efforts established rlap framework estimates liquidity needs major subsidiaries stressed environment liquidity needs measured using modeled liquidity outflow assumptions include certain additional interaffiliate exposures also established rlen framework measures liquidity needs major subsidiaries stabilize winddown following group inc bankruptcy filing accordance preferred resolution strategy addition established triggers alerts framework designed provide board information needed make informed decision whether commence bankruptcy proceedings group inc model review validation treasury regularly refines modeled liquidity outflow intraday liquidity model stress testing models reflect changes market economic conditions business mix changes including model assumptions assessed approved liquidity risk management model risk management responsible independent review validation liquidity models see “model risk management” information review validation models limits use liquidity limits various levels across liquidity risk types manage size liquidity exposures limits measured relative acceptable levels risk given liquidity risk tolerance purpose firmwide limits assist senior management monitoring controlling overall liquidity profile goldman sachs group inc subsidiaries management’s discussion analysis risk committee board firmwide finance committee approve liquidity risk limits firmwide level limits reviewed frequently amended required approvals permanent temporary basis appropriate reflect changing market business conditions liquidity risk limits monitored treasury liquidity risk management treasury responsible identifying escalating timely basis instances limits exceeded gcla unencumbered metrics gcla based results internal liquidity risk models described well consideration factors including limited assessment potential intraday liquidity needs qualitative assessment condition well financial markets believe liquidity position december 2017 december 2016 appropriate strictly limit gcla narrowly defined list securities cash highly liquid even difficult funding environment include potential sources excess liquidity gcla less liquid unencumbered securities committed credit facilities table presents average fair value securities certain overnight cash deposits included gcla table presents average fair value gcla asset class tables • us dollardenominated gcla consists unencumbered us government agency obligations including highly liquid us agency mortgagebacked obligations eligible collateral federal reserve open market operations ii certain overnight us dollar cash deposits • nonus dollardenominated gcla consists nonus government obligations unencumbered german french japanese uk government obligations certain overnight cash deposits highly liquid currencies table presents average gcla group inc funding ihc group inc’s major brokerdealer bank subsidiaries maintain gcla enable us meet current potential liquidity requirements parent company group inc subsidiaries modeled liquidity outflow intraday liquidity model incorporate consolidated requirement group inc well standalone requirement major brokerdealer bank subsidiaries second quarter 2017 connection resolution plan group inc transferred substantially gcla funding ihc funding ihc required provide necessary liquidity group inc ordinary course business also obligated provide capital liquidity support major subsidiaries event material financial distress failure liquidity held directly major brokerdealer bank subsidiaries intended use subsidiary meet liquidity requirements assumed available group inc funding ihc unless legally provided ii additional regulatory tax restrictions addition modeled liquidity outflow intraday liquidity model also incorporate broader assessment standalone liquidity requirements subsidiaries hold portion gcla directly group inc funding ihc support requirements unencumbered assets addition gcla significant amount unencumbered cash financial instruments including government obligations highgrade money market securities corporate obligations marginable equities loans cash deposits included gcla fair value unencumbered assets averaged 15841 billion 14233 billion 2017 2016 respectively consider assets liquid enough eligible gcla goldman sachs group inc subsidiaries management’s discussion analysis liquidity regulatory framework bhc subject us federal bank regulatory agencies’ lcr rule lcr rule requires organizations maintain adequate ratio eligible highquality liquid assets hqla expected net cash outflows acute shortterm liquidity stress scenario eligible hqla excludes hqla held subsidiaries excess minimum requirement subject transfer restrictions required maintain minimum lcr 100 table presents information average daily lcr expect fluctuations client activity business mix overall market environment impact average lcr future addition us federal bank regulatory agencies issued proposed rule calls net stable funding ratio nsfr large us banking organizations proposal would require banking organizations ensure access stable funding oneyear time horizon proposed rule includes quarterly disclosure ratio well description banking organization’s stable funding sources us federal bank regulatory agencies released final rule expect compliant nsfr requirement effective date final rule following information subsidiary liquidity regulatory requirements • gs bank usa gs bank usa subject minimum liquidity standards lcr rule approved us federal bank regulatory agencies december 2017 gs bank usa’s lcr exceeded minimum requirement us federal bank regulatory agencies’ proposed nsfr requirement described would also apply gs bank usa • gsi lcr rule issued uk regulatory authorities became effective uk october 1 2015 phasein period whereby certain financial institutions including gsi required 80 minimum ratio initially increasing 90 january 1 2017 100 january 1 2018 gsi’s average monthly lcr trailing twelvemonth period ended december 2017 exceeded minimum requirement • subsidiaries monitor local regulatory liquidity requirements subsidiaries ensure compliance many subsidiaries requirements either changed likely change future due implementation basel committee’s framework liquidity risk measurement standards monitoring well regulatory developments implementation rules amendments adopted applicable regulatory authorities could impact liquidity funding requirements practices future credit ratings rely shortterm longterm debt capital markets fund significant portion daytoday operations cost availability debt financing influenced credit ratings credit ratings also important competing certain markets otc derivatives seek engage longerterm transactions see “risk factors” part item 1a form 10k information risks associated reduction credit ratings table presents unsecured credit ratings outlook group inc dbrs inc dbrs fitch inc fitch moody’s investors service moody’s rating investment information inc ri standard poor’s ratings services sp table • ratings trust preferred relate guaranteed preferred beneficial interests issued goldman sachs capital • dbrs fitch moody’s sp ratings preferred stock include apex issued goldman sachs capital ii goldman sachs capital iii goldman sachs group inc subsidiaries management’s discussion analysis table presents unsecured credit ratings outlook gs bank usa gsib gsco gsi fitch moody’s sp believe credit ratings primarily based credit rating agencies’ assessment • liquidity market credit operational risk management practices • level variability earnings • capital base • franchise reputation management • corporate governance • external operating economic environment including cases assumed level government support systemic considerations potential resolution certain derivatives transacted bilateral agreements counterparties may require us post collateral terminate transactions based changes credit ratings manage gcla ensure would among potential requirements able make additional collateral termination payments may required event twonotch reduction longterm credit ratings well collateral called counterparties available see note 7 consolidated financial statements information derivatives creditrelated contingent features additional collateral termination payments related net derivative liabilities bilateral agreements could called counterparties event onenotch twonotch downgrade credit ratings cash flows global financial institution cash flows complex bear little relation net earnings net assets consequently believe traditional cash flow analysis less meaningful evaluating liquidity position liquidity assetliability management policies described cash flow analysis may however helpful highlighting certain macro trends strategic initiatives businesses year ended december 2017 cash equivalents decreased 1166 billion 11005 billion end 2017 used 1774 billion net cash operating activities reflecting decrease net liability receivables payables due client activity used 2912 billion net cash investing activities primarily fund loans receivable corporate borrowers loans backed real estate investments us government agency obligations accounted availableforsale securities generated 3520 billion net cash financing activities primarily net issuances unsecured longterm borrowings increases institutional deposits marcus deposits partially offset repurchases common stock year ended december 2016 cash equivalents increased 2827 billion 12171 billion end 2016 generated 927 billion net cash investing activities primarily net cash acquired business acquisitions generated 1900 billion net cash financing activities operating activities primarily increases deposits net issuances unsecured longterm borrowings partially offset repurchases common stock year ended december 2015 cash equivalents increased 1841 billion 9344 billion end 2015 used 1857 billion net cash investing activities primarily due funding loans receivable generated 3699 billion net cash financing activities operating activities primarily net issuances longterm borrowings bank deposits partially offset repurchases common stock goldman sachs group inc subsidiaries management’s discussion analysis market risk management overview market risk loss value inventory well certain financial assets financial liabilities due changes market conditions employ variety risk measures described respective sections monitor market risk hold inventory primarily market making clients investing lending activities inventory therefore changes based client demands investment opportunities inventory accounted fair value therefore fluctuates daily basis related gains losses included market making principal transactions categories market risk include following • interest rate risk results exposures changes level slope curvature yield curves volatilities interest rates prepayment speeds credit spreads • equity price risk results exposures changes prices volatilities individual equities baskets equities equity indices • currency rate risk results exposures changes spot prices forward prices volatilities currency rates • commodity price risk results exposures changes spot prices forward prices volatilities commodities crude oil petroleum products natural gas electricity precious base metals market risk management independent revenueproducing units reports chief risk officer primary responsibility assessing monitoring managing market risk monitor control risks strong firmwide oversight independent control support functions across global businesses managers revenueproducing units market risk management discuss market information positions estimated risk loss scenarios ongoing basis managers revenueproducing units accountable managing risk within prescribed limits managers indepth knowledge positions markets instruments available hedge exposures market risk management process manage market risk diversifying exposures controlling position sizes establishing economic hedges related securities derivatives process includes • accurate timely exposure information incorporating multiple risk metrics • dynamic limit setting framework • constant communication among revenueproducing units risk managers senior management risk measures market risk management produces risk measures monitors established market risk limits measures reflect extensive range scenarios results aggregated product business firmwide levels use variety risk measures estimate size potential losses moderate extreme market moves shortterm longterm time horizons primary risk measures var used shorterterm periods stress tests risk reports detail key risks drivers changes desk business distributed daily senior management revenueproducing units independent control support functions valueatrisk var potential loss value due adverse market movements defined time horizon specified confidence level assets liabilities included var see “financial statement linkages market risk measures” typically employ oneday time horizon 95 confidence level use single var model captures risks including interest rates equity prices currency rates commodity prices var facilitates comparison across portfolios different risk characteristics var also captures diversification aggregated risk firmwide level aware inherent limitations var therefore use variety risk measures market risk management process inherent limitations var include • var estimate potential losses longer time horizons moves may extreme • var take account relative liquidity different risk positions • previous moves market risk factors may produce accurate predictions future market moves goldman sachs group inc subsidiaries management’s discussion analysis calculating var use historical simulations full valuation approximately 70000 market factors var calculated position level based simultaneously shocking relevant market risk factors position sample five years historical data generate scenarios var calculation historical data weighted relative importance data reduces time gives greater importance recent observations reflects current asset volatilities improves accuracy estimates potential loss result even positions included var unchanged var would increase increasing market volatility vice versa given reliance historical data var effective estimating risk exposures markets sudden fundamental changes shifts market conditions var measure include • positions best measured monitored using sensitivity measures • impact changes counterparty credit spreads derivatives well changes credit spreads financial liabilities fair value option elected perform daily backtesting var model ie comparing daily net revenues positions included var measure calculated prior business day firmwide level businesses major regulated subsidiaries stress testing stress testing method determining effect various hypothetical stress scenarios use stress testing examine risks specific portfolios well potential impact significant risk exposures use variety stress testing techniques calculate potential loss wide range market moves portfolios including sensitivity analysis scenario analysis firmwide stress tests results various stress tests analyzed together risk management purposes sensitivity analysis used quantify impact market move single risk factor across positions eg equity prices credit spreads using variety defined market shocks ranging could expected oneday time horizon could take many months occur also use sensitivity analysis quantify impact default single entity captures risk large concentrated exposures scenario analysis used quantify impact specified event including event impacts multiple risk factors simultaneously example sovereign stress testing calculate potential direct exposure associated sovereign inventory well corresponding debt equity currency exposures associated nonsovereign inventory may impacted sovereign distress conducting scenario analysis typically consider number possible outcomes scenario ranging moderate severely adverse market impacts addition stress tests constructed using historical events forwardlooking hypothetical scenarios firmwide stress testing combines market credit operational liquidity risks single combined scenario firmwide stress tests primarily used assess capital adequacy part capital planning stress testing process however firmwide stress testing also integrated risk governance framework includes selecting appropriate scenarios use capital planning stress testing process see “equity capital management regulatory capital equity capital management” information unlike var measures implied probability calculated specified confidence level generally implied probability stress test scenarios occur instead stress tests used model moderate extreme moves underlying market factors estimating potential loss generally assume positions cannot reduced hedged although experience demonstrates generally able stress test scenarios conducted regular basis part routine risk management process ad hoc basis response market events concerns stress testing important part risk management process allows us quantify exposure tail risks highlight potential loss concentrations undertake riskreward analysis assess mitigate risk positions limits use risk limits various levels including firmwide business product govern risk appetite controlling size exposures market risk limits set based var range stress tests relevant exposures limits reviewed frequently amended permanent temporary basis reflect changing market conditions business conditions tolerance risk goldman sachs group inc subsidiaries management’s discussion analysis risk committee board risk governance committee delegated authority firmwide risk committee approve market risk limits sublimits firmwide business product levels consistent risk appetite statement addition market risk management delegated authority risk governance committee sets market risk limits sublimits certain product desk levels purpose firmwide limits assist senior management controlling overall risk profile sublimits set approved level risk limits sublimits set desired maximum amount exposure may managed particular business daytoday basis without additional levels senior management approval effectively leaving daytoday decisions individual desk managers traders accordingly sublimits management tool designed ensure appropriate escalation rather establish maximum risk tolerance sublimits also distribute risk among various businesses manner consistent level activity client demand taking account relative performance area market risk limits monitored daily market risk management responsible identifying escalating timely basis instances limits exceeded risk limit exceeded eg due positional changes market conditions increased volatilities changes correlations escalated senior managers market risk management andor appropriate risk committee instances remediated inventory reduction andor temporary permanent increase risk limit model review validation var stress testing models regularly reviewed market risk management enhanced order incorporate changes composition positions included market risk measures well variations market conditions prior implementing significant changes assumptions andor models model risk management performs model validations significant changes var stress testing models reviewed chief risk officer chief financial officer approved firmwide risk committee see “model risk management” information review validation models systems made significant investment technology monitor market risk including • independent calculation var stress measures • risk measures calculated individual position levels • attribution risk measures individual risk factors position • ability report many different views risk measures eg desk business product type entity • ability produce ad hoc analyses timely manner metrics analyze var firmwide level variety detailed levels including risk category business region tables present average daily var periodend var well high low var period diversification effect tables represents difference total var sum vars four risk categories effect arises four market risk categories perfectly correlated table presents average daily var risk category average daily var decreased 54 million 2017 63 million 2016 due reductions across risk categories partially offset decrease diversification effect overall decrease primarily due lower levels volatility average daily var decreased 63 million 2016 76 million 2015 due reductions across risk categories partially offset decrease diversification effect overall decrease primarily due reduced exposures goldman sachs group inc subsidiaries management’s discussion analysis table presents periodend var risk category daily var decreased 65 million december 2017 82 million december 2016 primarily due reductions currency rates commodity prices equity prices categories partially offset decrease diversification effect increase interest rates category overall decrease primarily due lower levels volatility daily var increased 82 million december 2016 67 million december 2015 primarily due increase equity prices category decrease diversification effect partially offset decrease currency rates category overall increase primarily due increased exposures 2017 2016 firmwide var risk limit exceeded raised reduced 2015 firmwide var risk limit temporarily raised two occasions order facilitate client transactions separately march 2015 firmwide var risk limit reduced reflecting lower risk utilization prior year table presents high low var risk category high low total var 86 million 37 million respectively year ended december 2017 chart reflects daily var last four quarters chart presents frequency distribution daily net revenues positions included var 2017 daily net revenues positions included var compared var calculated end prior business day net losses incurred single day positions exceed 95 oneday var 2017 2016 2015 ie var exception periods significantly positive net revenue days net revenue loss days expect fewer var exceptions normal conditions business model generally produces positive net revenues periods franchise revenues adversely affected generally loss days resulting var exceptions daily net revenues positions included var used determine var exceptions reflect impact intraday activity including bidoffer net revenues likely positive nature goldman sachs group inc subsidiaries management’s discussion analysis sensitivity measures certain portfolios individual positions included var appropriate risk measure sensitivity measures use analyze market risk described 10 sensitivity measures table presents market risk positions accounted fair value included var asset category table • market risk positions determined estimating potential reduction net revenues 10 decline value positions • equity positions relate private restricted public equity securities including interests funds invest corporate equities real estate interests hedge funds • debt positions include interests funds invest corporate mezzanine senior debt instruments loans backed commercial residential real estate corporate bank loans corporate debt including acquired portfolios distressed loans • equity debt funded positions included consolidated statements financial condition financial instruments owned see note 6 consolidated financial statements information cash instruments • measures reflect diversification effect across asset categories across market risk measures credit spread sensitivity derivatives financial liabilities var excludes impact changes counterparty credit spreads derivatives well changes credit spreads debt valuation adjustment financial liabilities fair value option elected estimated sensitivity one basis point increase credit spreads counterparty derivatives gain 3 million 2 million including hedges december 2017 december 2016 respectively addition estimated sensitivity one basis point increase credit spreads financial liabilities fair value option elected gain 35 million 25 million december 2017 december 2016 respectively however actual net impact change credit spreads also affected liquidity duration convexity sensitivity linear changes yields financial liabilities fair value option elected well relative performance hedges undertaken interest rate sensitivity loans receivable december 2017 december 2016 6593 billion 4967 billion respectively substantially floating interest rates december 2017 december 2016 estimated sensitivity 100 basis point increase interest rates loans 527 million 405 million respectively additional interest income twelvemonth period take account potential impact increase costs fund loans see note 9 consolidated financial statements information loans receivable market risk considerations december 2017 december 2016 commitments held loans obtained credit loss protection sumitomo mitsui financial group inc see note 18 consolidated financial statements information lending commitments addition make investments securities accounted availableforsale included financial instruments owned consolidated statements financial condition see note 6 consolidated financial statements information also make investments accounted equity method also make direct investments real estate included assets direct investments real estate accounted cost less accumulated depreciation see note 13 consolidated financial statements information assets goldman sachs group inc subsidiaries management’s discussion analysis financial statement linkages market risk measures employ variety risk measures described respective sections monitor market risk across consolidated statements financial condition consolidated statements earnings related gains losses positions included market making principal transactions interest income interest expense consolidated statements earnings debt valuation adjustment consolidated statements comprehensive income table presents certain categories consolidated statements financial condition market risk measures used assess assets liabilities certain categories consolidated statements financial condition incorporated one risk measure categories consolidated statements financial condition market risk measures collateralized agreements var receivables var interest rate sensitivity financial instruments owned var 10 sensitivity measures credit spread sensitivity derivatives deposits fair value credit spread sensitivity financial liabilities collateralized financings var financial instruments sold yet purchased var credit spread sensitivity derivatives unsecured shortterm longterm borrowings fair value var credit spread sensitivity financial liabilities credit risk management overview credit risk represents potential loss due default deterioration credit quality counterparty eg otc derivatives counterparty borrower issuer securities instruments hold exposure credit risk comes mostly client transactions otc derivatives loans lending commitments credit risk also comes cash placed banks securities financing transactions ie resale repurchase agreements securities borrowing lending activities receivables brokers dealers clearing organizations customers counterparties credit risk management independent revenueproducing units reports chief risk officer primary responsibility assessing monitoring managing credit risk firmwide risk committee risk governance committee establish review credit policies parameters addition hold positions give rise credit risk eg bonds held inventory secondary bank loans credit risks captured component market risk measures monitored managed market risk management consistent inventory positions also enter derivatives manage market risk exposures derivatives also give rise credit risk monitored managed credit risk management credit risk management process effective management credit risk requires accurate timely information high level communication knowledge customers countries industries products process managing credit risk includes • approving transactions setting communicating credit exposure limits • establishing approving underwriting standards • monitoring compliance established credit exposure limits • assessing likelihood counterparty default payment obligations • measuring current potential credit exposure losses resulting counterparty default • reporting credit exposures senior management board regulators • using credit risk mitigants including collateral hedging • communicating collaborating independent control support functions operations legal compliance part risk assessment process credit risk management performs credit reviews include initial ongoing analyses counterparties substantially credit exposures core process annual counterparty credit review credit review independent analysis capacity willingness counterparty meet financial obligations resulting internal credit rating determination internal credit ratings also incorporates assumptions respect nature outlook counterparty’s industry economic environment senior personnel within credit risk management expertise specific industries inspect approve credit reviews internal credit ratings goldman sachs group inc subsidiaries management’s discussion analysis risk assessment process may also include applicable reviewing certain key metrics delinquency status collateral values fico credit scores risk factors global credit risk management systems capture credit exposure individual counterparties aggregate basis counterparties subsidiaries economic groups systems also provide management comprehensive information aggregate credit risk product internal credit rating industry country region risk measures limits measure credit risk based potential loss event nonpayment counterparty using current potential exposure derivatives securities financing transactions current exposure represents amount presently owed us taking account applicable netting collateral arrangements potential exposure represents estimate future exposure could arise life transaction based market movements within specified confidence level potential exposure also takes account netting collateral arrangements loans lending commitments primary measure function notional amount position use credit limits various levels eg counterparty economic group industry country well underwriting standards control size nature credit exposures limits counterparties economic groups reviewed regularly revised reflect changing risk appetites given counterparty group counterparties limits industries countries based risk tolerance designed allow regular monitoring review escalation management credit risk concentrations risk committee board risk governance committee delegated authority firmwide risk committee approve credit risk limits firmwide business product levels consistent risk appetite statement credit risk management delegated authority risk governance committee sets credit limits individual counterparties economic groups industries countries policies authorized firmwide risk committee risk governance committee prescribe level formal approval required us assume credit exposure counterparty across product areas taking account applicable netting provisions collateral credit risk mitigants stress tests use regular stress tests calculate credit exposures including potential concentrations would result applying shocks counterparty credit ratings credit risk factors eg currency rates interest rates equity prices shocks include wide range moderate extreme market movements stress tests include shocks multiple risk factors consistent occurrence severe market economic event case sovereign default estimate direct impact default sovereign credit exposures changes credit exposures arising potential market moves response default impact credit market deterioration corporate borrowers counterparties may result sovereign default unlike potential exposure calculated within specified confidence level stress test generally assumed probability events occurring perform stress tests regular basis part routine risk management processes conduct tailored stress tests ad hoc basis response market developments stress tests conducted jointly market liquidity risk functions model review validation potential credit exposure stress testing models changes models assumptions reviewed model risk management see “model risk management” information review validation models risk mitigants reduce credit exposures derivatives securities financing transactions may enter netting agreements counterparties permit us offset receivables payables counterparties may also reduce credit risk counterparties entering agreements enable us obtain collateral upfront contingent basis andor terminate transactions counterparty’s credit rating falls specified level monitor fair value collateral daily basis ensure credit exposures appropriately collateralized seek minimize exposures significant positive correlation creditworthiness counterparties market value collateral receive goldman sachs group inc subsidiaries management’s discussion analysis loans lending commitments depending credit quality borrower characteristics transaction employ variety potential risk mitigants risk mitigants include collateral provisions guarantees covenants structural seniority bank loan claims certain lending commitments provisions legal documentation allow us adjust loan amounts pricing structure terms market conditions change type structure risk mitigants employed significantly influence degree credit risk involved loan lending commitment sufficient visibility counterparty’s financial strength believe counterparty requires support parent may obtain thirdparty guarantees counterparty’s obligations may also mitigate credit risk using credit derivatives participation agreements credit exposures december 2017 aggregate credit exposure increased compared december 2016 primarily reflecting increase loans lending commitments percentage credit exposures arising noninvestmentgrade counterparties based internally determined public rating agency equivalents increased compared december 2016 primarily reflecting increase noninvestmentgrade loans lending commitments credit exposure counterparties defaulted 2017 higher compared credit exposure counterparties defaulted prior year substantially exposure related loans lending commitments credit exposure counterparties defaulted 2017 remained low representing less 05 total credit exposure estimated losses higher compared prior year still material credit exposures described cash equivalents credit exposure cash equivalents arises unrestricted cash includes interestbearing noninterestbearing deposits mitigate risk credit loss place substantially deposits highlyrated banks central banks table presents credit exposure related unrestricted cash equivalents industry region credit quality table excludes cash segregated regulatory purposes 1844 billion 1465 billion december 2017 december 2016 respectively otc derivatives credit exposure otc derivatives arises primarily marketmaking activities market maker enter derivative transactions provide liquidity clients facilitate transfer hedging risks also enter derivatives manage market risk exposures manage credit exposure otc derivatives using credit risk process measures limits risk mitigants described derivatives reported netbycounterparty basis ie net payable receivable derivative assets liabilities given counterparty legal right setoff exists enforceable netting agreement counterparty netting derivatives accounted fair value net cash collateral received posted enforceable credit support agreements cash collateral netting generally enter otc derivatives transactions bilateral collateral arrangements require daily exchange collateral credit risk essential component fair value include credit valuation adjustment cva fair value derivatives reflect counterparty credit risk described note 7 consolidated financial statements cva function present value expected exposure probability counterparty default assumed recovery upon default goldman sachs group inc subsidiaries management’s discussion analysis table presents credit exposure related otc derivatives industry region table presents distribution credit exposure otc derivatives tenor effect collateral netting agreements table • tenor based expected duration mortgagerelated credit derivatives generally remaining contractual maturity derivatives • counterparty netting within tenor category included within tenor category counterparty netting across tenor categories well cash collateral received enforceable credit support agreements included netting • net credit exposure represents otc derivative assets included financial instruments owned less cash collateral fair value securities collateral primarily us government agency obligations nonus government agency obligations received credit support agreements management considers determining credit risk collateral eligible netting us gaap tables present distribution credit exposure otc derivatives tenor internally determined public rating agency equivalents lending activities manage lending activities using credit risk process measures limits risk mitigants described lending positions including secondary trading positions riskmanaged component market risk goldman sachs group inc subsidiaries management’s discussion analysis • commercial lending commercial lending activities include lending investmentgrade noninvestmentgrade corporate borrowers loans lending commitments associated activities principally used operating liquidity general corporate purposes connection contingent acquisitions corporate loans may secured unsecured depending loan purpose risk profile borrower factors commercial lending activities also include extending loans borrowers secured commercial real estate table presents credit exposure related commercial loans lending commitments industry region credit quality • private wealth management retail lending extend loans lending commitments private wealth management clients primarily secured residential real estate securities assets fair value collateral received loans lending commitments generally exceeds carrying value gross exposure related loans lending commitments 2486 billion 2251 billion december 2017 december 2016 respectively regional net credit exposure related activities approximately 90 92 americas approximately 5 emea approximately 5 3 asia december 2017 december 2016 respectively addition extend unsecured loans retail clients marcus gross exposure related loans 191 billion 208 million december 2017 december 2016 respectively see note 9 consolidated financial statements information credit quality indicators loans also purchase commitments purchase loans including distressed loans securities loans securities primarily backed residential real estate gross exposure related loans lending commitments 1024 billion 538 billion december 2017 december 2016 respectively regional net credit exposure related activities approximately 74 79 americas approximately 26 21 emea december 2017 december 2016 respectively securities financing transactions enter securities financing transactions order among things facilitate client activities invest excess cash acquire securities cover short positions finance certain activities bear credit risk related resale agreements securities borrowed extent cash advanced value securities pledged delivered counterparty exceeds value collateral received also credit exposure repurchase agreements securities loaned extent value securities pledged delivered counterparty transactions exceeds amount cash collateral received securities collateral obtained securities financing transactions primarily includes us government agency obligations nonus government agency obligations 2907 billion 2864 billion december 2017 december 2016 respectively credit exposure related securities financing transactions reflecting netting agreements collateral management considers determining credit risk december 2017 december 2016 substantially credit exposure related securities financing transactions investmentgrade financial institutions funds governments municipalities nonprofits primarily located americas emea goldman sachs group inc subsidiaries management’s discussion analysis credit exposures exposed credit risk receivables brokers dealers clearing organizations customers counterparties receivables brokers dealers clearing organizations primarily consist initial margin placed clearing organizations receivables related sales securities traded yet settled receivables generally minimal credit risk due low probability clearing organization default shortterm nature receivables related securities settlements receivables customers counterparties generally consist collateralized receivables related customer securities transactions generally minimal credit risk due value collateral received shortterm nature receivables net credit exposure related activities 3432 billion 3139 billion december 2017 december 2016 respectively primarily consisted initial margin cash securities placed investmentgrade clearing organizations regional net credit exposure related activities approximately 41 44 americas approximately 49 42 emea approximately 10 14 asia december 2017 december 2016 respectively selected exposures credit market exposures described heightened focus due recent events broad market concerns credit exposure represents potential loss due default deterioration credit quality counterparty borrower market exposure represents potential loss value long short inventory due changes market prices debt crisis mozambique resulted credit rating downgrades venezuela delayed payments sovereign debt total credit market exposure mozambique venezuela december 2017 material comprehensive framework monitor measure assess country exposures determine risk appetite determine country risk location counterparty issuer underlier’s assets generate revenue country headquartered jurisdiction claim could enforced andor government whose policies affect ability repay obligations monitor credit exposure specific country individual counterparty level well aggregate country level use regular stress tests described calculate credit exposures including potential concentrations would result applying shocks counterparty credit ratings credit risk factors supplement regular stress tests also conduct tailored stress tests ad hoc basis response specific market events deem significant stress tests designed estimate direct impact event credit market exposures resulting shocks risk factors including limited currency rates interest rates equity prices also utilize stress tests estimate indirect impact certain hypothetical events country exposures impact credit market deterioration corporate borrowers counterparties along shocks risk factors described parameters shocks vary based scenario reflected stress test review estimated losses produced stress tests order understand magnitude highlight potential loss concentrations assess mitigate exposures necessary see “stress tests” “liquidity risk management liquidity stress tests” “market risk management market risk management process stress testing” information stress tests operational risk management overview operational risk adverse outcome resulting inadequate failed internal processes people systems external events exposure operational risk arises routine processing errors well extraordinary incidents major systems failures legal regulatory matters potential types loss events related internal external operational risk include • clients products business practices • execution delivery process management • business disruption system failures • employment practices workplace safety • damage physical assets • internal fraud • external fraud goldman sachs group inc subsidiaries management’s discussion analysis maintain comprehensive control framework designed provide wellcontrolled environment minimize operational risks firmwide conduct operational risk committee globally responsible ongoing approval monitoring frameworks policies parameters limits govern operational risks operational risk management risk management function independent revenueproducing units reports chief risk officer responsible developing implementing policies methodologies formalized framework operational risk management goal maintaining exposure operational risk levels within risk appetite operational risk management process managing operational risk requires timely accurate information well strong control culture seek manage operational risk • training supervision development people • active participation senior management identifying mitigating key operational risks • independent control support functions monitor operational risk daily basis implementation extensive policies procedures controls designed prevent occurrence operational risk events • proactive communication revenueproducing units independent control support functions • network systems facilitate collection data used analyze assess operational risk exposure combine topdown bottomup approaches manage measure operational risk topdown perspective senior management assesses firmwide businesslevel operational risk profiles bottomup perspective revenueproducing units independent control support functions responsible risk identification risk management daytoday basis including escalating operational risks senior management operational risk management framework part designed comply operational risk measurement rules capital framework evolved based changing needs businesses regulatory guidance operational risk management framework consists following practices • risk identification assessment • risk measurement • risk monitoring reporting risk identification assessment core operational risk management framework risk identification assessment comprehensive data collection process including firmwide policies procedures operational risk events established policies require revenueproducing units independent control support functions report escalate operational risk events operational risk events identified policies require events documented analyzed determine whether changes required systems andor processes mitigate risk future events addition systems capture internal operational risk event data key metrics transaction volumes statistical information performance trends use internally developed operational risk management application aggregate organize information one key risk identification assessment tools operational risk control selfassessment process performed managers revenueproducing units independent control support functions process consists identification rating operational risks forwardlooking basis related controls results process analyzed evaluate operational risk exposures identify businesses activities products heightened levels operational risk measurement measure operational risk exposure twelvemonth time horizon using statistical modeling scenario analyses involve qualitative quantitative assessments internal external operational risk event data internal control factors businesses operational risk measurement also incorporates assessment business environment factors including limited • evaluations complexity business activities • degree automation processes • new activity information • legal regulatory environment • changes markets products services including diversity sophistication customers counterparties goldman sachs group inc subsidiaries management’s discussion analysis results scenario analyses used monitor changes operational risk determine business lines may heightened exposure operational risk analyses ultimately used determination appropriate level operational risk capital hold risk monitoring reporting evaluate changes operational risk profile businesses including changes business mix jurisdictions operate monitoring factors noted firmwide level preventive detective internal controls designed reduce frequency severity operational risk losses probability operational risk events monitor results assessments independent internal audits internal controls established limits thresholds consistent risk appetite statement well escalation protocols provide periodic operational risk reports include instances breach escalation thresholds senior management risk committees risk committee board model review validation statistical models utilized operational risk management subject independent review validation model risk management see “model risk management” information review validation models model risk management overview model risk potential adverse consequences decisions made based model outputs may incorrect used inappropriately rely quantitative models across business activities primarily value certain financial assets financial liabilities monitor manage risk measure monitor regulatory capital model risk management framework managed governance structure risk management controls encompass standards designed ensure maintain comprehensive model inventory including risk assessment classification sound model development practices independent review modelspecific usage controls firmwide model risk control committee oversees model risk management framework model risk management independent model developers model owners model users reports chief risk officer responsible identifying reporting significant risks associated models provides periodic updates senior management risk committees risk committee board model review validation model risk management consists quantitative professionals perform independent review validation approval models review includes analysis model documentation independent testing assessment appropriateness methodology used verification compliance model development implementation standards model risk management reviews existing models annual basis approves new models significant changes models prior implementation model validation process incorporates review models trade risk parameters across broad range scenarios including extreme conditions order critically evaluate verify • model’s conceptual soundness including reasonableness model assumptions suitability intended use • testing strategy utilized model developers ensure models function intended • suitability calculation techniques incorporated model • model’s accuracy reflecting characteristics related product significant risks • model’s consistency models similar products • model’s sensitivity input parameters assumptions see “critical accounting policies fair value review valuation models” “liquidity risk management” “market risk management” “credit risk management” “operational risk management” information use models within areas item 7anannan item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosure market risk set forth pages 38 45 2000 annual report shareholders caption “management’s discussion analysis risk management” pages 55 58 annual report note 4 consolidated financial statements incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosure market risk set forth pages 38 44 2001 annual report shareholders caption “management’s discussion analysis risk management” pages 56 57 annual report note 4 consolidated financial statements incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosure market risk set forth pages 46 53 2002 annual report shareholders caption “management’s discussion analysis risk management” pages 71 74 annual report note 4 consolidated financial statements incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosure market risk set forth pages 54 64 2003 annual report shareholders caption “management’s discussion analysis risk management” pages 80 84 annual report note 3 consolidated financial statements incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosure market risk set forth “management’s discussion analysis financial condition results operations risk management” part ii item 7 annual report form 10k note 3 consolidated financial statements part ii item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosure market risk set forth “management’s discussion analysis financial condition results operations risk management” part ii item 7 annual report form 10k item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosure market risk set forth “management’s discussion analysis financial condition results operations risk management” part ii item 7 annual report form 10k item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk set forth “management’s discussion analysis financial condition results operations risk management” part ii item 7 annual report form 10k item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk set forth “management’s discussion analysis financial condition results operations overview structure risk management” part ii item 7 form 10k item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk set forth “management’s discussion analysis financial condition results operations overview structure risk management” part ii item 7 form 10k goldman sachs 2011 form 10k item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk set forth “management’s discussion analysis financial condition results operations overview structure risk management” part ii item 7 form 10k item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk set forth “management’s discussion analysis financial condition results operations overview structure risk management” part ii item 7 2013 form 10k item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk set forth “management’s discussion analysis financial condition results operations overview structure risk management” part ii item 7 2014 form 10k item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk set forth “management’s discussion analysis financial condition results operations risk management” part ii item 7 form 10k item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk set forth “management’s discussion analysis financial condition results operations risk management” part ii item 7 form 10k item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk set forth “management’s discussion analysis financial condition results operations risk management” part ii item 7 form 10k item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosure market risk set forth pages 39 45 1999 annual report shareholders caption “management’s discussion analysis risk management” pages 55 58 annual report note 3 consolidated financial statements incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk set forth “management’s discussion analysis financial condition results operations overview structure risk management” part ii item 7 2015 form 10k item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk set forth “management’s discussion analysis financial condition results operations overview structure risk management” part ii item 7 form 10k goldman sachs group inc subsidiaries item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk set forth “management’s discussion analysis financial condition results operations risk management” part ii item 7 form 10k goldman sachs group inc subsidiaries item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosure market risk set forth “management’s discussion analysis financial condition results operations risk management” part ii item 7 annual report form 10k item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosure market risk set forth “management’s discussion analysis financial condition results operations risk management” part ii item 7 annual report form 10k item 8 item 8 financial statements supplementary data consolidated financial statements registrant subsidiaries together notes thereto report independent accountants thereon contained 2000 annual report shareholders pages 46 72 incorporated herein reference addition information page 73 2000 annual report shareholders caption “supplemental financial information quarterly results” incorporated herein reference item 9item 8 financial statements supplementary data consolidated financial statements registrant subsidiaries together notes thereto report independent accountants thereon contained 2001 annual report shareholders pages 46 72 incorporated herein reference addition information page 73 2001 annual report shareholders caption “supplemental financial information quarterly results” incorporated herein reference item 9item 8 financial statements supplementary data consolidated financial statements registrant subsidiaries together notes thereto report independent accountants thereon contained 2002 annual report shareholders pages 60 89 incorporated herein reference addition information page 90 2002 annual report shareholders caption “supplemental financial information quarterly results” incorporated herein reference item 9item 8 financial statements supplementary data consolidated financial statements registrant subsidiaries together notes thereto report independent auditors thereon contained 2003 annual report shareholders pages 67 100 incorporated herein reference addition information page 101 2003 annual report shareholders caption “supplemental financial information quarterly results” incorporated herein reference item 9item 8 financial statements supplementary data index management’s report internal control financial reporting management goldman sachs group inc together consolidated subsidiaries firm responsible establishing maintaining adequate internal control financial reporting firm’s internal control financial reporting process designed supervision firm’s principal executive principal financial officers provide reasonable assurance regarding reliability financial reporting preparation firm’s financial statements external reporting purposes accordance us generally accepted accounting principles end firm’s 2004 fiscal year management conducted assessment effectiveness firm’s internal control financial reporting based framework established internal control integrated framework issued committee sponsoring organizations treadway commission coso based assessment management determined firm’s internal control financial reporting november 26 2004 effective internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets provide reasonable assurances transactions recorded necessary permit preparation financial statements accordance us generally accepted accounting principles receipts expenditures made accordance authorizations management directors firm provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition firm’s assets could material effect financial statements management’s assessment effectiveness firm’s internal control financial reporting november 26 2004 audited pricewaterhousecoopers llp independent registered public accounting firm stated report appearing pages 93 94 expresses unqualified opinions management’s assessment effectiveness firm’s internal control financial reporting november 26 2004 report independent registered public accounting firm board directors shareholders goldman sachs group inc completed integrated audit goldman sachs group inc’s 2004 consolidated financial statements internal control financial reporting november 26 2004 audits 2003 2002 consolidated financial statements accordance standards public company accounting oversight board united states opinions based audits presented consolidated financial statements opinion consolidated financial statements listed accompanying index present fairly material respects financial position goldman sachs group inc subsidiaries company november 26 2004 november 28 2003 results operations cash flows three fiscal years period ended november 26 2004 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed accompanying index presents fairly material respects information set forth therein read conjunction related consolidated financial statements financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit financial statements includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion internal control financial reporting also opinion management’s assessment included management’s report internal control financial reporting appearing page 92 company maintained effective internal control financial reporting november 26 2004 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso fairly stated material respects based criteria furthermore opinion company maintained material respects effective internal control financial reporting november 26 2004 based criteria established internal control integrated framework issued coso company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinions management’s assessment effectiveness company’s internal control financial reporting based audit conducted audit internal control financial reporting accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit internal control financial reporting includes obtaining understanding internal control financial reporting evaluating management’s assessment testing evaluating design operating effectiveness internal control performing procedures consider necessary circumstances believe audit provides reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp new york new york february 4 2005 goldman sachs group inc subsidiaries consolidated statements earnings accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements financial condition accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements changes shareholders’ equity accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements cash flows supplemental disclosures cash payments interest net capitalized interest 855 billion 721 billion 892 billion years ended november 2004 november 2003 november 2002 respectively cash payments income taxes net refunds 102 billion 846 million 122 billion years ended november 2004 november 2003 november 2002 respectively noncash activities firm assumed 163 billion 584 million debt connection business combinations years ended november 2004 november 2003 respectively value common stock issued connection business combinations 165 million 47 million years ended november 2003 november 2002 respectively accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements comprehensive income accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries notes consolidated financial statements note 1 description business goldman sachs group inc group inc delaware corporation together consolidated subsidiaries collectively firm leading global investment banking securities investment management firm provides wide range services worldwide substantial diversified client base includes corporations financial institutions governments highnetworth individuals firm’s activities divided three segments • investment banking firm provides broad range investment banking services diverse group corporations financial institutions governments individuals • trading principal investments firm facilitates customer transactions diverse group corporations financial institutions governments individuals takes proprietary positions market making trading fixed income equity products currencies commodities derivatives products addition firm engages floorbased electronic market making specialist us equities options exchanges clears customer transactions major stock options futures exchanges worldwide connection firm’s merchant banking investment activities firm makes principal investments directly funds firm raises manages • asset management securities services firm offers broad array investment strategies advice planning across major asset classes diverse group institutions individuals worldwide provides prime brokerage financing services securities lending services mutual funds pension funds hedge funds foundations highnetworth individuals worldwide note 2 significant accounting policies basis presentation consolidated financial statements include accounts group inc entities firm controlling financial interest material intercompany transactions balances eliminated firm determines whether controlling financial interest entity first evaluating whether entity voting interest entity variable interest entity vie qualifying specialpurpose entity qspe generally accepted accounting principles • voting interest entities voting interest entities total equity investment risk sufficient enable entity finance independently ii equity holders obligation absorb losses right receive residual returns right make decisions entity’s activities voting interest entities consolidated accordance accounting research bulletin arb 51 “consolidated financial statements” amended arb 51 states usual condition controlling financial interest entity ownership majority voting interest accordingly firm consolidates voting interest entities majority voting interest • variable interest entities vies entities lack one characteristics voting interest entity controlling financial interest vie present enterprise variable interest combination variable interests absorb majority vie’s expected losses receive majority vie’s expected residual returns goldman sachs group inc subsidiaries notes consolidated financial statements continued enterprise controlling financial interest known primary beneficiary consolidates vie firm determines whether primary beneficiary vie first performing qualitative analysis vie includes among factors capital structure contractual terms variable interests create absorb variability related party relationships design vie qualitative analysis conclusive firm performs quantitative analysis purposes allocating vie’s expected losses expected residual returns vie’s variable interest holders firm utilizes “top down” method firm calculates share vie’s expected losses expected residual returns using specific cash flows would allocated based contractual arrangements andor firm’s position capital structure vie various probabilityweighted scenarios financial accounting standards board fasb issued fasb interpretation fin 46r “consolidation variable interest entities” december 2003 fin 46r replaced fin 46 issued january 2003 permitted firm adopted either fin 46 fin 46r substantially vies held variable interest november 2003 may 2004 firm adopted fin 46r vies held variable interest • qspes passive entities hold financial assets transferred commonly used mortgage securitization transactions accordance statement financial accounting standards sfas 140 “accounting transfers servicing financial assets extinguishments liabilities” fin 46r firm consolidate qspes • equitymethod investments firm controlling financial interest entity exerts significant influence entity’s operating financial policies generally defined owning voting interest 20 50 investment common stock insubstance common stock firm accounts investment accordance equity method accounting prescribed accounting principles board apb opinion 18 “the equity method accounting investments common stock” • firm consolidate entity apply equity method accounting firm accounts investment fair value firm also formed numerous nonconsolidated merchant banking funds thirdparty investors typically organized limited partnerships firm acts general partner funds hold majority economic interests fund firm holds minor interest fund subject removal general partner fund investments included “financial instruments owned fair value” consolidated statements financial condition consolidated financial statements prepared accordance generally accepted accounting principles require management make certain estimates assumptions regarding fair value measurements accounting goodwill identifiable intangible assets provision potential losses may arise litigation regulatory proceedings tax audits matters affect consolidated financial statements related disclosures estimates assumptions based best available information nonetheless actual results could materially different estimates unless otherwise stated herein references november 2004 november 2003 november 2002 refer firm’s fiscal years ended dates context requires goldman sachs group inc subsidiaries notes consolidated financial statements continued november 26 2004 november 28 2003 november 29 2002 respectively certain reclassifications made previously reported amounts conform current presentation revenue recognition investment banking underwriting revenues fees mergers acquisitions corporate finance advisory assignments recorded services related underlying transaction completed terms engagement expenses associated transactions deferred related revenue recognized engagement otherwise concluded underwriting revenues presented net related expenses associated advisory transactions recorded noncompensation expenses net client reimbursements repurchase agreements collateralized financing arrangements securities purchased agreements resell securities sold agreements repurchase principally us government federal agency investmentgrade foreign sovereign obligations represent shortterm collateralized financing transactions carried consolidated statements financial condition contractual amounts plus accrued interest amounts presented netbycounterparty basis requirements fin 41 “offsetting amounts related certain repurchase reverse repurchase agreements” fin 39 “offsetting amounts related certain contracts” satisfied firm takes possession securities purchased agreements resell makes delivery securities sold agreements repurchase monitors market value securities daily basis delivers obtains additional collateral appropriate securities borrowed loaned recorded based amount cash collateral advanced received transactions generally collateralized cash securities letters credit firm takes possession securities borrowed makes delivery securities loaned monitors market value securities borrowed loaned delivers obtains additional collateral appropriate interest income expense repurchase agreements collateralized financing arrangements recognized net revenues life transaction financial instruments consolidated statements financial condition reflect purchases sales financial instruments tradedate basis “total financial instruments owned fair value” “financial instruments sold yet purchased fair value” consolidated statements financial condition consist financial instruments carried fair value amounts approximate fair value related unrealized gains losses recognized firm’s results operations fair value financial instrument amount instrument could exchanged current transaction willing parties forced liquidation sale determining fair value firm separates financial instruments three categories cash ie nonderivative trading instruments derivative contracts principal investments • cash trading instruments fair values firm’s cash trading instruments generally obtained quoted market prices active markets broker dealer price quotations alternative pricing sources reasonable levels price transparency types instruments valued manner include us government agency securities sovereign government obligations liquid mortgage products investmentgrade corporate bonds listed equities money market securities state municipal provincial obligations physical commodities goldman sachs group inc subsidiaries notes consolidated financial statements continued certain cash trading instruments trade infrequently therefore little price transparency instruments may include certain highyield debt corporate bank loans mortgage whole loans distressed debt firm values instruments using methodologies present value known estimated cash flows generally adjust underlying valuation assumptions unless substantive evidence supporting change value underlying instrument valuation assumptions similar market transactions changes financial ratios changes credit ratings underlying companies cash trading instruments owned firm long positions marked bid prices instruments sold yet purchased short positions marked offer prices liquidating position reasonably expected affect prevailing market price valuation adjusted generally based market evidence predetermined policies certain circumstances highly illiquid positions management’s estimates used determine adjustment • derivative contracts fair values firm’s derivative contracts consist exchangetraded overthecounter otc derivatives reflect cash firm paid received example option premiums cash paid received pursuant credit support agreements fair values firm’s exchangetraded derivatives generally determined quoted market prices otc derivatives valued using valuation models firm uses variety valuation models including present value known estimated cash flows optionpricing models optionadjusted spread models valuation models used derive fair values firm’s otc derivatives require inputs including contractual terms market prices yield curves credit curves measures volatility prepayment rates correlations inputs selection model value otc derivative depends upon contractual terms specific risks inherent instrument well availability pricing information market firm generally uses similar models value similar instruments possible firm verifies values produced pricing models market transactions otc derivatives trade liquid markets generic forwards swaps options model selection involve significant judgment market prices readily available otc derivatives trade less liquid markets model selection requires judgment instruments tend complex pricing information less available market markets continue develop pricing information becomes available firm continues review refine models uses inception otc derivative contract day one firm values contract model value firm verify significant model inputs observable market data verify model market transactions appropriate valuations adjusted reflect various factors liquidity bidoffer credit considerations adjustments generally based market evidence predetermined policies certain circumstances highly illiquid positions management’s estimates used determine adjustments firm cannot verify significant model inputs observable market data verify model market transactions firm values contract transaction price inception consequently records day one gain loss accordance emerging issues task force eitf issue 023 “issues involved accounting derivative contracts held trading purposes contracts involved energy trading risk management activities” goldman sachs group inc subsidiaries notes consolidated financial statements continued following day one firm adjusts inputs valuation models extent changes inputs verified similar market transactions thirdparty pricing services andor broker quotes derived substantive evidence empirical market data circumstances firm cannot verify model market transactions possible different valuation model could produce materially different estimate fair value • principal investments valuing corporate real estate principal investments firm’s portfolio separated investments private companies investments public companies excluding firm’s investment convertible preferred stock sumitomo mitsui financial group inc smfg firm’s investment smfg firm’s private principal investments nature little price transparency investments initially carried cost approximation fair value adjustments carrying value made thirdparty transactions evidencing change value downward adjustments also made absence thirdparty transactions determined expected realizable value investment less carrying value reaching determination many factors considered including limited operating cash flows financial performance companies properties relative budgets projections trends within sectors andor regions underlying business models expected exit timing strategy specific rights terms associated investment conversion features liquidation preferences firm’s public principal investments tend large concentrated holdings result initial public offerings corporate transactions valued using quoted market prices discounted restrictions sale liquidating position reasonably expected affect market prices valuations adjusted accordingly based predetermined written policies firm’s investment convertible preferred stock smfg carried fair value derived model incorporates smfg’s common stock price credit spreads impact nontransferability illiquidity downside protection conversion strike price firm right convert preferred stock investment smfg shares smfg common stock beginning february 8 2005 current conversion price ¥322300 price subject downward adjustment price smfg common stock time conversion less conversion price subject floor ¥106300 firm’s convertible preferred investment generally nontransferable onethird underlying shares smfg common stock become transferable february 8 2005 remaining shares common stock becoming transferable equal installments february 7 2006 february 7 2007 addition restrictions firm’s ability hedge underlying common stock lapse three equal annual installments beginning february 7 2005 general transfers financial assets accounted sales sfas 140 firm relinquished control transferred assets transfers accounted sales related gains losses recognized net revenues transfers accounted sales accounted collateralized financing arrangements related interest expense recognized net revenues lives transactions commissions firm generates commissions executing clearing client transactions stock options futures markets worldwide commissions recorded tradedate basis “trading principal investments” consolidated statements earnings goldman sachs group inc subsidiaries notes consolidated financial statements continued power generation power generation revenues associated firm’s consolidated power plant operations included “trading principal investments” consolidated statements earnings power delivered “cost power generation” consolidated statement earnings includes direct costs plant operations eg fuel operations maintenance well depreciation amortization associated plant related contractual assets following table sets forth power generation revenues costs directly associated firm’s consolidated power plant operations 1 excludes revenues nonconsolidated power plant operations accounted accordance equity method accounting well revenues associated firm’s power trading activities 2 firm’s consolidated power plant operations commenced october 2003 asset management asset management fees generally recognized period related service provided based upon average net asset values certain circumstances firm entitled receive incentive fees return assets management exceeds certain benchmark returns performance targets incentive fees generally based investment performance twelvemonth period subject adjustment prior end measurement period accordingly incentive fees recognized consolidated statements earnings measurement period ends asset management fees incentive fees included “asset management securities services” consolidated statements earnings merchant banking overrides firm entitled receive merchant banking overrides ie increased share fund’s income gains return funds’ investments exceeds certain threshold returns overrides based investment performance life merchant banking fund future investment underperformance may require amounts previously distributed firm returned funds accordingly overrides recognized consolidated statements earnings material contingencies resolved overrides included “trading principal investments” consolidated statements earnings stockbased compensation effective fiscal 2003 firm began account stockbased employee compensation accordance fairvalue method prescribed sfas 123 “accounting stockbased compensation” amended sfas 148 “accounting stockbased compensation transition disclosure” using prospective adoption method adoption compensation expense recognized relevant service period based fair value stock options restricted stock units granted fiscal 2003 future years unearned compensation included “shareholders’ equity” stock options restricted stock units granted rather stock options restricted stock units included “shareholders’ equity” sfas 123 services required employees exchange awards rendered expensed compensation expense resulting stock options restricted stock units granted years ended november 2002 prior years accounted intrinsicvaluebased method goldman sachs group inc subsidiaries notes consolidated financial statements continued prescribed apb opinion 25 “accounting stock issued employees” permitted sfas 123 therefore compensation expense recognized unmodified stock options issued years prior fiscal 2003 intrinsic value date grant compensation expense restricted stock units issued years prior fiscal 2003 continues recognized relevant service periods using amortization schedules based applicable vesting provisions firm pays cash dividend equivalents outstanding restricted stock units dividend equivalents paid restricted stock units accounted sfas 123 charged retained earnings paid dividend equivalents paid restricted stock units later forfeited employees reclassified compensation expense retained earnings dividend equivalents paid restricted stock units granted year ended november 2002 prior years accounted apb opinion 25 charged compensation expense firm recognize compensation expense relevant service period fairvalue method sfas 123 respect stock options granted year ended november 2002 prior years net earnings would decreased resulting pro forma net earnings eps presented goodwill cost acquired companies excess fair value identifiable net assets acquisition date accordance sfas 142 “goodwill intangible assets” goodwill tested least annually impairment loss triggered estimated fair value operating segment less estimated net book value loss calculated difference implied fair value goodwill carrying value identifiable intangible assets identifiable intangible assets consist primarily customer lists specialist rights amortized estimated useful lives identifiable intangible assets tested potential impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable accordance sfas 144 “accounting goldman sachs group inc subsidiaries notes consolidated financial statements continued impairment disposal longlived assets” impairment loss calculated difference estimated fair value carrying value asset group recognized sum estimated undiscounted cash flows relating asset group less corresponding carrying value property leasehold improvements equipment property leasehold improvements equipment net accumulated depreciation amortization included “other assets” consolidated statements financial condition effective december 1 2001 firm changed straightline method depreciation certain property leasehold improvements equipment placed service december 1 2001 firm’s depreciation amortization computed using methods set forth property certain internal use equipment leasehold improvements software costs term lease greater term lease less useful life useful life placed service prior december 1 2001 accelerated cost recovery accelerated cost recovery straightline term lease straightline useful life asset placed service december 1 2001 straightline useful life asset straightline useful life asset straightline term lease straightline useful life asset property leasehold improvements equipment tested potential impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable accordance sfas 144 impairment loss calculated difference estimated fair value carrying value asset group recognized sum expected undiscounted cash flows relating asset group less corresponding carrying value firm’s operating leases include space held excess current needs rent expense relating space held growth included “occupancy” consolidated statements earnings accordance sfas 146 “accounting costs associated exit disposal activities” firm records liability based remaining lease rentals reduced potential existing sublease rentals leases firm ceased using space management concluded firm derive future economic benefits costs terminate lease end term recognized measured fair value upon termination foreign currency translation assets liabilities denominated nonus currencies translated rates exchange prevailing date consolidated statement financial condition revenues expenses translated average rates exchange fiscal year gains losses translation financial statements nonus operation functional currency us dollar included net hedges taxes consolidated statements comprehensive income firm seeks reduce net investment exposure fluctuations foreign exchange rates use foreign currency forward contracts foreign currency denominated debt foreign currency forward contracts hedge effectiveness assessed based changes forward exchange rates accordingly forward points reflected component currency translation adjustment consolidated statements comprehensive income foreign currency denominated debt hedge effectiveness assessed based changes spot rates goldman sachs group inc subsidiaries notes consolidated financial statements continued foreign currency remeasurement gains losses transactions nonfunctional currencies included consolidated statements earnings income taxes deferred tax assets liabilities recognized temporary differences financial reporting tax bases firm’s assets liabilities valuation allowances established reduce deferred tax assets amount likely realized firm’s tax assets liabilities presented component “other assets” “other liabilities accrued expenses” respectively consolidated statements financial condition tax provisions computed accordance sfas 109 “accounting income taxes” contingent liabilities related income taxes recorded criteria loss recognition sfas 5 “accounting contingencies” amended met earnings per share basic eps calculated dividing net earnings weighted average number common shares outstanding common shares outstanding includes common stock restricted stock units future service required condition delivery underlying common stock diluted eps includes determinants basic eps addition reflects dilutive effect common stock deliverable pursuant stock options restricted stock units future service required condition delivery underlying common stock cash equivalents firm defines cash equivalents highly liquid overnight deposits held ordinary course business recent accounting developments december 2003 fasb issued fin 46r fin 46r replaced fin 46 issued january 2003 permitted firm adopted either fin 46 fin 46r substantially vies firm held variable interest november 2003 may 2004 firm adopted fin 46r vies held variable interest effect firm’s adoption fin 46 fin 46r material firm’s financial condition results operations cash flows december 2003 fasb issued sfas 132 revised 2003 “employers’ disclosures pensions postretirement benefits” sfas 132 revised 2003 amends disclosure requirements pension plans postretirement benefits requiring additional disclosures descriptions types plan assets investment strategies measurement dates plan obligations cash flows components net periodic pension costs recognized interim periods statement change measurement recognition plan assets obligations firm adopted interim period disclosures beginning first quarter fiscal 2004 required firm adopted annual disclosure provisions effective firm’s fiscal year ending november 2004 see note 11 information regarding firm’s employee benefit plans goldman sachs group inc subsidiaries notes consolidated financial statements continued may 2004 fasb issued fasb staff position fsp fas 1062 “accounting disclosure requirements related medicare prescription drug improvement modernization act 2003” supersedes fsp fas 1061 title issued january 2004 medicare prescription drug improvement modernization act 2003 medicare act introduces federal subsidy sponsors retiree health care benefit plans provide benefit least actuarially equivalent medicare part management concluded provisions finalized current form benefits provided firm’s plan meet “actuarially equivalent” standard set forth medicare act permitted firm prospectively adopted fsp fas 1062 fourth quarter fiscal 2004 thereby reducing firm’s accumulated benefit obligation 13 million impact net periodic postretirement benefit cost future periods expected material effect firm’s financial condition results operations cash flows december 2004 fasb issued revision sfas 123 “accounting stockbased compensation” sfas 123r “sharebased payment” sfas 123r focuses primarily transactions entity exchanges equity instruments employee services generally establishes standards accounting transactions entity obtains goods services sharebased payment transactions sfas 123r effective firm’s fourth quarter fiscal 2005 management currently evaluating effect adoption sfas 123r expect adoption material effect firm’s financial condition results operations cash flows goldman sachs group inc subsidiaries notes consolidated financial statements continued note 3 financial instruments fair value financial instruments following table sets forth firm’s financial instruments owned including pledged collateral fair value financial instruments sold yet purchased fair value credit concentrations credit concentrations may arise trading underwriting securities borrowing activities may impacted changes economic industry political factors november 2004 november 2003 firm held us government federal agency obligations represented 5 6 firm’s total assets respectively addition firm’s securities purchased agreements resell collateralized us government federal agency sovereign obligations november 2004 november 2003 firm credit exposure counterparty exceeded 5 firm’s total assets derivative activities derivative contracts instruments futures forwards swaps option contracts derive value underlying assets indices reference rates combination factors derivative instruments may privately negotiated contracts often referred otc derivatives may listed traded exchange derivatives may involve future commitments purchase sell financial instruments commodities exchange currency goldman sachs group inc subsidiaries notes consolidated financial statements continued interest payment streams amounts exchanged based specific terms contract reference specified rates securities commodities currencies indices certain cash instruments mortgagebacked securities interestonly principalonly obligations indexed debt instruments considered derivatives even though values contractually required cash flows derived price security index however certain commodityrelated contracts included firm’s derivatives disclosure contracts may settled cash readily convertible cash substantially firm’s derivative transactions entered trading purposes order facilitate customer transactions take proprietary positions means risk management risk exposures managed diversification controlling position sizes establishing hedges related securities derivatives example firm may hedge portfolio common stock taking offsetting position related equityindex futures contract gains losses derivatives used trading purposes generally included “trading principal investments” consolidated statements earnings addition derivative transactions entered trading purposes firm enters derivative contracts hedge net investment nonus operations see note 2 information regarding firm’s policy foreign currency translation manage interest rate currency exposure longterm borrowings certain shortterm borrowings manage exposure borrowings firm uses derivatives effectively convert substantial portion longterm borrowings us dollarbased floating rate obligations firm applies fairvalue hedge accounting derivative contracts hedge benchmark interest rate ie libor longterm borrowings fair values firm’s derivative contracts reflect cash paid received pursuant credit support agreements reported netbycounterparty basis firm’s consolidated statements financial condition management believes legal right setoff exists enforceable netting agreement fair value derivative financial instruments computed accordance firm’s netting policy set forth securitization activities firm securitizes commercial residential mortgages home equity loans government corporate bonds types financial assets firm acts underwriter beneficial interests sold investors firm derecognizes financial assets transferred securitizations provided relinquished control assets transferred assets accounted fair value prior securitization net revenues related underwriting activities recognized connection sales underlying beneficial interests investors firm may retain interests securitized financial assets retained interests accounted fair value included “total financial instruments owned fair value” consolidated statements financial condition goldman sachs group inc subsidiaries notes consolidated financial statements continued years ended november 2004 november 2003 firm securitized 6293 billion 9500 billion respectively financial assets including 2124 billion 7089 billion respectively agency mortgagebacked securities cash flows received retained interests securitization cash flows approximately 984 million 1 billion years ended november 2004 november 2003 respectively november 2004 november 2003 firm held 433 billion 320 billion retained interests respectively including 411 billion 304 billion respectively held qspes november 2004 november 2003 fair value 949 million 105 billion respectively retained interests based quoted market prices active markets following table sets forth weighted average key economic assumptions used measuring fair value 338 billion 215 billion respectively november 2004 november 2003 retained interests fair value based alternative pricing sources reasonable little price transparency sensitivity fair values immediate adverse changes 10 20 assumptions 1 annual percentage credit loss based positions expected credit loss key assumption determination fair values 2 impacts adverse change take account credit mitigants incorporated retained interests including collateralization subordination provisions 3 includes retained interests bonds types financial assets subject prepayment risk preceding table give effect offsetting benefit financial instruments held hedge risks inherent retained interests changes fair value based 10 adverse variation assumptions generally cannot extrapolated relationship change assumptions change fair value usually linear addition impact change particular assumption calculated independently changes assumption practice simultaneous changes assumptions might magnify counteract sensitivities disclosed addition retained interests described firm also held interests qspes primarily agency mortgagebacked securities purchased connection secondary marketmaking activities purchased interests approximated 5 billion 6 billion november 2004 november 2003 respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued connection issuance assetrepackaged notes investors firm derivative receivables qspes firm transferred assets fair value 126 million 188 million november 2004 november 2003 respectively receivables collateralized firstpriority interest assets held qspe variable interest entities vies firm ordinary course business retains interests vies connection securitization activities firm also purchases sells variable interests vies primarily mortgagebacked assetbacked interests connection marketmaking activities makes investments loans vies hold performing nonperforming debt real estate assets addition firm utilizes vies provide investors creditlinked assetrepackaged notes designed meet objectives vies generally purchase assets issuing debt equity instruments contractual arrangements certain instances firm provided guarantees certain vies holders variable interests vies cases maximum exposure loss included tables set forth notional amount guarantees amounts represent anticipated losses connection guarantees firm’s variable interests vies include senior subordinated debt limited general partnership interests preferred common stock interest rate foreign currency equity commodity credit derivatives guarantees residual interests mortgagebacked assetbacked securitization vehicles group inc generally directly indirectly obligated repay debt equity instruments contractual arrangements entered vies following table sets forth firm’s total assets maximum exposure loss associated significant variable interests consolidated vies firm hold majority voting interest 1 consolidated vie assets include assets financed nonrecourse shortterm longterm debt nonrecourse debt group inc directly indirectly obligated repay goldman sachs group inc subsidiaries notes consolidated financial statements continued following tables set forth total assets nonconsolidated vies firm holds significant variable interests firm’s maximum exposure loss associated interests secured borrowing lending activities firm obtains secured shortterm financing principally use repurchase agreements securities lending agreements obtain securities settlement finance inventory positions meet customers’ needs transactions firm either provides receives collateral including cash us government federal agency mortgagebacked investmentgrade foreign sovereign obligations equity securities convertible bonds letters credit corporate bonds firm receives collateral connection resale agreements securities lending transactions derivative transactions customer margin loans secured lending activities many cases firm permitted sell repledge securities held collateral securities may used secure repurchase agreements enter securities lending derivative transactions cover short positions november 2004 november 2003 fair value securities received collateral firm permitted sell repledge 51198 billion 41001 billion respectively firm sold repledged 45179 billion 35057 billion respectively firm also pledges assets collateralize repurchase agreements secured financings november 2004 november 2003 carrying value securities included “financial instruments owned fair value” loaned pledged counterparties right sell repledge 4686 billion 4739 billion respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued note 4 shortterm borrowings firm obtains secured unsecured shortterm borrowings primarily issuance promissory notes commercial paper bank loans november 2004 november 2003 secured shortterm borrowings 856 billion 332 billion respectively unsecured shortterm borrowings 4640 billion 4088 billion respectively shortterm borrowings also include portion longterm borrowings maturing within one year certain longterm borrowings may redeemable within one year option holder carrying value shortterm obligations approximates fair value due shortterm nature shortterm borrowings set forth note 5 longterm borrowings firm obtains secured unsecured longterm borrowings consist principally senior borrowings maturities extending 2034 november 2004 november 2003 secured longterm borrowings 1209 billion 604 billion respectively unsecured longterm borrowings 6861 billion 5144 billion respectively longterm borrowings set forth goldman sachs group inc subsidiaries notes consolidated financial statements continued nonrecourse debt group inc directly indirectly obligated repay longterm borrowings include nonrecourse debt issued following subsidiaries longterm borrowings fiscal maturity date set forth 1 longterm borrowings maturing within one year certain longterm borrowings may redeemable within one year option holder included shortterm borrowings consolidated statements financial condition 2 longterm borrowings repayable option firm reflected contractual maturity dates certain longterm borrowings may redeemable prior maturity option holder reflected dates options become exercisable firm enters derivative contracts interest rate futures contracts interest rate swap agreements currency swap agreements equitylinked contracts effectively convert substantial portion longterm borrowings us dollarbased floating rate obligations accordingly aggregate carrying value longterm borrowings related hedges approximates fair value effective weighted average interest rates longterm borrowings hedging activities set forth goldman sachs group inc subsidiaries notes consolidated financial statements continued deferrable interest junior subordinated debentures february 2004 goldman sachs capital trust wholly owned delaware statutory trust formed firm exclusive purposes issuing 275 billion guaranteed preferred beneficial interests 85 million common beneficial interests trust ii investing proceeds sale purchase junior subordinated debentures group inc iii engaging activities necessary incidental purposes preferred beneficial interests purchased third parties november 2004 firm held common beneficial interests trust wholly owned finance subsidiary firm legal regulatory purposes however accounting purposes fin 46r trust consolidated subsidiary firm’s ownership common beneficial interest considered risk since trust’s principal asset 284 billion junior subordinated debentures issued firm pays interest semiannually debentures annual rate 6345 debentures mature february 15 2034 coupon rate payment dates applicable beneficial interests interest rate payment dates applicable debentures see note 6 information regarding firm’s guarantee preferred beneficial interests issued trust firm right time defer payment interest junior subordinated debentures therefore cause payment dividends trust’s preferred beneficial interests deferred case ten consecutive semiannual periods extension period group inc permitted among things pay dividends make certain repurchases common stock trust permitted pay distributions common beneficial interests held firm unless dividends payable preferred beneficial interests paid full note 6 commitments contingencies guarantees commitments firm commitments enter forward secured financing transactions including certain repurchase resale agreements secured borrowing lending arrangements 4832 billion 3525 billion november 2004 november 2003 respectively connection lending activities firm outstanding commitments 2772 billion 1583 billion november 2004 november 2003 respectively firm’s commitments extend credit agreements lend counterparties fixed termination dates contingent conditions borrowing set forth contract met since commitments may expire unused total commitment amount necessarily reflect actual future cash flow requirements november 2004 november 2003 940 billion 432 billion respectively firm’s outstanding commitments extend credit issued william street credit extension program commitments primarily issued william street commitment corporation commitment corp consolidated wholly owned subsidiary group inc another consolidated wholly owned subsidiary william street funding corporation funding corp formed raise funding support william street credit extension program commitment corp funding corp separate corporate entities assets liabilities legally separated assets liabilities firm accordingly assets commitment corp funding corp available respective shareholders claims respective creditors paid addition affiliate either commitment corp goldman sachs group inc subsidiaries notes consolidated financial statements continued funding corp except limited cases expressly agreed writing responsible obligation either entity substantially credit risk associated commitments covered credit loss protection provided firm smfg firm also hedged credit risk certain nonwilliam street commitments using variety financial instruments firm provides letters credit issued various banks counterparties lieu securities cash satisfy various collateral margin deposit requirements letters credit outstanding 1115 billion 1260 billion november 2004 november 2003 respectively firm acts investor merchant banking transactions includes making longterm investments equity debt securities privately negotiated transactions corporate acquisitions real estate transactions connection activities firm commitments invest 104 billion 138 billion corporate real estate investment funds november 2004 november 2003 respectively firm constructionrelated commitments 107 million 87 million november 2004 november 2003 respectively purchase commitments 242 million 255 million november 2004 november 2003 respectively november 2004 firm entered contract acquire interests power plants related businesses national energy gas transmission inc including additional interests power plants natural gas pipeline cogentrix energy inc wholly owned subsidiary firm already holds interests approximately 550 million firm contractual obligations longterm noncancelable lease agreements principally office space expiring various dates 2029 certain agreements subject periodic escalation provisions increases real estate taxes charges future minimum rental payments net minimum sublease rentals rent charged operating expense last three years set forth contingencies firm involved number judicial regulatory arbitration proceedings concerning matters arising connection conduct businesses management believes based currently available information results proceedings aggregate material adverse effect firm’s financial condition may material firm’s operating results particular period depending part upon operating results period given inherent difficulty predicting outcome firm’s litigation matters particularly cases goldman sachs group inc subsidiaries notes consolidated financial statements continued claimants seek substantial indeterminate damages firm cannot estimate losses ranges losses cases reasonable possibility loss may incurred guarantees firm enters various derivative contracts meet definition guarantee fin 45 derivative contracts include credit default swaps written equity commodity put options written currency contracts interest rate caps floors swaptions fin 45 require disclosures derivative contracts may cash settled firm basis conclude probable counterparties held inception underlying instruments related derivative contracts firm concluded conditions met certain large internationally active commercial investment bank end users certain users accordingly firm included contracts tables firm capacity agency lender occasionally indemnifies securities lending customers losses incurred event borrowers return securities collateral held insufficient cover market value securities borrowed relation certain asset sales securitization transactions firm guarantees collection contractual cash flows connection merchant banking activities firm may issue loan guarantees secure financing obtain preferential terms addition firm provides letters credit guarantees limited basis enable clients enhance credit standing complete transactions connection firm’s establishment trust group inc effectively provided full unconditional guarantee beneficial interests trust held third parties timely payment group inc interest junior subordinated debentures amounts due performance obligations transaction documents sufficient cover payments due trust beneficial interests result management believes unlikely firm make payments related trust required junior subordinated debentures connection certain expenses incurred trust goldman sachs group inc subsidiaries notes consolidated financial statements continued following tables set forth certain information firm’s derivative contracts meet definition guarantee certain guarantees november 2004 november 2003 1 carrying value 675 billion excludes effect legal right setoff may exist enforceable netting agreement 2 collateral held connection securities lending indemnifications 1528 billion november 2004 3 includes guarantee payments scheduled made life trust could shortened event firm redeemed junior subordinated debentures issued fund trust see note 5 information regarding trust 4 amounts represent anticipated losses connection contracts 1 carrying value 764 billion excludes effect legal right setoff may exist enforceable netting agreement 2 collateral held connection securities lending indemnifications 823 billion november 2003 3 amounts represent anticipated losses connection contracts normal course business firm indemnifies guarantees certain service providers clearing custody agents trustees administrators specified potential losses connection acting agent providing services firm affiliates firm also indemnifies clients potential losses incurred event goldman sachs group inc subsidiaries notes consolidated financial statements continued specified thirdparty service providers including subcustodians thirdparty brokers improperly execute transactions addition firm member payment clearing settlement networks well securities exchanges around world may require firm meet obligations networks exchanges event member defaults connection prime brokerage clearing businesses firm may agree clear settle behalf clients transactions entered brokerage firms firm’s obligations respect transactions secured assets client’s account well proceeds received transactions cleared settled firm behalf client connection joint venture investments firm may issue loan guarantees may liable event fraud misappropriation environmental liabilities certain matters involving borrower firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements liabilities related guarantees indemnifications recognized consolidated statements financial condition november 2004 november 2003 firm provides representations warranties counterparties connection variety commercial transactions occasionally indemnifies potential losses caused breach representations warranties firm may also provide indemnifications protecting changes adverse application certain us tax laws connection ordinarycourse transactions securities issuances borrowings derivatives addition firm may provide indemnifications counterparties protect event additional taxes owed payments withheld due either change adverse application certain nonus tax laws indemnifications generally standard contractual terms entered normal course business generally stated notional amounts included indemnifications contingencies triggering obligation indemnify expected occur firm unable develop estimate maximum payout guarantees however management believes unlikely firm make material payments arrangements liabilities related arrangements recognized consolidated statements financial condition november 2004 november 2003 note 7 shareholders’ equity dividends declared per common share 100 2004 074 2003 048 2002 december 15 2004 board directors group inc board declared dividend 025 per share paid february 24 2005 common shareholders record january 25 2005 2004 2003 firm repurchased 187 million shares 122 million shares firm’s common stock respectively average price paid per share repurchased shares 9629 7683 years ended november 2004 november 2003 respectively addition satisfy minimum statutory employee tax withholding requirements related delivery shares underlying restricted stock units firm cancelled 91 million restricted stock units average price 9520 per unit 2004 january 30 2004 board authorized repurchase additional 150 million shares common stock pursuant firm’s existing repurchase program november 2004 firm authorized repurchase 64 million additional shares common stock pursuant firm’s repurchase program goldman sachs group inc subsidiaries notes consolidated financial statements continued note 8 earnings per share computations basic diluted eps set forth 1 diluted eps computations include antidilutive effect following options note 9 goodwill identifiable intangible assets goodwill november 2004 november 2003 goodwill 318 billion 316 billion respectively included “other assets” consolidated statements financial condition goldman sachs group inc subsidiaries notes consolidated financial statements continued identifiable intangible assets following table sets forth gross carrying amount accumulated amortization net carrying amount identifiable intangible assets 1 primarily includes firm’s clearance execution nasdaq customer lists acquired firm’s combination slk llc slk financial counseling customer lists acquired firm’s combination ayco company lp 2 primarily includes technologyrelated assets acquired firm’s combination slk 3 gross carrying amount accumulated amortization exclude amounts related assets longer service beginning period 4 accumulated amortization includes 188 million impairment charges primarily related option specialist rights identifiable intangible assets amortized estimated useful lives weighted average remaining life firm’s identifiable intangibles approximately 17 years identifiable intangible assets considered indefinitelived therefore subject amortization expense associated identifiable intangible assets 125 million 319 million including 188 million impairment charges 127 million fiscal years ended november 2004 november 2003 november 2002 respectively estimated future amortization expense existing identifiable intangible assets set forth goldman sachs group inc subsidiaries notes consolidated financial statements continued assets generally less liquid nonfinancial assets following table sets forth firm’s assets type 1 see note 9 information regarding firm’s goodwill identifiable intangible assets 2 see note 13 information regarding firm’s income taxes liabilities accrued expenses primarily includes compensation benefits minority interest certain consolidated entities litigation liabilities taxrelated payables deferred revenue payables following table sets forth firm’s liabilities accrued expenses type firm sponsors various pension plans certain postretirement benefit plans primarily healthcare life insurance cover employees worldwide firm also provides certain benefits former inactive employees prior retirement summary plans set forth defined benefit pension plans postretirement plans firm maintains defined benefit pension plan substantially us employees november 2004 plan closed new participants benefits accrued existing participants employees certain nonus subsidiaries participate various local defined benefit plans generally provide benefits based years credited service percentage employee’s eligible compensation addition firm unfunded postretirement benefit plans provide medical life insurance eligible retirees employees dependents united states goldman sachs group inc subsidiaries notes consolidated financial statements continued following table provides summary changes plans’ benefit obligations fair value assets november 2004 november 2003 statement funded status plans november 2004 november 2003 accumulated benefit obligation defined benefit plans 742 million 560 million november 2004 november 2003 respectively plans accumulated benefit obligation exceeded plan assets aggregate projected benefit obligation accumulated benefit obligation 184 million 154 million respectively november 2004 160 million 139 million respectively november 2003 fair value plan assets plans 104 million 97 million november 2004 november 2003 respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued components pension expenseincome postretirement expense set forth goldman sachs group inc subsidiaries notes consolidated financial statements continued weighted average assumptions used develop net periodic pension cost actuarial present value projected benefit obligation set forth assumptions represent weighted average assumptions used us nonus plans based economic environment applicable country 1 includes plan added connection business combination firm’s approach determining longterm rate return plan assets based upon historical financial market relationships existed time presumption trend generally remain constant future measurement purposes annual growth rate per capita cost covered healthcare benefits 1253 assumed fiscal year ending november 2005 rate assumed decrease ratably 500 fiscal year ending november 2009 remain level thereafter assumed cost healthcare effect amounts reported firm’s postretirement plans 1 change assumed healthcare cost trend rate would following effects goldman sachs group inc subsidiaries notes consolidated financial statements continued following table sets forth composition plan assets us nonus defined benefit pension plans asset category investment approach firm’s us major nonus defined benefit pension plans involves employing sufficient level flexibility capture investment opportunities occur maintaining reasonable parameters ensure prudence care exercised execution investment programs plans employ total return investment approach whereby mix broadly similar actual asset allocation november 2004 equity securities debt securities assets targeted maximize longterm return assets given level risk investment risk measured monitored ongoing basis firm’s retirement committee periodic portfolio reviews meetings investment managers annual liability measurements firm contribute minimum 5 million pension plans 7 million postretirement plans fiscal 2005 following table sets forth benefits projected paid firm’s us nonus defined benefit pension postretirement plans reflects expected future service appropriate defined contribution plans firm contributes employersponsored us nonus defined contribution plans firm’s contribution plans 189 million 199 million 154 million years ended november 2004 november 2003 november 2002 respectively firm maintained nonqualified defined contribution plan certain senior employees shares common stock contributed plan outstanding november 2004 01 million remaining shares distributed participants remaining assets plan january 2005 plan expense immaterial years ended november 2004 november 2003 november 2002 goldman sachs group inc subsidiaries notes consolidated financial statements continued stock incentive plan firm sponsors stock incentive plan goldman sachs amended restated stock incentive plan amended sip provides grants incentive stock options nonqualified stock options stock appreciation rights dividend equivalent rights restricted stock restricted stock units stockbased awards second quarter fiscal 2003 amended sip approved firm’s shareholders effective grants april 1 2003 awards made original plan date although awards granted original plan prior date remain outstanding total number shares common stock may issued amended sip fiscal 2008 may exceed 250 million shares fiscal year thereafter may exceed 5 issued outstanding shares common stock determined last day immediately preceding fiscal year increased number shares available awards previous fiscal years covered awards granted years november 2004 november 2003 2189 million 2368 million shares respectively available grant amended sip taking account stockbased compensation awards issued subsequent year end part yearend compensation arrangements november 2004 firm adopted new deferred compensation plans eligible employees fiscal 2005 general plans participants able defer payment portion cash yearend compensation deferral period participants able nominally invest deferrals certain alternatives available plans generally current tax law participants subject income tax amounts deferred notional investment earnings returns distributed firm entitled corresponding tax deduction amounts distributed november 2004 firm adopted discount stock program eligible senior executives may acquire restricted stock units fiscal 2005 firm’s amended sip effective 25 discount 25 discount effected additional grant restricted stock units equal onethird number restricted stock units purchased qualifying participants purchased restricted stock units 100 vested granted shares underlying able sold transferred satisfy tax obligations third anniversary grant date remaining shares underlying restricted stock units generally vest equal installments second third anniversaries following grant date transferable third anniversary grant date restricted stock units firm issued restricted stock units employees amended sip primarily connection yearend compensation acquisitions total restricted stock units outstanding november 2004 november 2003 249 million units 245 million units respectively required future service condition delivery underlying shares common stock ii 130 million units 233 million units respectively require future service goldman sachs group inc subsidiaries notes consolidated financial statements continued cases delivery underlying shares common stock conditioned grantees satisfying certain requirements outlined award agreements activity related restricted stock units set forth 1 includes restricted stock units granted employees subsequent year end part yearend compensation total employee stock compensation expense net forfeitures 122 billion 711 million 645 million years ended november 2004 november 2003 november 2002 respectively stock options november 2004 stock options granted employees may 1999 connection firm’s initial public offering fully vested exercisable stock options granted employees subsequent firm’s initial public offering generally vest outlined applicable stock option agreement first become exercisable third anniversary grant date employee stock option agreements provide vesting accelerated certain circumstances upon retirement death extended absence general stock options expire tenth anniversary grant date although may subject earlier termination cancellation certain circumstances accordance terms amended sip applicable stock option agreement dilutive effect firm’s outstanding stock options included “average common shares outstanding diluted” consolidated statements earnings goldman sachs group inc subsidiaries notes consolidated financial statements continued activity related stock options set forth 1 includes stock options granted employees subsequent year end part yearend compensation options outstanding november 2004 set forth weighted average fair value options granted fiscal 2004 fiscal 2003 fiscal 2002 3222 per option 3131 per option 2738 per option respectively fair value estimated grant date based binomial optionpricing model using following weighted average assumptions goldman sachs group inc subsidiaries notes consolidated financial statements continued components net tax expense reflected consolidated statements earnings set forth deferred income taxes reflect net tax effects temporary differences financial reporting tax bases assets liabilities temporary differences result taxable deductible amounts future years measured using tax rates laws effect differences expected reverse significant components firm’s deferred tax assets liabilities set forth 1 relates primarily ability utilize certain state local foreign tax credits firm permanently reinvests eligible earnings certain foreign subsidiaries accordingly accrue us income taxes would arise earnings repatriated november 2004 policy resulted unrecognized net deferred tax liability 135 million attributable reinvested earnings 165 billion goldman sachs group inc subsidiaries notes consolidated financial statements continued additionally 2004 valuation allowance increased 3 million primarily due increase certain state local tax credits acquired federal net operating loss carryforwards 88 million november 2004 49 million november 2003 subject annual limitations utilization begin expire 2019 acquired state local net operating loss carryforwards 436 million november 2004 subject annual limitations begin expire 2005 acquired alternative minimum tax credit carryforwards 32 million november 2004 subject annual limitations utilization carried forward indefinitely reconciliation us federal statutory income tax rate firm’s effective income tax rate set forth tax benefits approximately 330 million november 2004 103 million november 2003 119 million november 2002 related delivery restricted stock units exercise options credited directly “additional paidin capital” consolidated statements financial condition changes shareholders’ equity firm’s principal us international regulated subsidiaries include goldman sachs co gsco goldman sachs execution clearing lp 1 gsec new york goldman sachs international gsi london goldman sachs japan ltd gsjl tokyo gsco gsec registered us brokerdealers futures commission merchants subject rule 15c31 securities exchange commission sec rule 117 commodity futures trading commission specify uniform minimum net capital requirements defined registrants elected compute net capital accordance “alternative net capital requirement” permitted rule 15c31 november 2004 november 2003 gsco regulatory net capital defined 592 billion 366 billion respectively exceeded amounts required 483 billion 282 billion respectively november 2004 november 2003 gsec regulatory net capital defined 105 billion 112 billion respectively exceeded amounts required 100 billion 108 billion respectively gsi registered uk brokerdealer subject capital requirements financial services authority gsjl tokyobased brokerdealer subject capital requirements financial services agency november 2004 november 2003 gsi gsjl compliance local capital adequacy requirements certain subsidiaries firm also subject capital adequacy requirements promulgated authorities countries operate november 2004 goldman sachs group inc subsidiaries notes consolidated financial statements continued november 2003 subsidiaries compliance local capital adequacy requirements sec adopted rule amendments establish alternative net capital requirements brokerdealers part consolidated supervised entity condition use alternative method brokerdealer’s ultimate holding company affiliates referred collectively consolidated supervised entity cse must consent groupwide supervision examination sec gsco anticipates applying permission use alternative method firm expects enable comply requirements financial groups directive 200287ec european parliament council relating regulation europe financial services organizations becoming subject sec’s groupwide supervision firm required report sec computations firm’s capital adequacy reporting management firm’s operating results categorized following three segments investment banking trading principal investments asset management securities services firm made certain changes segment reporting structure 2003 changes included reclassifying following asset management securities services trading principal investments • equity commissions clearing execution fees • merchant banking overrides • matched book businesses reclassifications affect firm’s historical consolidated results operations financial condition cash flows certain reclassifications made previously reported amounts conform current presentation basis presentation reporting segments certain firm’s business lines aggregated similar economic characteristics similar following areas nature services provide ii methods distribution iii types clients serve iv regulatory environments operate cost drivers firm taken whole compensation headcount levels business activity broadly similar firm’s business segments compensation expenses within firm’s segments reflect among factors overall performance firm well performance individual business units consequently pretax margins one segment firm’s business may significantly affected performance firm’s business segments firm allocates revenues expenses among three segments due integrated nature business segments estimates judgments made allocating certain revenue expense items transactions segments based specific criteria approximate thirdparty rates total operating expenses include corporate items allocated individual business segments allocation process based manner management views business firm goldman sachs group inc subsidiaries notes consolidated financial statements continued segment information presented table prepared according following methodologies • revenues expenses directly associated segment included determining pretax earnings • net revenues firm’s segments include allocations interest income interest expense specific securities commodities positions relation cash generated funding requirements underlying positions net interest included within segment net revenues consistent way management assesses segment performance • overhead expenses directly allocable specific segments allocated ratably based direct segment expenses goldman sachs group inc subsidiaries notes consolidated financial statements continued segment operating results management believes following information provides reasonable representation segment’s contribution consolidated pretax earnings total assets 1 net revenues include net interest cost power generation set forth table 2 operating expenses include depreciation amortization including amortization identifiable intangible assets set forth table goldman sachs group inc subsidiaries notes consolidated financial statements continued geographic information due highly integrated nature international financial markets firm manages businesses based profitability enterprise whole accordingly management believes profitability geographic region necessarily meaningful firm’s revenues expenses identifiable assets generally allocated based country domicile legal entity providing service following table sets forth total net revenues pretax earnings identifiable assets firm consolidated subsidiaries geographic region allocated basis described supplemental financial information quarterly results unaudited following represents firm’s unaudited quarterly results fiscal 2004 fiscal 2003 quarterly results prepared accordance us generally accepted accounting principles reflect adjustments opinion management necessary fair statement results adjustments normal recurring nature supplemental financial information common stock price range following table sets forth fiscal quarters indicated high low sales prices per share firm’s common stock reported consolidated tape association january 28 2005 approximately 5660 holders record firm’s common stock january 28 2005 last reported sales price firm’s common stock new york stock exchange 10612 per share supplemental financial information selected financial data 5 includes fundamental equity quantitative equity strategies 6 includes quantitative andor nontraditional investment strategies eg hedge funds merchant banking funds vehicles firm contracts subadvisors clients 7 2000 pretax earnings included charge 290 million 180 million taxes 035 per average diluted common share outstanding related firm’s combination slk 8 includes 4 billion nonmoney market assets acquired firm’s combination ayco item 9item 8 financial statements supplementary data index management’s report internal control financial reporting management goldman sachs group inc together consolidated subsidiaries firm responsible establishing maintaining adequate internal control financial reporting firm’s internal control financial reporting process designed supervision firm’s principal executive principal financial officers provide reasonable assurance regarding reliability financial reporting preparation firm’s financial statements external reporting purposes accordance us generally accepted accounting principles end firm’s 2005 fiscal year management conducted assessment effectiveness firm’s internal control financial reporting based framework established internal control integrated framework issued committee sponsoring organizations treadway commission coso based assessment management determined firm’s internal control financial reporting november 25 2005 effective internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets provide reasonable assurances transactions recorded necessary permit preparation financial statements accordance us generally accepted accounting principles receipts expenditures made accordance authorizations management directors firm provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition firm’s assets could material effect financial statements management’s assessment effectiveness firm’s internal control financial reporting november 25 2005 audited pricewaterhousecoopers llp independent registered public accounting firm stated report appearing pages 100 101 expresses unqualified opinions management’s assessment effectiveness firm’s internal control financial reporting november 25 2005 report independent registered public accounting firm board directors shareholders goldman sachs group inc completed integrated audits goldman sachs group inc’s 2005 2004 consolidated financial statements internal control financial reporting november 25 2005 audit 2003 consolidated financial statements accordance standards public company accounting oversight board united states opinions goldman sachs group inc’s 2005 2004 2003 consolidated financial statements internal control financial reporting november 25 2005 based audits presented consolidated financial statements financial statement schedule opinion consolidated financial statements listed accompanying index present fairly material respects financial position goldman sachs group inc subsidiaries company november 25 2005 november 26 2004 results operations cash flows three fiscal years period ended november 25 2005 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed accompanying index presents fairly material respects information set forth therein read conjunction related consolidated financial statements financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit financial statements includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion internal control financial reporting also opinion management’s assessment included management’s report internal control financial reporting appearing page 99 company maintained effective internal control financial reporting november 25 2005 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso fairly stated material respects based criteria furthermore opinion company maintained material respects effective internal control financial reporting november 25 2005 based criteria established internal control integrated framework issued coso company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinions management’s assessment effectiveness company’s internal control financial reporting based audit conducted audit internal control financial reporting accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit internal control financial reporting includes obtaining understanding internal control financial reporting evaluating management’s assessment testing evaluating design operating effectiveness internal control performing procedures consider necessary circumstances believe audit provides reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp new york new york february 3 2006 goldman sachs group inc subsidiaries consolidated statements earnings accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements financial condition accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements changes shareholders’ equity accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements cash flows supplemental disclosures cash payments interest net capitalized interest 1749 billion 855 billion 721 billion years ended november 2005 november 2004 november 2003 respectively cash payments income taxes net refunds 247 billion 102 billion 846 million years ended november 2005 november 2004 november 2003 respectively noncash activities firm assumed 115 billion 163 billion debt connection business acquisitions years ended november 2005 november 2004 respectively value common stock issued connection business acquisitions 165 million year ended november 2003 accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements comprehensive income accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries notes consolidated financial statements note 1 description business goldman sachs group inc group inc delaware corporation together consolidated subsidiaries collectively firm leading global investment banking securities investment management firm provides wide range services worldwide substantial diversified client base includes corporations financial institutions governments highnetworth individuals firm’s activities divided three segments • investment banking firm provides broad range investment banking services diverse group corporations financial institutions governments individuals • trading principal investments firm facilitates client transactions diverse group corporations financial institutions governments individuals takes proprietary positions market making trading investing fixed income equity products currencies commodities derivatives products addition firm engages specialist marketmaking activities equities options exchanges clears client transactions major stock options futures exchanges worldwide connection firm’s merchant banking investing activities firm makes principal investments directly funds firm raises manages • asset management securities services firm provides investment advisory financial planning services offers investment products across major asset classes diverse group institutions individuals worldwide provides prime brokerage services financing services securities lending services mutual funds pension funds hedge funds foundations highnetworth individuals worldwide note 2 significant accounting policies basis presentation consolidated financial statements prepared accordance generally accepted accounting principles require management make certain estimates assumptions important estimates assumptions relate fair value measurements accounting goodwill identifiable intangible assets provision potential losses may arise litigation regulatory proceedings tax audits although estimates assumptions based best available information actual results could materially different estimates consolidated financial statements include accounts group inc entities firm controlling financial interest material intercompany transactions balances eliminated firm determines whether controlling financial interest entity first evaluating whether entity voting interest entity variable interest entity vie qualifying specialpurpose entity qspe generally accepted accounting principles • voting interest entities voting interest entities total equity investment risk sufficient enable entity finance activities independently ii equity holders obligation absorb losses right receive residual returns right make decisions entity’s activities voting interest entities consolidated accordance accounting research bulletin arb 51 “consolidated financial statements” amended arb 51 states usual goldman sachs group inc subsidiaries notes consolidated financial statements continued condition controlling financial interest entity ownership majority voting interest accordingly firm consolidates voting interest entities majority voting interest • variable interest entities vies entities lack one characteristics voting interest entity controlling financial interest vie present enterprise variable interest combination variable interests absorb majority vie’s expected losses receive majority vie’s expected residual returns enterprise controlling financial interest known primary beneficiary consolidates vie accordance financial accounting standards board fasb interpretation fin 46r “consolidation variable interest entities” firm consolidates vies primary beneficiary firm determines whether primary beneficiary vie first performing qualitative analysis vie includes review among factors capital structure contractual terms interests create absorb variability related party relationships design vie qualitative analysis conclusive firm performs quantitative analysis purposes allocating vie’s expected losses expected residual returns variable interest holders firm utilizes “top down” method firm calculates share vie’s expected losses expected residual returns using specific cash flows would allocated based contractual arrangements andor firm’s position capital structure vie various probabilityweighted scenarios • qspes passive entities commonly used mortgage securitization transactions statement financial accounting standards sfas 140 “accounting transfers servicing financial assets extinguishments liabilities” sets forth criteria entity must satisfy qspe criteria include types assets qspe may hold limits asset sales use derivatives financial guarantees level discretion servicer may exercise attempting collect receivables criteria may require management make judgments complex matters including whether derivative considered passive degree discretion servicer may exercise accordance sfas 140 fin 46r firm consolidate qspes • equitymethod investments firm controlling financial interest entity exerts significant influence entity’s operating financial policies generally defined owning voting interest 20 50 investment common stock insubstance common stock firm accounts investment accordance equity method accounting prescribed accounting principles board apb opinion 18 “the equity method accounting investments common stock” • firm consolidate entity apply equity method accounting firm accounts investment fair value firm also formed numerous nonconsolidated investment funds thirdparty investors typically organized limited partnerships firm acts general partner funds hold majority economic interests fund funds established june 29 2005 firm holds minor interest funds established modified june 29 2005 firm provided thirdparty investors rights terminate funds see “ recent accounting developments” fund investments included “financial instruments owned fair value” consolidated statements financial condition goldman sachs group inc subsidiaries notes consolidated financial statements continued unless otherwise stated herein references november 2005 november 2004 november 2003 refer firm’s fiscal years ended dates context requires november 25 2005 november 26 2004 november 28 2003 respectively certain reclassifications made previously reported amounts conform current presentation revenue recognition investment banking underwriting revenues fees mergers acquisitions financial advisory assignments recognized consolidated statements earnings services related underlying transaction completed terms engagement expenses associated transactions deferred related revenue recognized engagement otherwise concluded underwriting revenues presented net related expenses associated financial advisory transactions recorded noncompensation expenses net client reimbursements financial instruments “total financial instruments owned fair value” “financial instruments sold yet purchased fair value” reflected consolidated statements financial condition tradedate basis consist financial instruments carried fair value amounts approximate fair value related unrealized gains losses recognized consolidated statements earnings fair value financial instrument amount instrument could exchanged current transaction willing parties forced liquidation sale determining fair value firm separates financial instruments three categories cash ie nonderivative trading instruments derivative contracts principal investments • cash trading instruments fair values firm’s cash trading instruments generally obtained quoted market prices active markets broker dealer price quotations alternative pricing sources reasonable levels price transparency types instruments valued manner include us government agency securities sovereign government obligations liquid mortgage products investmentgrade corporate bonds listed equities money market securities state municipal provincial obligations physical commodities certain cash trading instruments trade infrequently little price transparency instruments may include certain highyield debt corporate bank loans mortgage whole loans distressed debt firm values instruments initially cost generally adjust valuations unless substantive evidence supporting change value underlying instrument valuation assumptions similar market transactions changes financial ratios changes credit ratings underlying companies evidence supporting change value firm uses valuation methodologies present value known estimated cash flows cash trading instruments owned firm long positions marked bid prices instruments sold yet purchased short positions marked offer prices liquidating position expected affect prevailing market price valuation adjusted generally based market evidence predetermined policies certain circumstances highly illiquid positions management’s estimates used determine adjustment • derivative contracts fair values firm’s derivative contracts consist exchangetraded overthecounter otc derivatives reflected net cash firm paid received example option premiums cash paid received pursuant credit support agreements fair values firm’s exchangetraded derivatives generally goldman sachs group inc subsidiaries notes consolidated financial statements continued determined quoted market prices otc derivatives valued using valuation models firm uses variety valuation models including present value known estimated cash flows optionpricing models valuation models used derive fair values firm’s otc derivatives require inputs including contractual terms market prices yield curves credit curves measures volatility prepayment rates correlations inputs selection model value otc derivative depends upon contractual terms specific risks inherent instrument well availability pricing information market firm generally uses similar models value similar instruments possible firm verifies values produced pricing models market transactions otc derivatives trade liquid markets generic forwards swaps options model selection involve significant judgment market prices readily available otc derivatives trade less liquid markets model selection requires judgment instruments tend complex pricing information less available markets price transparency inherently limited complex structures often combine one product types requiring additional inputs correlations volatilities markets continue develop pricing information becomes available firm continues review refine models uses inception otc derivative contract day one firm values contract model value firm verify significant model inputs observable market data verify model market transactions appropriate valuations adjusted reflect various factors liquidity bidoffer spreads credit considerations adjustments generally based market evidence predetermined policies certain circumstances highly illiquid positions management’s estimates used determine adjustments firm cannot verify significant model inputs observable market data verify model market transactions firm values contract transaction price inception consequently records day one gain loss accordance emerging issues task force eitf issue 023 “issues involved accounting derivative contracts held trading purposes contracts involved energy trading risk management activities” following day one firm adjusts inputs valuation models extent changes inputs verified similar market transactions thirdparty pricing services andor broker quotes derived substantive evidence empirical market data circumstances firm cannot verify model market transactions possible different valuation model could produce materially different estimate fair value • principal investments valuing corporate real estate principal investments firm’s portfolio separated investments private companies investments public companies excluding firm’s investment convertible preferred stock sumitomo mitsui financial group inc smfg firm’s investment smfg firm’s private principal investments nature little price transparency investments initially carried cost approximation fair value adjustments carrying value made thirdparty transactions evidencing change value downward adjustments also made absence thirdparty transactions determined expected realizable value investment less carrying value reaching determination many factors considered including limited operating cash flows financial performance companies properties relative budgets projections trends within sectors andor regions underlying business goldman sachs group inc subsidiaries notes consolidated financial statements continued models expected exit timing strategy specific rights terms associated investment conversion features liquidation preferences firm’s public principal investments tend large concentrated holdings result initial public offerings corporate transactions valued using quoted market prices discounted based predetermined written policies nontransferability illiquidity firm’s investment convertible preferred stock smfg carried fair value derived model incorporates smfg’s common stock price credit spreads impact nontransferability illiquidity downside protection conversion strike price firm’s investment convertible preferred stock smfg generally nontransferable freely convertible smfg common stock restrictions firm’s ability hedge sell onethird common stock underlying investment smfg lapsed february 2005 november 2005 firm fully hedged respect unrestricted shares firm’s initial agreement smfg restrictions firm’s ability hedge sell remaining shares common stock underlying investment smfg lapse equal installments february 7 2006 february 7 2007 connection public offering smfg common stock firm separately agreed smfg restrictions lapse february 7 2006 instead lapse march 9 2006 effective february 1 2006 conversion price firm’s smfg preferred stock shares smfg common stock ¥320900 price subject downward adjustment price smfg common stock time conversion less conversion price subject floor ¥105800 general transfers financial assets accounted sales sfas 140 firm relinquished control transferred assets transfers accounted sales related gains losses recognized net revenues transfers accounted sales accounted collateralized financing arrangements related interest expense recognized net revenues lives transactions collateralized financing arrangements collateralized financing arrangements consist repurchase agreements securities borrowed loaned interest income expense repurchase agreements securities borrowed loaned recognized net revenues life transaction • resale repurchase agreements securities purchased agreements resell securities sold agreements repurchase principally us government federal agency investmentgrade foreign sovereign obligations represent shortterm collateralized financing transactions carried consolidated statements financial condition contractual amounts plus accrued interest amounts presented netbycounterparty basis requirements fin 41 “offsetting amounts related certain repurchase reverse repurchase agreements” fin 39 “offsetting amounts related certain contracts” satisfied firm receives securities purchased agreements resell makes delivery securities sold agreements repurchase monitors market value securities daily basis delivers obtains additional collateral appropriate • securities borrowed loaned securities borrowed loaned recorded based amount cash collateral advanced received transactions generally collateralized cash securities letters credit firm receives securities borrowed goldman sachs group inc subsidiaries notes consolidated financial statements continued makes delivery securities loaned monitors market value securities borrowed loaned delivers obtains additional collateral appropriate power generation power generation revenues associated firm’s consolidated power generation facilities included “trading principal investments” consolidated statements earnings power delivered “cost power generation” consolidated statement earnings includes direct costs facilities eg fuel operations maintenance well depreciation amortization associated facility related contractual assets following table sets forth power generation revenues costs directly associated firm’s consolidated power generation facilities 1 excludes revenues nonconsolidated power generation facilities accounted accordance equity method accounting well revenues associated firm’s power trading activities 2 firm acquired first consolidated power generation facility october 2003 commissions commission revenues executing clearing client transactions stock options futures markets worldwide recognized “trading principal investments” consolidated statements earnings trade date basis merchant banking overrides firm entitled receive merchant banking overrides ie increased share fund’s income gains return funds’ investments exceeds certain threshold returns overrides based investment performance life merchant banking fund future investment underperformance may require amounts override previously distributed firm returned funds accordingly overrides recognized consolidated statements earnings material contingencies resolved overrides included “trading principal investments” consolidated statements earnings asset management fees recognized period related service provided based upon average net asset values certain circumstances firm also entitled receive asset management incentive fees based percentage fund’s return assets management exceeds specified benchmark returns performance targets incentive fees generally based investment performance 12month period subject adjustment prior end measurement period accordingly incentive fees recognized consolidated statements earnings measurement period ends asset management fees incentive fees included “asset management securities services” consolidated statements earnings stockbased compensation effective fiscal 2003 firm began account stockbased employee compensation accordance fairvalue method prescribed sfas 123 “accounting stockbased compensation” amended sfas 148 “accounting stockbased compensation transition disclosure” using prospective adoption method adoption compensation expense recognized relevant service period based fair value stock options restricted stock units granted fiscal 2003 future years unearned goldman sachs group inc subsidiaries notes consolidated financial statements continued compensation included “shareholders’ equity” stock options restricted stock units granted rather stock options restricted stock units included “shareholders’ equity” sfas 123 services required employees exchange awards rendered expensed compensation expense resulting stock options restricted stock units granted year ended november 29 2002 prior years accounted intrinsicvaluebased method prescribed apb opinion 25 “accounting stock issued employees” permitted sfas 123 therefore compensation expense recognized unmodified stock options issued years prior fiscal 2003 intrinsic value date grant compensation expense restricted stock units issued years prior fiscal 2003 continues recognized relevant service periods using amortization schedules based applicable vesting provisions employees meet retirement criteria subject noncompete agreement date retirement date shares underlying awards delivered equity awards granted employees satisfied retirement eligibility criteria expensed stated service period award event retirementeligible employee retires unamortized grant date value immediately expensed reduction compensation expense recorded upon forfeiture related employees meet retirement criteria violate noncompete agreements firm pays cash dividend equivalents outstanding restricted stock units dividend equivalents paid restricted stock units accounted sfas 123 charged retained earnings paid dividend equivalents paid restricted stock units later forfeited employees reclassified compensation expense retained earnings dividend equivalents paid restricted stock units granted year ended november 29 2002 prior years accounted apb opinion 25 charged compensation expense goldman sachs group inc subsidiaries notes consolidated financial statements continued firm recognize compensation expense relevant service period fair value method sfas 123 respect stock options granted year ended november 29 2002 prior years net earnings would decreased resulting pro forma net earnings per common share eps set forth goodwill cost acquired companies excess fair value identifiable net assets acquisition date accordance sfas 142 “goodwill intangible assets” goodwill tested least annually impairment loss triggered estimated fair value operating segment less estimated net book value loss calculated difference estimated fair value goodwill carrying value identifiable intangible assets identifiable intangible assets consist primarily customer lists abovemarket power contracts specialist rights amortized estimated useful lives identifiable intangible assets tested potential impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable accordance sfas 144 “accounting impairment disposal longlived assets” impairment loss calculated difference estimated fair value carrying value asset group recognized sum estimated undiscounted cash flows relating asset group less corresponding carrying value property leasehold improvements equipment property leasehold improvements equipment net accumulated depreciation amortization included “other assets” consolidated statements financial condition property equipment placed service prior december 1 2001 depreciated accelerated cost recovery method property equipment placed service december 1 2001 depreciated straightline basis useful life asset goldman sachs group inc subsidiaries notes consolidated financial statements continued leasehold improvements useful life improvement shorter term lease amortized accelerated cost recovery method placed service prior december 1 2001 leasehold improvements amortized straightline basis useful life improvement term lease whichever shorter certain costs software developed obtained internal use amortized straightline basis useful life software property leasehold improvements equipment tested potential impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable accordance sfas 144 impairment loss calculated difference estimated fair value carrying value asset group recognized sum expected undiscounted cash flows relating asset group less corresponding carrying value firm’s operating leases include space held excess current needs rent expense relating space held growth included “occupancy” consolidated statements earnings accordance sfas 146 “accounting costs associated exit disposal activities” firm records liability based remaining lease rentals reduced potential existing sublease rentals leases firm ceased using space management concluded firm derive future economic benefits costs terminate lease end term recognized measured fair value upon termination foreign currency translation assets liabilities denominated nonus currencies translated rates exchange prevailing date consolidated statement financial condition revenues expenses translated average rates exchange fiscal year gains losses translation financial statements nonus operation functional currency us dollar included net hedges taxes consolidated statements comprehensive income firm seeks reduce net investment exposure fluctuations foreign exchange rates use foreign currency forward contracts foreign currencydenominated debt foreign currency forward contracts hedge effectiveness assessed based changes forward exchange rates accordingly forward points reflected component currency translation adjustment consolidated statements comprehensive income foreign currencydenominated debt hedge effectiveness assessed based changes spot rates foreign currency remeasurement gains losses transactions nonfunctional currencies included consolidated statements earnings income taxes deferred tax assets liabilities recognized temporary differences financial reporting tax bases firm’s assets liabilities valuation allowances established reduce deferred tax assets amount likely realized firm’s tax assets liabilities presented component “other assets” “other liabilities accrued expenses” respectively consolidated statements financial condition tax provisions computed accordance sfas 109 “accounting income taxes” contingent liabilities related income taxes recorded criteria loss recognition sfas 5 “accounting contingencies” amended met goldman sachs group inc subsidiaries notes consolidated financial statements continued earnings per common share basic eps calculated dividing net earnings applicable common shareholders weighted average number common shares outstanding common shares outstanding includes common stock restricted stock units future service required condition delivery underlying common stock diluted eps includes determinants basic eps addition reflects dilutive effect common stock deliverable pursuant stock options restricted stock units future service required condition delivery underlying common stock cash equivalents firm defines cash equivalents highly liquid overnight deposits held ordinary course business recent accounting developments december 2004 fasb issued revision sfas 123 sfas 123r “sharebased payment” sfas 123r establishes standards accounting transactions entity exchanges equity instruments goods services sfas 123r focuses primarily accounting transactions entity obtains employee services sharebased payment transactions two key differences sfas 123 sfas 123r relate attribution compensation costs reporting periods accounting award forfeitures sfas 123r generally requires immediate expensing equitybased awards granted retirementeligible employees however awards granted subject substantive noncompete agreement generally expensed noncompete period sfas 123r also requires expected forfeitures included determining stockbased employee compensation expense see “ stockbased compensation” discussion firm currently accounts equitybased awards granted retirementeligible employees forfeitures firm adopt sfas 123r first quarter fiscal 2006 management currently evaluating effect adoption sfas 123r firm’s results operations respect awards granted retirementeligible employees subject noncompete agreement following table sets forth pro forma net earnings would reported year equitybased awards granted retirementeligible employees expensed noncompete period expected forfeitures accrued required sfas 123r goldman sachs group inc subsidiaries notes consolidated financial statements continued june 2005 eitf reached consensus issue 045 “determining whether general partner general partners group controls limited partnership similar entity limited partners certain rights” requires general partners managing members case limited liability companies consolidate partnerships provide limited partners rights remove general partner terminate partnership firm general partner numerous merchant banking asset management partnerships required adopt provisions eitf 045 immediately partnerships formed modified june 29 2005 ii first quarter fiscal 2007 partnerships formed june 29 2005 modified firm generally expects provide limited partners funds rights remove firm rights terminate partnerships therefore expect eitf 045 material effect firm’s financial condition results operations cash flows note 3 financial instruments fair value financial instruments following table sets forth firm’s financial instruments owned fair value including pledged collateral financial instruments sold yet purchased fair value goldman sachs group inc subsidiaries notes consolidated financial statements continued credit concentrations credit concentrations may arise trading underwriting securities borrowing activities may impacted changes economic industry political factors november 2005 november 2004 firm held us government federal agency obligations represented 7 5 firm’s total assets respectively addition firm’s securities purchased agreements resell collateralized us government federal agency sovereign obligations november 2005 november 2004 firm credit exposure counterparty exceeded 5 firm’s total assets derivative activities derivative contracts instruments futures forwards swaps option contracts derive value underlying assets indices reference rates combination factors derivative instruments may privately negotiated contracts often referred otc derivatives may listed traded exchange derivatives may involve future commitments purchase sell financial instruments commodities exchange currency interest payment streams amounts exchanged based specific terms contract reference specified rates securities commodities currencies indices certain cash instruments mortgagebacked securities interestonly principalonly obligations indexed debt instruments considered derivatives even though values contractually required cash flows derived price security index however certain commodityrelated contracts included firm’s derivatives disclosure contracts may settled cash readily convertible cash substantially firm’s derivative transactions entered trading purposes facilitate client transactions take proprietary positions means risk management risk exposures managed diversification controlling position sizes establishing hedges related securities derivatives example firm may hedge portfolio common stock taking offsetting position related equityindex futures contract gains losses derivatives used trading purposes generally included “trading principal investments” consolidated statements earnings addition derivative transactions entered trading purposes firm enters derivative contracts hedge net investment nonus operations see note 2 information regarding firm’s policy foreign currency translation manage interest rate currency exposure longterm borrowings certain shortterm borrowings manage exposure borrowings firm uses derivatives effectively convert substantial portion longterm borrowings us dollarbased floating rate obligations firm applies fair value hedge accounting derivative contracts hedge benchmark interest rate ie london interbank offered rate libor fixed rate longterm borrowings firm also applies cash flow hedge accounting derivative contracts hedge changes interest rates associated floating rate longterm borrowings related power generation facilities goldman sachs group inc subsidiaries notes consolidated financial statements continued fair values firm’s derivative contracts reflected net cash paid received pursuant credit support agreements reported netbycounterparty basis firm’s consolidated statements financial condition management believes legal right setoff exists enforceable netting agreement fair value derivative financial instruments computed accordance firm’s netting policy set forth securitization activities firm securitizes commercial residential mortgages home equity auto loans government corporate bonds types financial assets firm acts underwriter beneficial interests sold investors firm derecognizes financial assets transferred securitizations provided relinquished control assets transferred assets accounted fair value prior securitization net revenues related underwriting activities recognized connection sales underlying beneficial interests investors firm may retain interests securitized financial assets retained interests accounted fair value included “total financial instruments owned fair value” consolidated statements financial condition years ended november 2005 november 2004 firm securitized 9200 billion 6293 billion respectively financial assets including 6518 billion 4746 billion respectively residential mortgagebacked securities cash flows received retained interests approximately 908 million 984 million years ended november 2005 november 2004 respectively november 2005 november 2004 firm held 607 billion 433 billion retained interests respectively including 562 billion 411 billion respectively held qspes fair value retained interests valued using quoted market prices active markets 134 billion 949 million november 2005 november 2004 respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued following table sets forth weighted average key economic assumptions used measuring retained interests fair value based alternative pricing sources reasonable little price transparency sensitivity fair values immediate adverse changes 10 20 assumptions 1 annual percentage credit loss based positions expected credit loss key assumption determination fair values 2 impacts adverse change take account credit mitigants incorporated retained interests including collateralization subordination provisions 3 includes retained interests bonds types financial assets subject prepayment risk preceding table give effect offsetting benefit financial instruments held hedge risks inherent retained interests changes fair value based 10 adverse variation assumptions generally cannot extrapolated relationship change assumptions change fair value usually linear addition impact change particular assumption calculated independently changes assumption practice simultaneous changes assumptions might magnify counteract sensitivities disclosed addition retained interests described firm also held interests residential mortgage qspes purchased connection secondary marketmaking activities purchased interests approximated 5 billion november 2005 november 2004 connection issuance assetrepackaged notes investors firm derivative receivables qspes firm transferred assets fair value 108 million 126 million november 2005 november 2004 respectively receivables collateralized firstpriority interest assets held qspe goldman sachs group inc subsidiaries notes consolidated financial statements continued variable interest entities vies firm ordinary course business retains interests vies connection securitization activities firm also purchases sells variable interests vies primarily issue mortgagebacked assetbacked securities collateralized debt obligations cdos connection marketmaking activities makes investments loans vies hold performing nonperforming debt equity real estate powerrelated assets addition firm utilizes vies provide investors creditlinked assetrepackaged notes designed meet objectives vies generally purchase assets issuing debt equity instruments certain instances firm provides guarantees vies holders variable interests vies cases maximum exposure loss included tables set forth notional amount guarantees amounts represent anticipated losses connection guarantees firm’s variable interests vies include senior subordinated debt limited general partnership interests preferred common stock interest rate foreign currency equity commodity credit derivatives guarantees residual interests mortgagebacked assetbacked securitization vehicles cdos firm’s exposure obligations vies generally limited interests entities following table sets forth firm’s total assets maximum exposure loss associated significant variable interests consolidated vies firm hold majority voting interest 1 consolidated vie assets include assets financed nonrecourse shortterm longterm debt nonrecourse debt issuing subsidiary applicable subsidiary guaranteeing debt obligated repay goldman sachs group inc subsidiaries notes consolidated financial statements continued following tables set forth total assets nonconsolidated vies firm holds significant variable interests firm’s maximum exposure loss associated interests goldman sachs group inc subsidiaries notes consolidated financial statements continued secured borrowing lending activities firm obtains secured shortterm financing principally use repurchase agreements securities lending agreements financings transactions firm receives cash securities exchange securities including us government federal agency sovereign obligations corporate debt obligations equities convertibles letters credit assets firm obtains securities collateral principally use resale agreements securities borrowing agreements derivative transactions customer margin loans secured borrowing activities finance inventory positions meet customer needs satisfy settlement requirements many cases firm permitted sell repledge securities held collateral securities may used secure repurchase agreements enter securities lending derivative transactions cover short positions november 2005 november 2004 fair value securities received collateral firm permitted sell repledge 62994 billion 51198 billion respectively firm sold repledged 55033 billion 45179 billion respectively firm also pledges securities owns counterparties may right sell repledge securities owned pledged counterparties right sell repledge reported “financial instruments owned pledged collateral fair value” consolidated statements financial condition 3898 billion 2792 billion november 2005 november 2004 respectively securities owned pledged connection repurchase securities lending agreements counterparties right sell repledge included “financial instruments owned fair value” consolidated statements financial condition 9390 billion 4686 billion november 2005 november 2004 respectively addition repurchase securities lending agreements firm also pledges securities assets owns counterparties right sell repledge order collateralize secured shortterm longterm borrowings connection transactions firm pledged assets 2784 billion 2281 billion collateral november 2005 november 2004 respectively see note 4 note 5 information regarding firm’s secured shortterm longterm borrowings goldman sachs group inc subsidiaries notes consolidated financial statements continued note 4 shortterm borrowings firm obtains secured unsecured shortterm borrowings primarily issuance promissory notes commercial paper bank loans november 2005 november 2004 secured shortterm borrowings 797 billion 856 billion respectively unsecured shortterm borrowings 4725 billion 4640 billion november 2005 november 2004 respectively shortterm borrowings also include portion longterm borrowings maturing within one year financial statement date certain longterm borrowings redeemable within one year financial statement date option holder carrying value shortterm obligations approximates fair value due shortterm nature shortterm borrowings set forth note 5 longterm borrowings firm obtains secured unsecured longterm borrowings consist principally senior borrowings maturities extending 2035 november 2005 november 2004 secured longterm borrowings 1567 billion 1209 billion respectively unsecured longterm borrowings 8434 billion 6861 billion november 2005 november 2004 respectively longterm borrowings set forth goldman sachs group inc subsidiaries notes consolidated financial statements continued longterm borrowings include nonrecourse debt issued following subsidiaries set forth table nonrecourse debt issuing subsidiary applicable subsidiary guaranteeing debt obligated repay longterm borrowings fiscal maturity date set forth 1 longterm borrowings maturing within one year financial statement date certain longterm borrowings redeemable within one year financial statement date option holder included shortterm borrowings consolidated statements financial condition 2 longterm borrowings repayable option firm reflected contractual maturity dates certain longterm borrowings redeemable prior maturity option holder reflected dates options become exercisable firm enters derivative contracts interest rate futures contracts interest rate swap agreements currency swap agreements equitylinked indexed contracts effectively convert substantial portion longterm borrowings us dollarbased floating rate obligations accordingly aggregate carrying value longterm borrowings related hedges approximates fair value effective weighted average interest rates longterm borrowings hedging activities set forth goldman sachs group inc subsidiaries notes consolidated financial statements continued deferrable interest junior subordinated debentures february 2004 goldman sachs capital trust wholly owned delaware statutory trust formed firm exclusive purposes issuing 275 billion guaranteed preferred beneficial interests 85 million common beneficial interests trust ii investing proceeds sale purchase junior subordinated debentures group inc iii engaging activities necessary incidental purposes preferred beneficial interests purchased third parties november 2005 firm held common beneficial interests trust wholly owned finance subsidiary firm legal regulatory purposes however accounting purposes fin 46r trust consolidated subsidiary firm’s ownership common beneficial interest considered risk since trust’s principal asset 284 billion junior subordinated debentures issued firm pays interest semiannually debentures annual rate 6345 debentures mature february 15 2034 coupon rate payment dates applicable beneficial interests interest rate payment dates applicable debentures see note 6 information regarding firm’s guarantee preferred beneficial interests issued trust firm right time defer payment interest junior subordinated debentures therefore cause payment dividends trust’s preferred beneficial interests deferred case ten consecutive semiannual periods extension period group inc permitted among things pay dividends make certain repurchases common stock trust permitted pay distributions common beneficial interests held firm unless dividends payable preferred beneficial interests paid full note 6 commitments contingencies guarantees commitments forward secured financings firm commitments enter forward secured financing transactions including certain repurchase resale agreements secured borrowing lending arrangements 4993 billion 4832 billion november 2005 november 2004 respectively commitments extend credit connection lending activities firm outstanding commitments 6112 billion 2772 billion november 2005 november 2004 respectively firm’s commitments extend credit agreements lend counterparties fixed termination dates contingent satisfaction conditions borrowing set forth contract since commitments may expire unused total commitment amount necessarily reflect actual future cash flow requirements firm accounts commitments fair value goldman sachs group inc subsidiaries notes consolidated financial statements continued following table summarizes firm’s commitments extend credit november 2005 november 2004 commitments extend credit millions • william street program substantially commitments provided william street credit extension program investmentgrade corporate borrowers commitments william street credit extension program issued william street commitment corporation commitment corp consolidated wholly owned subsidiary group inc whose assets liabilities legally separated assets liabilities firm also subsidiaries group inc william street funding corporation funding corp another consolidated wholly owned subsidiary group inc whose assets liabilities legally separated assets liabilities firm formed raise funding support william street credit extension program assets commitment corp funding corp available respective shareholders claims respective creditors paid addition affiliate either commitment corp funding corp except limited cases expressly agreed writing responsible obligation either entity respect commitments firm credit loss protection provided smfg generally limited 95 first loss firm realizes approved loan commitments subject maximum 100 billion addition subject satisfaction certain conditions upon firm’s request smfg provide protection 70 second loss commitments subject maximum 113 billion firm also uses financial instruments hedge certain william street commitments covered smfg • commercial lending commitments addition commitments issued william street credit extension program firm extends credit commitments primarily connection contingent acquisition financing types corporate lending part ongoing credit origination activities firm may reduce credit risk commitments syndicating substantial portions investors additionally commitments extended contingent acquisition financing often shortterm nature borrowers often replace funding sources • warehouse financing firm’s commitments extend credit also include mortgage forms warehouse financing financings expected repaid proceeds related securitizations firm may act underwriter arrangements secured warehoused assets primarily consisting mortgagebacked assetbacked securities residential commercial mortgages corporate debt instruments letters credit firm provides letters credit issued various banks counterparties lieu securities cash satisfy various collateral margin deposit requirements letters credit outstanding 923 billion 1115 billion november 2005 november 2004 respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued merchant banking commitments firm acts investor merchant banking transactions includes making longterm investments equity debt securities privately negotiated transactions corporate acquisitions real estate transactions connection activities firm commitments invest 354 billion 104 billion corporate real estate investment funds november 2005 november 2004 respectively constructionrelated commitments third fiscal quarter 2005 firm announced plans new world headquarters new york city initial occupancy scheduled 2009 expected cost 23 billion 25 billion firm partially finance project taxexempt liberty bonds november 2005 firm borrowed approximately 14 billion issuance liberty bonds may borrow additional 250 million issuance additional liberty bonds 2010 november 2005 firm outstanding constructionrelated commitments 47 million connection project included firm’s future minimum rental payments noncancelable lease agreements included 309 million related 64year ground lease land firm’s world headquarters constructed 161 million lumpsum payment due june 2007 addition firm constructionrelated commitments 98 million 107 million november 2005 november 2004 respectively august 2005 firm entered agreement acquire variable annuity variable life insurance business hanover insurance group inc formerly allmerica financial corporation including wholly owned life insurance subsidiary allmerica financial life insurance annuity company transaction closed december 30 2005 purchase price approximately 271 million upfront estimated 34 million three years subject final adjustments firm purchase commitments 773 million 242 million november 2005 november 2004 respectively leases firm contractual obligations longterm noncancelable lease agreements principally office space expiring various dates 2069 certain agreements subject periodic escalation provisions increases real estate taxes charges future minimum rental payments net minimum sublease rentals rent charged operating expense last three years set forth goldman sachs group inc subsidiaries notes consolidated financial statements continued contingencies firm involved number judicial regulatory arbitration proceedings concerning matters arising connection conduct businesses management believes based currently available information results proceedings aggregate material adverse effect firm’s financial condition may material firm’s operating results particular period depending part upon operating results period given inherent difficulty predicting outcome firm’s litigation regulatory matters particularly cases proceedings substantial indeterminate damages fines sought firm cannot estimate losses ranges losses cases proceedings reasonable possibility loss may incurred guarantees firm enters various derivative contracts meet definition guarantee fin 45 “guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others” derivative contracts include credit default swaps written equity commodity put options written currency contracts interest rate caps floors swaptions fin 45 require disclosures derivative contracts may cash settled firm basis conclude probable counterparties held inception underlying instruments related derivative contracts firm concluded conditions met certain large internationally active commercial investment bank end users certain users accordingly firm included contracts tables firm capacity agency lender indemnifies securities lending customers losses incurred event borrowers return securities collateral held insufficient cover market value securities borrowed connection certain asset sales securitization transactions firm guarantees collection contractual cash flows connection merchant banking activities firm may issue loan guarantees secure financing addition firm provides letters credit guarantees limited basis enable clients enhance credit standing complete transactions goldman sachs group inc subsidiaries notes consolidated financial statements continued connection firm’s establishment trust group inc effectively provided full unconditional guarantee beneficial interests trust held third parties timely payment group inc interest junior subordinated debentures amounts due performance obligations transaction documents sufficient cover payments due trust beneficial interests result management believes unlikely firm make payments related trust required junior subordinated debentures connection certain expenses incurred trust following tables set forth certain information firm’s derivative contracts meet definition guarantee certain guarantees november 2005 november 2004 1 carrying value excludes effect legal right setoff may exist enforceable netting agreement 2 collateral held lenders connection securities lending indemnifications 1689 billion 1528 billion november 2005 november 2004 respectively 3 includes guarantee payments scheduled made life trust could shortened event firm redeemed junior subordinated debentures issued fund trust see note 5 information regarding trust 4 amounts represent anticipated losses connection contracts goldman sachs group inc subsidiaries notes consolidated financial statements continued normal course business firm indemnifies guarantees certain service providers clearing custody agents trustees administrators specified potential losses connection acting agent providing services firm affiliates firm also indemnifies clients potential losses incurred event specified thirdparty service providers including subcustodians thirdparty brokers improperly execute transactions addition firm member payment clearing settlement networks well securities exchanges around world may require firm meet obligations networks exchanges event member defaults connection prime brokerage clearing businesses firm agrees clear settle behalf clients transactions entered brokerage firms firm’s obligations respect transactions secured assets client’s account well proceeds received transactions cleared settled firm behalf client connection joint venture investments firm may issue loan guarantees may liable event fraud misappropriation environmental liabilities certain matters involving borrower firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements liabilities related guarantees indemnifications recognized consolidated statements financial condition november 2005 november 2004 firm provides representations warranties counterparties connection variety commercial transactions occasionally indemnifies potential losses caused breach representations warranties firm may also provide indemnifications protecting changes adverse application certain us tax laws connection ordinarycourse transactions securities issuances borrowings derivatives addition firm may provide indemnifications counterparties protect event additional taxes owed payments withheld due either change adverse application certain nonus tax laws indemnifications generally standard contractual terms entered normal course business generally stated notional amounts included indemnifications contingencies triggering obligation indemnify expected occur firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements liabilities related arrangements recognized consolidated statements financial condition november 2005 november 2004 note 7 shareholders’ equity dividends declared per common share 100 fiscal 2005 100 fiscal 2004 074 fiscal 2003 december 14 2005 board directors group inc board declared dividend 025 per share paid february 23 2006 common shareholders record january 24 2006 goldman sachs group inc subsidiaries notes consolidated financial statements continued fiscal 2005 firm issued 70000 shares preferred stock three series set forth following table preferred stock series share preferred stock par value 001 liquidation preference 25000 represented 1000 depositary shares redeemable firm’s option redemption price equal 25000 plus declared unpaid dividends firm’s ability declare pay dividends purchase redeem otherwise acquire common stock subject certain restrictions event firm fails pay set aside full dividends preferred stock latest completed dividend period preferred stock also preference firm’s common stock upon liquidation dividends declared per share series preferred stock 57872 fiscal 2005 december 14 2005 board declared dividend per preferred share 32328 43056 35368 series b series c preferred stock respectively paid february 10 2006 preferred shareholders record january 26 2006 fiscal 2005 firm repurchased 637 million shares common stock total cost 711 billion fiscal 2004 firm repurchased 187 million shares common stock total cost 181 billion average price paid per share repurchased shares 11157 9629 years ended november 2005 november 2004 respectively addition satisfy minimum statutory employee tax withholding requirements related delivery shares underlying restricted stock units firm cancelled 16 million restricted stock units total cost 163 million fiscal 2005 cancelled 91 million restricted stock units total cost 870 million fiscal 2004 following table sets forth firm’s accumulated comprehensive income type 1 consists net unrealized gains availableforsale securities held investments accounted equity method goldman sachs group inc subsidiaries notes consolidated financial statements continued note 8 earnings per common share computations basic diluted earnings per common share set forth 1 diluted eps computations include antidilutive effect following options note 9 goodwill identifiable intangible assets goodwill november 2005 november 2004 goodwill 315 billion 318 billion respectively included “other assets” consolidated statements financial condition goldman sachs group inc subsidiaries notes consolidated financial statements continued identifiable intangible assets following table sets forth gross carrying amount accumulated amortization net carrying amount identifiable intangible assets 1 primarily includes firm’s clearance execution nasdaq customer lists related slk llc slk financial counseling customer lists related ayco company lp 2 primarily relates abovemarket power contracts consolidated power generation facilities related cogentrix energy inc national energy gas transmission co negt firm closed acquisition negt recorded purchase price allocation adjustments negt cogentrix energy inc fiscal 2005 substantially power contracts pledged collateral counterparties connection certain firm’s secured shortterm longterm borrowings weighted average remaining life power contracts approximately 15 years 3 primarily includes technologyrelated assets related slk identifiable intangible assets amortized estimated useful lives weighted average remaining life firm’s identifiable intangibles approximately 16 years identifiable intangible assets considered indefinitelived therefore subject amortization expense associated identifiable intangible assets 165 million fiscal year ended november 2005 including amortization associated firm’s consolidated power generation facilities reported within “cost power generation” consolidated statements earnings amortization expense associated identifiable intangible assets 125 million 319 million including 188 million impairment charges fiscal years ended november 2004 november 2003 respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued estimated future amortization expense existing identifiable intangible assets set forth assets generally less liquid nonfinancial assets following table sets forth firm’s assets type liabilities accrued expenses primarily includes compensation benefits minority interest certain consolidated entities litigation liabilities taxrelated payables deferred revenue payables following table sets forth firm’s liabilities accrued expenses type firm sponsors various pension plans certain postretirement benefit plans primarily healthcare life insurance firm also provides certain benefits former inactive employees prior retirement summary plans set forth goldman sachs group inc subsidiaries notes consolidated financial statements continued defined benefit pension plans postretirement plans firm maintains defined benefit pension plan substantially us employees hired prior november 1 2003 november 2004 plan closed new participants benefits accrued existing participants employees certain nonus subsidiaries participate various local defined benefit pension plans generally provide benefits based years credited service percentage employee’s eligible compensation addition firm unfunded postretirement benefit plans provide medical life insurance eligible retirees dependents covered us benefits program following table provides summary changes plans’ benefit obligations fair value assets november 2005 november 2004 statement funded status plans november 2005 november 2004 accumulated benefit obligation defined benefit pension plans 795 million 742 million november 2005 november 2004 respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued plans accumulated benefit obligation exceeded plan assets aggregate projected benefit obligation accumulated benefit obligation 135 million 126 million respectively november 2005 184 million 154 million respectively november 2004 fair value plan assets plans 64 million 104 million november 2005 november 2004 respectively components pension incomeexpense postretirement expense set forth 1 represents benefit result termination japanese pension plan goldman sachs group inc subsidiaries notes consolidated financial statements continued weighted average assumptions used develop net periodic pension cost actuarial present value projected benefit obligation set forth assumptions represent weighted average assumptions used us nonus plans based economic environment applicable country generally firm determined discount rates defined benefit plans referencing indices longterm highquality bonds ensuring discount rate exceed yield reported indices adjustment duration plans’ liabilities firm’s approach determining longterm rate return plan assets based upon historical financial market relationships existed time presumption trend generally remain constant future measurement purposes annual growth rate per capita cost covered healthcare benefits 1146 assumed fiscal year ending november 2006 rate assumed decrease ratably 500 fiscal year ending november 2015 remain level thereafter assumed cost healthcare effect amounts reported firm’s postretirement plans 1 change assumed healthcare cost trend rate would following effects goldman sachs group inc subsidiaries notes consolidated financial statements continued following table sets forth composition plan assets us nonus defined benefit pension plans asset category investment approach firm’s us major nonus defined benefit pension plans involves employing sufficient level flexibility capture investment opportunities occur maintaining reasonable parameters ensure prudence care exercised execution investment programs plans employ total return investment approach whereby mix broadly similar actual asset allocation november 2005 equity securities debt securities assets targeted maximize longterm return assets given level risk investment risk measured monitored ongoing basis firm’s retirement committee periodic portfolio reviews meetings investment managers annual liability measurements firm contribute minimum 13 million pension plans 7 million postretirement plans fiscal 2006 following table sets forth benefits projected paid firm’s us nonus defined benefit pension postretirement plans net medicare subsidy receipts reflects expected future service appropriate defined contribution plans firm contributes employersponsored us nonus defined contribution plans firm’s contribution plans 305 million 189 million 199 million years ended november 2005 november 2004 november 2003 respectively firm previously maintained nonqualified defined contribution plan certain senior employees held shares common stock shares distributed participants remaining assets plan january 2005 plan expense immaterial years ended november 2005 november 2004 november 2003 goldman sachs group inc subsidiaries notes consolidated financial statements continued stock incentive plan firm sponsors stock incentive plan goldman sachs amended restated stock incentive plan amended sip provides grants incentive stock options nonqualified stock options stock appreciation rights dividend equivalent rights restricted stock restricted stock units stockbased awards second quarter fiscal 2003 amended sip approved firm’s shareholders effective grants april 1 2003 awards made original plan date although awards granted original plan prior date remain outstanding total number shares common stock may issued amended sip fiscal 2008 may exceed 250 million shares fiscal year thereafter may exceed 5 issued outstanding shares common stock determined last day immediately preceding fiscal year increased number shares available awards previous fiscal years covered awards granted years november 2005 november 2004 1966 million 2189 million shares respectively available grant amended sip taking account stockbased compensation awards issued subsequent year end part yearend compensation arrangements november 2004 firm adopted new deferred compensation plans eligible employees fiscal 2005 general plans participants able defer payment portion cash yearend compensation deferral period participants able nominally invest deferrals certain alternatives available plans generally current tax law participants subject income tax amounts deferred notional investment earnings returns distributed firm entitled corresponding tax deduction amounts distributed firm recognized compensation expense amounts deferred plans november 2005 134 million related plans included “other liabilities accrued expenses” consolidated statements financial condition november 2004 firm adopted discount stock program eligible senior executives may acquire restricted stock units fiscal 2005 fiscal 2006 firm’s amended sip effective 25 discount 25 discount effected additional grant restricted stock units equal onethird number restricted stock units purchased qualifying participants purchased restricted stock units 100 vested granted shares underlying able sold transferred satisfy tax obligations third anniversary grant date shares underlying restricted stock units granted order effect 25 discount generally vest equal installments second third anniversaries following grant date transferable third anniversary grant date compensation expense related restricted stock units recognized vesting period total value restricted stock units granted fiscal 2005 order effect 25 discount 79 million restricted stock units firm issued restricted stock units employees amended sip primarily connection yearend compensation acquisitions total restricted stock units outstanding november 2005 november 2004 301 million units 249 million units respectively required future service condition delivery underlying shares common stock ii 250 million units 130 million units respectively require future service goldman sachs group inc subsidiaries notes consolidated financial statements continued cases delivery underlying shares common stock conditioned grantees satisfying certain requirements outlined award agreements activity related restricted stock units set forth 1 includes restricted stock units granted employees subsequent year end part yearend compensation total employee stock compensation expense net forfeitures 176 billion 122 billion 711 million years ended november 2005 november 2004 november 2003 respectively stock options november 2004 stock options granted employees may 1999 connection firm’s initial public offering fully vested exercisable stock options granted employees subsequent firm’s initial public offering generally vest outlined applicable stock option agreement first become exercisable third anniversary grant date yearend stock options 2005 become exercisable january 2009 expire november 27 2015 shares received exercise prior january 2010 transferable january 2010 employee stock option agreements provide vesting accelerated certain circumstances upon retirement death extended absence general stock options expire tenth anniversary grant date although may subject earlier termination cancellation certain circumstances accordance terms amended sip applicable stock option agreement dilutive effect firm’s outstanding stock options included “average common shares outstanding diluted” consolidated statements earnings goldman sachs group inc subsidiaries notes consolidated financial statements continued activity related stock options set forth 1 includes stock options granted employees subsequent year end part yearend compensation options outstanding november 2005 set forth weighted average fair value options granted fiscal 2005 fiscal 2004 fiscal 2003 3291 per option 3222 per option 3131 per option respectively fair value estimated grant date based binomial optionpricing model using following weighted average assumptions goldman sachs group inc subsidiaries notes consolidated financial statements continued fair value options granted fiscal 2005 reflects additional discount sales restrictions shares common stock underlying options apply january 2010 expected life options granted fiscal 2005 extended 75 years reflect estimated impact sales restrictions expected life awards firm formed numerous nonconsolidated investment funds thirdparty investors firm generally acts investment manager funds entitled receive management fees certain cases advisory fees incentive fees overrides funds fees amounted 208 billion 172 billion 117 billion years ended november 2005 november 2004 november 2003 respectively november 2005 november 2004 fees receivable funds 388 million 445 million respectively additionally firm may invest alongside thirdparty investors certain funds aggregate carrying value firm’s interests funds 217 billion 172 billion november 2005 november 2004 respectively addition firm commitments invest 354 billion 104 billion funds november 2005 november 2004 respectively normal course business firm may also engage activities funds including among others securities lending trade execution trading custody components net tax expense reflected consolidated statements earnings set forth deferred income taxes reflect net tax effects temporary differences financial reporting tax bases assets liabilities temporary differences result taxable deductible amounts future years measured using tax rates laws effect differences expected reverse goldman sachs group inc subsidiaries notes consolidated financial statements continued significant components firm’s deferred tax assets liabilities set forth 1 relates primarily ability utilize losses certain foreign entities state local tax credits firm permanently reinvests eligible earnings certain foreign subsidiaries accordingly accrue us income taxes would arise earnings repatriated november 2005 policy resulted unrecognized net deferred tax liability 172 million attributable reinvested earnings 24 billion additionally fiscal 2005 valuation allowance decreased 15 million primarily due utilization certain state local tax credits acquired federal net operating loss carryforwards 24 million november 2005 88 million november 2004 subject annual limitations utilization begin expire 2020 acquired state local net operating loss carryforwards 328 million november 2005 436 million november 2004 subject annual limitations utilization acquired alternative minimum tax credit carryforwards 7 million november 2005 32 million november 2004 subject annual limitations utilization carried forward indefinitely firm subject examination internal revenue service irs tax authorities certain countries japan united kingdom states firm significant business operations new york irs currently examining firm’s 2003 2004 fiscal years fiscal 2005 irs concluded examination 1999 2002 new york state city substantially concluded examinations covering periods fiscal year 2003 firm regularly assesses likelihood additional assessments jurisdiction firm pays taxes resulting impact current future examinations tax reserves established firm believes adequate relation potential additional assessments resolution tax matters expected material effect firm’s financial condition may material firm’s operating results particular period depending part upon operating results period firm’s effective tax rate period goldman sachs group inc subsidiaries notes consolidated financial statements continued reconciliation us federal statutory income tax rate firm’s effective income tax rate set forth 1 primarily includes effect audit settlements tax benefits approximately 272 million november 2005 330 million november 2004 103 million november 2003 related delivery restricted stock units exercise options credited directly “additional paidin capital” consolidated statements financial condition changes shareholders’ equity firm’s second fiscal quarter 2005 firm became regulated us securities exchange commission sec consolidated supervised entity cse subject groupwide supervision examination sec subject minimum capital requirements consolidated basis november 2005 firm compliance cse capital requirements firm’s principal us regulated subsidiaries include goldman sachs co gsco goldman sachs execution clearing lp gsec gsco gsec registered us brokerdealers futures commission merchants subject rule 15c31 sec rule 117 commodity futures trading commission specify uniform minimum net capital requirements defined registrants gsco gsec elected compute minimum capital requirements accordance “alternative net capital requirement” permitted rule 15c31 november 2005 gsco gsec net capital excess minimum capital requirements addition alternative minimum net capital requirements gsco also required hold tentative net capital excess 1 billion net capital excess 500 million accordance market credit risk standards appendix e rule 15c31 gsco also required notify sec event tentative net capital less 5 billion november 2005 gsco tentative net capital net capital excess minimum notification requirements firm’s principal international regulated subsidiaries include goldman sachs international gsi goldman sachs japan ltd gsjl gsi regulated uk brokerdealer subject capital requirements uk’s financial services authority gsjl regulated brokerdealer based tokyo subject capital requirements japan’s financial services agency november 2005 november 2004 gsi gsjl compliance local capital adequacy requirements goldman sachs group inc subsidiaries notes consolidated financial statements continued certain subsidiaries firm also subject capital adequacy requirements promulgated authorities countries operate november 2005 november 2004 subsidiaries compliance local capital adequacy requirements reporting management firm’s operating results categorized following three segments investment banking trading principal investments asset management securities services basis presentation reporting segments certain firm’s business lines aggregated similar economic characteristics similar following areas nature services provide ii methods distribution iii types clients serve iv regulatory environments operate cost drivers firm taken whole compensation headcount levels business activity broadly similar firm’s business segments compensation expenses within firm’s segments reflect among factors overall performance firm well performance individual business units consequently pretax margins one segment firm’s business may significantly affected performance firm’s business segments firm allocates revenues expenses among three segments due integrated nature business segments estimates judgments made allocating certain revenue expense items transactions segments based specific criteria approximate thirdparty rates total operating expenses include corporate items allocated individual business segments allocation process based manner management views business firm segment information presented table prepared according following methodologies • revenues expenses directly associated segment included determining pretax earnings • net revenues firm’s segments include allocations interest income interest expense specific securities commodities positions relation cash generated funding requirements underlying positions net interest included within segment net revenues consistent way management assesses segment performance • overhead expenses directly allocable specific segments allocated ratably based direct segment expenses goldman sachs group inc subsidiaries notes consolidated financial statements continued segment operating results management believes following information provides reasonable representation segment’s contribution consolidated pretax earnings total assets 1 net revenues include net interest cost power generation set forth table 4 includes deferred tax assets relating firm’s conversion corporate form certain assets management believes allocable particular segment years ended november 2004 november 2003 goldman sachs group inc subsidiaries notes consolidated financial statements continued geographic information due highly integrated nature international financial markets firm manages businesses based profitability enterprise whole accordingly management believes profitability geographic region necessarily meaningful firm’s revenues expenses generally allocated based country domicile legal entity providing service following table sets forth total net revenues pretax earnings firm consolidated subsidiaries geographic region allocated basis described goldman sachs group inc subsidiaries notes consolidated financial statements continued january 2006 firm entered definitive agreement invest 258 billion industrial commercial bank china limited icbc investment funds managed firm assuming substantial portion firm’s economic interest addition firm icbc entered strategic cooperation agreement firm assist icbc developing icbc’s corporate governance risk management internal controls well providing expertise enhance icbc’s capabilities treasury asset management corporate investment banking nonperforming loans disposal product innovation transactions expected close may 2006 subject receipt regulatory approvals closing conditions supplemental financial information quarterly results unaudited following represents firm’s unaudited quarterly results fiscal 2005 fiscal 2004 quarterly results prepared accordance generally accepted accounting principles reflect adjustments opinion management necessary fair statement results adjustments normal recurring nature supplemental financial information common stock price range following table sets forth fiscal quarters indicated high low sales prices per share firm’s common stock reported consolidated tape association january 30 2006 approximately 6159 holders record firm’s common stock january 30 2006 last reported sales price firm’s common stock new york stock exchange 13987 per share supplemental financial information selected financial data 1 cost power generation includes direct costs firm’s power generation facilities eg fuel operations maintenance well depreciation amortization associated facility related contractual assets 2 longterm borrowings include 1363 billion nonrecourse debt issued william street funding corporation consolidated vies consolidated entities nonrecourse debt issuing subsidiary applicable subsidiary guaranteeing debt obligated repay 3 book value per common share based common shares outstanding including restricted stock units granted employees future service requirements 4604 million 4940 million 4961 million 4912 million 5018 million november 2005 november 2004 november 2003 november 2002 november 2001 respectively 4 substantially assets management valued calendar month end 5 includes firm’s fundamental equity quantitative equity strategies 6 primarily includes private equity funds hedge funds real estate funds certain currency asset allocation strategies assets allocated external investment managers 7 includes 4 billion nonmoney market assets related firm’s acquisition ayco item 9item 8 financial statements supplementary data index management’s report internal control financial reporting management goldman sachs group inc together consolidated subsidiaries firm responsible establishing maintaining adequate internal control financial reporting firm’s internal control financial reporting process designed supervision firm’s principal executive principal financial officers provide reasonable assurance regarding reliability financial reporting preparation firm’s financial statements external reporting purposes accordance us generally accepted accounting principles end firm’s 2006 fiscal year management conducted assessment effectiveness firm’s internal control financial reporting based framework established internal control integrated framework issued committee sponsoring organizations treadway commission coso based assessment management determined firm’s internal control financial reporting november 24 2006 effective internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets provide reasonable assurances transactions recorded necessary permit preparation financial statements accordance us generally accepted accounting principles receipts expenditures made accordance authorizations management directors firm provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition firm’s assets could material effect financial statements management’s assessment effectiveness firm’s internal control financial reporting november 24 2006 audited pricewaterhousecoopers llp independent registered public accounting firm stated report appearing pages 109 110 expresses unqualified opinions management’s assessment effectiveness firm’s internal control financial reporting november 24 2006 report independent registered public accounting firm board directors shareholders goldman sachs group inc completed integrated audits goldman sachs group inc’s consolidated financial statements internal control financial reporting november 24 2006 accordance standards public company accounting oversight board united states opinions based audits presented consolidated financial statements financial statement schedule opinion consolidated financial statements listed accompanying index present fairly material respects financial position goldman sachs group inc subsidiaries company november 24 2006 november 25 2005 results operations cash flows three fiscal years period ended november 24 2006 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed accompanying index presents fairly material respects information set forth therein read conjunction related consolidated financial statements financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit financial statements includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion internal control financial reporting also opinion management’s assessment included management’s report internal control financial reporting appearing page 108 company maintained effective internal control financial reporting november 24 2006 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso fairly stated material respects based criteria furthermore opinion company maintained material respects effective internal control financial reporting november 24 2006 based criteria established internal control integrated framework issued coso company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinions management’s assessment effectiveness company’s internal control financial reporting based audit conducted audit internal control financial reporting accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit internal control financial reporting includes obtaining understanding internal control financial reporting evaluating management’s assessment testing evaluating design operating effectiveness internal control performing procedures consider necessary circumstances believe audit provides reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp new york new york january 31 2007 goldman sachs group inc subsidiaries consolidated statements earnings accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements financial condition accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements changes shareholders’ equity accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements cash flows supplemental disclosures cash payments interest net capitalized interest 3098 billion 1749 billion 855 billion years ended november 2006 november 2005 november 2004 respectively cash payments income taxes net refunds 456 billion 247 billion 102 billion years ended november 2006 november 2005 november 2004 respectively noncash activities firm assumed 498 million 115 billion 163 billion debt connection business acquisitions years ended november 2006 november 2005 november 2004 respectively accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements comprehensive income accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries notes consolidated financial statements note 1 description business goldman sachs group inc group inc delaware corporation together consolidated subsidiaries collectively firm leading global investment banking securities investment management firm provides wide range services worldwide substantial diversified client base includes corporations financial institutions governments highnetworth individuals firm’s activities divided three segments • investment banking firm provides broad range investment banking services diverse group corporations financial institutions investment funds governments individuals • trading principal investments firm facilitates client transactions diverse group corporations financial institutions investment funds governments individuals takes proprietary positions market making trading investing fixed income equity products currencies commodities derivatives products addition firm engages specialist marketmaking activities equities options exchanges clears client transactions major stock options futures exchanges worldwide connection firm’s merchant banking investing activities firm makes principal investments directly funds firm raises manages • asset management securities services firm provides investment advisory financial planning services offers investment products primarily separate accounts funds across major asset classes diverse group institutions individuals worldwide provides prime brokerage services financing services securities lending services institutional clients including hedge funds mutual funds pension funds foundations highnetworth individuals worldwide note 2 significant accounting policies basis presentation consolidated financial statements include accounts group inc entities firm controlling financial interest material intercompany transactions balances eliminated firm determines whether controlling financial interest entity first evaluating whether entity voting interest entity variable interest entity vie qualifying specialpurpose entity qspe generally accepted accounting principles • voting interest entities voting interest entities total equity investment risk sufficient enable entity finance activities independently ii equity holders obligation absorb losses right receive residual returns right make decisions entity’s activities voting interest entities consolidated accordance accounting research bulletin arb 51 “consolidated financial statements” amended arb 51 states usual condition controlling financial interest entity ownership majority voting interest accordingly firm consolidates voting interest entities majority voting interest goldman sachs group inc subsidiaries notes consolidated financial statements continued • variable interest entities vies entities lack one characteristics voting interest entity controlling financial interest vie present enterprise variable interest combination variable interests absorb majority vie’s expected losses receive majority vie’s expected residual returns enterprise controlling financial interest known primary beneficiary consolidates vie accordance financial accounting standards board fasb interpretation fin 46r “consolidation variable interest entities” firm consolidates vies primary beneficiary firm determines whether primary beneficiary vie first performing qualitative analysis vie includes review among factors capital structure contractual terms interests create absorb variability related party relationships design vie qualitative analysis conclusive firm performs quantitative analysis purposes allocating vie’s expected losses expected residual returns variable interest holders firm utilizes “top down” method firm calculates share vie’s expected losses expected residual returns using specific cash flows would allocated based contractual arrangements andor firm’s position capital structure vie various probabilityweighted scenarios • qspes passive entities commonly used mortgage securitization transactions statement financial accounting standards sfas 140 “accounting transfers servicing financial assets extinguishments liabilities” sets forth criteria entity must satisfy qspe criteria include types assets qspe may hold limits asset sales use derivatives financial guarantees level discretion servicer may exercise attempting collect receivables criteria may require management make judgments complex matters including whether derivative considered passive degree discretion servicer may exercise accordance sfas 140 fin 46r firm consolidate qspes • equitymethod investments firm controlling financial interest entity exerts significant influence entity’s operating financial policies generally defined owning voting interest 20 50 investment common stock insubstance common stock firm accounts investment accordance equity method accounting prescribed accounting principles board apb opinion 18 “the equity method accounting investments common stock” • firm consolidate entity apply equity method accounting firm accounts investment fair value firm also formed numerous nonconsolidated investment funds thirdparty investors typically organized limited partnerships firm acts general partner funds hold majority economic interests fund funds established june 29 2005 firm holds minor interest funds established modified june 29 2005 firm generally provided thirdparty investors rights remove firm general partner terminate funds see “ recent accounting developments” discussion impact emerging issues task force eitf issue 045 “determining whether general partner general partners group controls limited partnership similar entity limited partners certain rights” fund investments included “financial instruments owned fair value” consolidated statements financial condition goldman sachs group inc subsidiaries notes consolidated financial statements continued unless otherwise stated herein references november 2006 november 2005 november 2004 refer firm’s fiscal years ended dates context requires november 24 2006 november 25 2005 november 26 2004 respectively certain reclassifications made previously reported amounts conform current presentation use estimates consolidated financial statements prepared accordance generally accepted accounting principles require management make certain estimates assumptions important estimates assumptions relate fair value measurements accounting goodwill identifiable intangible assets provision potential losses may arise litigation regulatory proceedings tax audits although estimates assumptions based best available information actual results could materially different estimates revenue recognition investment banking underwriting revenues fees mergers acquisitions financial advisory assignments recognized consolidated statements earnings services related underlying transaction completed terms engagement expenses associated transactions deferred related revenue recognized engagement otherwise concluded underwriting revenues presented net related expenses associated financial advisory transactions recorded noncompensation expenses net client reimbursements financial instruments “total financial instruments owned fair value” “financial instruments sold yet purchased fair value” reflected consolidated statements financial condition tradedate basis consist financial instruments carried fair value amounts approximate fair value related unrealized gains losses generally recognized “trading principal investments” consolidated statements earnings fair value financial instrument amount instrument could exchanged current transaction willing parties forced liquidation sale determining fair value firm separates financial instruments three categories cash ie nonderivative trading instruments derivative contracts principal investments • cash trading instruments fair values firm’s cash trading instruments generally obtained quoted market prices active markets broker dealer price quotations alternative pricing sources reasonable levels price transparency types instruments valued manner include us government agency securities sovereign government obligations liquid mortgage products investmentgrade highyield corporate bonds listed equities money market securities state municipal provincial obligations physical commodities certain cash trading instruments trade infrequently little price transparency instruments include certain corporate bank loans mortgage whole loans distressed debt firm values instruments initially cost generally adjust valuations unless substantive evidence supporting change value underlying instrument valuation assumptions similar market transactions changes financial ratios changes credit ratings underlying companies evidence supporting change value firm uses valuation methodologies present value known estimated cash flows goldman sachs group inc subsidiaries notes consolidated financial statements continued cash trading instruments owned firm long positions marked bid prices instruments sold yet purchased short positions marked offer prices certain circumstances positions illiquid transfer restrictions fair value reflects liquidity valuation adjustments based market evidence predetermined policies certain highly illiquid positions management’s estimates used determine liquidity valuation adjustments see “ recent accounting developments” discussion impact sfas 157 “fair value measurements” valuation financial instruments • derivative contracts fair values firm’s derivative contracts consist exchangetraded overthecounter otc derivatives reflected net cash firm paid received example option premiums cash paid received pursuant credit support agreements fair values firm’s exchangetraded derivatives generally determined quoted market prices otc derivatives valued using valuation models firm uses variety valuation models including present value known estimated cash flows optionpricing models valuation models used derive fair values firm’s otc derivatives require inputs including contractual terms market prices yield curves credit curves measures volatility prepayment rates correlations inputs selection model value otc derivative depends upon contractual terms specific risks inherent instrument well availability pricing information market firm generally uses similar models value similar instruments possible firm verifies values produced pricing models market transactions otc derivatives trade liquid markets generic forwards swaps options model selection involve significant judgment market prices readily available otc derivatives trade less liquid markets model selection requires judgment instruments tend complex pricing information less available markets price transparency inherently limited complex structures often combine one product types requiring additional inputs correlations volatilities markets continue develop pricing information becomes available firm continues review refine models uses inception otc derivative contract day one firm values contract model value firm verify significant model inputs observable market data verify model market transactions appropriate valuations adjusted reflect various factors liquidity bidoffer spreads credit considerations adjustments generally based market evidence predetermined policies certain circumstances highly illiquid positions management’s estimates used determine adjustments firm cannot verify significant model inputs observable market data verify model market transactions firm values contract transaction price inception consequently records day one gain loss accordance eitf issue 023 “issues involved accounting derivative contracts held trading purposes contracts involved energy trading risk management activities” following day one firm adjusts inputs valuation models extent changes inputs verified similar market transactions thirdparty pricing services andor broker quotes derived substantive evidence empirical market data circumstances firm cannot verify model market transactions possible different valuation model could produce materially different goldman sachs group inc subsidiaries notes consolidated financial statements continued estimate fair value see “ recent accounting developments” discussion impact sfas 157 valuation financial instruments • principal investments valuing corporate real estate principal investments included within principal investments component trading principal investments segment firm’s portfolio separated private investments convertible preferred stock sumitomo mitsui financial group inc smfg ordinary shares industrial commercial bank china limited icbc public investments firm’s private principal investments nature little price transparency investments initially carried cost approximation fair value adjustments carrying value made thirdparty transactions evidencing change value downward adjustments also made absence thirdparty transactions determined expected realizable value investment less carrying value reaching determination many factors considered including limited operating cash flows financial performance companies properties relative budgets projections trends within sectors andor regions underlying business models expected exit timing strategy specific rights terms associated investment conversion features liquidation preferences see “ recent accounting developments” discussion impact sfas 157 valuation financial instruments firm’s public principal investments tend large concentrated holdings result initial public offerings corporate transactions valued using quoted market prices less liquidity valuation adjustment based predetermined written policies firm’s investment convertible preferred stock smfg carried fair value derived model incorporates smfg’s common stock price credit spreads impact nontransferability illiquidity downside protection conversion strike price firm’s investment convertible preferred stock smfg generally nontransferable without consent smfg freely convertible smfg common stock november 2006 firm hedged twothirds common stock underlying investment smfg restrictions firm’s ability hedge sell remaining shares lapse february 7 2007 november 2006 conversion price ¥318800 subject downward adjustment price smfg common stock time conversion less conversion price subject floor ¥105100 firm’s investment ordinary shares icbc carried fair value using quoted market prices less liquidity valuation adjustment ordinary shares acquired icbc subject transfer restrictions among things prohibit sale disposition transfer april 28 2009 april 28 2009 october 20 2009 firm may transfer 50 aggregate ordinary shares icbc firm owned october 20 2006 firm may transfer remaining shares october 20 2009 portion firm’s interest held investment funds managed firm transfers financial assets general transfers financial assets accounted sales sfas 140 firm relinquished control transferred assets transfers accounted sales related gains losses recognized net revenues transfers accounted sales accounted collateralized financings related interest expense recognized net revenues lives transactions goldman sachs group inc subsidiaries notes consolidated financial statements continued collateralized agreements financings collateralized agreements consist resale agreements securities borrowed collateralized financings consist repurchase agreements securities loaned secured financings interest income expense collateralized agreements collateralized financings recognized net revenues life transaction • resale repurchase agreements financial instruments purchased agreements resell financial instruments sold agreements repurchase principally us government federal agency investmentgrade sovereign obligations represent shortterm collateralized financing transactions carried consolidated statements financial condition contractual amounts plus accrued interest amounts presented netbycounterparty basis requirements fin 41 “offsetting amounts related certain repurchase reverse repurchase agreements” fin 39 “offsetting amounts related certain contracts” satisfied firm receives financial instruments purchased agreements resell makes delivery financial instruments sold agreements repurchase monitors market value financial instruments daily basis delivers obtains additional collateral appropriate • securities borrowed loaned securities borrowed loaned recorded based amount cash collateral advanced received transactions generally collateralized cash securities letters credit firm receives securities borrowed makes delivery securities loaned monitors market value securities borrowed loaned delivers obtains additional collateral appropriate • secured financings addition repurchase agreements securities loaned firm funds assets use secured financing arrangements pledges financial instruments assets collateral transactions firm records financings based amount cash received see note 3 information regarding arrangements power generation power generation revenues associated firm’s consolidated power generation facilities included “trading principal investments” consolidated statements earnings power delivered revenues 553 million 496 million 488 million years ended november 2006 november 2005 november 2004 respectively beginning fourth quarter 2006 “cost power generation” consolidated statements earnings reclassified operating expenses “cost power generation” previously reported reduction revenues “compensation benefits” includes direct employee costs associated firm’s consolidated power generation facilities “cost power generation” includes direct costs associated power generation facilities related contractual assets prior periods reclassified conform current presentation impact reported net earnings reclassification increased operating expenses follows goldman sachs group inc subsidiaries notes consolidated financial statements continued commissions commission revenues executing clearing client transactions stock options futures markets worldwide recognized “trading principal investments” consolidated statements earnings tradedate basis insurance activities revenues variable annuity variable life insurance contracts providing reinsurance contracts generally consist fees assessed contract holder account balances mortality charges policy administration surrender charges fees recognized within “trading principal investments” consolidated statements earnings period services provided interest credited variable annuity life insurance account balances changes reserves recognized “other expenses” consolidated statements earnings premiums earned providing property catastrophe reinsurance recognized within “trading principal investments” consolidated statements earnings coverage period net premiums ceded cost reinsurance expenses liabilities related property catastrophe reinsurance claims including estimates claims incurred reported recognized within “other expenses” consolidated statements earnings merchant banking overrides firm entitled receive merchant banking overrides ie increased share fund’s income gains return funds’ investments exceeds certain threshold returns overrides based investment performance life merchant banking fund future investment underperformance may require amounts override previously distributed firm returned funds accordingly overrides recognized consolidated statements earnings material contingencies resolved overrides included “trading principal investments” consolidated statements earnings asset management fees recognized period related service provided based upon average net asset values certain circumstances firm also entitled receive incentive fees based percentage fund’s return assets management exceeds specified benchmark returns performance targets incentive fees generally based investment performance 12month period subject adjustment prior end measurement period accordingly incentive fees recognized consolidated statements earnings measurement period ends asset management fees incentive fees included “asset management securities services” consolidated statements earnings sharebased compensation first quarter 2006 firm adopted sfas 123r “sharebased payment” revision sfas 123 “accounting stockbased compensation” sfas 123r focuses primarily accounting transactions entity obtains employee services exchange sharebased payments sfas 123r cost employee services received exchange award equity instruments generally measured based grantdate fair value award sfas 123r sharebased awards require future service ie vested awards expensed immediately sharebased employee awards require future service amortized relevant service period firm adopted sfas 123r modified prospective adoption method adoption provisions sfas 123r generally applied sharebased awards granted subsequent adoption accounting treatment sharebased awards granted retirementeligible employees prior firm’s adoption sfas 123r changed financial statements periods prior adoption restated effects adopting sfas 123r goldman sachs group inc subsidiaries notes consolidated financial statements continued sfas 123r requires immediate expensing sharebased awards granted retirementeligible employees including awards subject noncompete agreements sharebased awards held employees retirementeligible date adoption sfas 123r must continue amortized stated service period award accelerated employee actually retires consequently firm’s compensation benefits expenses 2006 included lesser extent 2007 2008 include amortization awards held employees retirementeligible date adoption sfas 123r well full grantdate fair value new awards granted employees sfas 123r firm amortized sharebased compensation prior adoption sfas 123r period beginning date grant ending earlier vesting date retirement eligibility compensation benefits expenses would 637 million lower 2006 approximately 350 million higher 2005 approximately 375 million higher 2004 sfas 123r requires expected forfeitures included determining sharebased employee compensation expense prior adoption sfas 123r forfeiture benefits recorded reduction compensation benefits expense employee left firm forfeited award first quarter 2006 firm recorded benefit expected forfeitures outstanding sharebased awards transition impact adopting sfas 123r first day firm’s 2006 fiscal year including effect accruing expected forfeitures outstanding sharebased awards material firm’s results operations firm began account sharebased awards accordance fair value method prescribed sfas 123 “accounting stockbased compensation” amended sfas 148 “accounting stockbased compensation transition disclosure” 2003 sharebased employee awards granted year ended november 29 2002 prior years accounted intrinsicvaluebased method prescribed apb opinion 25 “accounting stock issued employees” permitted sfas 123 therefore compensation expense recognized unmodified stock options issued years prior fiscal 2003 intrinsic value date grant goldman sachs group inc subsidiaries notes consolidated financial statements continued firm recognize compensation expense relevant service period generally three years fair value method per sfas 123 respect stock options granted year ended november 29 2002 prior years net earnings would decreased resulting pro forma net earnings per common share eps set forth firm pays cash dividend equivalents outstanding restricted stock units dividend equivalents paid restricted stock units accounted sfas 123 sfas 123r charged retained earnings paid sfas 123r requires dividend equivalents paid restricted stock units expected forfeited included compensation expense prior adoption sfas 123r dividend equivalents paid restricted stock units later forfeited employees reclassified compensation expense retained earnings dividend equivalents paid restricted stock units granted prior 2003 accounted apb opinion 25 charged compensation expense tax benefit related dividend equivalents paid restricted stock units accounted reduction income tax expense prior adoption sfas 123r firm presented tax benefits resulting sharebased compensation cash flows operating activities consolidated statements cash flows sfas 123r requires cash flows resulting tax deductions excess grantdate fair value sharebased awards included cash flows financing activities certain cases primarily related death employee conflicted employment outlined applicable award agreements firm may cash settle sharebased compensation awards “additional paidin capital” adjusted extent difference current value award grantdate value award goodwill cost acquired companies excess fair value identifiable net assets acquisition date accordance sfas 142 “goodwill intangible assets” goodwill tested least annually impairment loss triggered estimated fair value operating segment less estimated net book value loss calculated difference estimated fair value goodwill carrying value goldman sachs group inc subsidiaries notes consolidated financial statements continued identifiable intangible assets identifiable intangible assets consist primarily customer lists abovemarket power contracts specialist rights value business acquired voba deferred acquisition costs dac firm’s insurance subsidiaries amortized estimated useful lives identifiable intangible assets tested potential impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable accordance sfas 144 “accounting impairment disposal longlived assets” impairment loss calculated difference estimated fair value carrying value asset group recognized sum estimated undiscounted cash flows relating asset group less corresponding carrying value property leasehold improvements equipment property leasehold improvements equipment net accumulated depreciation amortization included “other assets” consolidated statements financial condition property equipment placed service prior december 1 2001 depreciated accelerated cost recovery method property equipment placed service december 1 2001 depreciated straightline basis useful life asset leasehold improvements useful life improvement shorter term lease amortized accelerated cost recovery method placed service prior december 1 2001 leasehold improvements amortized straightline basis useful life improvement term lease whichever shorter certain costs software developed obtained internal use capitalized amortized straightline basis useful life software property leasehold improvements equipment tested potential impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable accordance sfas 144 impairment loss calculated difference estimated fair value carrying value asset group recognized sum expected undiscounted cash flows relating asset group less corresponding carrying value firm’s operating leases include space held excess current requirements rent expense relating space held growth included “occupancy” consolidated statements earnings accordance sfas 146 “accounting costs associated exit disposal activities” firm records liability based remaining lease rentals reduced potential existing sublease rentals leases firm ceased using space management concluded firm derive future economic benefits costs terminate lease end term recognized measured fair value upon termination foreign currency translation assets liabilities denominated nonus currencies translated rates exchange prevailing date consolidated statement financial condition revenues expenses translated average rates exchange year gains losses translation financial statements nonus operation functional currency us dollar included net hedges taxes consolidated statements comprehensive income firm seeks reduce net investment exposure fluctuations foreign exchange rates use foreign currency forward contracts foreign currencydenominated debt foreign currency forward contracts hedge effectiveness assessed based changes goldman sachs group inc subsidiaries notes consolidated financial statements continued forward exchange rates accordingly forward points reflected component currency translation adjustment consolidated statements comprehensive income foreign currencydenominated debt hedge effectiveness assessed based changes spot rates foreign currency remeasurement gains losses transactions nonfunctional currencies included consolidated statements earnings income taxes deferred tax assets liabilities recognized temporary differences financial reporting tax bases firm’s assets liabilities valuation allowances established reduce deferred tax assets amount likely realized firm’s tax assets liabilities presented component “other assets” “other liabilities accrued expenses” respectively consolidated statements financial condition tax provisions computed accordance sfas 109 “accounting income taxes” contingent liabilities related income taxes recorded criteria loss recognition sfas 5 “accounting contingencies” amended met see “ recent accounting developments” discussion impact fin 48 “accounting uncertainty income taxes interpretation fasb statement 109” sfas 109 earnings per common share basic eps calculated dividing net earnings applicable common shareholders weighted average number common shares outstanding common shares outstanding includes common stock restricted stock units future service required condition delivery underlying common stock diluted eps includes determinants basic eps addition reflects dilutive effect common stock deliverable pursuant stock options restricted stock units future service required condition delivery underlying common stock cash equivalents firm defines cash equivalents highly liquid overnight deposits held ordinary course business recent accounting developments eitf issue 045 june 2005 eitf reached consensus issue 045 “determining whether general partner general partners group controls limited partnership similar entity limited partners certain rights” requires general partners consolidate partnerships provide limited partners rights remove general partner terminate partnership firm general partner numerous merchant banking asset management partnerships required adopt provisions eitf issue 045 immediately partnerships formed modified june 29 2005 ii first quarter 2007 partnerships formed june 29 2005 modified firm generally provided limited partners funds rights remove firm general partner terminate partnerships therefore adoption eitf issue 045 material effect firm’s financial condition results operations cash flows 2006 partnerships formed modified june 29 2005 expected material effect 2007 goldman sachs group inc subsidiaries notes consolidated financial statements continued sfas 155 february 2006 fasb issued sfas 155 “accounting certain hybrid financial instruments amendment fasb statements 133 140” sfas 155 permits entity measure fair value hybrid financial instrument contains embedded derivative otherwise would require bifurcation permitted firm early adopted sfas 155 first quarter 2006 adoption material effect firm’s financial condition results operations cash flows sfas 156 effective first quarter 2006 firm adopted sfas 156 “accounting servicing financial assets amendment fasb statement 140” permits entities elect measure servicing assets servicing liabilities fair value report changes fair value earnings firm acquires residential mortgage servicing rights connection mortgage securitization activities elected sfas 156 account servicing rights fair value adoption material effect firm’s financial condition results operations cash flows fin 46r6 april 2006 fasb issued fasb staff position fsp fin 46r6 “determining variability considered applying fasb interpretation 46r” fsp addresses reporting enterprise determine variability considered applying fin 46r requiring analysis purpose entity created variability entity designed create fsp must applied prospectively entities reporting enterprise first becomes involved entities previously required analyzed fin 46r reconsideration event occurred permitted firm early adopted fsp fin 46r6 third quarter 2006 adoption material effect firm’s financial condition results operations cash flows fin 48 june 2006 fasb issued fin 48 “accounting uncertainty income taxes interpretation fasb statement 109” fin 48 requires firm determine whether tax position likely sustained upon examination including resolution related appeals litigation processes based technical merits position determined position meets recognition threshold position measured determine amount benefit recognized financial statements firm expects adopt provisions fin 48 beginning first quarter 2008 firm currently evaluating impact adopting fin 48 financial condition results operations cash flows sfas 157 september 2006 fasb issued sfas 157 “fair value measurements” sfas 157 clarifies fair value exit price representing amount would exchanged sell asset transfer liability orderly transaction market participants sfas 157 nullifies consensus reached eitf issue 023 prohibiting recognition day one gain loss derivative contracts hybrid instruments measured fair value sfas 133 “accounting derivative instruments hedging activities” modified sfas 155 firm cannot verify significant model inputs observable market data verify model market transactions however sfas 157 requires fair value measurement technique include adjustment risks inherent particular valuation technique pricing model andor risks inherent inputs model market participants would also include adjustment addition sfas 157 prohibits recognition “block discounts” large holdings unrestricted financial instruments quoted prices readily regularly available active market provisions sfas 157 applied prospectively except changes fair value measurements result initial application sfas 157 existing derivative financial instruments measured eitf issue 023 existing hybrid instruments measured fair value block discounts recorded adjustment opening retained earnings year adoption goldman sachs group inc subsidiaries notes consolidated financial statements continued firm intends adopt sfas 157 first quarter 2007 determine transition adjustment opening retained earnings firm performed analysis existing derivative instruments measured eitf issue 023 hybrid financial instruments block discounts determine prospective transition adjustment recorded net revenues first quarter 2007 firm perform analysis positions respect principal investments prospective transition adjustment may include positive changes investment valuations based available market evidence even thirdparty transactions capital structure underlying investee transition adjustment opening retained earnings material effect firm’s financial condition firm currently evaluating impact sfas 157 results operations first quarter 2007 sfas 158 september 2006 fasb issued sfas 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” sfas 158 requires entity recognize statement financial condition funded status defined benefit pension postretirement plans measured difference fair value plan assets benefit obligation sfas 158 also requires entity recognize changes funded status defined benefit pension postretirement plan within accumulated comprehensive income net tax extent changes recognized earnings components periodic net benefit cost sfas 158 effective end fiscal year ending december 15 2006 firm adopt sfas 158 end 2007 firm expect adoption sfas 158 material effect financial condition results operations cash flows goldman sachs group inc subsidiaries notes consolidated financial statements continued note 3 financial instruments fair value financial instruments following table sets forth firm’s financial instruments owned fair value including pledged collateral financial instruments sold yet purchased fair value 1 includes 693 billion 612 billion november 2006 november 2005 respectively money market instruments held william street funding corporation support william street credit extension program see note 6 information regarding william street program 2 net cash received pursuant credit support agreements 2406 billion 2261 billion november 2006 november 2005 respectively 3 net cash paid pursuant credit support agreements 1600 billion 1610 billion november 2006 november 2005 respectively 4 includes securities held firm’s bank insurance subsidiaries accounted “availableforsale” afs sfas 115 “accounting certain investments debt equity securities” following table sets forth types afs securities maturity profile goldman sachs group inc subsidiaries notes consolidated financial statements continued credit concentrations credit concentrations may arise trading investing financing activities may impacted changes economic industry political factors firm seeks mitigate credit risk actively monitoring exposures obtaining collateral deemed appropriate firm’s activities expose many different industries counterparties firm routinely executes high volume transactions counterparties financial services industry including brokers dealers commercial banks investment funds institutional clients resulting significant credit concentration respect industry ordinary course business firm may also subject concentration credit risk particular counterparty borrower issuer november 2006 november 2005 firm held us government federal agency obligations represented 6 7 firm’s total assets respectively addition firm’s financial instruments purchased agreements resell collateralized us government federal agency sovereign obligations november 2006 november 2005 firm credit exposure counterparty exceeded 5 firm’s total assets derivative activities derivative contracts instruments futures forwards swaps option contracts derive value underlying assets indices reference rates combination factors derivative instruments may privately negotiated contracts often referred otc derivatives may listed traded exchange derivatives may involve future commitments purchase sell financial instruments commodities exchange currency interest payment streams amounts exchanged based specific terms contract reference specified rates securities commodities currencies indices certain cash instruments mortgagebacked securities interestonly principalonly obligations indexed debt instruments considered derivatives even though values contractually required cash flows derived price security index however certain commodityrelated contracts included firm’s derivatives disclosure contracts may settled cash assets delivered contract readily convertible cash firm enters derivative transactions facilitate client transactions take proprietary positions means risk management risk exposures managed diversification controlling position sizes entering offsetting positions example firm may manage risk related portfolio common stock entering offsetting position related equityindex futures contract goldman sachs group inc subsidiaries notes consolidated financial statements continued firm applies hedge accounting sfas 133 certain derivative contracts firm uses derivatives manage certain interest rate currency exposures including firm’s net investment nonus operations firm designates certain interest rate swap contracts fair value hedges interest rate swap contracts hedge changes relevant benchmark interest rate eg london interbank offered rate libor effectively converting substantial portion firm’s unsecured longterm certain unsecured shortterm borrowings floating rate obligations addition firm applies cash flow hedge accounting limited number foreign currency forward contracts hedge currency exposure certain forecasted transactions consolidated power generation facilities see note 2 information regarding firm’s policy foreign currency forward contracts used hedge net investment nonus operations firm applies longhaul method substantially hedge accounting relationships perform ongoing assessment effectiveness relationships achieving offsetting changes fair value offsetting cash flows attributable risk hedged firm utilizes dollaroffset method compares change fair value hedging instrument change fair value hedged item excluding effect passage time prospectively retrospectively assess hedge effectiveness firm’s prospective dollaroffset assessment utilizes scenario analyses test hedge effectiveness via simulations numerous parallel slope shifts relevant yield curve parallel shifts change interest rate maturities identical amounts slope shifts change curvature yield curve prospective assessment response simulated yield curve shifts retrospective assessment hedging relationship deemed effective fair values hedging instrument hedged item change inversely within range 80 125 fair value hedges gains losses derivative transactions recognized “interest expense” consolidated statements earnings change fair value hedged item attributable risk hedged reported adjustment carrying value subsequently amortized interest expense remaining life cash flow hedges effective portion gains losses derivative transactions reported component “other comprehensive income” gains losses related hedge ineffectiveness hedges generally included “interest expense” gains losses component gains losses derivative transactions excluded assessment hedge effectiveness eg effect passage time fair value hedges firm’s borrowings material firm’s results operations years ended november 2006 november 2005 november 2004 gains losses derivatives used trading purposes included “trading principal investments” consolidated statements earnings goldman sachs group inc subsidiaries notes consolidated financial statements continued fair values firm’s derivative contracts reflected net cash paid received pursuant credit support agreements reported netbycounterparty basis firm’s consolidated statements financial condition management believes legal right setoff exists enforceable netting agreement fair value derivative financial instruments computed accordance firm’s netting policy set forth fair values derivatives accounted qualifying hedges sfas 133 consisted 266 billion 210 billion assets november 2006 november 2005 respectively 551 million 443 million liabilities november 2006 november 2005 respectively firm also embedded derivatives bifurcated related borrowings sfas 133 derivatives classified unsecured shortterm unsecured longterm borrowings carrying value 113 billion 607 million excluding debt host contract november 2006 november 2005 respectively see notes 4 5 information regarding firm’s unsecured borrowings securitization activities firm securitizes commercial residential mortgages home equity auto loans government corporate bonds types financial assets firm acts underwriter beneficial interests sold investors firm derecognizes financial assets transferred securitizations provided relinquished control assets transferred assets accounted fair value prior securitization net revenues related underwriting activities recognized connection sales underlying beneficial interests investors firm may retain interests securitized financial assets primarily form senior subordinated securities including residual interests retained interests accounted fair value included “total financial instruments owned fair value” consolidated statements financial condition years ended november 2006 november 2005 firm securitized 10392 billion 9200 billion respectively financial assets including 6773 billion 6518 billion respectively residential mortgage loans securities cash flows received retained interests approximately 801 million 908 million years ended november 2006 november 2005 respectively november 2006 november 2005 firm held 708 billion 607 billion retained interests respectively including 518 billion 562 billion respectively held qspes goldman sachs group inc subsidiaries notes consolidated financial statements continued following table sets forth weighted average key economic assumptions used measuring fair values firm’s retained interests sensitivity fair values immediate adverse changes 10 20 assumptions 1 beginning fourth quarter 2006 retained interests included sensitivity analysis previously analysis included retained interests valued using quoted market prices active markets also firm changed methodology quantifying sensitivity changes assumptions consider negative impacts bondbybond basis rather overall portfolio level applying anticipated credit losses prior year amounts adjusted conform current presentation 2 anticipated credit losses computed positions expected credit loss key assumption determination fair values 3 impacts adverse change take account credit mitigants incorporated retained interests including overcollateralization subordination provisions 4 includes retained interests bonds types financial assets subject prepayment risk preceding table give effect offsetting benefit financial instruments held mitigate risks inherent retained interests changes fair value based adverse variation assumptions generally cannot extrapolated relationship change assumptions change fair value usually linear addition impact change particular assumption calculated independently changes assumption practice simultaneous changes assumptions might magnify counteract sensitivities disclosed addition retained interests described firm also held interests residential mortgage qspes purchased connection secondary marketmaking activities purchased interests approximated 8 billion 5 billion november 2006 november 2005 respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued variable interest entities vies firm ordinary course business retains interests vies connection securitization activities firm also purchases sells variable interests vies primarily issue mortgagebacked assetbacked securities collateralized debt obligations cdos connection marketmaking activities makes investments loans vies hold performing nonperforming debt equity real estate powerrelated assets addition firm utilizes vies provide investors principalprotected notes creditlinked notes assetrepackaged notes designed meet objectives vies generally purchase assets issuing debt equity instruments certain instances firm provides guarantees vies holders variable interests vies cases maximum exposure loss included tables set forth notional amount guarantees amounts represent anticipated losses connection guarantees firm’s variable interests vies include senior subordinated debt loan commitments limited general partnership interests preferred common stock interest rate foreign currency equity commodity credit derivatives guarantees residual interests mortgagebacked assetbacked securitization vehicles cdos firm’s exposure obligations vies generally limited interests entities following tables set forth total assets nonconsolidated vies firm holds significant variable interests firm’s maximum exposure loss associated interests firm aggregated nonconsolidated vies based principal business activity reflected first column nature firm’s variable interests take different forms described columns maximum exposure loss goldman sachs group inc subsidiaries notes consolidated financial statements continued 1 derivatives related cdos consist total return swaps investmentgrade securities issued vies outofthemoney written put options investmentgrade collateral held vies derivatives related principalprotected notes consist outofthemoney written put options provide principal protection clients invested various fund products risk firm mitigated portfolio rebalancing derivatives related asset repackagings creditlinked notes consist interest rate swaps equity swaps commodity swaps purchased credit default protection firm creates structured notes designed specific needs investors derivative transactions included table expose firm majority vie’s expected losses expected residual returns consequently firm primary beneficiary vie certain cases firm primary beneficiary types transactions see table consolidated vies 2 firm obtains interests vies connection making proprietary investments real estate distressed loans types debt mezzanine instruments equities transactions included table expose firm majority vie’s expected losses expected residual returns consequently firm primary beneficiary vie certain cases firm primary beneficiary types transactions see table consolidated vies goldman sachs group inc subsidiaries notes consolidated financial statements continued following table sets forth firm’s total assets maximum exposure loss associated significant variable interests consolidated vies firm hold majority voting interest firm aggregated consolidated vies based principal business activity reflected first column 1 consolidated vie assets include assets financed nonrecourse basis collateralized transactions firm receives financial instruments collateral primarily connection resale agreements securities borrowed derivative transactions customer margin loans financial instruments may include obligations us government federal agencies sovereigns corporations well equities convertibles many cases firm permitted deliver repledge financial instruments connection entering repurchase agreements securities lending agreements secured financings collateralizing derivative transactions meeting firm customer settlement requirements november 2006 november 2005 fair value financial instruments received collateral firm permitted deliver repledge 74608 billion 62994 billion respectively firm delivered repledged 63987 billion 55076 billion respectively firm also pledges assets owns counterparties may right deliver repledge financial instruments owned pledged counterparties right deliver repledge reported “financial instruments owned pledged collateral fair value” consolidated statements financial condition 3600 billion 3898 billion november 2006 november 2005 respectively financial instruments owned pledged connection repurchase agreements securities lending agreements secured financings counterparties right sell repledge included “financial instruments owned fair value” consolidated statements financial condition 13431 billion 11627 billion november 2006 november 2005 respectively assets primarily real estate power generation facilities related assets goldman sachs group inc subsidiaries notes consolidated financial statements continued cash owned pledged connection secured financings counterparties right sell repledge 534 billion 504 billion november 2006 november 2005 respectively addition repurchase agreements securities lending agreements firm obtains secured funding use arrangements secured financings include arrangements nonrecourse subsidiary executed arrangement subsidiary guaranteeing arrangement obligated repay financing secured financings consist liabilities related firm’s william street program consolidated variable interest entities collateralized central bank financings transfers financial assets accounted financings rather sales primarily pledged bank loans mortgage whole loans consolidated power generation facilities structured financing arrangements secured financings set forth table 1 november 2006 consists us dollardenominated financings 1428 billion weighted average interest rate 522 nonus dollardenominated financings 1001 billion weighted average interest rate 200 november 2005 consists us dollardenominated financings 501 billion weighted average interest rate 416 nonus dollardenominated financings 296 billion weighted average interest rate 325 2 includes 330 billion hybrid financial instruments accounted fair value sfas 155 november 2006 3 includes secured financings maturing within one year financial statement date secured financings redeemable within one year financial statement date option holder 4 november 2006 consists us dollardenominated financings 1697 billion weighted average interest rate 561 nonus dollardenominated financings 916 billion weighted average interest rate 381 november 2005 consists us dollardenominated financings 965 billion weighted average interest rate 465 nonus dollardenominated financings 602 billion weighted average interest rate 308 5 secured longterm financings repayable prior maturity option firm reflected contractual maturity dates secured longterm financings redeemable prior maturity option holder reflected dates options become exercisable 6 includes 1979 billion 1429 billion nonrecourse financings november 2006 november 2005 respectively 7 november 2006 4722 billion financings collateralized financial instruments 320 billion assets primarily real estate power generation facilities related assets cash november 2005 2051 billion financings collateralized financial instruments 313 billion assets goldman sachs group inc subsidiaries notes consolidated financial statements continued note 4 unsecured shortterm borrowings firm obtains unsecured shortterm borrowings primarily issuance promissory notes commercial paper hybrid debt instruments november 2006 november 2005 borrowings 4790 billion 4725 billion respectively amounts include portion unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holder carrying value shortterm obligations approximates fair value due shortterm nature unsecured shortterm borrowings set forth 1 hybrid debt instruments financial instruments contain bifurcatable embedded derivatives 1022 billion accounted fair value sfas 155 november 2006 2 weighted average interest rates borrowings 513 401 november 2006 november 2005 respectively weighted average interest rates giving effect hedging activities 516 399 november 2006 november 2005 respectively weighted average interest rates november 2006 excluded hybrid debt instruments accounted fair value sfas 155 note 5 unsecured longterm borrowings firm obtains unsecured longterm borrowings consist principally senior borrowings maturities extending 2036 november 2006 november 2005 borrowings 12284 billion 8434 billion respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued unsecured longterm borrowings set forth 1 november 2006 november 2005 interest rates us dollar fixed rate obligations ranged 388 1200 november 2006 november 2005 interest rates nonus dollar fixed rate obligations ranged 031 888 067 888 respectively 2 floating interest rates generally based libor federal funds rate certain equitylinked indexed instruments included floating rate obligations 3 includes 725 billion hybrid financial instruments accounted fair value sfas 155 november 2006 unsecured longterm borrowings maturity date set forth 1 unsecured longterm borrowings maturing within one year financial statement date certain unsecured longterm borrowings redeemable within one year financial statement date option holder included unsecured shortterm borrowings consolidated statements financial condition 2 unsecured longterm borrowings repayable prior maturity option firm reflected contractual maturity dates unsecured longterm borrowings redeemable prior maturity option holder reflected dates options become exercisable firm enters derivative contracts interest rate futures contracts interest rate swap agreements currency swap agreements equitylinked indexed contracts effectively convert substantial portion unsecured longterm borrowings us dollarbased floating rate obligations accordingly carrying value unsecured longterm borrowings approximated fair value november 2006 november 2005 goldman sachs group inc subsidiaries notes consolidated financial statements continued effective weighted average interest rates unsecured longterm borrowings set forth 1 includes fixed rate obligations converted floating rate obligations derivative contracts subordinated borrowings unsecured longterm borrowings include 751 billion 299 billion subordinated borrowings november 2006 november 2005 respectively set forth subordinated notes november 2006 firm 467 billion subordinated notes outstanding maturities ranging 2007 2036 effective weighted average interest rate subordinated notes 624 giving effect derivative contracts used convert fixed rate obligations floating rate obligations november 2005 firm 150 million subordinated notes outstanding maturities ranging 2006 2019 effective weighted average interest rate 639 notes junior right payment firm’s senior indebtedness junior subordinated debentures firm issued 284 billion junior subordinated debentures first quarter 2004 goldman sachs capital trust delaware statutory trust created exclusive purposes issuing 275 billion guaranteed preferred beneficial interests 85 million common beneficial interests trust ii investing proceeds sale purchase junior subordinated debentures issued firm iii engaging activities necessary incidental purposes preferred beneficial interests purchased third parties november 2006 november 2005 firm held common beneficial interests trust wholly owned finance subsidiary firm regulatory legal purposes consolidated accounting purposes firm pays interest semiannually debentures annual rate 6345 debentures mature february 15 2034 coupon rate payment dates applicable beneficial interests interest rate payment dates applicable debentures firm right time defer payment interest debentures therefore cause payment trust’s preferred beneficial interests deferred case ten consecutive semiannual periods extension period firm permitted among things pay dividends make certain repurchases common stock trust permitted pay distributions common beneficial interests held firm unless dividends payable preferred beneficial interests paid full notes junior right payment firm’s senior indebtedness firm’s subordinated notes described see note 6 information regarding firm’s guarantee preferred beneficial interests issued trust goldman sachs group inc subsidiaries notes consolidated financial statements continued note 6 commitments contingencies guarantees commitments forward starting collateralized agreements financings firm forward starting resale agreements securities borrowing agreements 1829 billion 2083 billion november 2006 november 2005 respectively firm forward starting repurchase agreements securities lending agreements 1715 billion 2910 billion november 2006 november 2005 respectively commitments extend credit connection lending activities firm outstanding commitments extend credit 10048 billion 6112 billion november 2006 november 2005 respectively firm’s commitments extend credit agreements lend counterparties fixed termination dates contingent satisfaction conditions borrowing set forth contract since commitments may expire unused reduced cancelled counterparty’s request total commitment amount necessarily reflect actual future cash flow requirements firm accounts commitments fair value following table summarizes firm’s commitments extend credit november 2006 november 2005 commitments extend credit • william street program substantially commitments provided william street credit extension program investmentgrade corporate borrowers commitments program primarily extended william street commitment corporation commitment corp consolidated wholly owned subsidiary group inc whose assets liabilities legally separated assets liabilities firm lesser extent william street credit corporation another consolidated wholly owned subsidiary group inc majority commitments extended commitment corp supported funding raised william street funding corporation funding corp another consolidated wholly owned subsidiary group inc whose assets liabilities also legally separated assets liabilities firm assets commitment corp funding corp available respective shareholders claims respective creditors paid addition affiliate either commitment corp funding corp except limited cases expressly agreed writing responsible obligation either entity respect substantially william street commitments smfg provides firm credit loss protection generally limited 95 first loss firm realizes approved loan commitments maximum 100 billion addition subject satisfaction certain conditions upon firm’s request smfg provide protection 70 second loss goldman sachs group inc subsidiaries notes consolidated financial statements continued commitments maximum 113 billion firm also uses financial instruments mitigate credit risks related certain william street commitments covered smfg • commercial lending commitments addition commitments issued william street credit extension program firm extends credit commitments primarily connection contingent acquisition financing types corporate lending total commitment amount necessarily reflect actual future cash flow requirements firm often syndicates substantial portions commitments may expire unused commitments may cancelled reduced request counterparty addition commitments extended contingent acquisition financing often shortterm nature borrowers often replace funding sources • warehouse financing firm provides financing warehousing financial assets securitized primarily connection cdos mortgage securitizations financings expected repaid proceeds related securitizations firm may act underwriter arrangements secured warehoused assets primarily consisting mortgagebacked assetbacked securities residential commercial mortgages corporate debt instruments letters credit firm provides letters credit issued various banks counterparties lieu securities cash satisfy various collateral margin deposit requirements letters credit outstanding 573 billion 923 billion november 2006 november 2005 respectively merchant banking commitments firm acts investor merchant banking transactions includes making longterm investments equity debt instruments privately negotiated transactions corporate acquisitions real estate transactions connection activities firm commitments invest 636 billion 354 billion corporate real estate investment funds november 2006 november 2005 respectively constructionrelated commitments november 2006 november 2005 firm constructionrelated commitments 163 billion 579 million respectively including commitments 107 billion 481 million respectively related development wind energy projects constructionrelated commitments also include outstanding commitments 500 million 47 million november 2006 november 2005 respectively related firm’s new world headquarters new york city expected cost 23 billion 25 billion underwriting commitments november 2006 firm commitments purchase 262 billion securities connection underwriting activities november 2005 firm commitments firm purchase commitments 393 million 563 million november 2006 november 2005 respectively addition firm investment commitments 188 billion 81 million november 2006 november 2005 respectively leases firm contractual obligations longterm noncancelable lease agreements principally office space expiring various dates 2069 certain agreements subject periodic escalation provisions increases real estate taxes charges goldman sachs group inc subsidiaries notes consolidated financial statements continued future minimum rental payments net minimum sublease rentals rent charged operating expense last three years set forth contingencies firm involved number judicial regulatory arbitration proceedings concerning matters arising connection conduct businesses management believes based currently available information results proceedings aggregate material adverse effect firm’s financial condition may material firm’s operating results particular period depending part upon operating results period given inherent difficulty predicting outcome firm’s litigation regulatory matters particularly cases proceedings substantial indeterminate damages fines sought firm cannot estimate losses ranges losses cases proceedings reasonable possibility loss may incurred connection insurance business firm contingently liable provide guaranteed minimum death benefits certain contract holders total account balances contract holders firm provided guaranteed minimum death benefits 804 billion november 2006 weighted average attained age contract holders 70 years net amount risk representing guaranteed minimum death benefits excess contract holder account balances 127 billion november 2006 firm established reserve liability related guaranteed minimum death benefits see note 10 information firm’s insurance liabilities guarantees firm enters various derivative contracts meet definition guarantee fin 45 “guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others” derivative contracts include credit default total return swaps written equity commodity put options written currency contracts interest rate caps floors swaptions fin 45 require disclosures derivative contracts may cash settled firm basis conclude probable counterparties held inception underlying instruments related derivative contracts firm concluded conditions met certain large internationally active commercial investment bank end users certain users accordingly firm included contracts tables goldman sachs group inc subsidiaries notes consolidated financial statements continued firm capacity agency lender indemnifies securities lending customers losses incurred event borrowers return securities collateral held insufficient cover market value securities borrowed connection firm’s establishment trust group inc effectively provided full unconditional guarantee beneficial interests trust held third parties timely payment group inc interest junior subordinated debentures amounts due performance obligations transaction documents sufficient cover payments due trust beneficial interests result management believes unlikely firm make payments related trust required junior subordinated debentures connection certain expenses incurred trust ordinary course business firm provides financial guarantees obligations third parties eg standby letters credit guarantees enable clients complete transactions merchant banking fundrelated guarantees represent obligations make payments beneficiaries guaranteed party fails fulfill obligation contractual arrangement beneficiary following tables set forth certain information firm’s derivative contracts meet definition guarantee certain guarantees november 2006 november 2005 1 aggregate carrying value derivatives november 2006 asset 112 billion consisting contracts asset value 1106 billion contracts liability value 994 billion aggregate carrying value november 2005 liability 822 billion consisting contracts asset value 191 billion contracts liability value 1013 billion carrying value excludes effect legal right setoff may exist enforceable netting agreement 2 collateral held lenders connection securities lending indemnifications 1970 billion 1689 billion november 2006 november 2005 respectively 3 includes guarantee payments scheduled made life trust could shortened event firm redeems junior subordinated debentures issued fund trust see note 5 information regarding trust 4 carrying value guarantees liability 15 million 4 million november 2006 november 2005 respectively 5 amounts represent anticipated losses connection contracts goldman sachs group inc subsidiaries notes consolidated financial statements continued ordinary course business firm indemnifies guarantees certain service providers clearing custody agents trustees administrators specified potential losses connection acting agent providing services firm affiliates firm also indemnifies clients potential losses incurred event specified thirdparty service providers including subcustodians thirdparty brokers improperly execute transactions addition firm member payment clearing settlement networks well securities exchanges around world may require firm meet obligations networks exchanges event member defaults connection prime brokerage clearing businesses firm agrees clear settle behalf clients transactions entered brokerage firms firm’s obligations respect transactions secured assets client’s account well proceeds received transactions cleared settled firm behalf client connection joint venture investments firm may issue loan guarantees may liable event fraud misappropriation environmental liabilities certain matters involving borrower firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements liabilities related guarantees indemnifications recognized consolidated statements financial condition november 2006 november 2005 firm provides representations warranties counterparties connection variety commercial transactions occasionally indemnifies potential losses caused breach representations warranties firm may also provide indemnifications protecting changes adverse application certain us tax laws connection ordinarycourse transactions securities issuances borrowings derivatives addition firm may provide indemnifications counterparties protect event additional taxes owed payments withheld due either change adverse application certain nonus tax laws indemnifications generally standard contractual terms entered ordinary course business generally stated notional amounts included indemnifications contingencies triggering obligation indemnify expected occur firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements liabilities related arrangements recognized consolidated statements financial condition november 2006 november 2005 note 7 shareholders’ equity dividends declared per common share 130 2006 100 2005 100 2004 december 11 2006 board directors group inc board declared dividend 035 per common share paid february 22 2007 common shareholders record january 23 2007 2006 firm repurchased 502 million shares common stock total cost 782 billion 2005 firm repurchased 637 million shares common stock total cost 711 billion average price paid per share repurchased shares 15564 11157 years ended november 2006 november 2005 respectively addition satisfy minimum statutory employee tax withholding requirements related delivery common stock underlying restricted stock units firm cancelled 30 million restricted stock units total value 375 million 2006 canceled 16 million restricted stock units total value 163 million 2005 goldman sachs group inc subsidiaries notes consolidated financial statements continued 2006 firm issued 54000 shares perpetual floating rate noncumulative preferred stock series november 2006 firm 124000 shares perpetual noncumulative preferred stock outstanding four series set forth following table preferred stock series share preferred stock par value 001 liquidation preference 25000 represented 1000 depositary shares redeemable firm’s option redemption price equal 25000 plus declared unpaid dividends series preferred stock declared payable quarterly arrears firm’s ability declare pay dividends purchase redeem otherwise acquire common stock subject certain restrictions event firm fails pay set aside full dividends preferred stock latest completed dividend period preferred stock also preference firm’s common stock upon liquidation dividends declared per preferred share 143479 159306 146519 70910 series b series c series preferred stock respectively 2006 dividends declared per share series preferred stock 57872 2005 december 11 2006 board declared dividend per preferred share 39128 38750 39128 38617 series b series c series preferred stock respectively paid february 10 2007 preferred shareholders record january 26 2007 following table sets forth firm’s accumulated comprehensive income type 1 consists net unrealized gains 10 million availableforsale securities held firm’s bank insurance subsidiaries net unrealized gains 18 million availableforsale securities held investees accounted equity method goldman sachs group inc subsidiaries notes consolidated financial statements continued note 8 earnings per common share computations basic diluted earnings per common share set forth 1 diluted eps computations include antidilutive effect following options note 9 goodwill identifiable intangible assets goodwill following table sets forth carrying value firm’s goodwill operating segment included “other assets” consolidated statements financial condition 1 primarily related slk llc slk 2 primarily related ayco company lp ayco goldman sachs group inc subsidiaries notes consolidated financial statements continued identifiable intangible assets following table sets forth gross carrying amount accumulated amortization net carrying amount identifiable intangible assets 1 primarily includes firm’s clearance execution nasdaq customer lists related slk financial counseling customer lists related ayco 2 primarily relates abovemarket power contracts consolidated power generation facilities related cogentrix energy inc national energy gas transmission inc negt substantially power contracts pledged counterparties connection firm’s secured financings weighted average remaining life power contracts approximately 11 years increase carrying value power contracts 2006 due restructuring certain contracts resulted consolidation associated power generation facilities previously accounted equity method 3 consists voba dac voba represents present value estimated future gross profits variable annuity variable life insurance business acquired 2006 dac results commissions paid firm primary insurer ceding company life annuity reinsurance agreements compensation place business firm cover ceding company’s acquisition expenses voba dac amortized estimated life underlying contracts based estimated gross profits amortization adjusted based actual experience weighted average remaining amortization period voba dac seven years end 2006 4 primarily includes technologyrelated assets related slk goldman sachs group inc subsidiaries notes consolidated financial statements continued substantially firm’s identifiable intangible assets considered finite lives amortized estimated useful lives weighted average remaining life firm’s identifiable intangibles approximately 12 years amortization expense associated identifiable intangible assets 246 million 165 million 125 million years ended november 2006 november 2005 november 2004 respectively amortization expense associated firm’s consolidated power generation facilities reported within “cost power generation” consolidated statements earnings estimated future amortization existing identifiable intangible assets 2011 set forth note 10 assets liabilities assets generally less liquid nonfinancial assets following table sets forth firm’s assets type 1 see note 9 information regarding firm’s goodwill identifiable intangible assets 2 net accumulated depreciation amortization 506 billion 462 billion november 2006 november 2005 respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued liabilities accrued expenses primarily includes insurancerelated liabilities compensation benefits minority interest consolidated entities litigation regulatory liabilities taxrelated payables deferred revenue payables following table sets forth firm’s liabilities accrued expenses type 1 insurancerelated liabilities set forth table separate account liabilities offset separate account assets representing segregated contract holder funds variable annuity variable life insurance contracts separate account assets included “cash securities segregated regulatory purposes” consolidated statements financial condition liabilities future benefits unpaid claims include liabilities arising reinsurance provided firm insurers firm receivable 133 billion related reinsurance contracts reported “receivables customers counterparties” consolidated statements financial condition addition firm ceded risks reinsurers related certain liabilities future benefits unpaid claims receivable 786 million related reinsurance contracts reported “receivables customers counterparties” consolidated statements financial condition contracts cede risks reinsurers relieve firm obligations contract holders reserves guaranteed minimum death income benefits represent liability expected value guaranteed benefits excess projected annuity account balances reserves computed accordance aicpa statement position 031 “accounting reporting insurance enterprises certain nontraditional longduration contracts separate accounts” based total payments expected made less total fees expected assessed life contract 2 includes 331 billion 204 billion related consolidated merchant banking funds november 2006 november 2005 respectively note 11 employee benefit plans firm sponsors various pension plans certain postretirement benefit plans primarily healthcare life insurance firm also provides certain benefits former inactive employees prior retirement goldman sachs group inc subsidiaries notes consolidated financial statements continued defined benefit pension plans postretirement plans employees certain nonus subsidiaries participate various defined benefit pension plans generally provide benefits based years credited service percentage employee’s eligible compensation firm also maintains defined benefit pension plan substantially us employees hired prior november 1 2003 november 2004 plan closed new participants benefits accrued existing participants addition firm unfunded postretirement benefit plans provide medical life insurance eligible retirees dependents covered programs following table provides summary changes plans’ benefit obligations fair value assets november 2006 november 2005 statement funded status plans november 2006 november 2005 accumulated benefit obligation defined benefit pension plans 944 million 795 million november 2006 november 2005 respectively plans accumulated benefit obligation exceeded plan assets aggregate projected benefit obligation accumulated benefit obligation 771 million 647 million respectively november 2006 135 million 126 million respectively november 2005 fair value plan assets plans 583 million 64 million november 2006 november 2005 respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued components pension expenseincome postretirement expense set forth 1 represents benefit result termination japanese pension plan weighted average assumptions used develop actuarial present value projected benefit obligation net periodic pension cost set forth assumptions represent weighted average assumptions used us nonus plans based economic environment applicable country goldman sachs group inc subsidiaries notes consolidated financial statements continued generally firm determined discount rates defined benefit plans referencing indices longterm highquality bonds ensuring discount rate exceed yield reported indices adjustment duration plans’ liabilities firm’s approach determining longterm rate return plan assets based upon historical financial market relationships existed time presumption trend generally remain constant future measurement purposes annual growth rate per capita cost covered healthcare benefits 1074 assumed year ending november 2007 rate assumed decrease ratably 500 year ending november 2015 remain level thereafter assumed cost healthcare effect amounts reported firm’s postretirement plans 1 change assumed healthcare cost trend rate would following effects following table sets forth composition plan assets us nonus defined benefit pension plans asset category investment approach firm’s us major nonus defined benefit pension plans involves employing sufficient level flexibility capture investment opportunities occur maintaining reasonable parameters ensure prudence care exercised execution investment programs plans employ total return investment approach whereby mix broadly similar actual asset allocation november 2006 equity securities debt securities assets targeted maximize longterm return assets given level risk investment risk measured monitored ongoing basis firm’s retirement committee periodic portfolio reviews meetings investment managers annual liability measurements firm contribute minimum 30 million pension plans 9 million postretirement plans 2007 goldman sachs group inc subsidiaries notes consolidated financial statements continued following table sets forth benefits projected paid firm’s us nonus defined benefit pension postretirement plans net medicare subsidy receipts reflects expected future service appropriate defined contribution plans firm contributes employersponsored us nonus defined contribution plans firm’s contribution plans 230 million 305 million 189 million years ended november 2006 november 2005 november 2004 respectively note 12 employee incentive plans stock incentive plan firm sponsors stock incentive plan goldman sachs amended restated stock incentive plan amended sip provides grants incentive stock options nonqualified stock options stock appreciation rights dividend equivalent rights restricted stock restricted stock units sharebased awards second quarter 2003 amended sip approved firm’s shareholders effective grants april 1 2003 awards made original plan date although awards granted original plan prior date remain outstanding total number shares common stock may issued amended sip 2008 may exceed 250 million shares year thereafter may exceed 5 issued outstanding shares common stock determined last day immediately preceding year increased number shares available awards previous years covered awards granted years november 2006 november 2005 1800 million 1966 million shares respectively available grant amended sip taking account stockbased compensation awards issued subsequent year end part yearend compensation arrangements november 2004 firm adopted new deferred compensation plans eligible employees general plans participants able defer payment portion cash yearend compensation deferral period participants able nominally invest deferrals certain alternatives available plans generally current tax law participants subject income tax amounts deferred notional investment earnings returns distributed firm entitled corresponding tax deduction amounts distributed firm recognized compensation expense amounts deferred plans november 2006 november 2005 245 million 134 million respectively related plans included “other liabilities accrued expenses” consolidated statements financial condition goldman sachs group inc subsidiaries notes consolidated financial statements continued november 2004 firm adopted discount stock program eligible senior executives may acquire restricted stock units 2006 2005 firm’s amended sip effective 25 discount 25 discount effected additional grant restricted stock units equal onethird number restricted stock units purchased qualifying participants purchased restricted stock units 100 vested granted shares underlying able sold transferred satisfy tax obligations third anniversary grant date shares underlying restricted stock units granted order effect 25 discount generally vest equal installments second third anniversaries following grant date transferable third anniversary grant date compensation expense related restricted stock units recognized vesting period total value restricted stock units granted 2006 2005 order effect 25 discount 72 million 79 million respectively restricted stock units firm issued restricted stock units employees amended sip primarily connection yearend compensation acquisitions yearend restricted stock units generally vest outlined applicable restricted stock unit agreements deliver shortly third anniversary grant date employee restricted stock unit agreements provide vesting accelerated certain circumstances upon retirement death extended absence total restricted stock units outstanding november 2006 november 2005 264 million units 301 million units respectively required future service condition delivery underlying shares common stock ii 389 million units 250 million units respectively require future service cases delivery underlying shares common stock conditioned grantees satisfying certain vesting requirements outlined award agreements delivering underlying shares employees firm generally issues new shares common stock opposed reissuing treasury shares activity related restricted stock units set forth 1 includes restricted stock units granted employees year ended november 2006 part compensation 2005 2 includes restricted stock units granted employees subsequent november 2006 part compensation 2006 3 weighted average grantdate fair value restricted stock units granted years ended november 2006 november 2005 november 2004 19699 12903 10415 respectively 4 aggregate fair value awards vested years ended november 2006 november 2005 november 2004 440 billion 205 billion 164 billion respectively 5 includes restricted stock units cash settled goldman sachs group inc subsidiaries notes consolidated financial statements continued stock options stock options granted employees generally vest outlined applicable stock option agreement first become exercisable third anniversary grant date yearend stock options 2006 2005 become exercisable january 2010 january 2009 respectively expire november 25 2016 november 27 2015 respectively shares received exercise prior january 2011 yearend 2006 options january 2010 yearend 2005 options sold transferred otherwise disposed january 2011 january 2010 respectively employee stock option agreements provide vesting accelerated certain circumstances upon retirement death extended absence general stock options expire tenth anniversary grant date although may subject earlier termination cancellation certain circumstances accordance terms amended sip applicable stock option agreement dilutive effect firm’s outstanding stock options included “average common shares outstanding diluted” consolidated statements earnings activity related stock options set forth 1 includes stock options granted employees year ended november 2006 part compensation 2005 2 includes stock options granted employees subsequent november 2006 part compensation 2006 3 includes stock options cash settled total intrinsic value options exercised years ended november 2006 november 2005 november 2004 152 billion 766 million 363 million respectively options outstanding november 2006 set forth goldman sachs group inc subsidiaries notes consolidated financial statements continued weighted average fair value options granted 2006 2005 2004 4996 per option 3291 per option 3222 per option respectively fair value estimated grant date based blackscholes optionpricing model using following weighted average assumptions fair value options granted 2006 2005 reflects additional discount sales restrictions shares common stock underlying options apply january 2011 january 2010 respectively expected life options granted 2006 2005 extended 75 years reflect estimated impact sales restrictions expected life awards following table sets forth sharebased compensation related tax benefit 1 represents tax benefit recognized additional paidin capital stock options exercised delivery common stock underlying restricted stock units november 2006 251 billion total unrecognized compensation cost related nonvested sharebased compensation arrangements cost expected recognized weighted average period 215 years firm’s stock repurchase program intended maintain total shareholders’ equity appropriate levels substantially offset increases share count time resulting employee sharebased compensation repurchase program effected primarily regular openmarket purchases influenced among factors level firm’s common shareholders’ equity overall capital position sharebased awards exercises employee stock options prevailing market price common stock general market conditions note 13 transactions affiliated funds firm formed numerous nonconsolidated investment funds thirdparty investors firm generally acts investment manager funds entitled receive management fees certain cases advisory fees incentive fees overrides funds fees amounted 337 billion 208 billion 172 billion years ended november 2006 november 2005 november 2004 respectively november 2006 november 2005 fees receivable funds 362 million 388 million respectively additionally firm may invest alongside thirdparty investors certain funds aggregate carrying value firm’s interests funds 394 billion 217 billion november 2006 november 2005 respectively ordinary course business firm goldman sachs group inc subsidiaries notes consolidated financial statements continued may also engage activities funds including among others securities lending trade execution trading custody see note 6 firm’s commitments related funds note 14 income taxes components net tax expense reflected consolidated statements earnings set forth deferred income taxes reflect net tax effects temporary differences financial reporting tax bases assets liabilities temporary differences result taxable deductible amounts future years measured using tax rates laws effect differences expected reverse significant components firm’s deferred tax assets liabilities set forth 1 relates primarily ability utilize losses various tax jurisdictions firm permanently reinvests eligible earnings certain foreign subsidiaries accordingly accrue us income taxes would arise earnings repatriated goldman sachs group inc subsidiaries notes consolidated financial statements continued november 2006 policy resulted unrecognized net deferred tax liability 210 million attributable reinvested earnings 290 billion 2006 valuation allowance increased 75 million primarily due acquisition deferred tax assets considered likely expire unused net operating loss carryforwards 178 billion 352 million november 2006 november 2005 respectively firm federal net operating loss carryforwards primarily resulting acquisitions 203 million 24 million november 2006 november 2005 respectively firm recorded related net deferred income tax asset 69 million 8 million november 2006 november 2005 respectively carryforwards subject annual limitations utilization begin expire 2010 acquired alternative minimum tax credit carryforwards 7 million november 2005 fully utilized 2006 firm state local net operating loss carryforwards primarily resulting acquisitions 152 billion 328 million november 2006 november 2005 respectively firm recorded related net deferred income tax asset 31 million 24 million november 2006 november 2005 respectively carryforwards subject annual limitations utilization begin expire 2007 firm foreign net operating loss carryforwards 50 million november 2006 recorded related net deferred income tax asset 13 million carryforwards subject limitation utilization carried forward indefinitely firm subject examination us internal revenue service irs taxing authorities certain countries japan united kingdom korea us states firm significant business operations new york irs currently examining firm’s 2003 2004 fiscal years fiscal 2006 japanese taxing authority concluded examination tax years 2000 2004 fiscal 2005 irs concluded examination fiscal years 1999 2002 new york state city substantially concluded examinations covering periods fiscal year 2003 firm regularly assesses likelihood additional assessments jurisdiction firm pays taxes resulting impact current future examinations tax reserves established firm believes adequate relation potential additional assessments resolution tax matters expected material effect firm’s financial condition may material firm’s operating results particular period depending part upon operating results period firm’s effective tax rate period reconciliation us federal statutory income tax rate firm’s effective income tax rate set forth 1 primarily includes effect audit settlements goldman sachs group inc subsidiaries notes consolidated financial statements continued tax benefits approximately 653 million november 2006 272 million november 2005 330 million november 2004 related delivery common stock underlying restricted stock units exercise options credited directly “additional paidin capital” consolidated statements financial condition changes shareholders’ equity note 15 regulation firm regulated us securities exchange commission sec consolidated supervised entity cse subject groupwide supervision examination sec minimum capital requirements consolidated basis november 2006 november 2005 firm compliance cse capital requirements firm’s principal us regulated subsidiaries include goldman sachs co gsco goldman sachs execution clearing lp gsec gsco gsec registered us brokerdealers futures commission merchants subject rule 15c31 sec rule 117 commodity futures trading commission specify uniform minimum net capital requirements defined registrants also require significant part registrants’ assets kept relatively liquid form gsco gsec elected compute minimum capital requirements accordance “alternative net capital requirement” permitted rule 15c31 november 2006 november 2005 gsco gsec net capital excess minimum capital requirements addition alternative minimum net capital requirements gsco also required hold tentative net capital excess 1 billion net capital excess 500 million accordance market credit risk standards appendix e rule 15c31 gsco also required notify sec event tentative net capital less 5 billion november 2006 november 2005 gsco tentative net capital net capital excess minimum notification requirements goldman sachs bank usa gs bank wholly owned industrial bank regulated federal deposit insurance corporation state utah department financial institutions subject minimum capital requirements november 2006 gs bank compliance regulatory capital requirements gs bank approximately 1059 billion interestbearing deposits november 2006 included “payables customers counterparties” consolidated statements financial condition firm us insurance subsidiaries subject state insurance regulation states domiciled states licensed addition certain firm’s insurance subsidiaries regulated bermuda registrar companies firm’s insurance subsidiaries compliance regulatory capital requirements november 2006 november 2005 firm’s principal nonus regulated subsidiaries include goldman sachs international gsi goldman sachs japan co ltd gsjcl gsi firm’s regulated uk brokerdealer subject capital requirements uk’s financial services authority gsjcl firm’s regulated japanese brokerdealer subject capital requirements japan’s financial services agency prior october 1 2006 goldman sachs japan ltd gsjl predecessor gsjcl primary regulated subsidiary based japan november 2006 november 2005 gsi gsjcl gsjl compliance local capital adequacy requirements certain nonus subsidiaries firm also subject capital adequacy requirements promulgated authorities countries operate november 2006 november 2005 subsidiaries compliance local capital adequacy requirements goldman sachs group inc subsidiaries notes consolidated financial statements continued regulatory requirements referred restrict group inc’s ability withdraw capital regulated subsidiaries november 2006 approximately 1415 billion net assets regulated subsidiaries restricted payment dividends group inc note 16 business segments reporting management firm’s operating results categorized following three segments investment banking trading principal investments asset management securities services basis presentation reporting segments certain firm’s business lines aggregated similar economic characteristics similar following areas nature services provide ii methods distribution iii types clients serve iv regulatory environments operate cost drivers firm taken whole compensation headcount levels business activity broadly similar firm’s business segments compensation benefits expenses within firm’s segments reflect among factors overall performance firm well performance individual business units consequently pretax margins one segment firm’s business may significantly affected performance firm’s business segments firm allocates revenues expenses among three segments due integrated nature business segments estimates judgments made allocating certain revenue expense items transactions segments based specific criteria approximate thirdparty rates total operating expenses include corporate items allocated individual business segments allocation process based manner management views business firm segment information presented table prepared according following methodologies • revenues expenses directly associated segment included determining pretax earnings • net revenues firm’s segments include allocations interest income interest expense specific securities commodities positions relation cash generated funding requirements underlying positions net interest included within segment net revenues consistent way management assesses segment performance • overhead expenses directly allocable specific segments allocated ratably based direct segment expenses goldman sachs group inc subsidiaries notes consolidated financial statements continued segment operating results management believes following information provides reasonable representation segment’s contribution consolidated pretax earnings total assets 1 beginning fourth quarter 2006 “cost power generation” consolidated statements earnings reclassified operating expenses “cost power generation” previously reported reduction revenues prior periods reclassified conform current presentation impact firm’s reported pretax earnings 2 net revenues include net interest set forth table 3 includes following expenses allocated firm’s segments net provisions number litigation regulatory proceedings 45 million 37 million 103 million years ended november 2006 november 2005 november 2004 respectively ii 62 million connection establishment firm’s joint venture china year ended november 2004 iii amortization employee initial public offering awards net forfeitures 19 million year ended november 2004 goldman sachs group inc subsidiaries notes consolidated financial statements continued 4 pretax earnings include total depreciation amortization set forth table 5 includes deferred tax assets relating firm’s conversion corporate form certain assets management believes allocable particular segment year ended november 2004 geographic information due highly integrated nature international financial markets firm manages businesses based profitability enterprise whole accordingly management believes profitability geographic region necessarily meaningful addition significant portion firm’s activities require crossborder coordination order facilitate needs firm’s clients methodology allocating firm’s profitability geographic regions dependent judgment management 2006 firm amended methodology allocating profitability geographic region prior periods reclassified conform current presentation geographic results generally allocated follows • investment banking location client investment banking team • fixed income currency commodities equities location trading desk • principal investments location investment • asset management location sales team • securities services location primary market underlying security following table sets forth total net revenues pretax earnings firm consolidated subsidiaries geographic region allocated methodology described 1 substantially relates us results 2 emea europe middle east africa 3 includes following expenses allocated firm’s segments net provisions number litigation regulatory proceedings 45 million 37 million 103 million years ended november 2006 november 2005 november 2004 respectively ii 62 million connection establishment firm’s joint venture china year ended november 2004 iii amortization employee initial public offering awards net forfeitures 19 million year ended november 2004 supplemental financial information quarterly results unaudited following represents firm’s unaudited quarterly results 2006 2005 quarterly results prepared accordance generally accepted accounting principles reflect adjustments opinion management necessary fair statement results adjustments normal recurring nature 1 beginning fourth quarter 2006 “cost power generation” consolidated statements earnings reclassified operating expenses “cost power generation” previously reported reduction revenues prior periods reclassified conform current presentation impact firm’s reported net earnings 2 timing magnitude changes firm’s bonus accruals significant effect results given quarter supplemental financial information common stock price range following table sets forth quarters indicated high low sales prices per share firm’s common stock reported consolidated tape association january 26 2007 6804 holders record firm’s common stock january 26 2007 last reported sales price firm’s common stock new york stock exchange 21350 per share supplemental financial information selected financial data 1 beginning fourth quarter 2006 “cost power generation” consolidated statements earnings reclassified operating expenses “cost power generation” previously reported reduction revenues prior periods reclassified conform current presentation impact firm’s reported pretax earnings 2 book value per common share based common shares outstanding including restricted stock units granted employees future service requirements 4501 million 4604 million 4940 million 4961 million 4912 million november 2006 november 2005 november 2004 november 2003 november 2002 respectively 3 beginning 2006 includes employees firm’s consolidated property management loan servicing subsidiaries prior periods adjusted conform current presentation 4 substantially assets management valued calendar monthend 5 first quarter 2006 firm changed methodology classifying certain nonmoney market assets changes made primarily reclassify certain assets allocated external investment managers alternative investment assets reclassify currency funds alternative investment assets changes impact total assets management prior periods reclassified conform current presentation 6 primarily includes hedge funds private equity real estate currencies commodities asset allocation strategies item 9item 8 financial statements supplementary data index management’s report internal control financial reporting management goldman sachs group inc together consolidated subsidiaries firm responsible establishing maintaining adequate internal control financial reporting firm’s internal control financial reporting process designed supervision firm’s principal executive principal financial officers provide reasonable assurance regarding reliability financial reporting preparation firm’s financial statements external reporting purposes accordance us generally accepted accounting principles end firm’s 2009 fiscal year management conducted assessment firm’s internal control financial reporting based framework established internal control integrated framework issued committee sponsoring organizations treadway commission coso based assessment management determined firm’s internal control financial reporting december 31 2009 effective internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets provide reasonable assurances transactions recorded necessary permit preparation financial statements accordance us generally accepted accounting principles receipts expenditures made accordance authorizations management directors firm provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition firm’s assets could material effect financial statements firm’s internal control financial reporting december 31 2009 audited pricewaterhousecoopers llp independent registered public accounting firm stated report appearing page 124 expresses unqualified opinion effectiveness firm’s internal control financial reporting december 31 2009 report independent registered public accounting firm board directors shareholders goldman sachs group inc opinion consolidated financial statements listed accompanying index present fairly material respects financial position goldman sachs group inc subsidiaries company december 31 2009 november 28 2008 results operations cash flows fiscal years ended december 31 2009 november 28 2008 november 30 2007 onemonth period ended december 26 2008 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2009 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing page 123 responsibility express opinions financial statements company’s internal control financial reporting based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp new york new york february 26 2010 goldman sachs group inc subsidiaries consolidated statements earnings see page 130 consolidated financial statements one month ended december 2008 accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements financial condition accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements changes shareholders’ equity 1 connection becoming bank holding company firm required change fiscal yearend november december beginning year ended december 2009 december 27 2008 2 relates primarily repurchases common stock brokerdealer subsidiary facilitate customer transactions ordinary course business shares withheld satisfy withholding tax requirements accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements cash flows supplemental disclosures cash payments interest net capitalized interest 732 billion 3237 billion 4074 billion years ended december 2009 november 2008 november 2007 respectively cash payments income taxes net refunds 478 billion 347 billion 578 billion years ended december 2009 november 2008 november 2007 respectively noncash activities firm assumed 16 million 790 million 409 million debt connection business acquisitions years ended december 2009 november 2008 november 2007 respectively see page 130 consolidated financial statements one month ended december 2008 accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements comprehensive income see page 130 consolidated financial statements one month ended december 2008 accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated financial statements one month ended december 2008 consolidated statement earnings consolidated statement comprehensive loss consolidated statement cash flows supplemental disclosures cash payments interest net capitalized interest 459 million one month ended december 2008 cash payments income taxes net refunds 171 million one month ended december 2008 accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries notes consolidated financial statements note 1 description business goldman sachs group inc group inc delaware corporation together consolidated subsidiaries collectively firm leading global investment banking securities investment management firm provides wide range financial services substantial diversified client base includes corporations financial institutions governments highnetworth individuals founded 1869 firm headquartered new york maintains offices london frankfurt tokyo hong kong major financial centers around world firm’s activities divided three segments • investment banking firm provides broad range investment banking services diverse group corporations financial institutions investment funds governments individuals • trading principal investments firm facilitates client transactions diverse group corporations financial institutions investment funds governments individuals market making trading investing fixed income equity products currencies commodities derivatives products firm also takes proprietary positions certain products addition firm engages marketmaking activities equities options exchanges firm clears client transactions major stock options futures exchanges worldwide connection firm’s merchant banking investing activities firm makes principal investments directly funds firm raises manages • asset management securities services firm provides investment wealth advisory services offers investment products primarily separately managed accounts commingled vehicles mutual funds private investment funds across major asset classes diverse group institutions individuals worldwide provides prime brokerage services financing services securities lending services institutional clients including hedge funds mutual funds pension funds foundations highnetworth individuals worldwide note 2 significant accounting policies basis presentation consolidated financial statements include accounts group inc entities firm controlling financial interest material intercompany transactions balances eliminated firm determines whether controlling financial interest entity first evaluating whether entity voting interest entity variable interest entity vie qualifying specialpurpose entity qspe generally accepted accounting principles gaap • voting interest entities voting interest entities total equity investment risk sufficient enable entity finance activities independently ii equity holders obligation absorb losses right receive residual returns right make decisions entity’s activities usual condition controlling financial interest voting interest entity ownership majority voting interest accordingly firm consolidates voting interest entities majority voting interest goldman sachs group inc subsidiaries notes consolidated financial statements continued • variable interest entities vies entities lack one characteristics voting interest entity controlling financial interest vie present enterprise variable interest combination variable interests absorb majority vie’s expected losses receive majority vie’s expected residual returns enterprise controlling financial interest known primary beneficiary consolidates vie firm determines whether primary beneficiary vie first performing qualitative analysis vie’s expected losses expected residual returns analysis includes review among factors vie’s capital structure contractual terms interests create absorb variability related party relationships design vie qualitative analysis conclusive firm performs quantitative analysis purposes allocating vie’s expected losses expected residual returns variable interest holders firm utilizes “top down” method firm calculates share vie’s expected losses expected residual returns using specific cash flows would allocated based contractual arrangements andor firm’s position capital structure vie various probabilityweighted scenarios firm reassesses initial evaluation entity vie initial determination whether firm primary beneficiary vie upon occurrence certain reconsideration events see “ recent accounting developments” information regarding amendments accounting vies • qspes passive entities commonly used mortgage securitization transactions considered qspe entity must satisfy certain criteria include types assets qspe may hold limits asset sales use derivatives financial guarantees level discretion servicer may exercise attempting collect receivables criteria may require management make judgments complex matters whether derivative considered passive level discretion servicer may exercise including example determining default reasonably foreseeable firm consolidate qspes see “ recent accounting developments” information regarding amendments accounting qspes • equitymethod investments firm controlling financial interest entity exerts significant influence entity’s operating financial policies generally defined owning voting interest 20 50 investment common stock insubstance common stock firm accounts investment either equity method accounting fair value pursuant fair value option available financial accounting standards board fasb accounting standards codification asc 82510 general firm accounts investments acquired subsequent november 24 2006 fair value option became available fair value certain cases firm applies equity method accounting new investments strategic nature closely related firm’s principal business activities firm significant degree involvement cash flows operations investee costbenefit considerations less significant see “ revenue recognition financial assets financial liabilities fair value” discussion firm’s application fair value option • firm consolidate entity apply equity method accounting firm accounts investment fair value firm also formed numerous nonconsolidated investment funds thirdparty investors typically organized limited partnerships firm acts general partner funds generally hold majority economic interests funds firm generally provided thirdparty investors rights terminate funds remove firm general partner result firm consolidate funds fund investments included “trading assets fair value” consolidated statements financial condition goldman sachs group inc subsidiaries notes consolidated financial statements continued connection becoming bank holding company firm required change fiscal yearend november december change firm’s fiscal yearend resulted onemonth transition period began november 29 2008 ended december 26 2008 april 2009 board directors group inc board approved change firm’s fiscal yearend last friday december 31 fiscal 2009 began december 27 2008 ended december 31 2009 references 2009 2008 2007 unless specifically stated otherwise refer firm’s fiscal years ended dates context requires december 31 2009 november 28 2008 november 30 2007 respectively reference future year refers fiscal year ending december 31 year references december 2008 unless specifically stated otherwise refer firm’s fiscal one month ended date context requires december 26 2008 certain reclassifications made previously reported amounts conform current presentation use estimates consolidated financial statements prepared accordance generally accepted accounting principles require management make certain estimates assumptions important estimates assumptions relate fair value measurements accounting goodwill identifiable intangible assets provision potential losses may arise litigation regulatory proceedings tax audits although estimates assumptions based best available information actual results could materially different estimates revenue recognition investment banking underwriting revenues fees mergers acquisitions financial advisory assignments recognized consolidated statements earnings services related underlying transaction completed terms engagement expenses associated transactions deferred related revenue recognized engagement otherwise concluded underwriting revenues presented net related expenses associated financial advisory transactions recorded noncompensation expenses net client reimbursements trading assets trading liabilities substantially trading assets trading liabilities reflected consolidated statements financial condition fair value related gains losses generally recognized “trading principal investments” consolidated statements earnings financial assets financial liabilities fair value addition trading assets fair value trading liabilities fair value firm elected account certain financial assets financial liabilities fair value asc 81515 82510 ie fair value option primary reasons electing fair value option reflect economic events earnings timely basis mitigate volatility earnings using different measurement attributes address simplification costbenefit considerations financial assets financial liabilities accounted fair value include • certain unsecured shortterm borrowings consisting promissory notes commercial paper certain hybrid financial instruments goldman sachs group inc subsidiaries notes consolidated financial statements continued • certain secured financings primarily transfers accounted financings rather sales debt raised firm’s william street credit extension program certain nonrecourse financings • certain unsecured longterm borrowings including prepaid physical commodity transactions certain hybrid financial instruments • resale repurchase agreements • securities borrowed loaned within trading principal investments consisting firm’s matched book certain firm financing activities • certain deposits issued firm’s bank subsidiaries well securities held goldman sachs bank usa gs bank usa • certain receivables customers counterparties including certain margin loans transfers accounted secured loans rather purchases prepaid variable share forwards • certain insurance reinsurance contracts certain guarantees • general investments acquired november 24 2006 fair value option became available firm significant influence investee would otherwise apply equity method accounting fair value measurements fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date ie exit price financial assets marked bid prices financial liabilities marked offer prices fair value measurements include transaction costs fair value hierarchy asc 820 prioritizes inputs valuation techniques used measure fair value hierarchy gives highest priority unadjusted quoted prices active markets identical assets liabilities level 1 measurements lowest priority unobservable inputs level 3 measurements three levels fair value hierarchy described basis fair value measurement level 1 unadjusted quoted prices active markets accessible measurement date identical unrestricted assets liabilities level 2 quoted prices markets considered active financial instruments significant inputs observable either directly indirectly level 3 prices valuations require inputs significant fair value measurement unobservable financial instrument’s level within fair value hierarchy based lowest level input significant fair value measurement firm defines active markets equity instruments based average daily trading volume absolute terms relative market capitalization instrument firm defines active markets debt instruments based average daily trading volume number days trading activity goldman sachs group inc subsidiaries notes consolidated financial statements continued credit risk essential component fair value cash products eg bonds loans derivative instruments particularly significant future projected cash flows trade market levels reflect credit considerations firm calculates fair value derivative assets discounting future cash flows rate incorporates counterparty credit spreads fair value derivative liabilities discounting future cash flows rate incorporates firm’s credit spreads credit exposures adjusted reflect mitigants namely collateral agreements reduce exposures based triggers contractual posting requirements firm manages exposure credit risk market risks price economically hedge facilitate intermediate trades involve credit risk firm records liquidity valuation adjustments reflect cost exiting concentrated risk positions including exposure firm’s credit spreads determining fair value firm separates trading assets fair value trading liabilities fair value two categories cash instruments derivative contracts • cash instruments firm’s cash instruments generally classified within level 1 level 2 fair value hierarchy valued using quoted market prices broker dealer quotations alternative pricing sources reasonable levels price transparency types instruments valued based quoted market prices active markets include government obligations active listed equities certain money market securities instruments generally classified within level 1 fair value hierarchy instruments classified within level 1 fair value hierarchy required carried quoted market prices even situations firm holds large position sale could reasonably impact quoted price types instruments trade markets considered active valued based quoted market prices broker dealer quotations alternative pricing sources reasonable levels price transparency include government agency securities corporate bonds certain mortgage products certain bank loans bridge loans less liquid listed equities certain state municipal provincial obligations certain money market securities loan commitments instruments generally classified within level 2 fair value hierarchy certain cash instruments classified within level 3 fair value hierarchy trade infrequently therefore little price transparency instruments include private equity investments real estate fund investments certain bank loans bridge loans including certain mezzanine financing leveraged loans arising capital market transactions corporate bank debt less liquid corporate debt securities debt obligations including less liquid corporate bonds distressed debt instruments collateralized debt obligations cdos backed corporate obligations less liquid mortgage whole loans securities backed either commercial residential real estate acquired portfolios distressed loans transaction price initially used best estimate fair value accordingly pricing model used value instrument model adjusted model value inception equals transaction price valuation adjusted changes inputs assumptions corroborated evidence transactions similar instruments completed pending thirdparty transactions underlying investment comparable entities subsequent rounds financing recapitalizations transactions across capital structure offerings equity debt capital markets changes financial ratios cash flows positions traded active markets subject transfer restrictions valuations adjusted reflect illiquidity andor nontransferability adjustments goldman sachs group inc subsidiaries notes consolidated financial statements continued generally based market evidence available absence evidence management’s best estimate used • derivative contracts derivative contracts exchangetraded overthecounter otc exchangetraded derivatives typically fall within level 1 level 2 fair value hierarchy depending whether deemed actively traded firm generally values exchangetraded derivatives using models calibrate marketclearing levels eliminate timing differences closing price exchangetraded derivatives underlying instruments cases exchangetraded derivatives classified within level 2 fair value hierarchy otc derivatives valued using market transactions market evidence whenever possible including marketbased inputs models model calibration marketclearing transactions broker dealer quotations alternative pricing sources reasonable levels price transparency models used selection particular model value otc derivative depends upon contractual terms specific risks inherent instrument well availability pricing information market firm generally uses similar models value similar instruments valuation models require variety inputs including contractual terms market prices yield curves credit curves measures volatility voluntary involuntary prepayment rates loss severity rates correlations inputs otc derivatives trade liquid markets generic forwards swaps options model inputs generally verified model selection involve significant management judgment otc derivatives classified within level 2 fair value hierarchy significant inputs corroborated market evidence certain otc derivatives trade less liquid markets limited pricing information determination fair value derivatives inherently difficult instruments classified within level 3 fair value hierarchy firm corroborating market evidence support significant model inputs cannot verify model market transactions transaction price initially used best estimate fair value accordingly pricing model used value instrument model adjusted model value inception equals transaction price valuations less liquid otc derivatives typically based level 1 andor level 2 inputs observed market well unobservable level 3 inputs subsequent initial recognition firm updates level 1 level 2 inputs reflect observable market changes resulting gains losses reflected within level 3 level 3 inputs changed corroborated evidence similar market transactions thirdparty pricing services andor broker dealer quotations empirical market data circumstances firm cannot verify model value market transactions possible different valuation model could produce materially different estimate fair value appropriate valuations adjusted various factors liquidity bidoffer spreads credit considerations adjustments generally based market evidence available absence evidence management’s best estimate used collateralized agreements financings collateralized agreements consist resale agreements securities borrowed collateralized financings consist repurchase agreements securities loaned secured financings interest collateralized agreements collateralized financings recognized “interest income” “interest expense” respectively consolidated statements earnings life transaction collateralized agreements financings presented netbycounterparty basis right setoff exists goldman sachs group inc subsidiaries notes consolidated financial statements continued • resale repurchase agreements securities purchased agreements resell securities sold agreements repurchase principally us government federal agency investmentgrade sovereign obligations represent collateralized financing transactions firm receives securities purchased agreements resell makes delivery securities sold agreements repurchase monitors market value securities daily basis delivers obtains additional collateral appropriate noted resale repurchase agreements carried consolidated statements financial condition fair value fair value option resale repurchase agreements generally valued based inputs reasonable levels price transparency generally classified within level 2 fair value hierarchy • securities borrowed loaned securities borrowed loaned generally collateralized cash securities letters credit firm receives securities borrowed makes delivery securities loaned monitors market value securities borrowed loaned delivers obtains additional collateral appropriate securities borrowed loaned within securities services relating customer activities lesser extent certain firm financing activities recorded based amount cash collateral advanced received plus accrued interest arrangements generally terminated demand exhibit little sensitivity changes interest rates noted securities borrowed loaned within trading principal investments related firm’s matched book certain firm financing activities recorded fair value fair value option securities borrowed loaned transactions generally valued based inputs reasonable levels price transparency classified within level 2 fair value hierarchy • secured financings addition repurchase agreements securities loaned firm funds assets use secured financing arrangements pledges financial instruments assets collateral transactions noted firm elected apply fair value option transfers accounted financings rather sales debt raised firm’s william street credit extension program certain nonrecourse financings use fair value eliminates noneconomic volatility earnings would arise using different measurement attributes secured financing transactions generally classified within level 2 fair value hierarchy secured financings recorded fair value recorded based amount cash received plus accrued interest see note 3 information regarding secured financings hybrid financial instruments hybrid financial instruments contain bifurcatable embedded derivatives require settlement physical delivery nonfinancial assets eg physical commodities firm elects bifurcate embedded derivative associated debt accounted fair value host contract accounted amortized cost adjusted effective portion fair value hedge accounting relationships firm elect bifurcate entire hybrid financial instrument accounted fair value fair value option see notes 3 6 information regarding hybrid financial instruments transfers financial assets general transfers financial assets accounted sales firm relinquished control transferred assets transfers accounted sales related gains losses recognized net revenues transfers accounted sales accounted collateralized financings related interest expense recognized net revenues life transaction see “ recent accounting developments” information regarding amendments accounting transfers financial assets goldman sachs group inc subsidiaries notes consolidated financial statements continued commissions commission revenues executing clearing client transactions stock options futures markets recognized “trading principal investments” consolidated statements earnings tradedate basis insurance activities certain firm’s insurance reinsurance contracts accounted fair value fair value option changes fair value included “trading principal investments” consolidated statements earnings revenues variable annuity life insurance reinsurance contracts accounted fair value generally consist fees assessed contract holder account balances mortality charges policy administration fees surrender charges recognized “trading principal investments” consolidated statements earnings period services provided interest credited variable annuity life insurance reinsurance contract account balances changes reserves recognized “other expenses” consolidated statements earnings premiums earned underwriting property catastrophe reinsurance recognized “trading principal investments” consolidated statements earnings coverage period net premiums ceded cost reinsurance expenses liabilities related property catastrophe reinsurance claims including estimates losses incurred reported recognized “other expenses” consolidated statements earnings merchant banking overrides firm entitled receive merchant banking overrides ie increased share fund’s income gains return funds’ investments exceeds certain threshold returns overrides based investment performance life merchant banking fund future investment underperformance may require amounts override previously distributed firm returned funds accordingly overrides recognized consolidated statements earnings material contingencies resolved overrides included “trading principal investments” consolidated statements earnings asset management fees recognized period related service provided based upon average net asset values certain circumstances firm also entitled receive incentive fees based percentage fund’s return assets management exceeds specified benchmark returns performance targets incentive fees generally based investment performance 12month period subject adjustment prior end measurement period accordingly incentive fees recognized consolidated statements earnings measurement period ends asset management fees incentive fees included “asset management securities services” consolidated statements earnings sharebased compensation cost employee services received exchange sharebased award generally measured based grantdate fair value award accordance asc 718 sharebased awards require future service ie vested awards including awards granted retirementeligible employees expensed immediately sharebased employee awards require future service amortized relevant service period expected forfeitures included determining sharebased employee compensation expense goldman sachs group inc subsidiaries notes consolidated financial statements continued firm pays cash dividend equivalents outstanding restricted stock units rsus dividend equivalents paid rsus generally charged retained earnings dividend equivalents paid rsus expected forfeited included compensation expense first quarter fiscal 2009 firm adopted amended accounting principles related income tax benefits dividends sharebased payment awards asc 718 amended principles require tax benefit related dividend equivalents paid rsus accounted increase additional paidin capital previously firm accounted tax benefit reduction income tax expense see “ recent accounting developments” information amended principles certain cases primarily related death employee conflicted employment outlined applicable award agreements firm may cash settle sharebased compensation awards accounted equity instruments additional paidin capital adjusted extent difference current value award grantdate value award goodwill cost acquired companies excess fair value identifiable net assets acquisition date goodwill tested least annually impairment loss recognized estimated fair value operating segment component one level firm’s three business segments less estimated net book value loss calculated difference estimated fair value goodwill carrying value identifiable intangible assets identifiable intangible assets consist primarily customer lists new york stock exchange nyse designated market maker dmm rights value business acquired voba firm’s insurance subsidiaries amortized estimated lives case insurance contracts proportion estimated gross profits premium revenues identifiable intangible assets tested impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable impairment loss generally calculated difference estimated fair value carrying value asset group recognized sum estimated undiscounted cash flows relating asset group less corresponding carrying value property leasehold improvements equipment property leasehold improvements equipment net accumulated depreciation amortization recorded cost included “other assets” consolidated statements financial condition substantially property equipment depreciated straightline basis useful life asset leasehold improvements amortized straightline basis useful life improvement term lease whichever shorter certain costs software developed obtained internal use capitalized amortized straightline basis useful life software property leasehold improvements equipment tested impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable impairment loss calculated difference estimated fair value carrying value asset group recognized sum expected undiscounted cash flows relating asset group less corresponding carrying value firm’s operating leases include office space held excess current requirements rent expense relating space held growth included “occupancy” consolidated statements goldman sachs group inc subsidiaries notes consolidated financial statements continued earnings firm records liability based fair value remaining lease rentals reduced potential existing sublease rentals leases firm ceased using space management concluded firm derive future economic benefits costs terminate lease end term recognized measured fair value upon termination foreign currency translation assets liabilities denominated nonus currencies translated rates exchange prevailing date consolidated statements financial condition revenues expenses translated average rates exchange period gains losses translation financial statements nonus operation functional currency us dollar included net hedges taxes consolidated statements comprehensive income firm seeks reduce net investment exposure fluctuations foreign exchange rates use foreign currency forward contracts foreign currencydenominated debt foreign currency forward contracts hedge effectiveness assessed based changes forward exchange rates accordingly forward points reflected component currency translation adjustment consolidated statements comprehensive income foreign currencydenominated debt hedge effectiveness assessed based changes spot rates foreign currency remeasurement gains losses transactions nonfunctional currencies included consolidated statements earnings income taxes income taxes provided using asset liability method deferred tax assets liabilities recognized temporary differences financial reporting tax bases firm’s assets liabilities valuation allowances established reduce deferred tax assets amount likely realized firm’s tax assets liabilities presented component “other assets” “other liabilities accrued expenses” respectively consolidated statements financial condition firm adopted amended accounting principles related accounting uncertainty income taxes asc 740 december 1 2007 recorded transition adjustment resulting reduction 201 million beginning retained earnings first fiscal quarter 2008 firm recognizes tax positions financial statements likely position sustained upon examination relevant taxing authority based technical merits position meets standard measured largest amount benefit likely realized upon settlement liability established differences positions taken tax return amounts recognized financial statements firm reports interest expense related income tax matters “provision taxes” consolidated statements earnings income tax penalties “other expenses” consolidated statements earnings per common share eps basic eps calculated dividing net earnings applicable common shareholders weighted average number common shares outstanding common shares outstanding includes common stock rsus future service required condition delivery underlying common stock diluted eps includes determinants basic eps addition reflects dilutive effect common stock deliverable pursuant stock warrants options rsus future service required condition delivery underlying common stock first quarter fiscal 2009 firm adopted amended accounting principles related determining whether instruments granted sharebased payment transactions participating goldman sachs group inc subsidiaries notes consolidated financial statements continued securities accordingly firm treats unvested sharebased payment awards nonforfeitable rights dividends dividend equivalents separate class securities calculating earnings per common share see “ recent accounting developments” information amended principles cash equivalents firm defines cash equivalents highly liquid overnight deposits held ordinary course business december 2009 november 2008 “cash equivalents” consolidated statements financial condition included 445 billion 560 billion respectively cash due banks 3384 billion 1014 billion respectively interestbearing deposits banks recent accounting developments fasb accounting standards codification july 2009 fasb launched fasb accounting standards codification single source gaap codification change gaap introduced new structure accounting literature changed references accounting standards authoritative accounting guidance codification effective firm third quarter fiscal 2009 effect firm’s financial condition results operations cash flows accounting income tax benefits dividends sharebased payment awards asc 718 june 2007 fasb issued amended accounting principles related income tax benefits dividends sharebased payment awards require tax benefit related dividend equivalents paid rsus expected vest recorded increase additional paidin capital firm previously accounted tax benefit reduction income tax expense amended accounting principles applied prospectively tax benefits dividend equivalents declared beginning first quarter fiscal 2009 adoption material effect firm’s financial condition results operations cash flows accounting transfers financial assets repurchase financing transactions asc 860 february 2008 fasb issued amended accounting principles related transfers financial assets repurchase financing transactions amended principles require initial transfer financial asset repurchase financing entered contemporaneously contemplation initial transfer evaluated linked transaction purposes determining whether sale occurred unless certain criteria met including transferred asset must readily obtainable marketplace firm adopted amended accounting principles new transactions entered november 2008 adoption material effect firm’s financial condition results operations cash flows disclosures derivative instruments hedging activities asc 815 march 2008 fasb issued amended principles related disclosures derivative instruments hedging activities effective firm beginning one month ended december 2008 since amended principles require additional disclosures concerning derivatives hedging activities adoption affect firm’s financial condition results operations cash flows determining whether instruments granted sharebased payment transactions participating securities asc 260 june 2008 fasb issued amended accounting principles related determining whether instruments granted sharebased payment transactions participating securities amended principles require companies treat unvested sharebased goldman sachs group inc subsidiaries notes consolidated financial statements continued payment awards nonforfeitable rights dividends dividend equivalents separate class securities calculating earnings per common share twoclass method firm adopted amended accounting principles first quarter fiscal 2009 impact basic earnings per common share year ended december 2009 reduction 006 per common share impact diluted earnings per common share year ended december 2009 prior periods restated due immateriality business combinations asc 805 december 2007 fasb issued amended accounting principles related business combinations changed accounting transaction costs certain contingent assets liabilities balances business combination addition partial acquisitions control obtained amended principles require acquiring company measure record target’s assets liabilities including goodwill fair value entire target company acquired amended accounting principles applied firm’s business combinations beginning first quarter fiscal 2009 adoption affect firm’s financial condition results operations cash flows may effect accounting future business combinations noncontrolling interests consolidated financial statements asc 810 december 2007 fasb issued amended accounting principles related noncontrolling interests consolidated financial statements require ownership interests consolidated subsidiaries held parties parent ie noncontrolling interests accounted presented equity rather liability mezzanine equity amended accounting principles effective firm beginning first quarter fiscal 2009 adoption material effect firm’s financial condition results operations cash flows disclosures public entities enterprises transfers financial assets interests variable interest entities asc 860 810 december 2008 fasb issued amended principles related disclosures public entities enterprises transfers financial assets interests variable interest entities effective firm beginning one month ended december 2008 since amended principles require additional disclosures concerning transfers financial assets interests vies adoption affect firm’s financial condition results operations cash flows determining whether instrument embedded feature indexed entity’s stock asc 815 june 2008 fasb issued amended accounting principles related determining whether instrument embedded feature indexed entity’s stock amended accounting principles provide guidance whether instrument firm’s outstanding common stock warrants classified equity subsequently recorded fair value firm adopted amended accounting principles first quarter fiscal 2009 adoption affect firm’s financial condition results operations cash flows determining fair value volume level activity asset liability significantly decreased identifying transactions orderly asc 820 april 2009 fasb issued amended accounting principles related determining fair value volume level activity asset liability significantly decreased identifying transactions orderly specifically amended principles list factors evaluated determine whether transaction orderly clarify adjustments transactions quoted prices may necessary volume level activity asset liability decreased significantly provide guidance determining concurrent weighting transaction price relative fair value indications valuation techniques estimating fair value firm adopted amended accounting principles second quarter fiscal 2009 goldman sachs group inc subsidiaries notes consolidated financial statements continued since firm’s fair value methodologies consistent amended accounting principles adoption affect firm’s financial condition results operations cash flows recognition presentation otherthantemporary impairments asc 320 april 2009 fasb issued amended accounting principles related recognition presentation otherthantemporary impairments amended principles prescribe portion otherthantemporary impairment debt security related credit loss recognized current period earnings remainder recognized comprehensive income holder intend sell security likely holder required sell security prior recovery previously entire otherthantemporary impairment recognized current period earnings firm adopted amended accounting principles second quarter fiscal 2009 adoption material effect firm’s financial condition results operations cash flows interim disclosures fair value financial instruments asc 825 april 2009 fasb issued amended principles related interim disclosures fair value financial instruments firm adopted amended principles second quarter fiscal 2009 adoption affect firm’s financial condition results operations cash flows transfers financial assets interests variable interest entities asc 860 810 june 2009 fasb issued amended accounting principles change accounting securitizations vies principles codified accounting standards update asu 200916 “transfers servicing topic 860 accounting transfers financial assets” asu 200917 “consolidations topic 810 improvements financial reporting enterprises involved variable interest entities” december 2009 asu 200916 eliminates concept qspe changes requirements derecognizing financial assets requires additional disclosures transfers financial assets including securitization transactions continuing involvement transferred financial assets asu 200917 changes determination vie consolidated asu 200917 determination whether consolidate vie based power direct activities vie significantly impact vie’s economic performance together either obligation absorb losses right receive benefits could significant vie well vie’s purpose design asu 200916 200917 effective fiscal years beginning november 15 2009 february 2010 fasb finalized standard defers requirements asu 200917 certain interests investment funds certain similar entities adoption asu nos 200916 200917 january 1 2010 material effect firm’s financial condition results operations cash flows however continued application principles requires firm make judgments subject change based new facts circumstances evolving interpretations practices fair value measurements disclosures measuring liabilities fair value asc 820 august 2009 fasb issued asu 200905 “fair value measurements disclosures topic 820 measuring liabilities fair value” asu 200905 provides guidance measuring liabilities quoted price active market identical liability available clarifies reporting entity make adjustment fair value restriction prevents transfer liability firm adopted asu 200905 fourth quarter fiscal 2009 since firm’s fair value methodologies consistent asu 20095 adoption affect firm’s financial condition results operations cash flows investments certain entities calculate net asset value per share equivalent asc 820 september 2009 fasb issued asu 200912 “fair value measurements disclosures topic 820 investments certain entities calculate net goldman sachs group inc subsidiaries notes consolidated financial statements continued asset value per share equivalent” asu 200912 provides guidance using net asset value measure fair value interests certain investment funds requires additional disclosures interests investment funds firm adopted asu 200912 fourth quarter fiscal 2009 since firm’s fair value methodologies consistent asu 200912 adoption affect firm’s financial condition results operations cash flows improving disclosures fair value measurements asc 820 january 2010 fasb issued asu 201006 “fair value measurements disclosures topic 820 improving disclosures fair value measurements” asu 201006 provides amended disclosure requirements related fair value measurements asu 201006 effective financial statements issued reporting periods beginning december 15 2009 certain disclosures reporting periods beginning december 15 2010 disclosures since amended principles require additional disclosures concerning fair value measurements adoption affect firm’s financial condition results operations cash flows goldman sachs group inc subsidiaries notes consolidated financial statements continued note 3 financial instruments fair value financial instruments following table sets forth firm’s trading assets fair value including pledged collateral trading liabilities fair value point time firm may use cash instruments well derivatives manage long short risk position 1 includes 431 billion 440 billion december 2009 november 2008 respectively money market instruments held william street funding corporation funding corp support william street credit extension program see note 8 information regarding william street credit extension program 2 net cash received pursuant credit support agreements 12460 billion 13716 billion december 2009 november 2008 respectively 3 includes 386 billion 168 billion december 2009 november 2008 respectively securities held within firm’s insurance subsidiaries accounted availableforsale 4 consists fair value unfunded commitments extend credit fair value partially funded commitments included trading assets fair value 5 net cash paid pursuant credit support agreements 1474 billion 3401 billion december 2009 november 2008 respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued fair value hierarchy firm’s financial assets fair value classified within level 3 fair value hierarchy summarized 1 excludes assets financed nonrecourse debt attributable minority investors attributable employee interests certain consolidated funds following tables set forth level within fair value hierarchy trading assets fair value trading liabilities fair value financial assets financial liabilities accounted fair value fair value option december 2009 november 2008 see note 2 information fair value hierarchy assets liabilities classified entirety based lowest level input significant fair value measurement goldman sachs group inc subsidiaries notes consolidated financial statements continued 1 includes 291 million 311 million cdos collateralized loan obligations clos backed real estate within level 2 level 3 respectively fair value hierarchy 2 consists acquired portfolios distressed loans primarily backed commercial residential real estate collateral 3 includes 338 million 741 million cdos clos backed corporate obligations within level 2 level 3 respectively fair value hierarchy 4 consists level 3 assets financed nonrecourse debt attributable minority investors attributable employee interests certain consolidated funds 5 consists publicly listed equity securities 6 principally consists us department treasury us treasury securities money market instruments well insurance separate account assets measured fair value 7 substantially firm’s level 2 equities convertible debentures less liquid publicly listed securities 8 includes 3144 billion 958 billion credit derivative assets within level 2 level 3 respectively fair value hierarchy amounts exclude effects netting enforceable netting agreements across derivative product types 9 principally consists securities borrowed resale agreements underlying securities segregated satisfy certain regulatory requirements 10 substantially consists private equity investments real estate fund investments includes 1056 billion private equity investments 123 billion real estate investments 79 million convertible debentures 11 represents cash collateral impact netting across levels fair value hierarchy netting among positions classified within level included level goldman sachs group inc subsidiaries notes consolidated financial statements continued 1 includes 45 million cdos clos backed corporate obligations within level 3 fair value hierarchy 2 substantially consists publicly listed equity securities 3 includes 796 billion 320 billion credit derivative liabilities within level 2 level 3 respectively fair value hierarchy amounts exclude effects netting enforceable netting agreements across derivative product types 4 level 3 liabilities 66 total financial liabilities fair value 5 represents cash collateral impact netting across levels fair value hierarchy netting among positions classified within level included level goldman sachs group inc subsidiaries notes consolidated financial statements continued 1 consists level 3 assets financed nonrecourse debt attributable minority investors attributable employee interests certain consolidated funds 2 consists us treasury securities money market instruments well insurance separate account assets measured fair value 3 includes 6600 billion 832 billion credit derivative assets within level 2 level 3 respectively fair value hierarchy amounts exclude effects netting enforceable netting agreements across derivative product types 4 principally consists securities borrowed resale agreements underlying securities segregated satisfy certain regulatory requirements 5 substantially consists private equity investments real estate fund investments 6 represents cash collateral impact netting across levels fair value hierarchy netting among positions classified within level included level goldman sachs group inc subsidiaries notes consolidated financial statements continued 1 includes 3120 billion 474 billion credit derivative liabilities within level 2 level 3 respectively fair value hierarchy amounts exclude effects netting enforceable netting agreements across derivative product types 2 level 3 liabilities 70 total financial liabilities fair value 3 represents cash collateral impact netting across levels fair value hierarchy netting among positions classified within level included level goldman sachs group inc subsidiaries notes consolidated financial statements continued level 3 unrealized gainslosses table sets forth summary unrealized gainslosses firm’s level 3 financial assets financial liabilities fair value still held reporting date years ended december 2009 november 2008 november 2007 one month ended december 2008 cash instruments net unrealized loss level 3 cash instruments 431 billion year ended december 2009 primarily consisted unrealized losses private equity investments real estate fund investments loans securities backed commercial real estate reflecting weakness less liquid asset classes net unrealized loss level 3 cash instruments 1236 billion year ended november 2008 primarily consisted unrealized losses loans securities backed commercial real estate certain bank loans bridge loans private equity investments real estate fund investments net unrealized loss level 3 cash instruments 319 billion one month ended december 2008 primarily consisted unrealized losses certain bank loans bridge loans private equity investments real estate fund investments loans securities backed commercial real estate losses december 2008 reflected weakness global credit equity markets level 3 cash instruments frequently economically hedged instruments classified within level 1 level 2 accordingly gains losses reported level 3 partially offset gains losses attributable instruments classified within level 1 level 2 gains losses derivative contracts classified within level 3 fair value hierarchy goldman sachs group inc subsidiaries notes consolidated financial statements continued derivative contracts net unrealized loss level 3 derivative contracts 102 billion year ended december 2009 primarily attributable tighter credit spreads underlying instruments increases underlying equity index prices partially offset increases commodities prices level 2 observable inputs net unrealized gain level 3 derivative contracts 558 billion year ended november 2008 primarily attributable changes observable credit spreads level 2 inputs underlying instruments net unrealized loss level 3 derivative contracts 210 million one month ended december 2008 primarily attributable changes observable prices underlying instruments level 2 inputs level 3 gains losses derivative contracts considered context following • derivative contract level 1 andor level 2 inputs classified level 3 financial instrument entirety least one significant level 3 input • one significant level 3 input entire gain loss adjusting observable inputs ie level 1 level 2 still classified level 3 • gains losses reported level 3 resulting changes level 1 level 2 inputs frequently offset gains losses attributable instruments classified within level 1 level 2 cash instruments reported within level 3 fair value hierarchy tables set forth summary changes fair value firm’s level 3 financial assets financial liabilities fair value years ended december 2009 november 2008 one month ended december 2008 tables reflect gains losses including gains losses entire period financial assets financial liabilities fair value transferred level 3 period financial assets financial liabilities fair value categorized level 3 december 2009 november 2008 december 2008 respectively tables include gains losses reported level 3 prior periods instruments sold transferred level 3 prior end period presented goldman sachs group inc subsidiaries notes consolidated financial statements continued 1 aggregate amounts include approximately 469 billion 164 billion reported “trading principal investments” “interest income” respectively consolidated statements earnings year ended december 2009 2 substantially reported “trading principal investments” consolidated statements earnings 3 principally resulted changes level 2 inputs 4 principally reflects deconsolidation certain loan portfolios firm bear economic exposure 5 principally reflects transfers level 2 within fair value hierarchy certain private equity investments reflecting improved transparency prices financial instruments primarily result market transactions 6 principally reflects transfers level 3 unsecured shortterm borrowings level 3 secured financings level 3 unsecured longterm borrowings related changes terms certain notes 7 principally reflects transfers level 2 within fair value hierarchy certain insurance contracts reflecting reduced transparency mortality curve inputs used value instruments result less observable trading activity goldman sachs group inc subsidiaries notes consolidated financial statements continued 1 aggregate amounts include approximately 1154 billion 198 billion reported “trading principal investments” “interest income” respectively consolidated statements earnings year ended november 2008 2 substantially reported “trading principal investments” consolidated statements earnings 3 principally resulted changes level 2 inputs 4 principally reflects transfers level 2 within fair value hierarchy loans securities backed commercial real estate reflecting reduced price transparency financial instruments 5 principally reflects transfers level 2 within fair value hierarchy mortgagerelated derivative assets recent trading activity provided improved transparency correlation inputs decrease partially offset transfers level 2 within fair value hierarchy credit equitylinked derivatives due reduced price transparency 6 consists transfers level 2 within fair value hierarchy 1 aggregate amounts include approximately 318 billion 221 million reported “trading principal investments” “interest income” respectively consolidated statements earnings one month ended december 2008 2 substantially reported “trading principal investments” consolidated statements earnings 3 principally resulted changes level 2 inputs 4 principally reflects transfers level 2 within fair value hierarchy certain corporate debt securities debt obligations loans securities backed commercial real estate reflecting reduced price transparency financial instruments 5 principally reflects transfers level 2 within fair value hierarchy creditrelated derivative assets due improved transparency correlation inputs used value financial instruments goldman sachs group inc subsidiaries notes consolidated financial statements continued impact credit spreads ongoing basis firm realizes gains losses relating changes credit risk derivative contracts changes credit mitigants sale unwind contracts net gainloss attributable impact changes credit exposure credit spreads derivative contracts including derivative assets liabilities related hedges 572 million 137 million 86 million 188 million years ended december 2009 november 2008 november 2007 one month ended december 2008 respectively following table sets forth net gainslosses attributable impact changes firm’s credit spreads borrowings fair value option elected firm calculates fair value borrowings discounting future cash flows rate incorporates firm’s observable credit spreads net gainloss attributable changes instrumentspecific credit spreads loans loan commitments fair value option elected 165 billion 461 billion 206 billion years ended december 2009 november 2008 one month ended december 2008 respectively gainslosses material year ended november 2007 firm attributes changes fair value floating rate loans loan commitments changes instrumentspecific credit spreads fixed rate loans loan commitments firm allocates changes fair value interest raterelated changes credit spreadrelated changes based changes interest rates see additional details regarding fair value option goldman sachs group inc subsidiaries notes consolidated financial statements continued fair value option gainslosses following table sets forth gainslosses included earnings years ended december 2009 november 2008 november 2007 one month ended december 2008 result firm electing apply fair value option certain financial assets financial liabilities described note 2 table excludes gains losses related trading assets fair value trading liabilities fair value ii gains losses assets liabilities would accounted fair value gaap firm elected fair value option iii gains losses secured financings related transfers financial assets accounted financings rather sales gains losses offset gains losses related financial assets 1 excludes gainslosses 415 billion 242 billion 218 billion 623 million years ended december 2009 november 2008 november 2007 one month ended december 2008 respectively related embedded derivative component hybrid financial instruments gains losses would recognized even firm elected account entire hybrid instrument fair value fair value option 2 excludes gains 48 million 129 billion 219 billion years ended december 2009 november 2008 november 2007 respectively related financings recorded result transactions accounted secured financings rather sales changes fair value secured financings offset changes fair value related financial instruments included “trading assets fair value” consolidated statements financial condition gainslosses material one month ended december 2008 3 excludes gainslosses 315 billion 637 billion 107 billion 92 million years ended december 2009 november 2008 november 2007 one month ended december 2008 respectively related embedded derivative component hybrid financial instruments gains losses would recognized even firm elected account entire hybrid instrument fair value fair value option 4 primarily consists gainslosses certain reinsurance contracts 5 primarily consists gainslosses certain insurance reinsurance contracts 6 primarily consists gainslosses resale repurchase agreements securities borrowed loaned within trading principal investments 7 reported “trading principal investments” consolidated statements earnings amounts exclude contractual interest included “interest income” “interest expense” consolidated statements earnings instruments hybrid financial instruments trading assets trading liabilities accounted fair value either fair value option required accounting standards principally asc 320 asc 940 asc 815 excluding equities commissions 384 billion 500 billion 458 billion 251 million years ended december 2009 november 2008 november 2007 one month ended december 2008 respectively gains losses instruments accounted fair value option described “trading principal investments” consolidated statements earnings primarily represents gains losses “trading assets fair value” “trading liabilities fair value” consolidated statements financial condition goldman sachs group inc subsidiaries notes consolidated financial statements continued loans loan commitments december 2009 aggregate contractual principal amount loans longterm receivables fair value option elected exceeded related fair value 4196 billion including difference 3630 billion related loans aggregate fair value 428 billion nonaccrual status including loans 90 days past due november 2008 aggregate contractual principal amount loans longterm receivables fair value option elected exceeded related fair value 5021 billion including difference 3746 billion related loans aggregate fair value 377 billion nonaccrual status including loans 90 days past due aggregate contractual principal exceeds related fair value primarily firm regularly purchases loans distressed loans values significantly contractual principal amounts december 2009 november 2008 fair value unfunded lending commitments fair value option elected liability 879 million 352 billion respectively related total contractual amount lending commitments 4405 billion 3949 billion respectively longterm debt instruments aggregate contractual principal amount longterm debt instruments principal nonprincipal protected fair value option elected exceeded related fair value 752 million 242 billion december 2009 november 2008 respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued investments funds calculate net asset value per share firm’s investments funds calculate net asset value per share primarily consist investments firmsponsored funds firm coinvests thirdparty investors private equity private debt real estate funds primarily closedend funds firm’s investments eligible redemption distributions received funds underlying assets liquidated estimated substantially underlying assets existing funds liquidated next 10 years firm’s investments hedge funds generally redeemable quarterly basis 91 days notice subject maximum redemption level 25 firm’s initial investments quarterend following table sets forth fair value firm’s investments unfunded commitments funds calculate net asset value per share 1 funds primarily invest broad range industries worldwide variety situations including leveraged buyouts recapitalizations growth investments 2 funds generally invest fixed income instruments associated equity component focused providing private highyield capital mid largesized leveraged management buyout transactions recapitalizations financings refinancings acquisitions restructurings private equity firms private family companies corporate issuers 3 funds primarily multidisciplinary hedge funds employ fundamental bottomup investment approach across various asset classes strategies including longshort equity credit convertibles risk arbitrage special situations capital structure arbitrage 4 funds invest globally primarily real estate companies loan portfolios debt recapitalizations direct property goldman sachs group inc subsidiaries notes consolidated financial statements continued credit concentrations credit concentrations may arise trading investing underwriting lending securities borrowing activities may impacted changes economic industry political factors firm seeks mitigate credit risk actively monitoring exposures obtaining collateral deemed appropriate firm’s activities expose many different industries counterparties firm routinely executes high volume transactions counterparties financial services industry including brokers dealers commercial banks clearing houses exchanges investment funds resulted significant credit concentration respect industry ordinary course business firm may also subject concentration credit risk particular counterparty borrower issuer including sovereign issuers particular clearing house exchange december 2009 november 2008 firm held 8383 billion 10 total assets 5398 billion 6 total assets respectively us government federal agency obligations included “trading assets fair value” “cash securities segregated regulatory purposes” consolidated statements financial condition december 2009 november 2008 firm held 3861 billion 5 total assets 2113 billion 2 total assets respectively sovereign obligations principally consisting securities issued governments united kingdom japan addition december 2009 november 2008 8763 billion 12627 billion firm’s securities purchased agreements resell securities borrowed including “cash securities segregated regulatory purposes” respectively collateralized us government federal agency obligations december 2009 november 2008 7799 billion 6537 billion firm’s securities purchased agreements resell securities borrowed respectively collateralized sovereign obligations principally consisting securities issued governments germany united kingdom japan december 2009 november 2008 firm credit exposure counterparty exceeded 2 firm’s total assets derivative activities derivative contracts instruments futures forwards swaps option contracts derive value underlying assets indices reference rates combination factors derivative instruments may privately negotiated contracts often referred otc derivatives may listed traded exchange derivatives may involve future commitments purchase sell financial instruments commodities exchange currency interest payment streams amounts exchanged based specific terms contract reference specified rates securities commodities currencies indices certain cash instruments mortgagebacked securities interestonly principalonly obligations indexed debt instruments considered derivatives even though values contractually required cash flows derived price security index however certain commodityrelated contracts included firm’s derivatives disclosure contracts may settled cash assets delivered contract readily convertible cash firm enters derivative transactions facilitate client transactions take proprietary positions means risk management risk exposures managed diversification controlling position sizes entering offsetting positions example firm may manage risk related portfolio common stock entering offsetting position related equityindex futures contract goldman sachs group inc subsidiaries notes consolidated financial statements continued firm applies hedge accounting certain derivative contracts firm uses derivatives manage certain interest rate currency exposures including firm’s net investment nonus operations firm designates certain interest rate swap contracts fair value hedges interest rate swap contracts hedge changes relevant benchmark interest rate eg london interbank offered rate libor effectively converting substantial portion firm’s unsecured longterm borrowings certain unsecured shortterm borrowings certificates deposit floating rate obligations see note 2 information regarding firm’s accounting policy foreign currency forward contracts used hedge net investment nonus operations firm applies longhaul method hedge accounting relationships perform ongoing assessment effectiveness relationships achieving offsetting changes fair value offsetting cash flows attributable risk hedged firm utilizes dollaroffset method compares change fair value hedging instrument change fair value hedged item excluding effect passage time prospectively retrospectively assess hedge effectiveness longhaul method firm’s prospective dollaroffset assessment utilizes scenario analyses test hedge effectiveness via simulations numerous parallel slope shifts relevant yield curve parallel shifts change interest rate maturities identical amounts slope shifts change curvature yield curve prospective assessment response simulated yield curve shifts retrospective assessment hedging relationship deemed effective fair value hedging instrument hedged item change inversely within range 80 125 fair value hedges gains losses derivative transactions recognized “interest expense” consolidated statements earnings change fair value hedged item attributable risk hedged reported adjustment carrying value subsequently amortized interest expense remaining life gains losses related hedge ineffectiveness hedges included “interest expense” consolidated statements earnings gains losses material years ended december 2009 november 2008 november 2007 one month ended december 2008 gains losses derivatives used trading purposes included “trading principal investments” consolidated statements earnings goldman sachs group inc subsidiaries notes consolidated financial statements continued fair value firm’s derivative contracts reflected net cash paid received pursuant credit support agreements reported netbycounterparty basis firm’s consolidated statements financial condition management believes legal right setoff exists enforceable netting agreement following table sets forth fair value number contracts firm’s derivative contracts major product type gross basis december 2009 gross fair values table exclude effects netting enforceable netting agreements netting cash received posted pursuant credit support agreements therefore representative firm’s exposure 1 november 2008 gross fair value derivative contracts accounted hedges consisted 2040 billion assets 128 million liabilities 2 represents netting receivable balances payable balances counterparty pursuant enforceable netting agreements 3 represents netting cash collateral received posted counterparty basis pursuant credit support agreements 4 presented giving effect 41208 billion derivative assets 39557 billion derivative liabilities settled clearing organizations 5 year ended december 2009 one month ended december 2008 gainloss recognized interest rate derivative contracts accounted hedges 1007 billion 359 billion respectively related gainloss recognized hedged borrowings bank deposits 995 billion 353 billion respectively gains losses included “interest expense” consolidated statements earnings year ended december 2009 gainloss recognized derivative contracts included losses 123 billion excluded assessment hedge effectiveness excluded gainslosses material one month ended december 2008 6 year ended december 2009 one month ended december 2008 loss currency derivative contracts accounted hedges 495 million 212 million respectively amounts included “currency translation adjustment net tax” consolidated statements comprehensive income gainloss related ineffectiveness gainloss reclassified earnings accumulated comprehensive income material year ended december 2009 one month ended december 2008 goldman sachs group inc subsidiaries notes consolidated financial statements continued firm also embedded derivatives bifurcated related borrowings derivatives classified unsecured shortterm unsecured longterm borrowings firm’s consolidated statements financial condition net asset carrying value 96 million 774 million december 2009 november 2008 respectively net asset december 2009 represented 297 contracts included gross assets 478 million primarily comprised equity interest rate derivatives gross liabilities 382 million primarily comprised equity interest rate derivatives see notes 6 7 information regarding firm’s unsecured borrowings december 2009 november 2008 firm designated 338 billion 336 billion respectively foreign currencydenominated debt included unsecured longterm borrowings unsecured shortterm borrowings firm’s consolidated statements financial condition hedges net investments nonus subsidiaries year ended december 2009 one month ended december 2008 gainloss debt instruments 106 million 186 million respectively amounts included “currency translation adjustment net tax” consolidated statements comprehensive income gainloss related ineffectiveness gainloss reclassified earnings accumulated comprehensive income material year ended december 2009 one month ended december 2008 following table sets forth major product type firm’s gainslosses related trading activities including derivative nonderivative financial instruments year ended december 2009 one month ended december 2008 gainslosses representative firm’s individual business unit results many firm’s trading strategies utilize financial instruments across various product types accordingly gains losses one product type frequently offset gains losses product types example firm’s longerterm derivative contracts sensitive changes interest rates may economically hedged interest rate swaps similarly significant portion firm’s cash derivatives trading inventory exposure foreign currencies may economically hedged foreign currency contracts gainslosses set forth included “trading principal investments” consolidated statements earnings exclude related interest income interest expense 1 includes gainslosses currency contracts used economically hedge positions included product types table certain firm’s derivative instruments transacted pursuant bilateral agreements certain counterparties may require firm post collateral terminate transactions based firm’s longterm credit ratings december 2009 aggregate fair value derivative contracts net liability position 2085 billion aggregate fair value assets posted firm collateral derivative contracts 1448 billion december 2009 additional collateral termination payments pursuant bilateral agreements certain counterparties approximately 112 billion 236 billion could called counterparties event onenotch twonotch reduction respectively firm’s longterm credit ratings goldman sachs group inc subsidiaries notes consolidated financial statements continued firm enters broad array credit derivatives facilitate client transactions take proprietary positions means risk management firm uses credit derivatives described purposes credit derivatives entered various trading desks around world actively managed based underlying risks activities frequently part broader trading strategy dynamically managed based net risk position individually negotiated contracts credit derivatives numerous settlement payment conventions common types triggers include bankruptcy reference credit entity acceleration indebtedness failure pay restructuring repudiation dissolution entity • credit default swaps singlename credit default swaps protect buyer loss principal one bonds loans mortgages reference obligations event default issuer reference entity buyer protection pays initial periodic premium seller receives credit default protection period contract credit default event defined specific derivative contract seller protection makes payments buyer protection however credit default event occurs seller protection required make payment buyer protection typical credit default events requiring payment include bankruptcy reference credit entity failure pay principal interest restructuring relevant obligations reference entity • credit indices baskets tranches credit derivatives may reference basket singlename credit default swaps broadbased index typically event default one underlying reference obligations protection seller pay protection buyer prorata portion transaction’s total notional amount relating underlying defaulted reference obligation tranched transactions credit risk basket index separated various portions different levels subordination junior tranches cover initial defaults losses exceed notional amount tranches excess covered next senior tranche capital structure • total return swaps total return swap transfers risks relating economic performance reference obligation protection buyer protection seller typically protection buyer receives protection seller floating rate interest protection reduction fair value reference obligation return protection seller receives cash flows associated reference obligation plus increase fair value reference obligation • credit options credit option writer assumes obligation purchase sell reference obligation specified price credit spread option purchaser buys right sell reference obligation purchase option writer payments credit options depend either particular credit spread price reference obligation substantially firm’s purchased credit derivative transactions financial institutions subject stringent collateral thresholds firm economically hedges exposure written credit derivatives primarily entering offsetting purchased credit derivatives identical underlyings addition upon occurrence specified trigger event firm may take possession reference obligations underlying particular written credit derivative consequently may upon liquidation reference obligations recover amounts underlying reference obligations event default december 2009 firm’s written purchased credit derivatives total gross notional amounts 254 trillion 271 trillion respectively total net purchased protection 16413 billion notional value november 2008 firm’s written purchased credit derivatives total gross notional amounts 378 trillion 403 trillion respectively total net purchased protection 25524 billion notional value decrease notional amounts november 2008 december 2009 primarily reflects compression efforts across industry goldman sachs group inc subsidiaries notes consolidated financial statements continued following table sets forth certain information related firm’s credit derivatives fair values table exclude effects netting enforceable netting agreements netting cash paid pursuant credit support agreements therefore representative firm’s exposure 1 tenor based expected duration mortgagerelated credit derivatives remaining contractual maturity credit derivatives 2 offsetting purchased credit derivatives represent notional amount purchased credit derivatives extent economically hedge written credit derivatives identical underlyings 3 comprised purchased protection excess amount written protection identical underlyings purchased protection underlyings firm written protection 4 credit spread underlying together tenor contract indicators paymentperformance risk example firm least likely pay otherwise required perform credit spread underlying “0250” basis points tenor “012 months” likelihood payment performance generally greater credit spread underlying tenor increase 5 net liabilities differ carrying values related credit derivatives firm’s consolidated statements financial condition exclude effects netting enforceable netting agreements netting cash collateral paid pursuant credit support agreements including effects netting receivable balances payable balances counterparty across written purchased credit derivatives pursuant enforceable netting agreements firm’s consolidated statements financial condition december 2009 november 2008 included net asset related credit derivatives 3974 billion 7178 billion respectively net liability related credit derivatives 975 billion 3348 billion respectively net amounts exclude netting cash collateral paid pursuant credit support agreements 6 decrease net liability november 2008 december 2009 primarily reflected tightening credit spreads goldman sachs group inc subsidiaries notes consolidated financial statements continued collateralized transactions firm receives financial instruments collateral primarily connection resale agreements securities borrowed derivative transactions customer margin loans financial instruments may include obligations us government federal agencies sovereigns corporations well equities convertibles many cases firm permitted deliver repledge financial instruments connection entering repurchase agreements securities lending agreements secured financings collateralizing derivative transactions meeting firm customer settlement requirements december 2009 november 2008 fair value financial instruments received collateral firm permitted deliver repledge 56177 billion 57872 billion respectively firm delivered repledged 39289 billion 44511 billion respectively firm also pledges assets owns counterparties may right deliver repledge trading assets pledged counterparties right deliver repledge included “trading assets fair value” consolidated statements financial condition 3149 billion 2631 billion december 2009 november 2008 respectively trading assets pledged connection repurchase agreements securities lending agreements secured financings counterparties right sell repledge included “trading assets fair value” consolidated statements financial condition 10911 billion 8085 billion december 2009 november 2008 respectively assets primarily real estate cash owned pledged connection secured financings counterparties right sell repledge 793 billion 924 billion december 2009 november 2008 respectively addition repurchase agreements securities lending agreements firm obtains secured funding use arrangements secured financings include arrangements nonrecourse subsidiary executed arrangement subsidiary guaranteeing arrangement obligated repay financing secured financings consist liabilities related firm’s william street credit extension program consolidated vies collateralized central bank financings transfers financial assets accounted financings rather sales primarily pledged bank loans mortgage whole loans structured financing arrangements goldman sachs group inc subsidiaries notes consolidated financial statements continued secured financings maturity set forth table 1 december 2009 november 2008 consists us dollardenominated financings 647 billion 1253 billion respectively weighted average interest rate 344 298 respectively nonus dollardenominated financings 646 billion 870 billion respectively weighted average interest rate 157 095 respectively giving effect hedging activities weighted average interest rates december 2009 november 2008 excluded financial instruments accounted fair value fair value option 2 includes secured financings maturing within one year financial statement date secured financings redeemable within one year financial statement date option holder 3 december 2009 november 2008 consists us dollardenominated financings 728 billion 955 billion respectively weighted average interest rate 183 462 respectively nonus dollardenominated financings 392 billion 791 billion respectively weighted average interest rate 230 439 respectively giving effect hedging activities weighted average interest rates december 2009 november 2008 excluded financial instruments accounted fair value fair value option 4 secured longterm financings repayable prior maturity option firm reflected contractual maturity dates secured longterm financings redeemable prior maturity option holder reflected dates options become exercisable 5 december 2009 november 2008 1825 billion 3154 billion respectively financings collateralized trading assets 588 billion 714 billion respectively assets primarily real estate cash secured financings include 1063 billion 1374 billion nonrecourse obligations december 2009 november 2008 respectively 6 december 2009 secured financings includes 951 billion related transfers financial assets accounted financings rather sales financings collateralized financial assets included “trading assets fair value” consolidated statement financial condition 978 billion december 2009 note 4 securitization activities variable interest entities securitization activities firm securitizes residential commercial mortgages corporate bonds types financial assets firm acts underwriter beneficial interests sold investors firm derecognizes financial assets transferred securitizations provided relinquished control assets transferred assets accounted fair value prior securitization net revenues related underwriting activities recognized connection sales underlying beneficial interests investors goldman sachs group inc subsidiaries notes consolidated financial statements continued firm may continuing involvement transferred assets including retaining interests securitized financial assets primarily form senior subordinated securities retaining servicing rights purchasing senior subordinated securities connection secondary marketmaking activities retained interests related firm’s continuing involvement accounted fair value included “trading assets fair value” consolidated statements financial condition see note 2 additional information regarding fair value measurement year ended december 2009 firm securitized 4858 billion financial assets firm continuing involvement including 4789 billion residential mortgages primarily connection government agency securitizations 691 million financial assets year ended november 2008 firm securitized 1446 billion financial assets including 667 billion residential mortgages 773 million commercial mortgages 701 billion financial assets primarily connection clos year ended november 2007 firm securitized 8140 billion financial assets including 2495 billion residential mortgages 1950 billion commercial mortgages 3695 billion financial assets primarily connection cdos clos one month ended december 2008 firm securitized 604 million financial assets including 557 million residential mortgages 47 million financial assets cash flows received retained interests 507 million 505 million 705 million 26 million years ended december 2009 november 2008 november 2007 one month ended december 2008 respectively following table sets forth certain information related firm’s continuing involvement securitization entities firm sold assets well total outstanding principal amount transferred assets firm continuing involvement december 2009 outstanding principal amount set forth table presented purpose providing information size securitization entities firm continuing involvement representative firm’s risk loss retained purchased interests firm’s risk loss limited fair value interests 1 december 2009 fair value continuing involvement excludes 104 billion purchased interests securitization entities firm’s involvement related secondary marketmaking activities continuing involvement also excludes derivative contracts used securitization entities manage credit interest rate foreign exchange risk see note 3 information firm’s derivative contracts 2 comprised senior subordinated interests purchased connection secondary marketmaking activities vies qspes firm also holds retained interests addition interests firm continuing involvement form derivative transactions guarantees certain nonconsolidated vies carrying value net liability 87 million december 2009 notional amounts transactions included maximum exposure loss nonconsolidated vie table 3 primarily consists outstanding principal retained interests related government agency qspes 4 primarily consists cdos backed corporate mortgage obligations clos outstanding principal amount fair value retained interests include 1622 billion 72 million respectively december 2009 related vies also included nonconsolidated vie table goldman sachs group inc subsidiaries notes consolidated financial statements continued following table sets forth weighted average key economic assumptions used measuring fair value firm’s retained interests sensitivity fair value immediate adverse changes 10 20 assumptions 1 includes 403 billion 153 billion december 2009 november 2008 respectively held qspes 2 due nature current fair value certain retained interests weighted average assumptions constant prepayment discount rates related sensitivity adverse changes meaningful december 2009 firm’s maximum exposure adverse changes value interests firm’s carrying value 93 million 3 constant prepayment rate included positions constant prepayment rate key assumption determination fair value 4 majority firm’s mortgagebacked retained interests us government agencyissued collateralized mortgage obligations anticipated credit loss remainder firm’s retained interests expected credit loss assumptions reflected within discount rate 5 includes 192 million retained interests related transfers securitized assets accounted secured financings rather sales preceding table give effect offsetting benefit financial instruments held mitigate risks inherent retained interests changes fair value based adverse variation assumptions generally cannot extrapolated relationship change assumptions change fair value usually linear addition impact change particular assumption calculated independently changes assumption practice simultaneous changes assumptions might magnify counteract sensitivities disclosed goldman sachs group inc subsidiaries notes consolidated financial statements continued december 2009 november 2008 firm held mortgage servicing rights fair value 88 million 147 million respectively servicing assets represent firm’s right receive future stream cash flows servicing fees excess firm’s obligation service residential mortgages fair value mortgage servicing rights fluctuate response changes certain economic variables discount rates loan prepayment rates firm estimates fair value mortgage servicing rights using valuation models incorporate variables quantifying anticipated cash flows related servicing activities mortgage servicing rights included “trading assets fair value” consolidated statements financial condition classified within level 3 fair value hierarchy following table sets forth changes firm’s mortgage servicing rights well servicing fees earned 1 december 2009 november 2008 fair value estimated using weighted average discount rate approximately 16 respectively weighted average prepayment rate approximately 20 27 respectively 2 contractually specified servicing fees one month ended december 2008 25 million 3 primarily related acquisition litton loan servicing lp variable interest entities firm ordinary course business retains interests vies connection securitization activities firm also purchases sells variable interests vies primarily issue mortgagebacked assetbacked securities cdos clos connection marketmaking activities makes investments loans vies hold performing nonperforming debt equity real estate powerrelated assets addition firm utilizes vies provide investors principalprotected notes creditlinked notes assetrepackaged notes designed meet objectives vies generally purchase assets issuing debt equity instruments firm’s significant variable interests vies include senior subordinated debt interests mortgagebacked assetbacked securitization vehicles cdos clos loan commitments limited general partnership interests preferred common stock interest rate foreign currency equity commodity credit derivatives guarantees firm’s exposure obligations vies generally limited interests entities tables set forth maximum exposure loss purchased retained interests loans investments carrying value interests certain instances firm provides guarantees including derivative guarantees vies holders variable interests vies contracts maximum exposure loss set forth tables notional amount guarantees represent anticipated losses also reduced unrealized goldman sachs group inc subsidiaries notes consolidated financial statements continued losses already recorded firm connection guarantees result maximum exposure loss exceeds firm’s liabilities related vies following tables set forth total assets firmsponsored nonconsolidated vies firm holds variable interests nonconsolidated vies firm holds significant variable interests firm’s maximum exposure loss excluding benefit offsetting financial instruments held mitigate risks associated variable interests 2009 accordance amended principles requiring enhanced disclosures following table also sets forth total assets total liabilities included consolidated statements financial condition related firm’s interests nonconsolidated vies firm aggregated nonconsolidated vies based principal business activity reflected first column nature firm’s variable interests take different forms described columns maximum exposure loss goldman sachs group inc subsidiaries notes consolidated financial statements continued 1 amounts represent anticipated losses connection transactions exclude effect offsetting financial instruments held mitigate risks 2 vies generally financed issuance debt instruments collateralized assets held vie substantially assets liabilities held firm related vies included “trading assets fair value” “trading liabilities fair value” respectively consolidated statement financial condition 3 firm obtains interests vies connection making investments real estate distressed loans types debt mezzanine instruments equities vies generally financed issuance debt equity instruments either collateralized indexed assets held vie substantially assets liabilities held firm related vies included “trading assets fair value” “other assets” “other liabilities accrued expenses” respectively consolidated statement financial condition 4 assets liabilities held firm related vies included “other assets” “other liabilities accrued expenses” respectively consolidated statement financial condition 5 consists outofthemoney written put options provide principal protection clients invested various fund products risk firm mitigated portfolio rebalancing assets related vies included “trading assets fair value” liabilities related vies included “other secured financings” “unsecured shortterm borrowings including current portion unsecured longterm borrowings” “unsecured longterm borrowings” consolidated statement financial condition assets vie carrying value liabilities maximum exposure loss exclude 397 billion december 2009 associated guarantees related firm’s performance borrowings vie recorded liabilities consolidated statement financial condition substantially liabilities included table relate additional borrowings vie associated principal protected notes guaranteed firm 6 aggregate amounts include 466 billion december 2009 related guarantees derivative transactions vies firm transferred assets 7 primarily consists written protection investmentgrade shortterm collateral held vies issued cdos 8 primarily consists total return swaps cdos clos firm generally transferred risks related underlying securities derivatives nonvies goldman sachs group inc subsidiaries notes consolidated financial statements continued following table sets forth firm’s total assets excluding benefit offsetting financial instruments held mitigate risks associated variable interests consolidated vies following table excludes vies firm holds majority voting interest unless activities vie primarily related securitization assetbacked financings singlelessee leasing arrangements 2009 accordance amended principles requiring enhanced disclosures following table also sets forth total liabilities included consolidated statement financial condition related firm’s consolidated vies firm aggregated consolidated vies based principal business activity reflected first column 1 consolidated vie assets liabilities presented intercompany eliminations include assets financed nonrecourse basis substantially vie assets included “trading assets fair value” “other assets” consolidated statements financial condition 2 vie liabilities generally collateralized related vie assets included “other secured financings” “other liabilities accrued expenses” consolidated statement financial condition vie liabilities generally provide recourse general credit firm 3 vie liabilities partially collateralized related vie assets included “other secured financings” consolidated statement financial condition 4 vie liabilities primarily included “securities sold agreements repurchase fair value” “other secured financings” consolidated statement financial condition generally provide recourse general credit firm 5 vie liabilities primarily included “trading liabilities fair value” consolidated statement financial condition 6 vie liabilities included “unsecured shortterm borrowings including current portion unsecured longterm borrowings” consolidated statement financial condition firm offbalancesheet commitments purchase finance cdos held structured investment vehicles december 2009 november 2008 goldman sachs group inc subsidiaries notes consolidated financial statements continued note 5 deposits following table sets forth deposits december 2009 november 2008 1 substantially us deposits interestbearing held gs bank usa 2 substantially nonus deposits interestbearing held goldman sachs bank europe plc gs bank europe included table time deposits 930 billion 849 billion december 2009 november 2008 respectively following table sets forth maturities time deposits december 2009 1 includes 242 million greater 100000 111 million matures within three months 58 million matures within three six months 32 million matures within six twelve months 41 million matures twelve months 2 substantially greater 100000 goldman sachs group inc subsidiaries notes consolidated financial statements continued note 6 shortterm borrowings december 2009 november 2008 shortterm borrowings 5045 billion 7389 billion respectively comprised 1293 billion 2123 billion respectively included “other secured financings” consolidated statements financial condition 3752 billion 5266 billion respectively unsecured shortterm borrowings see note 3 information secured financings unsecured shortterm borrowings include portion unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holder firm accounts promissory notes commercial paper certain hybrid financial instruments fair value fair value option shortterm borrowings recorded fair value recorded based amount cash received plus accrued interest amounts approximate fair value due shortterm nature obligations unsecured shortterm borrowings set forth 1 includes 173 billion december 2009 guaranteed federal deposit insurance corporation fdic temporary liquidity guarantee program tlgp 2 includes 1705 billion 2512 billion december 2009 november 2008 respectively issued group inc 3 includes 0 342 billion december 2009 november 2008 respectively guaranteed fdic tlgp 4 includes 0 751 million december 2009 november 2008 respectively guaranteed fdic tlgp 5 weighted average interest rates borrowings giving effect hedging activities 131 337 december 2009 november 2008 respectively excluded financial instruments accounted fair value fair value option goldman sachs group inc subsidiaries notes consolidated financial statements continued note 7 longterm borrowings december 2009 november 2008 longterm borrowings 19629 billion 18568 billion respectively comprised 1120 billion 1746 billion respectively included “other secured financings” consolidated statements financial condition 18509 billion 16822 billion respectively unsecured longterm borrowings see note 3 information regarding secured financings firm’s unsecured longterm borrowings extend 2043 consist principally senior borrowings unsecured longterm borrowings set forth 1 december 2009 november 2008 7912 billion 7008 billion respectively firm’s fixed rate debt obligations denominated us dollars interest rates ranged 163 1004 387 1004 respectively december 2009 november 2008 3829 billion 3375 billion respectively firm’s fixed rate debt obligations denominated nonus dollars interest rates ranged 080 745 067 888 respectively 2 december 2009 november 2008 3226 billion 3241 billion respectively firm’s floating rate debt obligations denominated us dollars december 2009 november 2008 3541 billion 3199 billion respectively firm’s floating rate debt obligations denominated nonus dollars floating interest rates generally based libor federal funds target rate equitylinked indexed instruments included floating rate obligations 3 includes 1903 billion december 2009 guaranteed fdic tlgp unsecured longterm borrowings maturity date set forth 1 unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holder included unsecured shortterm borrowings consolidated statements financial condition 2 unsecured longterm borrowings repayable prior maturity option firm reflected contractual maturity dates unsecured longterm borrowings redeemable prior maturity option holder reflected dates options become exercisable goldman sachs group inc subsidiaries notes consolidated financial statements continued firm enters derivative contracts effectively convert substantial portion unsecured longterm borrowings accounted fair value floating rate obligations accordingly excluding cumulative impact changes firm’s credit spreads carrying value unsecured longterm borrowings approximated fair value december 2009 november 2008 unsecured longterm borrowings firm elect fair value option cumulative impact due widening firm’s credit spreads would reduction carrying value total unsecured longterm borrowings less 1 approximately 9 december 2009 november 2008 respectively effective weighted average interest rates unsecured longterm borrowings set forth 1 includes fixed rate obligations converted floating rate obligations derivative contracts 2 weighted average interest rates december 2009 november 2008 excluded financial instruments accounted fair value fair value option subordinated borrowings december 2009 november 2008 unsecured longterm borrowings comprised subordinated borrowings outstanding principal amounts 1916 billion 1926 billion respectively set forth 1887 billion 1879 billion respectively issued group inc junior subordinated debt issued trusts connection fixedtofloating floating rate normal automatic preferred enhanced capital securities 2007 group inc issued total 225 billion remarketable junior subordinated debt goldman sachs capital ii goldman sachs capital iii apex trusts delaware statutory trusts turn issued 225 billion guaranteed perpetual normal automatic preferred enhanced capital securities apex third parties de minimis amount common securities group inc group inc also entered contracts apex trusts sell 225 billion perpetual noncumulative preferred stock issued group inc stock purchase contracts apex trusts wholly owned finance subsidiaries firm regulatory legal purposes consolidated accounting purposes firm pays interest semiannually 175 billion junior subordinated debt issued goldman sachs capital ii fixed annual rate 559 debt matures june 1 2043 firm pays interest quarterly 500 million junior subordinated debt issued goldman sachs capital iii rate per annum equal threemonth libor plus 057 debt matures september 1 2043 addition firm makes contract payments rate 020 per annum stock purchase contracts held apex trusts firm right defer payments goldman sachs group inc subsidiaries notes consolidated financial statements continued junior subordinated debt stock purchase contracts subject limitations therefore cause payment apex deferred extension period firm permitted among things pay dividends make certain repurchases common preferred stock junior subordinated debt junior right payment group inc’s senior indebtedness group inc’s subordinated borrowings connection apex issuance firm covenanted favor certain debtholders initially holders group inc’s 6345 junior subordinated debentures due february 15 2034 subject certain exceptions firm would redeem purchase group inc’s junior subordinated debt issued apex trusts prior applicable stock purchase date ii apex shares group inc’s series e series f preferred stock prior date ten years applicable stock purchase date unless applicable redemption purchase price exceed maximum amount determined reference aggregate amount net cash proceeds firm received sale qualifying equity securities 180day period preceding redemption purchase firm accounted stock purchase contracts equity instruments accordingly recorded cost stock purchase contracts reduction additional paidin capital see note 9 information preferred stock group inc issue connection stock purchase contracts junior subordinated debt issued trust connection trust preferred securities group inc issued 284 billion junior subordinated debentures 2004 goldman sachs capital trust delaware statutory trust turn issued 275 billion guaranteed preferred beneficial interests third parties 85 million common beneficial interests group inc invested proceeds sale junior subordinated debentures issued group inc trust wholly owned finance subsidiary firm regulatory legal purposes consolidated accounting purposes firm pays interest semiannually debentures annual rate 6345 debentures mature february 15 2034 coupon rate payment dates applicable beneficial interests interest rate payment dates applicable debentures firm right time defer payment interest debentures therefore cause payment trust’s preferred beneficial interests deferred case ten consecutive semiannual periods extension period firm permitted among things pay dividends make certain repurchases common stock trust permitted pay distributions common beneficial interests held group inc unless dividends payable preferred beneficial interests paid full debentures junior right payment group inc’s senior indebtedness group inc’s subordinated borrowings junior subordinated debt issued connection apex subordinated debt december 2009 firm 1407 billion subordinated debt outstanding 1378 billion issued group inc maturities ranging 2012 2038 effective weighted average interest rate debt 151 giving effect derivative contracts used convert fixed rate obligations floating rate obligations november 2008 firm 1417 billion subordinated debt outstanding 1370 billion issued group inc maturities ranging fiscal 2009 2038 effective weighted average interest rate debt 199 giving effect derivative contracts used convert fixed rate obligations floating rate obligations debt junior right payment firm’s senior indebtedness goldman sachs group inc subsidiaries notes consolidated financial statements continued note 8 commitments contingencies guarantees commitments following table summarizes firm’s commitments december 2009 november 2008 1 commitments extend credit presented net amounts syndicated third parties 2 included within noninvestmentgrade commitments december 2009 november 2008 120 billion 207 billion respectively related leveraged lending capital market transactions 40 million 164 million respectively related commercial real estate transactions 691 billion 709 billion respectively arising unfunded credit facilities including funded loans total notional amount firm’s leveraged lending capital market transactions 445 billion 797 billion december 2009 november 2008 respectively 3 consists commitments letters credit issued various banks firm provides counterparties lieu securities cash satisfy various collateral margin deposit requirements 4 consists firm’s commitments invest private equity real estate assets directly funds firm raises manages connection merchant banking investing activities consisting 246 billion 315 billion december 2009 november 2008 respectively related real estate private investments 1078 billion 1112 billion december 2009 november 2008 respectively related corporate private investments commitments include 1138 billion 1225 billion december 2009 november 2008 respectively commitments invest funds managed firm funded market value date investment 5 includes commitments 104 million 388 million december 2009 november 2008 respectively related firm’s new headquarters new york city goldman sachs group inc subsidiaries notes consolidated financial statements continued commitments extend credit firm’s commitments extend credit agreements lend counterparties fixed termination dates contingent satisfaction conditions borrowing set forth contract since commitments may expire unused reduced cancelled counterparty’s request total commitment amount necessarily reflect actual future cash flow requirements firm accounts commitments fair value extent firm recognizes losses commitments losses recorded within firm’s trading principal investments segment net related underwriting fees • commercial lending commitments firm’s commercial lending commitments generally extended connection contingent acquisition financing types corporate lending well commercial real estate financing total commitment amount necessarily reflect actual future cash flow requirements firm may syndicate substantial portions commitments future commitments may expire unused commitments may cancelled reduced request counterparty addition commitments extended contingent acquisition financing often intended shortterm nature borrowers often seek replace funding sources • william street credit extension program substantially commitments provided william street credit extension program investmentgrade corporate borrowers commitments program principally extended william street commitment corporation commitment corp consolidated wholly owned subsidiary gs bank usa gs bank usa subsidiaries gs bank usa commitments extended commitment corp supported part funding raised william street funding corporation funding corp another consolidated wholly owned subsidiary gs bank usa assets liabilities commitment corp funding corp legally separated assets liabilities firm assets commitment corp funding corp available respective shareholders claims respective creditors paid addition affiliate either commitment corp funding corp except limited cases expressly agreed writing responsible obligation either entity respect william street commitments sumitomo mitsui financial group inc smfg provides firm credit loss protection generally limited 95 first loss firm realizes approved loan commitments maximum approximately 950 million addition subject satisfaction certain conditions upon firm’s request smfg provide protection 70 additional losses commitments maximum 113 billion 375 million protection provided december 2009 november 2008 firm also uses financial instruments mitigate credit risks related certain william street commitments covered smfg • warehouse financing firm provides financing warehousing financial assets arrangements secured warehoused assets primarily consisting commercial mortgages december 2009 november 2008 goldman sachs group inc subsidiaries notes consolidated financial statements continued leases firm contractual obligations longterm noncancelable lease agreements principally office space expiring various dates 2069 certain agreements subject periodic escalation provisions increases real estate taxes charges future minimum rental payments net minimum sublease rentals set forth rent charged operating expense set forth contingencies firm involved number judicial regulatory arbitration proceedings concerning matters arising connection conduct businesses management believes based currently available information results proceedings aggregate material adverse effect firm’s financial condition may material firm’s operating results particular period depending part upon operating results period given inherent difficulty predicting outcome firm’s litigation regulatory matters particularly cases proceedings substantial indeterminate damages fines sought firm cannot estimate losses ranges losses cases proceedings reasonable possibility loss may incurred connection insurance business firm contingently liable provide guaranteed minimum death income benefits certain contract holders established reserve related 635 billion 613 billion contract holder account balances december 2009 november 2008 respectively benefits weighted average attained age contract holders 68 years december 2009 november 2008 net amount risk representing guaranteed minimum death income benefits excess contract holder account balances 196 billion 296 billion december 2009 november 2008 respectively see note 12 information firm’s insurance liabilities guarantees firm enters various derivative contracts meet definition guarantee asc 460 disclosures derivative contracts required contracts may cash settled firm basis conclude probable counterparties held inception underlying instruments related derivative contracts firm concluded conditions met certain large internationally active commercial investment bank counterparties certain counterparties accordingly firm included contracts tables goldman sachs group inc subsidiaries notes consolidated financial statements continued firm capacity agency lender indemnifies securities lending customers losses incurred event borrowers return securities collateral held insufficient cover market value securities borrowed ordinary course business firm provides financial guarantees obligations third parties eg performance bonds standby letters credit guarantees enable clients complete transactions merchant banking fundrelated guarantees represent obligations make payments beneficiaries guaranteed party fails fulfill obligation contractual arrangement beneficiary following table sets forth certain information firm’s derivative contracts meet definition guarantee certain guarantees december 2009 derivative contracts set forth include written equity commodity put options written currency contracts interest rate caps floors swaptions see note 3 information regarding credit derivative contracts meet definition guarantee included 1 amounts represent anticipated losses connection contracts 2 derivative contracts accounted fair value carrying value considered best indication paymentperformance risk individual contracts however carrying value excludes effect legal right setoff may exist enforceable netting agreement effect netting cash paid pursuant credit support agreements derivative contracts risk managed together derivative contracts meet definition guarantee asc 460 therefore amounts reflect firm’s overall risk related derivative activities november 2008 carrying value net liability related derivative guarantees 1746 billion 3 collateral held lenders connection securities lending indemnifications 2807 billion 1995 billion december 2009 november 2008 respectively contractual nature arrangements requires firm obtain collateral market value exceeds value securities loan borrower minimal performance risk associated guarantees 4 november 2008 carrying value net liability related financial guarantees 235 million firm established trusts including goldman sachs capital ii iii entities limited purpose issuing securities third parties lending proceeds firm entering contractual arrangements firm third parties related purpose see note 7 information regarding transactions involving goldman sachs capital ii iii firm effectively provides full unconditional guarantee securities issued entities consolidated accounting purposes timely payment firm amounts due entities borrowing preferred stock related contractual arrangements sufficient cover payments due securities issued entities management believes unlikely circumstances occur nonperformance part paying agents service providers would make necessary firm make payments related entities required terms borrowing preferred stock related contractual arrangements connection certain expenses incurred entities group inc also fully unconditionally guarantees securities issued gs finance corp wholly owned finance subsidiary firm consolidated accounting purposes goldman sachs group inc subsidiaries notes consolidated financial statements continued ordinary course business firm indemnifies guarantees certain service providers clearing custody agents trustees administrators specified potential losses connection acting agent providing services firm affiliates firm also indemnifies clients potential losses incurred event specified thirdparty service providers including subcustodians thirdparty brokers improperly execute transactions addition firm member payment clearing settlement networks well securities exchanges around world may require firm meet obligations networks exchanges event member defaults connection prime brokerage clearing businesses firm agrees clear settle behalf clients transactions entered brokerage firms firm’s obligations respect transactions secured assets client’s account well proceeds received transactions cleared settled firm behalf client connection joint venture investments firm may issue loan guarantees may liable event fraud misappropriation environmental liabilities certain matters involving borrower firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements liabilities related guarantees indemnifications recognized consolidated statements financial condition december 2009 november 2008 firm provides representations warranties counterparties connection variety commercial transactions occasionally indemnifies potential losses caused breach representations warranties firm may also provide indemnifications protecting changes adverse application certain us tax laws connection ordinarycourse transactions securities issuances borrowings derivatives addition firm may provide indemnifications counterparties protect event additional taxes owed payments withheld due either change adverse application certain nonus tax laws indemnifications generally standard contractual terms entered ordinary course business generally stated notional amounts included indemnifications contingencies triggering obligation indemnify expected occur firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements liabilities related arrangements recognized consolidated statements financial condition december 2009 november 2008 group inc guaranteed payment obligations goldman sachs co gsco gs bank usa gs bank europe subject certain exceptions november 2008 firm contributed subsidiaries gs bank usa group inc agreed guarantee certain losses including creditrelated losses relating assets held contributed entities connection guarantee group inc also agreed pledge gs bank usa certain collateral including interests subsidiaries illiquid assets addition group inc guarantees many obligations consolidated subsidiaries transactionbytransaction basis negotiated counterparties group inc unable develop estimate maximum payout subsidiary guarantees however guaranteed obligations also obligations consolidated subsidiaries included table group inc’s liabilities guarantor separately disclosed goldman sachs group inc subsidiaries notes consolidated financial statements continued note 9 shareholders’ equity common preferred equity 2009 common shares outstanding increased 726 million shares included 467 million common shares issued public offering 12300 per share total proceeds 575 billion second quarter 2009 june 2009 group inc repurchased us department treasury us treasury 100 million shares company’s fixed rate cumulative perpetual preferred stock series h series h preferred stock issued us treasury pursuant us treasury’s tarp capital purchase program repurchase resulted onetime preferred dividend 426 million included consolidated statement earnings year ended december 2009 onetime preferred dividend represented difference carrying value redemption value series h preferred stock connection issuance series h preferred stock october 2008 firm issued 10year warrant us treasury purchase 122 million shares common stock exercise price 12290 per share firm repurchased warrant full july 2009 11 billion amount recorded reduction additional paidin capital firm’s cumulative payments us treasury related us treasury’s tarp capital purchase program totaled 1142 billion including return us treasury’s 100 billion investment inclusive 426 million described 318 million preferred dividends 11 billion related warrant repurchase dividends declared per common share 105 2009 140 2008 140 2007 january 19 2010 board declared dividend 035 per common share paid march 30 2010 common shareholders record march 2 2010 december 15 2008 board declared dividend 04666666 per common share paid march 26 2009 common shareholders record february 24 2009 dividend 04666666 per common share reflective fourmonth period december 2008 march 2009 due change firm’s fiscal yearend 2009 2008 firm repurchased 19578 105 million shares common stock average cost per share 8083 19318 total cost 2 million 204 billion respectively shares repurchased 2009 primarily related repurchases made gsco facilitate customer transactions ordinary course business addition satisfy minimum statutory employee tax withholding requirements related delivery common stock underlying rsus firm cancelled 112 million 67 million rsus total value 863 million 131 billion 2009 2008 respectively firm’s share repurchase program intended help maintain appropriate level common equity substantially offset increases share count time resulting employee sharebased compensation repurchase program effected primarily regular openmarket purchases amounts timing determined primarily firm’s current projected capital positions ie comparisons firm’s desired level capital actual level capital may also influenced general market conditions prevailing price trading volumes firm’s common stock repurchase firm’s common stock requires approval board governors federal reserve system federal reserve board goldman sachs group inc subsidiaries notes consolidated financial statements continued december 2009 firm 174000 shares perpetual preferred stock issued outstanding set forth following table share noncumulative preferred stock issued outstanding par value 001 liquidation preference 25000 represented 1000 depositary shares redeemable firm’s option subject approval federal reserve board redemption price equal 25000 plus declared unpaid dividends share 10 cumulative perpetual preferred stock series g series g preferred stock issued outstanding par value 001 liquidation preference 100000 redeemable firm’s option subject approval federal reserve board redemption price equal 110000 plus accrued unpaid dividends connection issuance series g preferred stock firm issued fiveyear warrant purchase 435 million shares common stock exercise price 11500 per share warrant exercisable time october 1 2013 number shares common stock underlying warrant exercise price subject adjustment certain dilutive events series preferred stock pari passu preference firm’s common stock upon liquidation dividends series preferred stock declared payable quarterly arrears firm’s ability declare pay dividends purchase redeem otherwise acquire common stock subject certain restrictions event firm fails pay set aside full dividends preferred stock latest completed dividend period 2007 board authorized 175001 shares perpetual noncumulative preferred stock series e series e preferred stock 50001 shares perpetual noncumulative preferred stock series f series f preferred stock connection apex issuance see note 7 information apex issuance stock purchase contracts group inc issue relevant stock purchase dates june 1 2013 september 1 2013 series e series f preferred stock respectively one share series e series f preferred stock goldman sachs capital ii iii respectively 100000 principal amount subordinated debt held trusts issued share series e series f preferred stock par value 001 liquidation preference 100000 per share dividends series e preferred stock declared payable semiannually fixed annual rate 579 stock issued prior june 1 2012 quarterly thereafter rate per annum equal greater threemonth libor plus 077 ii 400 dividends series f preferred stock declared payable quarterly rate per annum equal threemonth libor plus 077 stock issued prior september 1 2012 quarterly thereafter rate per annum equal greater threemonth libor plus 077 ii 400 preferred stock may redeemed option firm stock purchase dates day thereafter subject regulatory approval certain covenant restrictions governing firm’s ability redeem purchase preferred stock without issuing common stock instruments equitylike characteristics goldman sachs group inc subsidiaries notes consolidated financial statements continued preferred dividends declared set forth 1 excludes onetime preferred dividend 426 million related repurchase tarp series h preferred stock second quarter 2009 well 44 million accrued dividends paid upon repurchase series h preferred stock january 19 2010 board declared dividends 23958 38750 25556 per share series preferred stock series b preferred stock series c preferred stock series preferred stock respectively paid february 10 2010 preferred shareholders record january 26 2010 addition board declared dividend 2500 per share series g preferred stock paid february 10 2010 preferred shareholders record january 26 2010 accumulated comprehensive income following table sets forth firm’s accumulated comprehensive incomeloss type 1 consists net unrealized gainslosses 84 million 55 million availableforsale securities held firm’s insurance subsidiaries december 2009 november 2008 respectively net unrealized gains 3 million 8 million availableforsale securities held investees accounted equity method december 2009 november 2008 respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued note 10 earnings per common share computations basic diluted earnings per common share set forth 1 diluted eps computations include antidilutive effect rsus stock options warrants follows 2 first quarter fiscal 2009 firm adopted amended accounting principles require unvested sharebased payment awards nonforfeitable rights dividends dividend equivalents treated separate class securities calculating earnings per common share impact applying amended principles year ended december 2009 one month ended december 2008 reduction basic earnings per common share 006 increase basic diluted loss per common share 003 respectively impact diluted earnings per common share year ended december 2009 prior periods restated due immateriality goldman sachs group inc subsidiaries notes consolidated financial statements continued note 11 goodwill identifiable intangible assets goodwill following table sets forth carrying value firm’s goodwill operating segment included “other assets” consolidated statements financial condition 1 primarily related slk llc slk 2 primarily related ayco company lp ayco goldman sachs group inc subsidiaries notes consolidated financial statements continued identifiable intangible assets following table sets forth gross carrying amount accumulated amortization net carrying amount firm’s identifiable intangible assets 1 primarily includes firm’s clearance execution nasdaq customer lists related slk financial counseling customer lists related ayco 2 primarily includes voba related firm’s insurance businesses 3 primarily includes marketingrelated assets contractual rights goldman sachs group inc subsidiaries notes consolidated financial statements continued substantially firm’s identifiable intangible assets considered finite lives amortized estimated lives weighted average remaining life firm’s identifiable intangible assets approximately 11 years “depreciation amortization” consolidated statements earnings includes amortization related identifiable intangible assets 96 million 240 million 39 million years ended december 2009 november 2008 one month ended december 2008 respectively estimated future amortization existing identifiable intangible assets 2014 set forth note 12 assets liabilities assets generally less liquid nonfinancial assets following table sets forth firm’s assets type 1 net accumulated depreciation amortization 728 billion 655 billion december 2009 november 2008 respectively 2 see note 11 information regarding firm’s goodwill identifiable intangible assets 3 excludes investments 295 billion 345 billion accounted fair value fair value option december 2009 november 2008 respectively included “trading assets fair value” consolidated statements financial condition goldman sachs group inc subsidiaries notes consolidated financial statements continued liabilities following table sets forth firm’s liabilities accrued expenses type 1 insurancerelated liabilities set forth table separate account liabilities supported separate account assets representing segregated contract holder funds variable annuity life insurance contracts separate account assets included “cash securities segregated regulatory purposes” consolidated statements financial condition liabilities future benefits unpaid claims include liabilities arising reinsurance provided firm insurers firm receivable 129 billion 130 billion december 2009 november 2008 respectively related reinsurance contracts reported “receivables customers counterparties” consolidated statements financial condition addition firm ceded risks reinsurers related certain liabilities future benefits unpaid claims receivable 870 million 120 billion december 2009 november 2008 respectively related reinsurance contracts reported “receivables customers counterparties” consolidated statements financial condition contracts cede risks reinsurers relieve firm obligations contract holders liabilities future benefits unpaid claims include 184 billion 978 million carried fair value fair value option december 2009 november 2008 respectively reserves guaranteed minimum death income benefits represent liability expected value guaranteed benefits excess projected annuity account balances reserves based total payments expected made less total fees expected assessed life contract 2 includes 598 million 784 million related consolidated investment funds december 2009 november 2008 respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued note 13 employee benefit plans firm sponsors various pension plans certain postretirement benefit plans primarily healthcare life insurance firm also provides certain benefits former inactive employees prior retirement defined benefit pension plans postretirement plans employees certain nonus subsidiaries participate various defined benefit pension plans generally provide benefits based years credited service percentage employee’s eligible compensation firm maintains defined benefit pension plan uk employees april 2008 uk defined benefit plan closed new participants continue accrue benefits existing participants firm also maintains defined benefit pension plan substantially us employees hired prior november 1 2003 november 2004 plan closed new participants frozen existing participants would accrue additional benefits addition firm maintains unfunded postretirement benefit plans provide medical life insurance eligible retirees dependents covered programs november 30 2007 firm adopted amended principles related employers’ accounting defined benefit pension postretirement plans require entity recognize statement financial condition funded status defined benefit pension postretirement plans measured difference fair value plan assets benefit obligation upon adoption amended accounting principles required entity recognize previously unrecognized actuarial gains losses prior service costs transition obligations assets within “accumulated comprehensive incomeloss” consolidated statements changes shareholders’ equity derecognize additional minimum pension liabilities result adopting amended accounting principles firm recorded 2007 increases 59 million 253 million “other assets” “other liabilities accrued expenses” respectively 194 million loss net taxes within “accumulated comprehensive incomeloss” goldman sachs group inc subsidiaries notes consolidated financial statements continued following table provides summary changes plans’ benefit obligations fair value plan assets years ended december 2009 november 2008 well statement funded status plans december 2009 november 2008 goldman sachs group inc subsidiaries notes consolidated financial statements continued accumulated benefit obligation defined benefit pension plans 131 billion 769 million december 2009 november 2008 respectively plans accumulated benefit obligation exceeded plan assets aggregate projected benefit obligation accumulated benefit obligation 139 billion 129 billion respectively december 2009 426 million 413 million respectively november 2008 fair value plan assets plans 111 billion 317 million december 2009 november 2008 respectively components pension expenseincome postretirement expense set forth goldman sachs group inc subsidiaries notes consolidated financial statements continued weighted average assumptions used develop actuarial present value projected benefit obligation net periodic pension cost set forth assumptions represent weighted average assumptions used us nonus plans based economic environment applicable country generally firm determined discount rates defined benefit plans referencing indices longterm highquality bonds ensuring discount rate exceed yield reported indices adjustment duration plans’ liabilities firm’s approach determining longterm rate return plan assets based upon historical financial market relationships existed time presumption trend generally remain constant future goldman sachs group inc subsidiaries notes consolidated financial statements continued measurement purposes annual growth rate per capita cost covered healthcare benefits 851 assumed year ending december 2010 rate assumed decrease ratably 500 year ending december 2017 remain level thereafter assumed cost healthcare effect amounts reported firm’s postretirement plans 1 change assumed healthcare cost trend rate would following effects following table sets forth composition plan assets us nonus defined benefit pension plans asset category investment approach firm’s us major nonus defined benefit pension plans involves employing sufficient level flexibility capture investment opportunities occur maintaining reasonable parameters ensure prudence care exercised execution investment programs plans employ total return investment approach whereby mix broadly similar actual asset allocation december 2009 equity securities debt securities assets targeted maximize longterm return assets given level risk investment risk measured monitored ongoing basis firm’s retirement committee periodic portfolio reviews meetings investment managers annual liability measurements firm’s pension plan assets consist collective bank trusts mutual funds corporate bonds alternative investments eg hedge funds cash shortterm investments real estate investment trust holdings substantially firm’s pension plan assets classified within level 1 level 2 fair value hierarchy december 31 2009 one investment us pension plan classified within level 3 fair value hierarchy december 31 2009 level 3 asset comprised less 1 firm’s total pension plan assets december 31 2009 firm expects contribute minimum 49 million pension plans 13 million postretirement plans 2010 goldman sachs group inc subsidiaries notes consolidated financial statements continued following table sets forth benefits projected paid firm’s us nonus defined benefit pension postretirement plans net medicare subsidy receipts reflects expected future service costs appropriate defined contribution plans firm contributes employersponsored us nonus defined contribution plans firm’s contribution plans 178 million 208 million 258 million years ended december 2009 november 2008 november 2007 respectively note 14 employee incentive plans stock incentive plan firm sponsors stock incentive plan goldman sachs amended restated stock incentive plan sip provides grants incentive stock options nonqualified stock options stock appreciation rights dividend equivalent rights restricted stock rsus awards performance conditions sharebased awards second quarter 2003 sip approved firm’s shareholders effective grants april 1 2003 amended restated effective december 31 2008 total number shares common stock may delivered pursuant awards granted sip end 2008 fiscal year could exceed 250 million shares total number shares common stock may delivered pursuant awards granted sip 2009 fiscal year fiscal year thereafter cannot exceed 5 issued outstanding shares common stock determined last day immediately preceding fiscal year increased number shares available awards previous years covered awards granted years december 2009 november 2008 1406 million 1624 million shares respectively available grant sip goldman sachs group inc subsidiaries notes consolidated financial statements continued compensation arrangements firm maintained deferred compensation plans eligible employees general plans participants able defer payment portion cash yearend compensation deferral period participants able notionally invest deferrals certain alternatives available plans generally current tax law participants subject income tax amounts deferred notional investment earnings returns distributed firm entitled corresponding tax deduction amounts distributed beginning 2008 year deferred compensation plans frozen respect new contributions plans terminated participants generally received distributions benefits 2009 except payments accelerated certain senior executives firm recognized compensation expense amounts deferred plans december 2009 november 2008 9 million 220 million respectively related plans included “other liabilities accrued expenses” consolidated statements financial condition firm discount stock program participating managing directors may permitted acquire rsus effective 25 discount 2009 2008 yearend compensation program suspended individual permitted acquire discounted rsus thereunder prior years 25 discount effected additional grant rsus equal onethird number rsus purchased qualifying participants purchased rsus 100 vested granted shares underlying generally subject certain transfer restrictions waived december 2008 except certain senior executives shares underlying rsus granted effect 25 discount generally vest equal installments second third anniversaries following grant date transferable third anniversary grant date transfer restrictions vested awards waived december 2008 except certain senior executives compensation expense related rsus recognized vesting period total value rsus granted 2007 order effect 25 discount 66 million goldman sachs group inc subsidiaries notes consolidated financial statements continued restricted stock units firm issues rsus employees sip primarily connection yearend compensation acquisitions rsus valued based closing price underlying shares date grant taking account liquidity discount applicable postvesting transfer restrictions yearend rsus generally vest deliver outlined applicable rsu agreements employee rsu agreements provide vesting accelerated certain circumstances upon retirement death extended absence total rsus outstanding december 2009 november 2008 december 2008 167 million units 120 million units 320 million units respectively required future service condition delivery underlying shares common stock ii 281 million units 439 million units 444 million units respectively require future service cases delivery underlying shares common stock conditioned grantees satisfying certain vesting requirements outlined award agreements activity related rsus set forth 1 weighted average grantdate fair value rsus granted years ended december 2009 november 2008 november 2007 one month ended december 2008 15131 15431 22413 6760 respectively fair value december 2008 grant includes 143 liquidity discount reflect postvesting transfer restrictions 4 years 2 aggregate fair value awards vested years ended december 2009 november 2008 november 2007 one month ended december 2008 218 billion 103 billion 563 billion 41 million respectively 3 includes rsus cash settled first quarter 2010 firm granted employees 271 million yearend rsus 141 million rsus require future service condition delivery 130 million rsus require future service rsus subject additional conditions outlined rsu agreements generally shares underlying rsus net required withholding tax vest deliver threeyear period subject postvesting transfer restrictions january 2015 grants included table goldman sachs group inc subsidiaries notes consolidated financial statements continued stock options stock options granted employees generally vest outlined applicable stock option agreement options granted fiscal 2009 yearend options granted december 2008 become exercisable onethird installments january 2010 january 2011 january 2012 shares received exercise cannot sold transferred otherwise disposed january 2014 yearend 2008 options expire december 31 2018 yearend options granted december 2007 become exercisable january 2011 expire november 24 2017 shares received exercise yearend 2007 options cannot sold transferred otherwise disposed january 2013 employee stock option agreements provide vesting accelerated certain circumstances upon retirement death extended absence general stock options expire tenth anniversary grant date although may subject earlier termination cancellation certain circumstances accordance terms sip applicable stock option agreement dilutive effect firm’s outstanding stock options included “average common shares outstanding diluted” consolidated statements earnings activity related stock options set forth total intrinsic value options exercised years ended december 2009 november 2008 november 2007 one month ended december 2008 484 million 433 million 132 billion 1 million respectively options outstanding december 2009 set forth goldman sachs group inc subsidiaries notes consolidated financial statements continued weighted average fair value options granted year ended 2007 one month ended december 2008 5104 1408 per option respectively fair value estimated grant date based blackscholes optionpricing model principally using following weighted average assumptions common stock underlying options granted year ended 2007 subject transfer restrictions january 2013 common stock underlying options granted one month ended december 2008 subject transfer restrictions january 2014 value common stock underlying options granted year ended 2007 one month ended december 2008 reflects liquidity discount 240 267 respectively result transfer restrictions liquidity discount based firm’s predetermined written liquidity discount policies following table sets forth sharebased compensation related tax benefit 1 represents tax benefitprovision recognized additional paidin capital stock options exercised delivery common stock underlying rsus december 2009 983 million total unrecognized compensation cost related nonvested sharebased compensation arrangements cost expected recognized weighted average period 159 years note 15 transactions affiliated funds firm formed numerous nonconsolidated investment funds thirdparty investors firm generally acts investment manager funds entitled receive management fees certain cases advisory fees incentive fees overrides funds fees amounted 252 billion 314 billion 362 billion 206 million years ended december 2009 november 2008 november 2007 one month ended december 2008 respectively december 2009 november 2008 fees receivable funds 104 billion 861 million respectively additionally firm may invest alongside thirdparty investors certain funds aggregate carrying value firm’s interests funds 1384 billion 1445 billion december 2009 november 2008 respectively ordinary course business firm may also engage activities funds including among others securities lending trade execution trading custody acquisition bridge financing see note 8 firm’s commitments related funds goldman sachs group inc subsidiaries notes consolidated financial statements continued note 16 income taxes components net tax expense reflected consolidated statements earnings set forth deferred income taxes reflect net tax effects temporary differences financial reporting tax bases assets liabilities temporary differences result taxable deductible amounts future years measured using tax rates laws effect differences expected reverse significant components firm’s deferred tax assets liabilities set forth 1 relates primarily ability utilize losses various tax jurisdictions 2 netting within tax jurisdictions 3 relates depreciation amortization goldman sachs group inc subsidiaries notes consolidated financial statements continued firm permanently reinvests eligible earnings certain foreign subsidiaries accordingly accrue us income taxes would arise earnings repatriated december 2009 november 2008 policy resulted unrecognized net deferred tax liability 234 billion 108 billion respectively attributable reinvested earnings 1621 billion 1160 billion respectively 2009 2008 valuation allowance decreased 19 million primarily due utilization losses previously considered likely expire unused firm federal net operating loss carryforwards primarily resulting acquisitions 266 million 172 million december 2009 november 2008 respectively firm recorded related net deferred income tax asset 91 million 56 million december 2009 november 2008 respectively carryforwards subject annual limitations utilization begin expire 2016 firm state local net operating loss carryforwards primarily resulting acquisitions 178 billion 259 billion december 2009 november 2008 respectively firm recorded related net deferred income tax asset 47 million 97 million december 2009 november 2008 respectively carryforwards subject annual limitations utilization begin expire 2012 firm foreign net operating loss carryforwards 24 million 5 million december 2009 november 2008 respectively net deferred tax asset recorded losses likely asset realized carryforwards subject limitation utilization carried forward indefinitely firm recorded valuation allowances net operating losses 46 million 60 million december 2009 november 2008 respectively firm foreign tax credit carryforwards 277 million 334 million december 2009 november 2008 respectively carryforwards subject limitation utilization begin expire 2019 firm capital loss carryforwards 99 million 50 million december 2009 november 2008 respectively firm recorded related net deferred income tax asset 35 million 17 million december 2009 november 2008 respectively carryforwards subject annual limitations utilization begin expire 2010 firm adopted amended principles related accounting uncertainty income taxes december 1 2007 recorded transition adjustment resulting reduction 201 million beginning retained earnings following table sets forth changes firm’s unrecognized tax benefits millions 1 includes 175 million recorded one month ended december 2008 goldman sachs group inc subsidiaries notes consolidated financial statements continued december 2009 november 2008 firm’s liability unrecognized tax benefits reported “other liabilities accrued expenses” consolidated statements financial condition 193 billion 137 billion respectively december 2009 november 2008 firm reported related deferred tax asset 100 billion 625 million respectively “other assets” consolidated statements financial condition recognized net tax benefit 921 million 748 million would reduce firm’s effective income tax rate december 2009 november 2008 respectively december 2009 november 2008 firm’s accrued liability interest expense related income tax matters income tax penalties 194 million 111 million respectively firm reports interest expense related income tax matters “provision taxes” consolidated statements earnings income tax penalties “other expenses” consolidated statements earnings firm recognized 62 million 37 million 3 million interest income tax penalties years ended december 2009 november 2008 one month ended december 2008 respectively reasonably possible unrecognized tax benefits could change significantly twelve months subsequent december 2009 time possible estimate change impact firm’s effective tax rate next twelve months firm subject examination us internal revenue service irs taxing authorities jurisdictions firm significant business operations united kingdom japan hong kong korea various states new york tax years examination vary jurisdiction table earliest tax years remain subject examination major jurisdiction 1 irs examination fiscal 2005 2006 2007 began 2008 irs examination fiscal 2003 2004 completed liabilities years yet final 2 new york state city examination fiscal 2004 2005 2006 began 2008 years subsequent years remain open examination taxing authorities firm believes liability unrecognized tax benefits established adequate relation potential additional assessments resolution tax matters expected material effect firm’s financial condition may material firm’s operating results particular period depending part upon operating results period goldman sachs group inc subsidiaries notes consolidated financial statements continued reconciliation us federal statutory income tax rate firm’s effective income tax rate set forth 1 primarily includes effect liability increase result adopting amended principles related accounting uncertainty income taxes 2 primarily includes effect audit settlements tax benefitsprovision approximately 793 million 645 million 908 million 0 years ended december 2009 november 2008 november 2007 one month ended december 2008 respectively related delivery common stock underlying rsus exercise options recorded “additional paidin capital” consolidated statements financial condition changes shareholders’ equity note 17 regulation capital adequacy federal reserve board primary us regulator group inc bank holding company august 2009 also became financial holding company us grammleachbliley act 1999 bank holding company firm subject consolidated regulatory capital requirements administered federal reserve board firm’s bank depository institution subsidiaries including gs bank usa subject similar capital requirements federal reserve board’s capital adequacy requirements regulatory framework prompt corrective action pca applicable gs bank usa firm bank depository institution subsidiaries must meet specific capital requirements involve quantitative measures assets liabilities certain offbalancesheet items calculated regulatory reporting practices firm bank depository institution subsidiaries’ capital amounts well gs bank usa’s pca classification also subject qualitative judgments regulators components risk weightings factors many firm’s subsidiaries including gsco firm’s brokerdealer subsidiaries subject separate regulation capital requirements described goldman sachs group inc subsidiaries notes consolidated financial statements continued following table sets forth information regarding group inc’s capital ratios december 2009 calculated accordance federal reserve board’s regulatory capital requirements currently applicable bank holding companies based capital accord basel committee banking supervision basel ratios used federal reserve board us federal banking agencies supervisory review process including assessment firm’s capital adequacy calculation ratios includes certain market risk measures review federal reserve board calculation ratios reviewed federal reserve board accordingly ratios may revised subsequent filings riskweighted assets rwas federal reserve board’s riskbased capital guidelines calculated based amount market risk credit risk rwas market risk include certain measures review federal reserve board credit risk onbalance sheet assets based balance sheet value offbalance sheet exposures including otc derivatives commitments credit equivalent amount calculated based notional trade assets amounts assigned risk weight depending among things whether counterparty sovereign bank qualifying securities firm entity collateral held depending nature collateral firm’s tier 1 leverage ratio defined tier 1 capital basel divided adjusted average total assets includes adjustments disallowed goodwill certain intangible assets federal reserve board regulations require bank holding companies maintain minimum tier 1 capital ratio 4 minimum total capital ratio 8 required minimum tier 1 capital ratio total capital ratio order considered “well capitalized” bank holding company federal reserve board guidelines 6 10 respectively bank holding companies may expected maintain ratios well minimum levels depending upon particular condition risk profile growth plans minimum tier 1 leverage ratio 3 bank holding companies received highest supervisory rating federal reserve board guidelines implemented federal reserve board’s riskbased capital measure market risk bank holding companies must minimum tier 1 leverage ratio 4 firm currently working implement requirements set revised framework international convergence capital measurement capital standards issued basel committee banking supervision basel ii applicable bank holding company us banking regulators incorporated basel ii framework existing riskbased capital requirements requiring internationally active banking organizations group inc transition basel ii several years goldman sachs group inc subsidiaries notes consolidated financial statements continued gs bank usa new york statechartered bank member federal reserve system federal deposit insurance corporation fdic regulated federal reserve board new york state banking department nysbd subject minimum capital requirements subject certain exceptions similar applicable bank holding companies gs bank usa computes capital ratios accordance regulatory capital guidelines currently applicable state member banks based basel implemented federal reserve board purposes assessing adequacy capital order considered “well capitalized” depository institution federal reserve board guidelines gs bank usa must maintain tier 1 capital ratio least 6 total capital ratio least 10 tier 1 leverage ratio least 5 november 2008 firm contributed subsidiaries gs bank usa connection contribution gs bank usa agreed federal reserve board minimum capital ratios excess “well capitalized” levels accordingly period time gs bank usa expected maintain tier 1 capital ratio least 8 total capital ratio least 11 tier 1 leverage ratio least 6 following table sets forth information regarding gs bank usa’s capital ratios basel implemented federal reserve board december 2009 consistent calculation group inc’s capital ratios calculation gs bank usa’s capital ratios includes certain market risk measures review federal reserve board accordingly ratios may revised subsequent filings gs bank usa currently working implement basel ii framework similar firm’s requirement bank holding company gs bank usa required transition basel ii next several years deposits gs bank usa insured fdic extent provided law federal reserve board requires depository institutions maintain cash reserves federal reserve bank amount deposited firm’s depository institution subsidiaries held federal reserve bank approximately 2743 billion 94 million december 2009 november 2008 respectively exceeded required reserve amounts 2586 billion 6 million december 2009 november 2008 respectively gs bank europe wholly owned credit institution regulated irish financial services regulatory authority subject minimum capital requirements december 2009 november 2008 gs bank usa gs bank europe compliance regulatory capital requirements transactions gs bank usa subsidiaries group inc subsidiaries affiliates generally subsidiaries gs bank usa regulated federal reserve board regulations generally limit types amounts transactions including loans borrowings gs bank usa may take place generally require transactions armslength basis goldman sachs group inc subsidiaries notes consolidated financial statements continued firm’s us regulated brokerdealer subsidiaries include gsco goldman sachs execution clearing lp gsec gsco gsec registered us brokerdealers futures commission merchants subject rule 15c31 sec rule 117 commodity futures trading commission specify uniform minimum net capital requirements defined registrants also effectively require significant part registrants’ assets kept relatively liquid form gsco gsec elected compute minimum capital requirements accordance “alternative net capital requirement” permitted rule 15c31 december 2009 gsco regulatory net capital defined rule 15c31 1365 billion exceeded amount required 1181 billion december 2009 gsec regulatory net capital defined rule 15c31 197 billion exceeded amount required 186 billion addition alternative minimum net capital requirements gsco also required hold tentative net capital excess 1 billion net capital excess 500 million accordance market credit risk standards appendix e rule 15c31 gsco also required notify sec event tentative net capital less 5 billion december 2009 november 2008 gsco tentative net capital net capital excess minimum notification requirements firm us insurance subsidiaries subject state insurance regulation oversight states domiciled states licensed addition certain firm’s insurance subsidiaries outside us part lloyd’s market regulated uk’s financial services authority fsa certain regulated bermuda monetary authority firm’s insurance subsidiaries compliance regulatory capital requirements december 2009 november 2008 firm’s principal nonus regulated subsidiaries include goldman sachs international gsi goldman sachs japan co ltd gsjcl gsi firm’s regulated uk brokerdealer subject capital requirements fsa gsjcl firm’s regulated japanese brokerdealer subject capital requirements imposed japan’s financial services agency december 2009 november 2008 gsi gsjcl compliance local capital adequacy requirements certain nonus subsidiaries firm also subject capital adequacy requirements promulgated authorities countries operate december 2009 november 2008 subsidiaries compliance local capital adequacy requirements regulatory requirements referred restrict group inc’s ability withdraw capital regulated subsidiaries december 2009 november 2008 approximately 2349 billion 2692 billion respectively net assets regulated subsidiaries restricted payment dividends group inc addition limitations payment dividends imposed federal state laws federal reserve board fdic nysbd authority prohibit limit payment dividends banking organizations supervise including gs bank usa relevant regulator’s opinion payment dividend would constitute unsafe unsound practice light financial condition banking organization goldman sachs group inc subsidiaries notes consolidated financial statements continued note 18 business segments reporting management firm’s operating results categorized following three business segments investment banking trading principal investments asset management securities services basis presentation reporting segments certain firm’s business lines aggregated similar economic characteristics similar following areas nature services provide ii methods distribution iii types clients serve iv regulatory environments operate cost drivers firm taken whole compensation headcount levels business activity broadly similar firm’s business segments compensation benefits expenses within firm’s segments reflect among factors overall performance firm well performance individual business units consequently pretax margins one segment firm’s business may significantly affected performance firm’s business segments firm allocates revenues expenses among three business segments due integrated nature segments estimates judgments made allocating certain revenue expense items transactions segments based specific criteria approximate thirdparty rates total operating expenses include corporate items allocated individual business segments allocation process based manner management views business firm segment information presented table prepared according following methodologies • revenues expenses directly associated segment included determining pretax earnings • net revenues firm’s segments include allocations interest income interest expense specific securities commodities positions relation cash generated funding requirements underlying positions net interest included within segment net revenues consistent way management assesses segment performance • overhead expenses directly allocable specific segments allocated ratably based direct segment expenses goldman sachs group inc subsidiaries notes consolidated financial statements continued segment operating results management believes following information provides reasonable representation segment’s contribution consolidated pretax earnings total assets 1 net revenues include net interest income set forth table 2 net revenues include noninterest revenues set forth table goldman sachs group inc subsidiaries notes consolidated financial statements continued trading principal investments revenues include 36 million 61 million 6 million 2 million years ended december 2009 november 2008 november 2007 one month ended december 2008 respectively realized gainslosses securities held within firm’s insurance subsidiaries accounted availableforsale 3 operating expenses include net provisions number litigation regulatory proceedings 104 million 4 million 37 million 68 million years ended december 2009 november 2008 november 2007 one month ended december 2008 respectively allocated firm’s segments 4 pretax earnings include total depreciation amortization set forth table geographic information due highly integrated nature international financial markets firm manages businesses based profitability enterprise whole since significant portion firm’s activities require crossborder coordination order facilitate needs firm’s clients methodology allocating firm’s profitability geographic regions dependent estimates management judgment geographic results generally allocated follows • investment banking location client investment banking team • fixed income currency commodities equities location trading desk • principal investments location investment • asset management location sales team • securities services location primary market underlying security goldman sachs group inc subsidiaries notes consolidated financial statements continued following table sets forth total net revenues pretax earnings net earnings firm geographic region allocated based methodology referred well percentage total net revenues pretax earnings net earnings geographic region 1 substantially relates us 2 emea europe middle east africa 3 consists net provisions number litigation regulatory proceedings goldman sachs group inc subsidiaries notes consolidated financial statements continued note 19 interest income interest expense following table sets forth details firm’s interest income interest expense 1 interest income recorded accrual basis based contractual interest rates 2 primarily includes interest income customer debit balances interestearning assets 3 includes interest unsecured shortterm borrowings shortterm secured financings 4 includes interest unsecured longterm borrowings longterm secured financings 5 primarily includes interest expense customer credit balances interestbearing liabilities goldman sachs group inc subsidiaries notes consolidated financial statements continued note 20 parent company group inc condensed statements earnings group inc condensed statements financial condition group inc condensed statements cash flows supplemental disclosures cash payments thirdparty interest net capitalized interest 277 billion 718 billion 778 billion 248 million years ended december 2009 november 2008 november 2007 one month ended december 2008 respectively cash payments income taxes net refunds 277 billion 991 million 327 billion 1 million years ended december 2009 november 2008 november 2007 one month ended december 2008 respectively supplemental financial information quarterly results unaudited following represents firm’s unaudited quarterly results fiscal years ended december 2009 november 2008 quarterly results prepared accordance generally accepted accounting principles reflect adjustments opinion management necessary fair statement results adjustments normal recurring nature 1 financial information three months ended march 2008 june 2008 september 2008 december 2008 included following reasons three months ended february 2008 may 2008 august 2008 november 2008 collectively 2008 quarters provide meaningful comparison three months ended march 2009 june 2009 september 2009 december 2009 collectively 2009 quarters respectively ii seasonal factors would impact comparability results 2009 quarters results 2008 quarters iii practicable cost justified prepare information 2 timing magnitude changes firm’s discretionary compensation accruals significant effect results given quarter supplemental financial information common stock price range following table sets forth quarters indicated high low sales prices per share firm’s common stock february 12 2010 11720 holders record firm’s common stock february 12 2010 last reported sales price firm’s common stock new york stock exchange 15393 per share supplemental financial information selected financial data 1 book value per common share based common shares outstanding including rsus granted employees future service requirements 5427 million 4854 million 4390 million 4501 million 4604 million 4859 million december 2009 november 2008 november 2007 november 2006 november 2005 december 2008 respectively 2 includes employees consultants temporary staff 3 substantially assets management valued calendar monthend 4 primarily includes hedge funds private equity real estate currencies commodities asset allocation strategies 5 rounded nearest penny exact dividend amount 04666666 per common share reflective fourmonth period december 2008 march 2009 due change firm’s fiscal yearend supplemental financial information statistical disclosures distribution assets liabilities shareholders’ equity following table sets forth summary consolidated average balances interest rates years ended december 2009 november 2008 november 2007 supplemental financial information 1 consists cash trading instruments including equity securities convertible debentures 2 derivative instruments included noninterestearning assets noninterestbearing liabilities 3 primarily consists cash securities segregated regulatory purposes receivables customers counterparties 4 consists shortterm secured financings unsecured shortterm borrowings excluding commercial paper 5 interest rates include effects interest rate swaps accounted hedges 6 consists longterm secured financings unsecured longterm borrowings 7 primarily consists payables customers counterparties 8 assets liabilities interest attributed us nonus based location legal entity assets liabilities held supplemental financial information changes net interest income volume rate analysis following table sets forth analysis effect net interest income volume rate changes periods 2009 versus 2008 versus 2007 analysis changes due volumerate variance allocated volume supplemental financial information availableforsale securities portfolio following table sets forth amortized cost gross unrealized gains losses fair value availableforsale securities december 2009 november 2008 supplemental financial information 1 yields calculated weighted average basis supplemental financial information deposits following table sets forth summary average balances average interest rates firm’s interestbearing deposits years ended december 2009 november 2008 november 2007 1 amounts available withdrawal upon short notice generally within seven days ratios following table sets forth selected financial ratios 1 based net earnings applicable common shareholders divided average monthly common shareholders’ equity 2 based net earnings divided average monthly total shareholders’ equity supplemental financial information shortterm borrowed funds 1 following table sets forth summary firm’s securities loaned securities sold agreements repurchase shortterm borrowings years ended december 2009 november 2008 november 2007 indicated 1 includes borrowings maturing within one year financial statement date borrowings redeemable option holder within one year financial statement date 2 includes shortterm secured financings 1293 billion december 2009 2123 billion november 2008 3241 billion november 2007 3 december 2009 november 2008 november 2007 weighted average interest rates include effects hedging supplemental financial information crossborder outstandings crossborder outstandings based upon federal financial institutions examination council’s ffiec regulatory guidelines reporting crossborder risk claims include cash receivables securities purchased agreements resell securities borrowed cash trading instruments exclude derivative instruments commitments securities purchased agreements resell securities borrowed presented based domicile counterparty without reduction related securities collateral held following tables set forth crossborder outstandings country crossborder outstandings exceed 075 consolidated assets december 2009 november 2008 accordance ffiec guidelines item 9item 8 financial statements supplementary data index management’s report internal control financial reporting management goldman sachs group inc together consolidated subsidiaries firm responsible establishing maintaining adequate internal control financial reporting firm’s internal control financial reporting process designed supervision firm’s principal executive principal financial officers provide reasonable assurance regarding reliability financial reporting preparation firm’s financial statements external reporting purposes accordance us generally accepted accounting principles end firm’s 2010 fiscal year management conducted assessment firm’s internal control financial reporting based framework established internal control integrated framework issued committee sponsoring organizations treadway commission coso based assessment management determined firm’s internal control financial reporting december 31 2010 effective internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets provide reasonable assurances transactions recorded necessary permit preparation financial statements accordance us generally accepted accounting principles receipts expenditures made accordance authorizations management directors firm provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition firm’s assets could material effect financial statements firm’s internal control financial reporting december 31 2010 audited pricewaterhousecoopers llp independent registered public accounting firm stated report appearing page 99 expresses unqualified opinion effectiveness firm’s internal control financial reporting december 31 2010 report independent registered public accounting firm board directors shareholders goldman sachs group inc opinion consolidated financial statements listed accompanying index present fairly material respects financial position goldman sachs group inc subsidiaries company december 31 2010 december 31 2009 results operations cash flows fiscal years ended december 31 2010 december 31 2009 november 28 2008 onemonth period ended december 26 2008 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2010 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing page 98 responsibility express opinions financial statements company’s internal control financial reporting based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp new york new york february 28 2011 goldman sachs group inc subsidiaries consolidated statements earnings see page 105 consolidated financial statements one month ended december 2008 accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements financial condition accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements changes shareholders’ equity 1 connection becoming bank holding company firm required change fiscal yearend november december beginning year ended december 2009 december 27 2008 2 relates primarily repurchases common stock brokerdealer subsidiary facilitate customer transactions ordinary course business shares withheld satisfy withholding tax requirements accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements cash flows supplemental disclosures cash payments interest net capitalized interest 674 billion 732 billion 3237 billion years ended december 2010 december 2009 november 2008 respectively cash payments income taxes net refunds 448 billion 478 billion 347 billion years ended december 2010 december 2009 november 2008 respectively noncash activities firm assumed 90 million 16 million 790 million debt connection business acquisitions years ended december 2010 december 2009 november 2008 respectively addition first quarter 2010 firm recorded increase approximately 3 billion assets primarily financial instruments owned fair value liabilities primarily unsecured shortterm borrowings liabilities upon adoption accounting standards update asu 200917 “consolidations topic 810 improvements financial reporting enterprises involved variable interest entities” see page 105 consolidated financial statements one month ended december 2008 accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements comprehensive income see page 105 consolidated financial statements one month ended december 2008 accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated financial statements one month ended december 2008 consolidated statement earnings one month ended december 2008 1 rounded nearest penny exact dividend amount 04666666 per common share reflective fourmonth period december 2008 march 2009 due change firm’s fiscal yearend consolidated statement comprehensive loss one month ended december consolidated statement cash flows one month ended december 2008 supplemental disclosures cash payments interest net capitalized interest 459 million one month ended december 2008 cash payments income taxes net refunds 171 million one month ended december 2008 accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries notes consolidated financial statements note 1 description business goldman sachs group inc group inc delaware corporation together consolidated subsidiaries collectively firm leading global investment banking securities investment management firm provides wide range financial services substantial diversified client base includes corporations financial institutions governments highnetworth individuals founded 1869 firm headquartered new york maintains offices major financial centers around world fourth quarter 2010 consistent management’s view firm’s activities firm reorganized three previous business segments four new business segments investment banking institutional client services investing lending investment management prior periods presented comparable basis investment banking firm provides broad range investment banking services diverse group corporations financial institutions investment funds governments services include advisory assignments respect mergers acquisitions divestitures corporate defense activities risk management restructurings spinoffs debt equity underwriting public offerings private placements well derivative transactions directly related activities institutional client services firm facilitates client transactions makes markets fixed income equity currency commodity products primarily institutional clients corporates financial institutions investment funds governments firm also makes markets clears client transactions major stock options futures exchanges worldwide provides financing securities lending prime brokerage services institutional clients investing lending firm invests originates loans provide financing clients investments loans typically longerterm nature firm makes investments directly indirectly funds firm manages debt securities loans public private equity securities real estate consolidated investment entities power generation facilities investment management firm provides investment management services offers investment products primarily separately managed accounts commingled vehicles mutual funds private investment funds across major asset classes diverse set institutional individual clients firm also offers wealth advisory services including portfolio management financial counseling brokerage transaction services highnetworth individuals families note 2 basis presentation consolidated financial statements prepared accordance accounting principles generally accepted united states us gaap include accounts group inc entities firm controlling financial interest intercompany transactions balances eliminated connection becoming bank holding company firm required change fiscal yearend november december change firm’s fiscal yearend resulted onemonth transition period began november 29 2008 ended december 26 2008 april 2009 board approved change firm’s fiscal yearend last friday december 31 fiscal 2009 began december 27 2008 ended december 31 2009 references 2010 2009 2008 unless specifically stated otherwise refer firm’s fiscal years ended dates context requires december 31 2010 december 31 2009 november 28 2008 respectively reference future year refers fiscal year ending december 31 year references december 2008 unless specifically stated otherwise refer firm’s fiscal one month ended date context requires december 26 2008 certain reclassifications made previously reported amounts conform current presentation goldman sachs group inc subsidiaries notes consolidated financial statements continued note 3 significant accounting policies firm’s significant accounting policies include measure fair value assets liabilities accounting goodwill identifiable intangible assets consolidate entity see notes 5 8 policies fair value measurements note 13 policies goodwill identifiable intangible assets note 11 policies consolidation accounting significant accounting policies either discussed included following footnotes consolidation firm consolidates entities firm controlling financial interest firm determines whether controlling financial interest entity first evaluating whether entity voting interest entity variable interest entity voting interest entities voting interest entities total equity investment risk sufficient enable entity finance activities independently ii equity holders power direct activities entity significantly impact economic performance obligation absorb losses entity right receive residual returns entity usual condition controlling financial interest voting interest entity ownership majority voting interest firm majority voting interest voting interest entity consolidated variable interest entities vie entity lacks one characteristics voting interest entity firm controlling financial interest vie firm variable interest interests provide power direct activities vie significantly impact vie’s economic performance ii obligation absorb losses vie right receive benefits vie could potentially significant vie see note 11 information vies equitymethod investments firm controlling financial interest entity exert significant influence entity’s operating financial policies investment accounted either equity method accounting ii fair value electing fair value option available us gaap significant influence generally exists firm owns 20 50 entity’s common stock insubstance common stock general firm accounts investments acquired subsequent november 24 2006 fair value option became available fair value certain cases firm applies equity method accounting new investments strategic nature closely related firm’s principal business activities firm significant degree involvement cash flows operations investee costbenefit considerations less significant see note 12 information equitymethod investments goldman sachs group inc subsidiaries notes consolidated financial statements continued investment funds firm formed numerous investment funds thirdparty investors funds typically organized limited partnerships limited liability companies firm acts general partner manager generally firm hold majority economic interests funds usually voting interest entities generally consolidated thirdparty investors typically rights terminate funds remove firm general partner manager investments funds included “financial instruments owned fair value” see notes 6 18 22 information investments funds use estimates preparation consolidated financial statements requires management make certain estimates assumptions important relate fair value measurements accounting goodwill identifiable intangible assets provision losses may arise litigation regulatory proceedings tax audits estimates assumptions based best available information actual results could materially different revenue recognition financial assets financial liabilities fair value financial instruments owned fair value financial instruments sold yet purchased fair value recorded fair value either fair value option accordance us gaap addition firm elected account certain financial assets financial liabilities fair value electing fair value option fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date financial assets marked bid prices financial liabilities marked offer prices fair value measurements include transaction costs fair value gains losses generally included “market making” positions institutional client services “other principal transactions” positions investing lending see notes 5 8 information fair value measurements investment banking fees financial advisory assignments underwriting revenues recognized earnings services related underlying transaction completed terms assignment expenses associated transactions deferred related revenue recognized assignment otherwise concluded expenses associated financial advisory assignments recorded noncompensation expenses net client reimbursements underwriting revenues presented net related expenses investment management firm earns management fees incentive fees investment management services management fees calculated percentage net asset value invested capital commitments recognized period related service provided incentive fees calculated percentage fund’s separately managed account’s return excess return specified benchmark performance target incentive fees generally based investment performance 12month period life fund fees based performance 12month period subject adjustment prior end measurement period fees based investment performance life fund future investment underperformance may require fees previously distributed firm returned fund incentive fees recognized material contingencies resolved management incentive fee revenues included “investment management” revenues commissions fees firm earns “commissions fees” executing clearing client transactions stock options futures markets commissions fees recognized day trade executed transfers assets transfers assets accounted sales firm relinquished control assets transferred transfers assets accounted sales related gains losses recognized net revenues assets liabilities arise firm’s continuing involvement transferred assets measured fair value transfers assets accounted sales assets remain “financial instruments owned fair value” transfer accounted collateralized financing related interest expense recognized life transaction see note 9 information transfers assets accounted collateralized financings note 10 information transfers assets accounted sales goldman sachs group inc subsidiaries notes consolidated financial statements continued receivables customers counterparties receivables customers counterparties generally consist collateralized receivables primarily customer margin loans related client transactions certain firm’s receivables customers counterparties accounted fair value fair value option changes fair value generally included “market making” revenues see note 8 information fair values receivables customers counterparties accounted fair value accounted amortized cost net estimated uncollectible amounts generally approximates fair value interest receivables customers counterparties recognized life transaction included “interest income” insurance activities certain firm’s insurance reinsurance contracts accounted fair value fair value option changes fair value included “market making” revenues see note 8 information fair values insurance reinsurance contracts revenues variable annuity life insurance reinsurance contracts accounted fair value generally consist fees assessed contract holder account balances mortality charges policy administration fees surrender charges revenues recognized earnings period services provided included “market making” revenues interest credited variable annuity life insurance reinsurance contract account balances changes reserves recognized “other expenses” premiums earned underwriting property catastrophe reinsurance recognized earnings coverage period net premiums ceded cost reinsurance included “market making” revenues expenses liabilities related property catastrophe reinsurance claims including estimates losses incurred reported included “other expenses” foreign currency translation assets liabilities denominated nonus currencies translated rates exchange prevailing date consolidated statements financial condition revenues expenses translated average rates exchange period foreign currency remeasurement gains losses transactions nonfunctional currencies recognized earnings gains losses translation financial statements nonus operation functional currency us dollar included net hedges taxes consolidated statements comprehensive income cash equivalents firm defines cash equivalents highly liquid overnight deposits held ordinary course business december 2010 december 2009 “cash equivalents” included 575 billion 445 billion respectively cash due banks 3404 billion 3384 billion respectively interestbearing deposits banks goldman sachs group inc subsidiaries notes consolidated financial statements continued recent accounting developments transfers financial assets interests variable interest entities accounting standards codification asc 860 810 june 2009 fasb issued amended accounting principles changed accounting securitizations vies principles codified asu 200916 “transfers servicing topic 860 accounting transfers financial assets” asu 200917 “consolidations topic 810 improvements financial reporting enterprises involved variable interest entities” december 2009 asu 200916 eliminates concept qualifying specialpurpose entity qspe changes requirements derecognizing financial assets requires additional disclosures transfers financial assets including securitization transactions continuing involvement transferred financial assets asu 200917 changes accounting requires additional disclosures vies asu 200917 determination whether consolidate vie based power direct activities vie significantly impact vie’s economic performance together either obligation absorb losses right receive benefits could significant vie well vie’s purpose design asu 200917 also requires entities previously classified qspes evaluated consolidation disclosure vies asu nos 200916 200917 effective fiscal years beginning november 15 2009 february 2010 fasb issued asu 201010 “consolidations topic 810 amendments certain investment funds” defers requirements asu 200917 certain interests investment funds certain similar entities firm adopted amendments january 1 2010 reassessed whether primary beneficiary vies variable interests including vies formerly qspes date adoption resulted increase firm’s total assets approximately 3 billion march 31 2010 principally “financial instruments owned fair value” addition “other assets” increased 545 million march 31 2010 corresponding decrease “financial instruments owned fair value” result consolidation entity holds intangible assets see note 13 information intangible assets upon adoption firm elected fair value option eligible assets liabilities newly consolidated vies except vies financial assets financial liabilities accounted either fair value manner approximates fair value us gaap ii vies election would caused volatility earnings result using different measurement attributes financial instruments nonfinancial assets adoption material impact firm’s results operations cash flows improving disclosures fair value measurements asc 820 january 2010 fasb issued asu 201006 “fair value measurements disclosures topic 820 improving disclosures fair value measurements” asu 201006 provides amended disclosure requirements related fair value measurements certain disclosure requirements effective firm beginning first quarter 2010 others effective financial statements issued reporting periods beginning december 15 2010 since amended principles require additional disclosures concerning fair value measurements adoption affect firm’s financial condition results operations cash flows goldman sachs group inc subsidiaries notes consolidated financial statements continued note 4 financial instruments owned fair value financial instruments sold yet purchased fair value financial instruments owned fair value financial instruments sold yet purchased fair value accounted fair value either fair value option accordance us gaap see note 8 information fair value option table presents firm’s financial instruments owned fair value including pledged collateral financial instruments sold yet purchased fair value financial instruments owned fair value included 367 billion 386 billion december 2010 december 2009 respectively securities accounted availableforsale substantially held firm’s insurance subsidiaries 1 net cash collateral received posted credit support agreements reported netbycounterparty basis legal right setoff exists enforceable netting agreement 2 includes 406 billion 431 billion december 2010 december 2009 respectively money market instruments held william street funding corporation funding corp support william street credit extension program see note 18 information william street credit extension program 3 consists acquired portfolios distressed loans primarily backed commercial residential real estate 4 includes fair value unfunded commitments extend credit fair value partially funded commitments primarily included “financial instruments owned fair value” goldman sachs group inc subsidiaries notes consolidated financial statements continued gains losses market making principal transactions table presents major product type firm’s “market making” “other principal transactions” revenues gainslosses primarily related firm’s financial instruments owned fair value financial instruments sold yet purchased fair value including derivative nonderivative financial instruments gainslosses exclude related interest income interest expense see note 23 information interest income interest expense gainslosses table representative manner firm manages business activities many firm’s market making client facilitation investing lending strategies utilize financial instruments across various product types accordingly gains losses one product type frequently offset gains losses product types example firm’s longerterm derivatives sensitive changes interest rates may economically hedged interest rate swaps similarly significant portion firm’s cash instruments derivatives exposure foreign currencies may economically hedged foreign currency contracts note 5 fair value measurements fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date financial assets marked bid prices financial liabilities marked offer prices fair value measurements include transaction costs best evidence fair value quoted price active market listed prices quotations available fair value determined reference prices similar instruments quoted prices recent transactions less active markets internally developed models primarily use inputs marketbased independently sourced parameters including limited interest rates volatilities equity debt prices foreign exchange rates commodities prices credit curves us gaap threelevel fair value hierarchy disclosure fair value measurements fair value hierarchy prioritizes inputs valuation techniques used measure fair value giving highest priority level 1 inputs lowest priority level 3 inputs financial instrument’s level fair value hierarchy based lowest level input significant fair value measurement fair value hierarchy follows level 1 inputs unadjusted quoted prices active markets firm access measurement date identical unrestricted assets liabilities level 2 inputs valuation techniques observable either directly indirectly level 3 one inputs valuation techniques significant unobservable see notes 6 7 information fair value measurements cash instruments derivatives respectively fair value certain level 2 level 3 financial assets financial liabilities may include valuation adjustments counterparty firm’s credit quality transfer restrictions large andor concentrated positions illiquidity bidoffer inputs see notes 6 7 information valuation adjustments goldman sachs group inc subsidiaries notes consolidated financial statements continued level 3 financial assets summarized financial assets financial liabilities level tables present level within fair value hierarchy financial instruments owned fair value financial instruments sold yet purchased fair value financial assets financial liabilities accounted fair value fair value option see notes 6 7 information assets liabilities included cash instruments derivatives respectively valuation methodologies inputs see note 8 valuation methodologies inputs financial assets financial liabilities accounted fair value fair value option 1 principally consists us department treasury us treasury securities money market instruments well insurance separate account assets measured fair value 2 principally consists securities borrowed resale agreements underlying securities segregated satisfy certain regulatory requirements 3 represents cash collateral impact netting across levels fair value hierarchy netting among positions classified level included level 4 level 3 liabilities 63 total financial liabilities fair value goldman sachs group inc subsidiaries notes consolidated financial statements continued 1 principally consists us treasury securities money market instruments well insurance separate account assets measured fair value 2 principally consists securities borrowed resale agreements underlying securities segregated satisfy certain regulatory requirements 3 represents cash collateral impact netting across levels fair value hierarchy netting among positions classified level included level 4 level 3 liabilities 66 total financial liabilities fair value goldman sachs group inc subsidiaries notes consolidated financial statements continued level 3 unrealized gainslosses cash instruments level 3 cash instruments frequently economically hedged level 1 level 2 cash instruments andor level 1 level 2 level 3 derivatives accordingly gains losses reported level 3 partially offset gains losses attributable level 1 level 2 cash instruments andor level 1 level 2 level 3 derivatives gains losses level 3 derivatives considered context following • derivative level 1 andor level 2 inputs classified level 3 entirety least one significant level 3 input • one significant level 3 input entire gain loss adjusting observable inputs ie level 1 level 2 inputs classified level 3 • gains losses reported level 3 resulting changes level 1 level 2 inputs frequently offset gains losses attributable level 1 level 2 derivatives andor level 1 level 2 level 3 cash instruments table presents unrealized gainslosses level 3 financial assets financial liabilities fair value still held periodend see notes 6 7 information level 3 cash instruments derivatives respectively see note 8 information financial assets financial liabilities fair value fair value option goldman sachs group inc subsidiaries notes consolidated financial statements continued gains losses table include year ended december 2010 • net unrealized gain cash instruments 167 billion primarily consisting unrealized gains private equity investments bank loans bridge loans corporate debt securities prices generally corroborated sales partial sales similar assets asset classes period • net unrealized gain derivatives 518 billion primarily attributable lower interest rates level 2 inputs underlying certain credit derivatives unrealized gains substantially offset unrealized losses currency interest rate credit derivatives categorized level 2 economically hedge level 3 derivatives year ended december 2009 • net unrealized loss cash instruments 431 billion primarily consisting unrealized losses private equity investments real estate fund investments loans securities backed commercial real estate reflecting weakness markets less liquid asset classes • net unrealized loss derivatives 102 billion primarily attributable tighter credit spreads underlying instruments increases underlying equity index prices losses partially offset increases commodities prices inputs level 2 observable inputs year ended november 2008 • net unrealized loss cash instruments 1236 billion primarily consisting unrealized losses loans securities backed commercial real estate certain bank loans bridge loans private equity investments real estate fund investments • net unrealized gain derivatives 558 billion primarily attributable changes observable credit spreads level 2 inputs underlying instruments one month ended december 2008 • net unrealized loss cash instruments 319 billion primarily consisting unrealized losses certain bank loans bridge loans private equity investments real estate fund investments loans securities backed commercial real estate losses december 2008 reflected weakness global credit equity markets • net unrealized loss derivatives 210 million primarily attributable changes observable prices underlying instruments level 2 inputs level 3 rollforward financial asset financial liability transferred level 3 reporting period entire gain loss period included level 3 transfers levels recognized beginning reporting period occur accordingly tables include gains losses reported level 3 prior periods financial instruments transferred level 3 prior end period see notes 6 7 information cash instruments derivatives included level 3 respectively see note 8 financial assets financial liabilities fair value fair value option goldman sachs group inc subsidiaries notes consolidated financial statements continued tables present changes fair value financial assets financial liabilities categorized level 3 end period 1 aggregate amounts include approximately 186 billion 126 billion reported “noninterest revenues” “market making” “other principal transactions” “interest income” respectively consolidated statement earnings year ended december 2010 2 substantially reported “noninterest revenues” “market making” “other principal transactions” consolidated statement earnings 3 principally resulted changes level 2 inputs significant transfers level 3 year ended december 2010 principally due consolidation certain vies upon adoption asu 200917 january 1 2010 included • unsecured shortterm borrowings net transfer level 3 134 billion principally due consolidation certain vies • unsecured longterm borrowings net transfer level 3 125 billion principally due consolidation certain vies caused firm’s borrowings vies become intercompany borrowings eliminated consolidation substantially borrowings level 3 • liabilities accrued expenses net transfer level 3 587 million principally due increase subordinated liabilities issued certain consolidated vies goldman sachs group inc subsidiaries notes consolidated financial statements continued 1 aggregate amounts include approximately 469 billion 164 billion reported “noninterest revenues” “market making” “other principal transactions” “interest income” respectively consolidated statements earnings year ended december 2009 2 substantially reported “noninterest revenues” “market making” “other principal transactions” consolidated statement earnings 3 principally resulted changes level 2 inputs significant transfers level 3 year ended december 2009 included • secured financings unsecured shortterm borrowings unsecured longterm borrowings net transfer 273 billion transfer 403 billion transfer 173 billion respectively principally due transfers level 3 unsecured shortterm borrowings level 3 secured financings level 3 unsecured longterm borrowings related changes terms certain borrowings • liabilities accrued expenses net transfer level 3 953 million principally due transfers certain insurance contracts level 2 due reduced transparency mortality curve valuation inputs result less observable trading activity goldman sachs group inc subsidiaries notes consolidated financial statements continued note 6 cash instruments cash instruments include us government federal agency obligations nonus government obligations bank loans bridge loans corporate debt securities equities convertible debentures nonderivative financial instruments owned financial instruments sold yet purchased see types cash instruments included level fair value hierarchy valuation techniques significant inputs used determine fair values see note 5 overview firm’s fair value measurement policies fair value hierarchy level 1 cash instruments level 1 cash instruments include us government obligations nonus government obligations actively traded listed equities certain money market instruments valued using quoted prices identical unrestricted instruments active markets firm defines active markets equity instruments based average daily trading volume absolute terms relative market capitalization instrument firm defines active markets debt instruments based average daily trading volume number days trading activity fair value level 1 instrument calculated quantity held multiplied quoted market price us gaap prohibits valuation adjustments applied level 1 instruments even situations firm holds large position sale could impact quoted price level 2 cash instruments level 2 cash instruments include commercial paper certificates deposit time deposits government agency obligations corporate debt securities commodities certain mortgagebacked loans securities certain bank loans bridge loans less liquid publicly listed equities certain state municipal obligations certain money market instruments lending commitments valuations level 2 cash instruments verified quoted prices recent trading activity identical similar instruments broker dealer quotations alternative pricing sources reasonable levels price transparency consideration given nature quotations eg indicative firm relationship recent market activity prices provided alternative pricing sources valuation adjustments typically made level 2 cash instruments cash instrument subject transfer restrictions andor ii premiums discounts market participant would require arrive fair value valuation adjustments generally based market evidence level 3 cash instruments level 3 cash instruments one significant valuation inputs observable absent evidence contrary level 3 cash instruments initially valued transaction price considered best initial estimate fair value subsequently firm uses methodologies determine fair value vary based type instrument valuation inputs assumptions changed corroborated substantive observable evidence including values realized sales level 3 assets table presents valuation techniques nature significant inputs generally used determine fair values class level 3 cash instrument goldman sachs group inc subsidiaries notes consolidated financial statements continued goldman sachs group inc subsidiaries notes consolidated financial statements continued cash instruments level tables present level within fair value hierarchy cash instrument assets liabilities fair value cash instrument assets liabilities included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” respectively 1 includes 212 million 565 million collateralized debt obligations cdos backed real estate level 2 level 3 respectively 2 includes 368 million 107 billion cdos collateralized loan obligations clos backed corporate obligations level 2 level 3 respectively 3 consists publicly listed equity securities includes firm’s 759 billion investment ordinary shares industrial commercial bank china limited transferred level 2 upon expiration transfer restrictions april 2010 4 substantially consists restricted less liquid publicly listed securities 5 includes 1003 billion private equity investments 874 million real estate investments 156 million convertible debentures 6 includes 35 million cdos clos backed corporate obligations level 3 7 substantially consists publicly listed equity securities goldman sachs group inc subsidiaries notes consolidated financial statements continued 1 includes 291 million 311 million cdos clos backed real estate level 2 level 3 respectively 2 includes 338 million 741 million cdos clos backed corporate obligations level 2 level 3 respectively 3 substantially consists publicly listed equity securities 4 substantially consists less liquid publicly listed securities 5 includes 1056 billion private equity investments 123 billion real estate investments 79 million convertible debentures 6 includes 45 million cdos clos backed corporate obligations level 3 goldman sachs group inc subsidiaries notes consolidated financial statements continued level 3 rollforward cash instrument transferred level 3 reporting period entire gain loss period included level 3 transfers levels reported beginning reporting period occur accordingly tables include gains losses reported level 3 prior periods cash instruments transferred level 3 prior end period tables present changes fair value cash instrument assets liabilities categorized level 3 end period goldman sachs group inc subsidiaries notes consolidated financial statements continued significant transfers level 3 year ended december 2010 included • loans securities backed commercial real estate net transfer level 3 844 million principally due transfers level 2 certain loans due improved transparency market prices result partial sales • corporate debt securities net transfer level 3 573 million principally due reduction financial instruments result consolidation vie holds intangible assets • debt obligations net transfer level 3 861 million principally due reduction financial instruments result consolidation vie holds real estate assets included “other assets” • equities convertible debentures net transfer level 3 631 million principally due transfers level 2 certain private equity investments due improved transparency market prices result partial sales initial public offerings significant transfers level 3 year ended december 2009 included • loan portfolios net transfer level 3 155 billion principally due deconsolidation certain loan portfolios firm bear economic exposure • equities convertible debentures net transfer level 3 978 million principally due transfers level 2 certain private equity investments due improved transparency market prices used value financial instruments goldman sachs group inc subsidiaries notes consolidated financial statements continued investments funds calculate net asset value per share cash instruments fair value include investments funds valued based net asset value per share nav investment fund firm uses nav measure fair value fund investments fund investment readily determinable fair value ii nav investment fund calculated manner consistent measurement principles investment company accounting including measurement underlying investments fair value firm’s investments funds calculate nav primarily consist investments firmsponsored funds firm coinvests thirdparty investors private equity private debt real estate funds primarily closedend funds firm’s investments eligible redemption distributions received funds underlying assets liquidated estimated substantially underlying assets existing funds liquidated next 10 years firm’s investments hedge funds generally redeemable quarterly basis 91 days notice subject maximum redemption level 25 firm’s initial investments quarterend table presents fair value firm’s investments unfunded commitments funds calculate nav 1 funds primarily invest broad range industries worldwide variety situations including leveraged buyouts recapitalizations growth investments 2 funds generally invest loans fixed income instruments focused providing private highyield capital mid largesized leveraged management buyout transactions recapitalizations financings refinancings acquisitions restructurings private equity firms private family companies corporate issuers 3 funds primarily multidisciplinary hedge funds employ fundamental bottomup investment approach across various asset classes strategies including longshort equity credit convertibles risk arbitragespecial situations capital structure arbitrage 4 funds invest globally primarily real estate companies loan portfolios debt recapitalizations direct property goldman sachs group inc subsidiaries notes consolidated financial statements continued note 7 derivatives hedging activities derivative activities derivatives instruments derive value underlying asset prices indices reference rates inputs combination factors derivatives may privately negotiated contracts usually referred overthecounter otc derivatives may listed traded exchange exchangetraded marketmaking market maker firm enters derivative transactions clients market participants provide liquidity facilitate transfer hedging risk capacity firm typically acts principal consequently required commit capital provide execution market maker essential maintain inventory financial instruments sufficient meet expected client market demands risk management firm also enters derivatives actively manage risk exposures arise marketmaking investing lending activities derivative cash instruments addition firm may enter derivatives designated hedges us gaap derivatives used manage foreign currency exposure net investment certain nonus operations manage interest rate exposure certain fixedrate unsecured longterm shortterm borrowings certificates deposit firm enters various types derivatives including • futures forwards contracts commit counterparties purchase sell financial instruments commodities currencies future • swaps contracts require counterparties exchange cash flows currency interest payment streams amounts exchanged based specific terms contract reference specified rates financial instruments commodities currencies indices • options contracts option purchaser right obligation purchase sell option writer financial instruments commodities currencies within defined time period specified price derivatives accounted fair value net cash collateral received posted credit support agreements derivatives reported netbycounterparty basis ie net payable receivable derivative assets liabilities given counterparty legal right setoff exists enforceable netting agreement derivative assets liabilities included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” respectively substantially gains losses derivatives designated hedges us gaap included “market making” “other principal transactions” goldman sachs group inc subsidiaries notes consolidated financial statements continued table presents fair value exchangetraded otc derivatives netbycounterparty basis table presents fair value number derivative contracts major product type gross basis gross fair values table exclude effects netting enforceable netting agreements netting cash collateral received posted credit support agreements therefore representative firm’s exposure 1 represents netting receivable balances payable balances counterparty enforceable netting agreements 2 represents netting cash collateral received posted counterparty basis credit support agreements goldman sachs group inc subsidiaries notes consolidated financial statements continued valuation techniques derivatives see note 5 overview firm’s fair value measurement policies fair value hierarchy level 1 derivatives exchangetraded derivatives fall within level 1 actively traded valued quoted market price level 2 derivatives level 2 derivatives include exchangetraded derivatives actively traded otc derivatives significant valuation inputs corroborated market evidence level 2 exchangetraded derivatives valued using models calibrate marketclearing levels otc derivatives inputs valuations level 2 otc derivatives verified marketclearing transactions broker dealer quotations alternative pricing sources reasonable levels price transparency consideration given nature quotations eg indicative firm relationship recent market activity prices provided alternative pricing sources models used selection particular model value otc derivative depends contractual terms specific risks inherent instrument well availability pricing information market valuation models require variety inputs including contractual terms market prices yield curves credit curves measures volatility prepayment rates loss severity rates correlations inputs otc derivatives trade liquid markets model selection involve significant management judgment outputs models calibrated marketclearing levels price transparency otc derivatives generally characterized product type interest rate general prices inputs used value interest rate derivatives transparent even longdated contracts interest rate swaps options denominated currencies leading industrialized nations characterized high trading volumes tight bidoffer spreads interest rate derivatives reference indices inflation index shape yield curve eg 10year swap rate vs 2year swap rate complex therefore less transparent prices inputs generally observable credit price transparency credit default swaps including single names baskets credits varies market underlying reference entity obligation credit default swaps reference indices large corporates major sovereigns generally exhibit price transparency credit default swaps underliers price transparency varies based credit rating cost borrowing underlying reference obligations availability underlying reference obligations delivery upon default issuer credit default swaps reference loans assetbacked securities emerging market debt instruments tend less transparent reference corporate bonds addition complex credit derivatives sensitive correlation two underlying reference obligations generally less price transparency currency prices currency derivatives based exchange rates leading industrialized nations including longer tenors generally transparent primary difference transparency developed emerging market currency derivatives emerging markets tend observable contracts shorter tenors commodity derivatives include transactions referenced energy eg oil natural gas metals eg precious base soft commodities eg agricultural price transparency varies based underlying commodity delivery location tenor product quality eg diesel fuel compared unleaded gasoline general price transparency commodity derivatives greater contracts shorter tenors contracts closely aligned major andor benchmark commodity indices goldman sachs group inc subsidiaries notes consolidated financial statements continued equity price transparency equity derivatives varies market underlier options indices common stock corporates included major equity indices exhibit price transparency exchangetraded otc equity derivatives generally observable market prices except contracts long tenors reference prices differ significantly current market prices complex equity derivatives sensitive correlation two individual stocks generally less price transparency liquidity essential observability product types transaction volumes decline previously transparent prices inputs may become unobservable conversely even highly structured products may times trading volumes large enough provide observability prices inputs level 3 derivatives level 3 otc derivatives valued using models utilize observable level 1 andor level 2 inputs well unobservable level 3 inputs • majority firm’s interest rate currency derivatives classified within level 3 significant unobservable inputs correlations certain currencies interest rates eg correlation japanese yen foreign exchange rates us dollar interest rates • credit derivatives classified within level 3 significant level 3 inputs include longdated credit funding spreads well certain correlation inputs required value credit mortgage derivatives eg likelihood default underlying reference obligations relative one another • level 3 equity derivatives significant level 3 inputs generally include equity volatility inputs options longdated andor strike prices differ significantly current market prices addition valuation certain structured trades requires use level 3 inputs correlation price performance two individual stocks • level 3 commodity derivatives significant level 3 inputs include volatilities options strike prices differ significantly current market prices certain products product quality aligned benchmark indices subsequent initial valuation level 3 otc derivative firm updates level 1 level 2 inputs reflect observable market changes resulting gains losses recorded level 3 level 3 inputs changed corroborated evidence similar market transactions thirdparty pricing services andor broker dealer quotations empirical market data circumstances firm cannot verify model value reference market transactions possible different valuation model could produce materially different estimate fair value goldman sachs group inc subsidiaries notes consolidated financial statements continued valuation adjustments valuation adjustments integral determining fair value derivatives used adjust midmarket valuations produced derivative pricing models appropriate exit price valuation adjustments incorporate bidoffer spreads cost liquidity large illiquid positions credit valuation adjustments cva account credit risk inherent derivative portfolios marketbased inputs generally used calibrating valuation adjustments marketclearing levels addition derivatives include significant unobservable inputs firm makes model exit price adjustments account valuation uncertainty present transaction fair value derivatives level tables present fair value derivatives gross basis level major product type gross fair values tables exclude effects netting enforceable netting agreements netting cash received posted credit support agreements across levels fair value hierarchy therefore representative firm’s exposure 1 represents netting receivable balances payable balances counterparty enforceable netting agreements 2 represents netting cash collateral received posted counterparty basis credit support agreements 3 represents netting receivable balances payable balances counterparty across levels fair value hierarchy enforceable netting agreements goldman sachs group inc subsidiaries notes consolidated financial statements continued 1 represents netting receivable balances payable balances counterparty enforceable netting agreements 2 represents netting cash collateral received posted counterparty basis credit support agreements 3 represents netting receivable balances payable balances counterparty across levels fair value hierarchy enforceable netting agreements goldman sachs group inc subsidiaries notes consolidated financial statements continued level 3 rollforward derivative transferred level 3 reporting period entire gain loss period included level 3 transfers levels reported beginning reporting period occur accordingly table include gains losses reported level 3 prior periods derivatives transferred level 3 prior end period table presents changes fair value derivatives categorized level 3 end period 1 primarily attributable lower interest rates level 2 inputs underlying certain credit derivatives unrealized gains substantially offset unrealized losses currency interest rate credit derivatives categorized level 2 economically hedge level 3 derivatives significant transfers level 3 year ended december 2010 included • interest rates net currencies net transfer level 3 306 million 539 million respectively principally due reduced transparency correlation inputs used value financial instruments • credit net transfer level 3 106 billion principally due improved transparency correlation inputs used value certain mortgage derivatives significant transfers level 3 year ended december 2009 impact credit spreads derivatives ongoing basis firm realizes gains losses relating changes credit risk derivatives changes credit mitigants sale unwind contracts net gainloss attributable impact changes credit exposure credit spreads derivatives 68 million 572 million 137 million 188 million years ended december 2010 december 2009 november 2008 one month ended december 2008 respectively bifurcated embedded derivatives table presents derivatives primarily equity interest rate products bifurcated related borrowings derivatives recorded fair value included “unsecured shortterm borrowings” “unsecured longterm borrowings” see note 8 information goldman sachs group inc subsidiaries notes consolidated financial statements continued otc derivatives following tables present fair values otc derivative assets liabilities tenor product type following tables tenor based expected duration mortgagerelated credit derivatives generally remaining contractual maturity derivatives 1 represents netting receivable balances payable balances counterparty across product types within tenor category enforceable netting agreements receivable payable balances counterparty product type tenor category netted within product type tenor category 2 represents netting receivable balances payable balances counterparty across tenor categories enforceable netting agreements 3 represents netting cash collateral received posted counterparty basis credit support agreements goldman sachs group inc subsidiaries notes consolidated financial statements continued 1 represents netting receivable balances payable balances counterparty across product types within tenor category enforceable netting agreements receivable payable balances counterparty product type tenor category netted within product type tenor category 2 represents netting receivable balances payable balances counterparty across tenor categories enforceable netting agreements 3 represents netting cash collateral received posted counterparty basis credit support agreements goldman sachs group inc subsidiaries notes consolidated financial statements continued derivatives creditrelated contingent features certain firm’s derivatives transacted bilateral agreements counterparties may require firm post collateral terminate transactions based changes firm’s credit ratings table presents aggregate fair value net derivative liabilities agreements excluding application collateral posted reduce liabilities related aggregate fair value assets posted collateral additional collateral termination payments could called reporting date counterparties event onenotch twonotch downgrade firm’s credit ratings credit derivatives firm enters broad array credit derivatives locations around world facilitate client transactions manage credit risk associated marketmaking investing lending activities credit derivatives actively managed based firm’s net risk position credit derivatives individually negotiated contracts various settlement payment conventions credit events include failure pay bankruptcy acceleration indebtedness restructuring repudiation dissolution reference entity credit default swaps singlename credit default swaps protect buyer loss principal one bonds loans mortgages reference obligations event issuer reference entity reference obligations suffers credit event buyer protection pays initial periodic premium seller receives protection period contract credit event defined contract seller protection makes payments buyer protection however credit event occurs seller protection required make payment calculated accordance terms contract buyer protection credit indices baskets tranches credit derivatives may reference basket singlename credit default swaps broadbased index credit event occurs one underlying reference obligations protection seller pays protection buyer payment typically prorata portion transaction’s total notional amount based underlying defaulted reference obligation certain transactions credit risk basket index separated various portions tranches different levels subordination junior tranches cover initial defaults losses exceed notional amount junior tranches excess loss covered next senior tranche capital structure total return swaps total return swap transfers risks relating economic performance reference obligation protection buyer protection seller typically protection buyer receives protection seller floatingrate interest protection reduction fair value reference obligation return protection seller receives cash flows associated reference obligation plus increase fair value reference obligation goldman sachs group inc subsidiaries notes consolidated financial statements continued credit options credit option writer assumes obligation purchase sell reference obligation specified price credit spread option purchaser buys right obligation sell reference obligation purchase option writer payments credit options depend either particular credit spread price reference obligation firm economically hedges exposure written credit derivatives primarily entering offsetting purchased credit derivatives identical underlyings substantially firm’s purchased credit derivative transactions financial institutions subject stringent collateral thresholds addition upon occurrence specified trigger event firm may take possession reference obligations underlying particular written credit derivative consequently may upon liquidation reference obligations recover amounts underlying reference obligations event default december 2010 written purchased credit derivatives total gross notional amounts 205 trillion 219 trillion respectively total net notional purchased protection 14063 billion december 2009 written purchased credit derivatives total gross notional amounts 254 trillion 271 trillion respectively total net notional purchased protection 16413 billion table presents certain information credit derivatives table • fair values exclude effects netting enforceable netting agreements netting cash received posted credit support agreements therefore representative firm’s exposure • tenor based expected duration mortgagerelated credit derivatives remaining contractual maturity credit derivatives • credit spread underlying together tenor contract indicators paymentperformance risk firm less likely pay otherwise required perform credit spread tenor lower 1 offsetting purchased credit derivatives represent notional amount purchased credit derivatives extent economically hedge written credit derivatives identical underlyings 2 comprised purchased protection excess amount written protection identical underlyings purchased protection underlyings firm written protection goldman sachs group inc subsidiaries notes consolidated financial statements continued hedge accounting firm applies hedge accounting certain interest rate swaps used manage interest rate exposure certain fixedrate unsecured longterm shortterm borrowings certain fixedrate certificates deposit ii certain foreign currency forward contracts foreign currencydenominated debt used manage foreign currency exposures firm’s net investment certain nonus operations qualify hedge accounting derivative hedge must highly effective reducing risk exposure hedged additionally firm must formally document hedging relationship inception test hedging relationship least quarterly basis ensure derivative hedge continues highly effective life hedging relationship interest rate hedges firm designates certain interest rate swaps fair value hedges interest rate swaps hedge changes fair value attributable relevant benchmark interest rate eg london interbank offered rate libor effectively converting substantial portion fixedrate obligations floatingrate obligations firm applies “longhaul method” assessing effectiveness fair value hedging relationships achieving offsetting changes fair values hedging instrument risk hedged ie interest rate risk three months ended march 2010 firm changed method prospectively retrospectively assessing effectiveness fair value hedging relationships dollaroffset method nonstatistical method regression analysis statistical method interest rate swap considered highly effective offsetting changes fair value attributable changes hedged risk regression analysis results coefficient determination 80 greater slope 80 125 dollaroffset method compared change fair value hedging instrument change fair value hedged item excluding effect passage time prospective dollaroffset assessment used scenario analyses test hedge effectiveness simulations numerous parallel slope shifts relevant yield curve parallel shifts changed interest rate maturities identical amounts slope shifts changed curvature yield curve prospective assessment response simulated yield curve shifts retrospective assessment hedging relationship considered effective fair value hedging instrument hedged item changed inversely within range 80 125 qualifying fair value hedges gains losses derivatives included “interest expense” change fair value hedged item attributable risk hedged reported adjustment carrying value subsequently amortized interest expense remaining life gains losses resulting hedge ineffectiveness included “interest expense” see note 23 information interest income interest expense years ended december 2010 december 2009 one month ended december 2008 gainloss recognized interest rate derivatives accounted hedges 162 billion 1007 billion 359 billion respectively related gainloss recognized hedged borrowings bank deposits 345 billion 995 billion 353 billion respectively hedge ineffectiveness recognized derivatives year ended december 2010 loss 184 billion loss consisted primarily amortization prepaid credit spreads material year ended december 2009 one month ended december 2008 gainloss excluded assessment hedge effectiveness material year ended december 2010 one month ended december 2008 loss 123 billion year ended december 2009 goldman sachs group inc subsidiaries notes consolidated financial statements continued net investment hedges firm seeks reduce impact fluctuations foreign exchange rates net investment certain nonus operations use foreign currency forward contracts foreign currencydenominated debt foreign currency forward contracts designated hedges effectiveness hedge assessed based overall changes fair value forward contracts ie based changes forward rates foreign currencydenominated debt designated hedge effectiveness hedge assessed based changes spot rates qualifying net investment hedges gains losses hedging instruments extent effective included consolidated statements comprehensive income table presents gainslosses net investment hedging gainslosses included “currency translation adjustment net tax” consolidated statements comprehensive incomeloss gainloss related ineffectiveness gainloss reclassified earnings accumulated comprehensive income material years ended december 2010 december 2009 one month ended december 2008 december 2010 december 2009 firm designated 388 billion 338 billion respectively foreign currencydenominated debt included “unsecured longterm borrowings” “unsecured shortterm borrowings” hedges net investments nonus subsidiaries note 8 fair value option financial assets financial liabilities fair value addition cash derivative instruments included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” firm elected account certain financial assets financial liabilities fair value fair value option primary reasons electing fair value option • reflect economic events earnings timely basis • mitigate volatility earnings using different measurement attributes eg transfers financial instruments owned accounted financings recorded fair value whereas related secured financing would recorded accrual basis absent electing fair value option • address simplification costbenefit considerations eg accounting hybrid financial instruments fair value entirety versus bifurcation embedded derivatives hedge accounting debt hosts hybrid financial instruments contain bifurcatable embedded derivatives require settlement physical delivery nonfinancial assets eg physical commodities firm elects bifurcate embedded derivative associated debt derivative accounted fair value host contract accounted amortized cost adjusted effective portion fair value hedges firm elect bifurcate entire hybrid financial instrument accounted fair value fair value option goldman sachs group inc subsidiaries notes consolidated financial statements continued financial assets financial liabilities accounted fair value fair value option include • resale repurchase agreements • securities borrowed loaned within fixed income currency commodities client execution • certain secured financings primarily transfers assets accounted financings rather sales debt raised firm’s william street credit extension program certain nonrecourse financings • certain unsecured shortterm borrowings consisting promissory notes commercial paper certain hybrid financial instruments • certain unsecured longterm borrowings including prepaid commodity transactions certain hybrid financial instruments • certain receivables customers counterparties including certain margin loans transfers assets accounted secured loans rather purchases prepaid variable share forwards • certain insurance reinsurance contract assets liabilities certain guarantees • certain deposits issued firm’s bank subsidiaries well securities held goldman sachs bank usa gs bank usa • certain subordinated liabilities issued consolidated vies • general investments acquired november 24 2006 fair value option became available firm significant influence investee would otherwise apply equity method accounting financial assets financial liabilities fair value generally valued based discounted cash flow techniques incorporate inputs reasonable levels price transparency generally classified level 2 inputs observable valuation adjustments may made counterparty firm’s credit quality significant inputs category financial assets financial liabilities fair value follows resale repurchase agreements securities borrowed loaned significant inputs valuation resale repurchase agreements securities borrowed loaned amount timing expected future cash flows interest rates collateral funding spreads see note 9 information secured financings significant inputs valuation secured financings fair value amount timing expected future cash flows interest rates fair value collateral delivered firm determined using amount timing expected future cash flows market yields recovery assumptions frequency additional collateral calls credit spreads firm see note 9 information unsecured shortterm longterm borrowings significant inputs valuation unsecured shortterm longterm borrowings fair value amount timing expected future cash flows interest rates credit spreads firm well commodity prices case prepaid commodity transactions certain hybrid financial instruments equity prices inflation rates index levels see notes 15 16 information receivables customers counterparties significant inputs valuation certain receivables customers counterparties commodity prices interest rates amount timing expected future cash flows insurance reinsurance contracts insurance reinsurance contracts fair value included “receivables customers counterparties” “other liabilities accrued expenses” contracts valued using market transactions market evidence possible including marketbased inputs models calibration marketclearing transactions alternative pricing sources reasonable levels price transparency significant level 2 inputs typically include interest rates inflation risk significant level 3 inputs typically include mortality funding benefit assumptions unobservable inputs valuation model significant fair value measurement instrument classified level 3 goldman sachs group inc subsidiaries notes consolidated financial statements continued deposits significant inputs valuation deposits interest rates gains losses financial assets financial liabilities fair value “fair value option” columns table present gains losses recognized result firm electing apply fair value option certain financial assets financial liabilities gains losses included “market making” “other principal transactions” revenues amounts table exclude contractual interest included “interest income” “interest expense” instruments hybrid financial instruments see note 23 information interest income interest expense table also excludes gains losses related financial instruments owned fair value financial instruments sold yet purchased fair value included “other” columns table • gains losses embedded derivative component hybrid financial instruments included unsecured shortterm borrowings unsecured longterm borrowings gains losses would recognized us gaap even firm elected account entire hybrid instrument fair value • gains losses secured financings related transfers assets accounted financings rather sales gains losses offset gains losses related instruments included “financial instruments owned fair value” “receivables customers counterparties” • gains losses receivables customers counterparties related transfers assets accounted receivables rather purchases gains losses offset gains losses related financial instruments included “other secured financings” • gains losses subordinated liabilities issued consolidated vies gains losses offset gains losses financial assets held consolidated vies 1 primarily consists gainslosses certain transfers accounted receivables rather purchases certain reinsurance contracts 2 primarily consists gainslosses certain insurance reinsurance contracts 3 primarily consists gainslosses resale repurchase agreements securities borrowed loaned deposits goldman sachs group inc subsidiaries notes consolidated financial statements continued excluding gains losses instruments accounted fair value option described “market making” “other principal transactions” consolidated statements earnings primarily represents gains losses “financial instruments owned fair value” “financial instruments sold yet purchased fair value” loans lending commitments table presents difference aggregate fair value aggregate contractual principal amount loans longterm receivables fair value option elected 1 aggregate contractual principal exceeds related fair value primarily firm regularly purchases loans distressed loans values significantly contractual principal amounts december 2010 december 2009 fair value unfunded lending commitments fair value option elected liability 126 billion 879 million respectively related total contractual amount lending commitments 5120 billion 4405 billion respectively longterm debt instruments aggregate contractual principal amount longterm debt instruments principal nonprincipal protected fair value option elected exceeded related fair value 701 million 752 million december 2010 december 2009 respectively amounts 349 million 672 million december 2010 december 2009 respectively related unsecured longterm borrowings remainder related longterm secured financings impact credit spreads loans lending commitments net gainslosses attributable changes instrumentspecific credit spreads loans lending commitments fair value option elected 185 billion 165 billion 461 billion 206 billion years ended december 2010 december 2009 november 2008 one month ended december 2008 respectively changes fair value floatingrate loans lending commitments attributable changes instrumentspecific credit spreads fixedrate loans lending commitments firm allocates changes fair value interest raterelated changes credit spreadrelated changes based changes interest rates impact credit spreads borrowings table presents net gainslosses attributable impact changes firm’s credit spreads borrowings fair value option elected firm calculates fair value borrowings discounting future cash flows rate incorporates firm’s credit spreads goldman sachs group inc subsidiaries notes consolidated financial statements continued note 9 collateralized agreements financings collateralized agreements securities purchased agreements resell resale agreements reverse repurchase agreements securities borrowed collateralized financings securities sold agreements repurchase agreements securities loaned secured financings firm enters transactions order among things facilitate client activities invest excess cash acquire securities cover short positions finance certain firm activities collateralized agreements financings presented netbycounterparty basis legal right setoff exists interest collateralized agreements collateralized financings recognized life transaction included “interest income” “interest expense” respectively see note 23 information interest income interest expense table presents carrying value resale repurchase agreements securities borrowed loaned transactions 1 resale repurchase agreements carried fair value fair value option see note 8 information valuation techniques significant inputs used determine fair value 2 december 2010 december 2009 4882 billion 6633 billion securities borrowed 151 billion 619 billion securities loaned fair value respectively resale repurchase agreements resale agreement transaction firm purchases financial instruments seller typically exchange cash simultaneously enters agreement resell substantially financial instruments seller stated price plus accrued interest future date repurchase agreement transaction firm sells financial instruments buyer typically exchange cash simultaneously enters agreement repurchase substantially financial instruments buyer stated price plus accrued interest future date financial instruments purchased sold resale repurchase agreements typically include us government federal agency investmentgrade sovereign obligations firm receives financial instruments purchased resale agreements makes delivery financial instruments sold repurchase agreements monitors market value financial instruments daily basis delivers obtains additional collateral due changes market value financial instruments appropriate resale agreements firm typically requires delivery collateral fair value approximately equal carrying value relevant assets consolidated statements financial condition even though repurchase resale agreements involve legal transfer ownership financial instruments accounted financing arrangements require financial instruments repurchased resold maturity agreement however “repos maturity” accounted sales repo maturity transaction firm transfers security little default risk agreement repurchase security maturity date repurchase agreement matches maturity date underlying security therefore firm effectively longer repurchase obligation relinquished control underlying security accordingly accounts transaction sale firm transactions outstanding december 2010 december 2009 goldman sachs group inc subsidiaries notes consolidated financial statements continued securities borrowed loaned transactions securities borrowed transaction firm borrows securities counterparty exchange cash firm returns securities counterparty returns cash interest generally paid periodically life transaction securities loaned transaction firm lends securities counterparty typically exchange cash securities letter credit counterparty returns securities firm returns cash securities posted collateral interest generally paid periodically life transaction firm receives securities borrowed makes delivery securities loaned monitors market value securities daily basis delivers obtains additional collateral due changes market value securities appropriate securities borrowed transactions firm typically requires delivery collateral fair value approximately equal carrying value securities borrowed transaction securities borrowed loaned within fixed income currency commodities client execution recorded fair value fair value option securities borrowed loaned within securities services recorded based amount cash collateral advanced received plus accrued interest arrangements generally terminated demand exhibit little sensitivity changes interest rates december 2010 december 2009 firm 1286 billion 395 billion respectively securities received resale agreements securities borrowed transactions segregated satisfy certain regulatory requirements securities included “cash securities segregated regulatory purposes” secured financings addition repurchase agreements securities lending transactions firm funds certain assets use secured financings pledges financial instruments assets collateral transactions secured financings consist • debt raised firm’s william street credit extension program • liabilities consolidated vies • transfers assets accounted financings rather sales primarily collateralized central bank financings pledged commodities bank loans mortgage whole loans • structured financing arrangements secured financings include arrangements nonrecourse december 2010 december 2009 nonrecourse secured financings 842 billion 1063 billion respectively firm elected apply fair value option following secured financings use fair value eliminates noneconomic volatility earnings would arise using different measurement attributes • debt raised firm’s william street credit extension program • transfers assets accounted financings rather sales • certain nonrecourse financings see note 8 information secured financings accounted fair value secured financings recorded fair value recorded based amount cash received plus accrued interest generally approximates fair value goldman sachs group inc subsidiaries notes consolidated financial statements continued table presents information secured financings table • shortterm secured financings include financings maturing within one year financial statement date financings redeemable within one year financial statement date option holder • longterm secured financings repayable prior maturity option firm reflected contractual maturity dates • longterm secured financings redeemable prior maturity option holder reflected dates options become exercisable 1 weighted average interest rates exclude secured financings fair value include effect hedging activities see note 7 information hedging activities 2 includes 832 billion 951 billion related transfers assets accounted financings rather sales december 2010 december 2009 respectively financings collateralized financial assets included “financial instruments owned fair value” 853 billion 978 billion december 2010 december 2009 respectively 3 includes 2563 billion 1589 billion secured financings collateralized financial instruments owned 1014 billion 236 billion secured financings collateralized financial instruments received collateral repledged december 2010 december 2009 respectively 4 primarily real estate cash table presents secured financings maturity aggregate contractual principal amount secured financings longterm fair value option elected exceeded related fair value 352 million 80 million december 2010 december 2009 respectively collateral received pledged firm receives financial instruments eg us government federal agency sovereign corporate obligations well equities convertible debentures collateral primarily connection resale agreements securities borrowed derivative transactions customer margin loans goldman sachs group inc subsidiaries notes consolidated financial statements continued many cases firm permitted deliver repledge financial instruments entering repurchase agreements securities lending agreements secured financings collateralizing derivative transactions meeting firm customer settlement requirements table presents financial instruments fair value received collateral available delivered repledged delivered repledged firm also pledges certain financial instruments owned fair value connection repurchase agreements securities lending agreements secured financings assets primarily real estate cash connection secured financings counterparties may right deliver repledge table presents information assets pledged firm note 10 securitization activities firm securitizes residential commercial mortgages corporate bonds loans types financial assets selling assets securitization vehicles eg trusts corporate entities limited liability companies acts underwriter beneficial interests sold investors firm’s residential mortgage securitizations substantially connection government agency securitizations beneficial interests issued securitization entities debt equity securities give investors rights receive portions specified cash inflows securitization vehicle include senior subordinated shares principal interest andor cash inflows proceeds sale beneficial interests used pay transferor financial assets sold securitization vehicle purchase securities serve collateral firm accounts securitization sale relinquished control transferred assets prior securitization firm accounts assets pending transfer fair value therefore typically recognize gains losses upon transfer assets net revenues underwriting activities recognized connection sales underlying beneficial interests investors transfers assets accounted sales assets remain “financial instruments owned fair value” transfer accounted collateralized financing related interest expense recognized life transaction see notes 9 23 information collateralized financings interest expense respectively firm generally receives cash exchange transferred assets may also continuing involvement transferred assets including beneficial interests securitized financial assets primarily form senior subordinated securities servicing rights firm retains time securitization firm may also purchase senior subordinated securities issued securitization vehicles typically vies connection secondary marketmaking activities goldman sachs group inc subsidiaries notes consolidated financial statements continued beneficial interests firm’s continuing involvement securitization vehicles accounted fair value included “financial instruments owned fair value” generally classified level 2 fair value hierarchy see notes 5 8 information fair value measurements table presents amount financial assets securitized cash flows received retained interests securitization entities firm continuing involvement year ended november 2008 firm securitized 1446 billion financial assets including 667 billion residential mortgages 773 million commercial mortgages 701 billion financial assets primarily connection clos year ended november 2008 cash flows received retained interests 505 million one month ended december 2008 firm securitized 604 million financial assets firm continuing involvement including 557 million residential mortgages 47 million financial assets one month ended december 2008 cash flows received retained interests 26 million table presents firm’s continuing involvement nonconsolidated securitization entities firm sold assets well total outstanding principal amount transferred assets firm continuing involvement table • outstanding principal amount presented purpose providing information size securitization entities firm continuing involvement representative firm’s risk loss • retained purchased interests firm’s risk loss limited fair value interests • purchased interests represent senior subordinated interests purchased connection secondary marketmaking activities securitization entities firm also holds retained interests 1 includes 764 billion outstanding principal amount 16 million fair value retained interests december 2010 related securitization entities firm’s continuing involvement retained servicing variable interest goldman sachs group inc subsidiaries notes consolidated financial statements continued addition interests table firm continuing involvement form derivative transactions guarantees certain nonconsolidated vies carrying value derivatives guarantees net liability 98 million 87 million december 2010 december 2009 respectively notional amounts derivatives guarantees included maximum exposure loss nonconsolidated vie tables note 11 table presents weighted average key economic assumptions used measuring fair value retained interests sensitivity fair value immediate adverse changes 10 20 assumptions 1 due nature current fair value certain retained interests weighted average assumptions constant prepayment discount rates related sensitivity adverse changes meaningful december 2010 december 2009 firm’s maximum exposure adverse changes value interests carrying value 62 million 93 million december 2010 december 2009 respectively 2 constant prepayment rate included positions constant prepayment rate key assumption determination fair value 3 majority mortgagebacked retained interests us government agencyissued collateralized mortgage obligations anticipated credit loss remainder retained interests expected credit loss assumptions reflected discount rate preceding table give effect offsetting benefit financial instruments held mitigate risks inherent retained interests changes fair value based adverse variation assumptions generally cannot extrapolated relationship change assumptions change fair value usually linear addition impact change particular assumption preceding table calculated independently changes assumption practice simultaneous changes assumptions might magnify counteract sensitivities disclosed goldman sachs group inc subsidiaries notes consolidated financial statements continued note 11 variable interest entities vies generally finance purchase assets issuing debt equity securities either collateralized indexed assets held vie debt equity securities issued vie may include tranches varying levels subordination firm’s involvement vies includes securitization financial assets described note 10 investments loans types vies described see note 10 additional information securitization activities including definition beneficial interests see note 3 firm’s consolidation policies including definition vie firm principally involved vies following business activities mortgagebacked vies corporate cdo clo vies firm sells residential commercial mortgage loans securities mortgagebacked vies corporate bonds loans corporate cdo clo vies may retain beneficial interests assets sold vies firm purchases sells beneficial interests issued mortgagebacked corporate cdo clo vies connection marketmaking activities addition firm may enter derivatives certain vies primarily interest rate swaps typically variable interests firm generally enters derivatives counterparties mitigate risk derivatives vies certain mortgagebacked corporate cdo clo vies usually referred synthetic cdos creditlinked note vies synthetically create exposure beneficial interests issue entering credit derivatives rather purchasing underlying assets credit derivatives may reference single asset index portfoliobasket assets indices see note 7 information credit derivatives vies use funds sale beneficial interests premiums received credit derivative counterparties purchase securities serve collateralize beneficial interest holders andor credit derivative counterparty vies may enter derivatives primarily interest rate swaps typically variable interests firm may counterparty derivatives vies generally enters derivatives counterparties mitigate risk real estate creditrelated investing vies firm purchases equity debt securities issued makes loans vies hold real estate performing nonperforming debt distressed loans equity securities assetbacked vies firm structures vies issue notes clients purchases sells beneficial interests issued assetbacked vies connection marketmaking activities addition firm may enter derivatives certain assetbacked vies primarily total return swaps collateral assets held vies firm pays vie return due note holders receives return collateral assets owned vie firm generally removed total return swap counterparty firm generally enters derivatives counterparties mitigate risk derivatives vies firm typically sell assets assetbacked vies structures powerrelated vies firm purchases debt equity securities issued may provide guarantees vies hold powerrelated assets firm typically sell assets enter derivatives vies investment funds firm purchases equity securities issued may provide guarantees certain investment funds manages firm typically sell assets enter derivatives vies principalprotected note vies firm structures vies issue principalprotected notes clients vies portfolios assets principally exposure hedge funds substantially principal protection notes issued vies provided asset portfolio rebalancing required terms notes firm enters total return swaps vies firm pays vie return due principalprotected note holders receives return assets owned vie firm may enter derivatives counterparties mitigate risk derivatives enters vies firm also obtains funding vies consolidated firm upon adoption changes us gaap january 1 2010 see “recent accounting developments” note 3 information goldman sachs group inc subsidiaries notes consolidated financial statements continued municipal bond securitizations firm sells municipal securities vies issue shortterm qualifying taxexempt securities firm consolidates vies owns residual interests allows firm make decisions significantly impact economic performance vies vie consolidation analysis variable interest vie investment eg debt equity securities interest eg derivatives loans lending commitments vie absorb portions vie’s expected losses receive portions vie’s expected residual returns firm’s variable interests vies include senior subordinated debt residential commercial mortgagebacked assetbacked securitization entities cdos clos loans lending commitments limited general partnership interests preferred common equity derivatives may include foreign currency equity andor credit risk guarantees certain fees firm receives investment funds certain interest rate foreign currency credit derivatives firm enters vies variable interests create rather absorb risk enterprise controlling financial interest vie known primary beneficiary consolidates vie firm determines whether primary beneficiary vie performing analysis principally considers • variable interest holder power direct activities vie significantly impact vie’s economic performance • variable interest holder obligation absorb losses right receive benefits vie could potentially significant vie • vie’s purpose design including risks vie designed create pass variable interest holders • vie’s capital structure • terms vie variable interest holders parties involved vie • related party relationships firm reassesses initial evaluation whether entity vie certain reconsideration events occur firm reassesses determination whether primary beneficiary vie ongoing basis based current facts circumstances nonconsolidated vies firm’s exposure obligations vies generally limited interests entities certain instances firm provides guarantees including derivative guarantees vies holders variable interests vies tables present information nonconsolidated vies firm holds variable interests nonconsolidated vies aggregated based principal business activity nature firm’s variable interests take different forms described rows maximum exposure loss tables • maximum exposure loss excludes benefit offsetting financial instruments held mitigate risks associated variable interests • retained purchased interests loans investments maximum exposure loss carrying value interests • commitments guarantees derivatives maximum exposure loss notional amount represent anticipated losses also reduced unrealized losses already recorded result maximum exposure loss exceeds liabilities recorded commitments guarantees derivatives provided vies december 2010 table includes nonconsolidated vies firm holds variable interests firm sold assets continuing involvement december 2010 formerly considered qspes prior changes us gaap january 1 2010 see “recent accounting developments” note 3 information carrying values firm’s variable interests nonconsolidated vies included consolidated statement financial condition follows • substantially assets liabilities held firm related mortgagebacked corporate cdo clo assetbacked vies investment funds included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” respectively • assets liabilities held firm related real estate creditrelated investing vies primarily included “financial instruments owned fair value” “payables customers counterparties” “other liabilities accrued expenses” respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued • assets liabilities held firm related powerrelated vies primarily included “other assets” “other liabilities accrued expenses” respectively 1 aggregate amounts include 452 billion 466 billion december 2010 december 2009 respectively related guarantees derivative transactions vies firm transferred assets 2 assets vie maximum exposure loss include 614 billion 325 billion respectively related cdos backed mortgage obligations december 2010 3 assets vie carrying value liabilities maximum exposure loss exclude 397 billion associated guarantees related firm’s performance borrowings vies recorded liabilities substantially 136 billion liabilities relate additional borrowings vies goldman sachs group inc subsidiaries notes consolidated financial statements continued consolidated vies tables present carrying amount classification assets liabilities consolidated vies excluding benefit offsetting financial instruments held mitigate risks associated firm’s variable interests consolidated vies aggregated based principal business activity assets liabilities presented net intercompany eliminations majority assets principalprotected notes vies intercompany eliminated consolidation substantially assets consolidated vies used settle obligations vie december 2010 table excludes vies firm holds majority voting interest vie meets definition business ii vie’s assets used purposes settlement obligations december 2009 prior changes us gaap table excludes vies firm holds majority voting interest unless activities vie primarily related securitization assetbacked financings singlelessee leasing arrangements increase total assets consolidated vies december 2009 december 2010 primarily related vies required disclosed accordance asu 200917 required disclosed previous us gaap ii vies consolidated firm upon adoption changes us gaap see “recent accounting developments” note 3 information liabilities real estate creditrelated investing vies cdos mortgagebacked assetbacked vies recourse general credit firm goldman sachs group inc subsidiaries notes consolidated financial statements continued note 12 assets generally less liquid nonfinancial assets table presents assets type 1 net accumulated depreciation amortization 787 billion 728 billion december 2010 december 2009 respectively 2 see note 13 information goodwill identifiable intangible assets 3 see note 26 information income taxes 4 excludes investments 377 billion 295 billion accounted fair value fair value option december 2010 december 2009 respectively included “financial instruments owned fair value” see note 8 information property leasehold improvements equipment property leasehold improvements equipment included 644 billion 590 billion december 2010 december 2009 respectively related property leasehold improvements equipment firm uses connection operations remainder held investment entities including vies consolidated firm substantially property equipment depreciated straightline basis useful life asset leasehold improvements amortized straightline basis useful life improvement term lease whichever shorter certain costs software developed obtained internal use capitalized amortized straightline basis useful life software goldman sachs group inc subsidiaries notes consolidated financial statements continued property leasehold improvements equipment tested impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable firm’s policy impairment testing property leasehold improvements equipment used identifiable intangible assets finite lives see note 13 information note 13 goodwill identifiable intangible assets tables present operating segment carrying values goodwill identifiable intangible assets included “other assets” goodwill cost acquired companies excess fair value identifiable net assets acquisition date reorganization firm’s segments 2010 resulted reallocation assets including goodwill liabilities across reporting units see note 27 information segments goodwill tested annually impairment frequently events occur circumstances change indicate impairment may exist goodwill impairment test consists two steps • first step compares fair value reporting unit estimated net book value including goodwill identified intangible assets reporting unit’s fair value exceeds estimated net book value goodwill impaired • estimated fair value reporting unit less estimated net book value second step goodwill impairment test performed measure amount impairment loss impairment loss equal excess carrying amount goodwill fair value goodwill tested impairment fourth quarter 2010 impairment identified estimate fair value reporting unit relative value residual income valuation techniques used firm believes market participants would use techniques value firm’s reporting units relative value techniques apply average observable pricetoearnings multiples comparable competitors certain reporting units’ net earnings reporting units fair value estimated using pricetobook multiples based residual income techniques compare excess reporting unit returns equity firm’s cost equity capital longterm stable growth period net book value reporting unit reflects estimated amount shareholders’ equity required support activities reporting unit goldman sachs group inc subsidiaries notes consolidated financial statements continued identifiable intangible assets table presents gross carrying amount accumulated amortization net carrying amount identifiable intangible assets weighted average remaining lives 1 represents television broadcast royalties held vie consolidated upon adoption asu 200917 2 primarily includes commodityrelated customer contracts relationships permits access rights acquired first quarter 2010 3 represents value business acquired related firm’s insurance businesses goldman sachs group inc subsidiaries notes consolidated financial statements continued substantially firm’s identifiable intangible assets considered finite lives amortized estimated lives case insurance contracts proportion estimated gross profits premium revenues amortization expense identifiable intangible assets included “depreciation amortization” table presents amortization expense identifiable intangible assets periods presented estimated future amortization expense 2015 identifiable intangible assets december 2010 1 includes impairment loss 305 million firm’s nyse dmm rights identifiable intangible assets tested recoverability whenever events changes circumstances indicate asset’s asset group’s carrying value may recoverable recoverability test necessary carrying value asset group compared total undiscounted cash flows expected received remaining useful life disposition asset group • total undiscounted cash flows exceeds carrying value asset group impaired • total undiscounted cash flows less carrying value asset group fully recoverable impairment loss recognized difference carrying amount asset group estimated fair value fourth quarter 2010 result continuing weak operating results firm’s nyse dmm business firm tested nyse dmm rights impairment accordance asc 360 carrying value firm’s nyse dmm rights exceeded projected undiscounted cash flows estimated remaining useful life firm’s nyse dmm rights firm determined rights impaired firm recorded impairment loss 305 million included “depreciation amortization” firm’s institutional client services segment fourth quarter 2010 impairment loss represented excess carrying value firm’s nyse dmm rights estimated fair value firm estimated fair value level 3 measurement using relative value analysis incorporated comparison another dmm portfolio transacted third parties goldman sachs group inc subsidiaries notes consolidated financial statements continued note 14 deposits tables present deposits held us nonus offices maturities time deposits substantially us deposits held gs bank usa interestbearing substantially nonus deposits held goldman sachs bank europe plc gs bank europe interestbearing 1 includes 106 million greater 100000 13 million matures within three months 4 million matures within three six months 32 million matures within six twelve months 57 million matures twelve months 2 substantially greater 100000 note 15 shortterm borrowings shortterm borrowings comprised following see note 9 information secured financings unsecured shortterm borrowings include portion unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holder firm accounts promissory notes commercial paper certain hybrid financial instruments fair value fair value option see note 8 information unsecured shortterm borrowings accounted fair value shortterm borrowings recorded fair value recorded based amount cash received plus accrued interest amounts approximate fair value due shortterm nature obligations goldman sachs group inc subsidiaries notes consolidated financial statements continued table presents unsecured shortterm borrowings 1 includes 1043 billion 173 billion december 2010 december 2009 respectively issued group inc guaranteed federal deposit insurance corporation fdic temporary liquidity guarantee program tlgp 2 includes 2446 billion 1705 billion december 2010 december 2009 respectively issued group inc 3 weighted average interest rates borrowings include effect hedging activities exclude financial instruments accounted fair value fair value option see note 7 information hedging activities note 16 longterm borrowings longterm borrowings comprised following see note 9 information secured financings table presents unsecured longterm borrowings extending 2060 consisting principally senior borrowings 1 interest rates us dollardenominated debt ranged 020 1004 weighted average rate 552 025 1004 weighted average rate 535 december 2010 december 2009 respectively interest rates nonus dollardenominated debt ranged 085 1485 weighted average rate 465 080 1300 weighted average rate 449 december 2010 december 2009 respectively 2 floating interest rates generally based libor federal funds target rate equitylinked indexed instruments included floatingrate obligations 3 includes 858 billion 1903 billion december 2010 december 2009 respectively issued group inc guaranteed fdic tlgp goldman sachs group inc subsidiaries notes consolidated financial statements continued table presents unsecured longterm borrowings maturity date table • unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holder included unsecured shortterm borrowings • unsecured longterm borrowings repayable prior maturity option firm reflected contractual maturity dates • unsecured longterm borrowings redeemable prior maturity option holder reflected dates options become exercisable aggregate contractual principal amount unsecured longterm borrowings principal nonprincipal protected fair value option elected exceeded related fair value 349 million 672 million december 2010 december 2009 respectively 1 amount includes increase 886 billion carrying amount certain unsecured longterm borrowings related hedge accounting amounts related carrying value unsecured longterm borrowings associated effect hedge accounting year maturity follows 532 million 2012 750 million 2013 839 million 2014 382 million 2015 636 billion 2016 thereafter firm designates certain derivatives fair value hedges effectively convert substantial portion fixedrate unsecured longterm borrowings accounted fair value floatingrate obligations accordingly excluding cumulative impact changes firm’s credit spreads carrying value unsecured longterm borrowings approximated fair value december 2010 december 2009 unsecured longterm borrowings firm elect fair value option cumulative impact due changes firm’s credit spreads would reduction carrying value total unsecured longterm borrowings less 1 december 2010 december 2009 see note 7 information hedging activities table presents unsecured longterm borrowings giving effect hedging activities converted substantial portion fixedrate obligations floatingrate obligations 1 weighted average interest rates aggregate amounts 190 569 related fixedrate obligations 174 related floatingrate obligations 142 549 related fixedrate obligations 132 related floatingrate obligations december 2010 december 2009 respectively rates exclude financial instruments accounted fair value fair value option goldman sachs group inc subsidiaries notes consolidated financial statements continued subordinated borrowings unsecured longterm borrowings include subordinated debt junior subordinated debt junior subordinated debt junior right payment subordinated borrowings junior senior borrowings december 2010 december 2009 subordinated debt maturities ranging 2012 2038 2017 2038 respectively table presents subordinated borrowings 1 weighted average interest rate giving effect fair value hedges used convert fixedrate obligations floatingrate obligations see note 7 information hedging activities see information interest rates junior subordinated debt 2 december 2010 par amount carrying amount include 1381 billion 1644 billion respectively subordinated debt issued group inc december 2009 par amount carrying amount include 1378 billion 1530 billion respectively subordinated debt issued group inc junior subordinated debt junior subordinated debt issued apex trusts 2007 group inc issued total 225 billion remarketable junior subordinated debt goldman sachs capital ii goldman sachs capital iii apex trusts delaware statutory trusts apex trusts issued 225 billion guaranteed perpetual normal automatic preferred enhanced capital securities apex third parties de minimis amount common securities group inc group inc also entered contracts apex trusts sell 225 billion group inc perpetual noncumulative preferred stock purchase contracts apex trusts wholly owned finance subsidiaries firm regulatory legal purposes consolidated accounting purposes firm accounted stock purchase contracts equity instruments accordingly recorded cost stock purchase contracts reduction additional paidin capital see note 19 information preferred stock group inc issue connection stock purchase contracts firm pays interest semiannually 175 billion junior subordinated debt issued goldman sachs capital ii fixed annual rate 559 debt matures june 1 2043 firm pays interest quarterly 500 million junior subordinated debt issued goldman sachs capital iii rate per annum equal threemonth libor plus 057 debt matures september 1 2043 addition firm makes contract payments rate 020 per annum stock purchase contracts held apex trusts firm right defer payments junior subordinated debt stock purchase contracts subject limitations therefore cause payment apex deferred extension period firm permitted among things pay dividends make certain repurchases common preferred stock goldman sachs group inc subsidiaries notes consolidated financial statements continued connection apex issuance firm covenanted favor certain debtholders initially currently holders group inc’s 6345 junior subordinated debentures due february 15 2034 subject certain exceptions firm would redeem purchase group inc’s junior subordinated debt issued apex trusts prior applicable stock purchase date ii apex shares group inc’s perpetual noncumulative preferred stock series e series e preferred stock perpetual noncumulative preferred stock series f series f preferred stock prior date ten years applicable stock purchase date unless applicable redemption purchase price exceed maximum amount determined reference aggregate amount net cash proceeds firm received sale qualifying equity securities 180day period preceding redemption purchase junior subordinated debt issued connection trust preferred securities group inc issued 284 billion junior subordinated debentures 2004 goldman sachs capital trust delaware statutory trust issued 275 billion guaranteed preferred beneficial interests third parties 85 million common beneficial interests group inc used proceeds issuances purchase junior subordinated debentures group inc trust wholly owned finance subsidiary firm regulatory legal purposes consolidated accounting purposes firm pays interest semiannually debentures annual rate 6345 debentures mature february 15 2034 coupon rate payment dates applicable beneficial interests interest rate payment dates debentures firm right time defer payment interest debentures therefore cause payment trust’s preferred beneficial interests deferred case ten consecutive semiannual periods extension period firm permitted among things pay dividends make certain repurchases common stock trust permitted pay distributions common beneficial interests held group inc unless dividends payable preferred beneficial interests paid full goldman sachs group inc subsidiaries notes consolidated financial statements continued note 17 liabilities accrued expenses table presents liabilities accrued expenses type 1 includes 593 million 598 million related consolidated investment funds december 2010 december 2009 respectively 2 see note 26 information income taxes 3 includes 909 million related entities consolidated upon adoption asu 200917 table presents insurancerelated liabilities type separate account liabilities supported separate account assets representing segregated contract holder funds variable annuity life insurance contracts separate account assets included “cash securities segregated regulatory purposes” liabilities future benefits unpaid claims include liabilities arising reinsurance provided firm insurers firm receivable 126 billion 129 billion december 2010 december 2009 respectively related reinsurance contracts reported “receivables customers counterparties” addition firm ceded risks reinsurers related certain liabilities future benefits unpaid claims receivable 839 million 870 million december 2010 december 2009 respectively related reinsurance contracts reported “receivables customers counterparties” contracts cede risks reinsurers relieve firm obligations contract holders liabilities future benefits unpaid claims include 205 billion 184 billion carried fair value fair value option december 2010 december 2009 respectively reserves guaranteed minimum death income benefits represent liability expected value guaranteed benefits excess projected annuity account balances reserves based total payments expected made less total fees expected assessed life contract goldman sachs group inc subsidiaries notes consolidated financial statements continued note 18 commitments contingencies guarantees commitments table presents firm’s commitments 1 commitments extend credit presented net amounts syndicated third parties 2 agreements generally settle within three business days 3 consists commitments letters credit issued various banks firm provides counterparties lieu securities cash satisfy various collateral margin deposit requirements commitments extend credit firm’s commitments extend credit agreements lend fixed termination dates depend satisfaction contractual conditions borrowing total commitment amount necessarily reflect actual future cash flows firm may syndicate substantial portions commitments expire unused reduced cancelled counterparty’s request firm generally accounts commitments extend credit fair value losses generally recorded net fees “other principal transactions” commercial lending firm’s commercial lending commitments generally extended connection contingent acquisition financing types corporate lending well commercial real estate financing commitments extended contingent acquisition financing often intended shortterm nature borrowers often seek replace funding sources william street credit extension program substantially commitments provided william street credit extension program investmentgrade corporate borrowers commitments program principally extended william street commitment corporation commitment corp consolidated wholly owned subsidiary gs bank usa gs bank usa subsidiaries gs bank usa commitments extended commitment corp supported part funding raised william street funding corporation funding corp another consolidated wholly owned subsidiary gs bank usa assets liabilities commitment corp funding corp legally separated assets liabilities firm assets commitment corp funding corp available respective shareholders claims respective creditors paid addition affiliate either commitment corp funding corp except limited cases expressly agreed writing responsible obligation either entity goldman sachs group inc subsidiaries notes consolidated financial statements continued sumitomo mitsui financial group inc smfg provides firm credit loss protection generally limited 95 first loss firm realizes approved loan commitments maximum approximately 950 million respect william street commitments addition subject satisfaction certain conditions upon firm’s request smfg provide protection 70 additional losses commitments maximum 113 billion 375 million protection provided december 2010 december 2009 firm also uses financial instruments mitigate credit risks related certain william street commitments covered smfg warehouse financing firm provides financing clients warehouse financial assets arrangements secured warehoused assets primarily consisting residential commercial mortgages contingent forward starting resale securities borrowing agreementsforward starting repurchase securities lending agreements firm enters resale securities borrowing agreements repurchase securities lending agreements settle future date firm also enters commitments provide contingent financing clients resale agreements firm’s funding commitments depends satisfaction contractual conditions resale agreement commitments expire unused investment commitments firm’s investment commitments consist commitments invest private equity real estate assets directly funds firm raises manages commitments include 197 billion 246 billion december 2010 december 2009 respectively related real estate private investments 912 billion 1078 billion december 2010 december 2009 respectively related corporate private investments amounts 1010 billion 1138 billion december 2010 december 2009 respectively relate commitments invest funds managed firm funded market value date investment leases firm contractual obligations longterm noncancelable lease agreements principally office space expiring various dates 2069 certain agreements subject periodic escalation provisions increases real estate taxes charges table presents future minimum rental payments net minimum sublease rentals rent charged operating expense years ended december 2010 december 2009 december 2008 508 million 434 million 438 million respectively operating leases include office space held excess current requirements rent expense relating space held growth included “occupancy” consolidated statements earnings firm records liability based fair value remaining lease rentals reduced potential existing sublease rentals leases firm ceased using space management concluded firm derive future economic benefits costs terminate lease end term recognized measured fair value termination goldman sachs group inc subsidiaries notes consolidated financial statements continued contingencies legal proceedings see note 30 information legal proceedings including certain mortgagerelated matters certain mortgagerelated contingencies multiple areas focus regulators governmental agencies others within mortgage market may impact originators issuers servicers investors remains significant uncertainty surrounding nature extent potential exposure participants market • representations warranties firm significant originator residential mortgage loans firm purchase loans originated others generally received loanlevel representations type described originators period 2005 2008 firm sold approximately 10 billion loans governmentsponsored enterprises approximately 11 billion loans third parties addition firm transferred loans trusts mortgage securitization vehicles december 2010 outstanding balance loans transferred trusts mortgage securitization vehicles period 2005 2008 approximately 49 billion amount reflects paydowns cumulative losses approximately 76 billion 14 billion cumulative losses small number goldman sachsissued securitizations outstanding principal balance 739 million total paydowns cumulative losses 132 billion 410 million cumulative losses structured credit protection obtained monoline insurers connection sales loans securitizations firm provided loan level representations type described andor assigned loan level representations party firm purchased loans loan level representations made connection sale securitization mortgage loans varied among transactions generally detailed representations applicable loan portfolio addressed matters relating property borrower note representations generally included limited following certain attributes borrower’s financial status ii loantovalue ratios owner occupancy status certain characteristics property iii lien position iv fact loan originated compliance law v completeness loan documentation date repurchase claims actual repurchases residential mortgage loans based upon alleged breaches representations significant mainly involved governmentsponsored enterprises year ended december 2010 firm incurred immaterial loss repurchase less 50 million loans december 2010 outstanding repurchase claims material ultimately firm’s exposure claims repurchase residential mortgage loans based alleged breaches representations depend number factors including following extent claims actually made ii extent underlying breaches representations give rise valid claims repurchase iii case loans originated others extent firm could held liable firm’s ability pursue collect claims parties made representations firm iv macroeconomic factors including developments residential real estate market v legal regulatory developments based upon large number defaults residential mortgages including sold securitized firm potential increasing claims repurchases however firm position make meaningful estimate exposure time • foreclosure mortgage loan servicing practices procedures firm received number requests information regulators agencies including state attorneys general banking regulators part industrywide focus practices lenders servicers connection foreclosure proceedings aspects mortgage loan servicing practices procedures requests seek information foreclosure servicing protocols activities litton loan servicing lp litton firm’s residential mortgage servicing subsidiary deviations therefrom firm cooperating requests reviewing goldman sachs group inc subsidiaries notes consolidated financial statements continued litton’s practices area inquiries may result imposition fines regulatory action litton temporarily suspended evictions foreclosure real estate owned sales number states including judicial foreclosure procedures litton recently resumed activities date filing firm aware foreclosures underlying foreclosure decision warranted december 2010 value firm’s mortgage servicing rights material impact value would material firm similarly time firm expect suspension evictions foreclosure real estate owned sales lead material increase mortgage servicingrelated advances guaranteed minimum death income benefits connection insurance business firm contingently liable provide guaranteed minimum death income benefits certain contract holders established reserve related 611 billion 635 billion contract holder account balances december 2010 december 2009 respectively benefits weighted average attained age contract holders 69 years 68 years december 2010 december 2009 respectively net amount risk representing guaranteed minimum death income benefits excess contract holder account balances 160 billion 196 billion december 2010 december 2009 respectively see note 17 information insurance liabilities guarantees firm enters various derivatives meet definition guarantee us gaap including written equity commodity put options written currency contracts interest rate caps floors swaptions disclosures derivatives required may cash settled firm basis conclude probable counterparties held underlying instruments inception contract firm concluded conditions met certain large internationally active commercial investment bank counterparties certain counterparties accordingly firm included contracts table firm capacity agency lender indemnifies securities lending customers losses incurred event borrowers return securities collateral held insufficient cover market value securities borrowed ordinary course business firm provides financial guarantees obligations third parties eg standby letters credit guarantees enable clients complete transactions fundrelated guarantees represent obligations make payments beneficiaries guaranteed party fails fulfill obligation contractual arrangement beneficiary table presents certain information derivatives meet definition guarantee certain guarantees maximum payout table based notional amount contract therefore represent anticipated losses see note 7 information credit derivatives meet definition guarantee included derivatives accounted fair value carrying value considered best indication paymentperformance risk individual contracts however carrying values exclude effect legal right setoff may exist enforceable netting agreement effect netting cash collateral posted credit support agreements goldman sachs group inc subsidiaries notes consolidated financial statements continued 1 derivatives risk managed together derivatives meet definition guarantee therefore amounts reflect firm’s overall risk related derivative activities 2 collateral held lenders connection securities lending indemnifications 2821 billion december 2010 contractual nature arrangements requires firm obtain collateral market value exceeds value securities lent borrower minimal performance risk associated guarantees 3 financial guarantees excludes certain commitments issue standby letters credit included “commitments extend credit” see table “commitments” summary firm’s commitments december 2009 carrying value net liability related derivative guarantees financial guarantees 722 billion 207 million respectively guarantees securities issued trusts firm established trusts including goldman sachs capital ii iii entities limited purpose issuing securities third parties lending proceeds firm entering contractual arrangements firm third parties related purpose firm consolidate entities see note 16 information transactions involving goldman sachs capital ii iii firm effectively provides full unconditional guarantee securities issued entities timely payment firm amounts due entities borrowing preferred stock related contractual arrangements sufficient cover payments due securities issued entities management believes unlikely circumstances occur nonperformance part paying agents service providers would make necessary firm make payments related entities required terms borrowing preferred stock related contractual arrangements connection certain expenses incurred entities indemnities guarantees service providers ordinary course business firm indemnifies guarantees certain service providers clearing custody agents trustees administrators specified potential losses connection acting agent providing services firm affiliates firm also indemnifies clients potential losses incurred event specified thirdparty service providers including subcustodians thirdparty brokers improperly execute transactions addition firm member payment clearing settlement networks well securities exchanges around world may require firm meet obligations networks exchanges event member defaults connection prime brokerage clearing businesses firm agrees clear settle behalf clients transactions entered brokerage firms firm’s obligations respect transactions secured assets client’s account well proceeds received transactions cleared settled firm behalf client connection joint venture investments firm may issue loan guarantees may liable event fraud misappropriation environmental liabilities certain matters involving borrower goldman sachs group inc subsidiaries notes consolidated financial statements continued firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements material liabilities related guarantees indemnifications recognized consolidated statements financial condition december 2010 december 2009 representations warranties indemnifications firm provides representations warranties counterparties connection variety commercial transactions occasionally indemnifies potential losses caused breach representations warranties firm may also provide indemnifications protecting changes adverse application certain us tax laws connection ordinarycourse transactions securities issuances borrowings derivatives addition firm may provide indemnifications counterparties protect event additional taxes owed payments withheld due either change adverse application certain nonus tax laws indemnifications generally standard contractual terms entered ordinary course business generally stated notional amounts included indemnifications contingencies triggering obligation indemnify expected occur firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements material liabilities related arrangements recognized consolidated statements financial condition december 2010 december 2009 guarantees subsidiaries group inc fully unconditionally guarantees securities issued gs finance corp wholly owned finance subsidiary firm group inc guaranteed payment obligations goldman sachs co gsco gs bank usa gs bank europe goldman sachs execution clearing lp gsec subject certain exceptions november 2008 firm contributed subsidiaries gs bank usa group inc agreed guarantee certain losses including creditrelated losses relating assets held contributed entities connection guarantee group inc also agreed pledge gs bank usa certain collateral including interests subsidiaries illiquid assets addition group inc guarantees many obligations consolidated subsidiaries transactionbytransaction basis negotiated counterparties group inc unable develop estimate maximum payout subsidiary guarantees however guaranteed obligations also obligations consolidated subsidiaries included table group inc’s liabilities guarantor separately disclosed goldman sachs group inc subsidiaries notes consolidated financial statements continued note 19 shareholders’ equity common equity dividends declared per common share 140 2010 105 2009 140 2008 january 18 2011 group inc declared dividend 035 per common share paid march 30 2011 common shareholders record march 2 2011 december 15 2008 board declared dividend 04666666 per common share paid march 26 2009 common shareholders record february 24 2009 dividend 04666666 per common share reflective fourmonth period december 2008 march 2009 due change firm’s fiscal yearend 2010 2009 firm repurchased 253 million 19578 shares common stock average cost per share 16448 8083 total cost 416 billion 2 million respectively addition satisfy minimum statutory employee tax withholding requirements related delivery common stock underlying restricted stock units rsus firm cancelled 62 million 112 million rsus total value 972 million 863 million 2010 2009 respectively firm’s share repurchase program intended substantially offset increases share count time resulting employee sharebased compensation help maintain appropriate level common equity repurchase program effected primarily regular openmarket purchases amounts timing determined primarily firm’s issuance shares resulting employee sharebased compensation well current projected capital position ie comparisons firm’s desired level capital actual level capital may also influenced general market conditions prevailing price trading volumes firm’s common stock repurchase firm’s common stock requires approval board governors federal reserve system federal reserve board preferred equity table presents perpetual preferred stock issued outstanding goldman sachs group inc subsidiaries notes consolidated financial statements continued share noncumulative series preferred stock series b preferred stock series c preferred stock series preferred stock issued outstanding par value 001 liquidation preference 25000 represented 1000 depositary shares redeemable firm’s option subject approval federal reserve board redemption price equal 25000 plus declared unpaid dividends share 10 cumulative perpetual preferred stock series g series g preferred stock issued outstanding par value 001 liquidation preference 100000 redeemable firm’s option subject approval federal reserve board redemption price equal 110000 plus accrued unpaid dividends connection issuance series g preferred stock firm issued fiveyear warrant purchase 435 million shares common stock exercise price 11500 per share warrant exercisable time october 1 2013 number shares common stock underlying warrant exercise price subject adjustment certain dilutive events series preferred stock pari passu preference firm’s common stock liquidation dividends series preferred stock declared payable quarterly arrears firm’s ability declare pay dividends purchase redeem otherwise acquire common stock subject certain restrictions event firm fails pay set aside full dividends preferred stock latest completed dividend period 2007 board authorized 175001 shares series e preferred stock 50001 shares series f preferred stock connection apex trusts see note 16 information stock purchase contracts apex trusts group inc issue relevant stock purchase dates june 1 2013 september 1 2013 series e series f preferred stock respectively one share series e series f preferred stock goldman sachs capital ii iii respectively 100000 principal amount subordinated debt held trusts issued share series e series f preferred stock par value 001 liquidation preference 100000 per share dividends series e preferred stock declared payable semiannually fixed annual rate 579 stock issued prior june 1 2012 quarterly thereafter rate per annum equal greater threemonth libor plus 077 ii 400 dividends series f preferred stock declared payable quarterly rate per annum equal threemonth libor plus 077 stock issued prior september 1 2012 quarterly thereafter rate per annum equal greater threemonth libor plus 077 ii 400 preferred stock may redeemed option firm stock purchase dates day thereafter subject approval federal reserve board certain covenant restrictions governing firm’s ability redeem purchase preferred stock without issuing common stock instruments equitylike characteristics june 2009 group inc repurchased us treasury 100 million shares company’s fixed rate cumulative perpetual preferred stock series h series h preferred stock issued us treasury pursuant us treasury’s tarp capital purchase program repurchase resulted onetime preferred dividend 426 million included consolidated statement earnings year ended december 2009 onetime preferred dividend represented difference carrying value redemption value series h preferred stock connection issuance series h preferred stock october 2008 firm issued 10year warrant us treasury purchase 122 million shares common stock exercise price 12290 per share firm repurchased warrant full july 2009 11 billion amount recorded reduction additional paidin capital january 18 2011 group inc declared dividends 23958 38750 25556 per share series preferred stock series b preferred stock series c preferred stock series preferred stock respectively paid february 10 2011 preferred shareholders record january 26 2011 addition group inc declared dividend 2500 per share series g preferred stock paid february 10 2011 preferred shareholders record january 26 2011 goldman sachs group inc subsidiaries notes consolidated financial statements continued table presents preferred dividends declared preferred stock 1 amounts year ended december 2009 exclude onetime preferred dividend 426 million related repurchase tarp series h preferred stock second quarter 2009 well 44 million accrued dividends paid repurchase series h preferred stock accumulated comprehensive incomeloss table presents accumulated comprehensive incomeloss type 1 substantially consists net unrealized gains availableforsale securities held firm’s insurance subsidiaries december 2010 december 2009 goldman sachs group inc subsidiaries notes consolidated financial statements continued note 20 regulation capital adequacy federal reserve board primary regulator group inc bank holding company financial holding company us bank holding company act 1956 bank holding company firm subject consolidated regulatory capital requirements computed accordance federal reserve board’s capital adequacy regulations currently applicable bank holding companies basel 1 capital requirements based capital accord basel committee banking supervision basel committee expressed capital ratios compare measures capital riskweighted assets rwas firm’s bank depository institution subsidiaries including gs bank usa subject similar capital requirements federal reserve board’s capital adequacy requirements regulatory framework prompt corrective action applicable gs bank usa firm bank depository institution subsidiaries must meet specific capital requirements involve quantitative measures assets liabilities certain offbalancesheet items calculated regulatory reporting practices firm bank depository institution subsidiaries’ capital amounts well gs bank usa’s prompt corrective action classification also subject qualitative judgments regulators components risk weightings factors many firm’s subsidiaries including gsco firm’s brokerdealer subsidiaries subject separate regulation capital requirements described group inc federal reserve board regulations require bank holding companies maintain minimum tier 1 capital ratio 4 minimum total capital ratio 8 required minimum tier 1 capital ratio total capital ratio order considered “wellcapitalized” bank holding company federal reserve board guidelines 6 10 respectively bank holding companies may expected maintain ratios well minimum levels depending particular condition risk profile growth plans minimum tier 1 leverage ratio 3 bank holding companies received highest supervisory rating federal reserve board guidelines implemented federal reserve board’s riskbased capital measure market risk bank holding companies must minimum tier 1 leverage ratio 4 table presents information regarding group inc’s regulatory capital ratios rwas federal reserve board’s riskbased capital guidelines calculated based amount market risk credit risk rwas market risk determined reference firm’s valueatrisk var models supplemented measures capture risks reflected var models credit risk onbalance sheet assets based balance sheet value offbalance sheet exposures including otc derivatives commitments credit equivalent amount calculated based notional amount trade assets amounts assigned risk weight depending among things whether counterparty sovereign bank qualifying securities firm entity collateral held depending nature collateral tier 1 leverage ratio defined tier 1 capital basel 1 divided average adjusted total assets includes adjustments disallowed goodwill intangible assets carrying value equity investments nonfinancial companies subject deductions tier 1 capital goldman sachs group inc subsidiaries notes consolidated financial statements continued regulatory reform firm currently working implement requirements set federal reserve board’s capital adequacy guidelines bank holding companies internalratingsbased advanced measurement approaches based advanced approaches revised framework international convergence capital measurement capital standards issued basel committee applicable group inc bank holding company basel 2 us banking regulators incorporated basel 2 framework existing riskbased capital requirements requiring internationally active banking organizations group inc transition basel 2 following successful completion parallel run addition basel committee undertaken program substantial revisions capital guidelines particular changes “basel 25” guidelines result increased capital requirements market risk additionally basel 3 guidelines issued basel committee december 2010 revise definition tier 1 capital introduce tier 1 common equity regulatory metric set new minimum capital ratios including new “capital conservation buffer” must composed exclusively tier 1 common equity addition capital ratios introduce tier 1 leverage ratio within international guidelines first time make substantial revisions computation riskweighted assets credit exposures implementation new requirements expected take place extended transition period starting end 2011 basel 25 end 2012 basel 3 although us federal banking agencies issued proposed rules intended implement certain aspects basel 25 guidelines yet addressed aspects guidelines basel 3 changes addition basel committee us banking regulators implementing doddfrank act indicated impose stringent capital standards systemically important financial institutions although criteria treatment systemically important financial institution yet determined probable apply firm therefore regulations ultimately applicable firm may substantially different published date doddfrank wall street reform consumer protection act doddfrank act subject firm firmwide level leverage riskbased capital requirements apply depository institutions directs banking regulators impose additional capital requirements disclosed federal reserve board required begin implementing new leverage riskbased capital regulation january 2012 consequence changes tier 1 capital treatment firm’s junior subordinated debt issued trusts firm’s cumulative preferred stock phased threeyear period beginning january 1 2013 interaction doddfrank act basel committee’s proposed changes adds uncertainty firm’s future capital requirements number governmental entities regulators including us treasury european union uk’s financial services authority fsa also proposed announced changes result increased capital requirements financial institutions consequence developments firm expects minimum capital ratios required maintained federal reserve board regulations increased changes prescribed calculation methodology expected result higher rwas lower capital ratios currently computed capital requirements several firm’s subsidiaries also impacted future various proposals basel committee doddfrank act governmental entities regulators goldman sachs group inc subsidiaries notes consolidated financial statements continued bank subsidiaries gs bank usa fdicinsured new york statechartered bank member federal reserve system fdic regulated federal reserve board new york state banking department subject minimum capital requirements described calculated manner similar applicable bank holding companies gs bank usa computes capital ratios accordance regulatory capital guidelines currently applicable state member banks based basel 1 implemented federal reserve board purposes assessing adequacy capital order considered “wellcapitalized” depository institution federal reserve board guidelines gs bank usa must maintain tier 1 capital ratio least 6 total capital ratio least 10 tier 1 leverage ratio least 5 november 2008 firm contributed subsidiaries gs bank usa connection contribution gs bank usa agreed federal reserve board minimum capital ratios excess “wellcapitalized” levels accordingly period time gs bank usa expected maintain tier 1 capital ratio least 8 total capital ratio least 11 tier 1 leverage ratio least 6 table presents information regarding gs bank usa’s regulatory capital ratios basel 1 implemented federal reserve board effective january 18 2011 upon receiving regulatory approval gs bank usa declared dividend 100 billion group inc conjunction approval dividend gs bank usa also received approval repay 400 billion subordinated debt group inc dividend subordinated debt repayments took place february 1 2011 would reduced gs bank usa’s tier 1 total capital ratios december 2010 10 51 respectively gs bank usa currently working implement basel 2 framework similar firm’s requirement bank holding company gs bank usa required transition basel 2 following successful completion parallel run addition capital requirements gs bank usa expected impacted changes basel committee’s capital guidelines doddfrank act outlined deposits gs bank usa insured fdic extent provided law federal reserve board requires depository institutions maintain cash reserves federal reserve bank amount deposited firm’s depository institution subsidiaries held federal reserve bank approximately 2812 billion 2743 billion december 2010 december 2009 respectively exceeded required reserve amounts 2745 billion 2586 billion december 2010 december 2009 respectively gs bank europe wholly owned credit institution regulated central bank ireland subject minimum capital requirements december 2010 december 2009 gs bank usa gs bank europe compliance regulatory capital requirements transactions gs bank usa subsidiaries group inc subsidiaries affiliates generally subsidiaries gs bank usa regulated federal reserve board regulations generally limit types amounts transactions including loans borrowings gs bank usa may take place generally require transactions arm’slength basis brokerdealer subsidiaries firm’s us regulated brokerdealer subsidiaries include gsco gsec gsco gsec registered us brokerdealers futures commission merchants subject regulatory capital requirements including imposed sec commodity futures trading commission chicago mercantile exchange financial industry regulatory authority inc finra national futures association rule 15c31 sec rule 117 commodity futures trading commission specify uniform minimum net capital requirements defined registrants also effectively require significant part registrants’ assets kept relatively liquid form gsco gsec elected compute minimum capital requirements accordance “alternative net capital requirement” permitted rule 15c31 goldman sachs group inc subsidiaries notes consolidated financial statements continued december 2010 gsco regulatory net capital defined rule 15c31 1114 billion exceeded amount required 921 billion december 2010 gsec regulatory net capital defined rule 15c31 196 billion exceeded amount required 183 billion addition alternative minimum net capital requirements gsco also required hold tentative net capital excess 1 billion net capital excess 500 million accordance market credit risk standards appendix e rule 15c31 gsco also required notify sec event tentative net capital less 5 billion december 2010 december 2009 gsco tentative net capital net capital excess minimum notification requirements insurance subsidiaries firm us insurance subsidiaries subject state insurance regulation oversight states domiciled states licensed addition certain firm’s insurance subsidiaries outside us regulated fsa certain regulated bermuda monetary authority firm’s insurance subsidiaries compliance regulatory capital requirements december 2010 december 2009 nonus regulated subsidiaries firm’s principal nonus regulated subsidiaries include goldman sachs international gsi goldman sachs japan co ltd gsjcl gsi firm’s regulated uk brokerdealer subject capital requirements fsa gsjcl firm’s regulated japanese brokerdealer subject capital requirements imposed japan’s financial services agency december 2010 december 2009 gsi gsjcl compliance local capital adequacy requirements certain nonus subsidiaries firm also subject capital adequacy requirements promulgated authorities countries operate december 2010 december 2009 subsidiaries compliance local capital adequacy requirements restrictions payments regulatory requirements referred restrict group inc’s ability withdraw capital regulated subsidiaries december 2010 december 2009 approximately 2470 billion 2349 billion respectively net assets regulated subsidiaries restricted payment dividends group inc addition limitations payment dividends imposed federal state laws federal reserve board fdic new york state banking department authority prohibit limit payment dividends banking organizations supervise including gs bank usa relevant regulator’s opinion payment dividend would constitute unsafe unsound practice light financial condition banking organization goldman sachs group inc subsidiaries notes consolidated financial statements continued note 21 earnings per common share eps basic eps calculated dividing net earnings applicable common shareholders weighted average number common shares outstanding common shares outstanding includes common stock rsus future service required condition delivery underlying common stock diluted eps includes determinants basic eps addition reflects dilutive effect common stock deliverable stock warrants options rsus future service required condition delivery underlying common stock first quarter fiscal 2009 firm adopted amended accounting principles related determining whether instruments granted sharebased payment transactions participating securities accordingly firm treats unvested sharebased payment awards nonforfeitable rights dividends dividend equivalents separate class securities calculating eps table presents computations basic diluted eps diluted eps computations table include antidilutive effect follows table unvested sharebased payment awards nonforfeitable rights dividends dividend equivalents treated separate class securities calculating eps impact applying methodology reduction basic eps 008 006 years ended december 2010 december 2009 respectively increase basic diluted loss per common share 003 one month ended december 2008 eps year ended november 2008 restated due immateriality goldman sachs group inc subsidiaries notes consolidated financial statements continued note 22 transactions affiliated funds firm formed numerous nonconsolidated investment funds thirdparty investors firm generally acts investment manager funds entitled receive management fees certain cases advisory fees incentive fees funds additionally firm invests alongside thirdparty investors certain funds tables present fees earned affiliated funds fees receivable affiliated funds aggregate carrying value firm’s interests affiliated funds firm provided voluntary financial support certain funds experienced significant reductions capital liquidity limited access debt markets financial crisis december 2010 firm exposure funds form loans guarantees 253 million primarily related certain real estate funds addition december 2010 firm outstanding commitments extend credit funds 160 million firm may provide additional voluntary financial support funds experience significant financial distress however amounts expected material firm ordinary course business firm may also engage activities funds including among others securities lending trade execution market making custody acquisition bridge financing see note 18 firm’s investment commitments related funds goldman sachs group inc subsidiaries notes consolidated financial statements continued note 23 interest income interest expense interest income recorded accrual basis based contractual interest rates table presents sources interest income interest expense 1 primarily includes interest income customer debit balances interestearning assets 2 includes interest unsecured borrowings secured financings 3 primarily includes interest expense customer credit balances interestbearing liabilities goldman sachs group inc subsidiaries notes consolidated financial statements continued note 24 employee benefit plans firm sponsors various pension plans certain postretirement benefit plans primarily healthcare life insurance firm also provides certain benefits former inactive employees prior retirement defined benefit pension plans postretirement plans employees certain nonus subsidiaries participate various defined benefit pension plans generally provide benefits based years credited service percentage employee’s eligible compensation firm maintains defined benefit pension plan uk employees april 2008 uk defined benefit plan closed new participants continue accrue benefits existing participants plans material impact firm’s consolidated results operations firm also maintains defined benefit pension plan substantially us employees hired prior november 1 2003 november 2004 plan closed new participants frozen existing participants would accrue additional benefits addition firm maintains unfunded postretirement benefit plans provide medical life insurance eligible retirees dependents covered programs plans material impact firm’s consolidated results operations firm recognizes funded status defined benefit pension postretirement plans measured difference fair value plan assets benefit obligation consolidated statements financial condition december 2010 “other assets” “other liabilities accrued expenses” included 164 million related overfunded pension plan 641 million respectively related plans december 2009 “other liabilities accrued expenses” included 769 million related plans defined contribution plans firm contributes employersponsored us nonus defined contribution plans firm’s contribution plans 193 million 178 million 208 million years ended december 2010 december 2009 november 2008 respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued note 25 employee incentive plans cost employee services received exchange sharebased award generally measured based grantdate fair value award sharebased awards require future service ie vested awards including awards granted retirementeligible employees expensed immediately sharebased employee awards require future service amortized relevant service period expected forfeitures included determining sharebased employee compensation expense firm pays cash dividend equivalents outstanding rsus dividend equivalents paid rsus generally charged retained earnings dividend equivalents paid rsus expected forfeited included compensation expense first quarter fiscal 2009 firm adopted amended accounting principles related income tax benefits dividends sharebased payment awards amended principles require tax benefit related dividend equivalents paid rsus accounted increase additional paidin capital previously firm accounted tax benefit reduction income tax expense certain cases primarily related death employee conflicted employment outlined applicable award agreements firm may cash settle sharebased compensation awards accounted equity instruments additional paidin capital adjusted extent difference current value award grantdate value award stock incentive plan firm sponsors stock incentive plan goldman sachs amended restated stock incentive plan sip provides grants incentive stock options nonqualified stock options stock appreciation rights dividend equivalent rights restricted stock rsus awards performance conditions sharebased awards second quarter 2003 sip approved firm’s shareholders effective grants april 1 2003 sip amended restated effective december 31 2008 total number shares common stock may delivered pursuant awards granted sip end 2008 fiscal year could exceed 250 million shares total number shares common stock may delivered awards granted sip 2009 fiscal year fiscal year thereafter cannot exceed 5 issued outstanding shares common stock determined last day immediately preceding fiscal year increased number shares available awards previous years covered awards granted years december 2010 december 2009 1392 million 1406 million shares respectively available grant sip restricted stock units firm issues rsus employees sip primarily connection yearend compensation acquisitions rsus valued based closing price underlying shares date grant taking account liquidity discount applicable postvesting transfer restrictions yearend rsus generally vest deliver outlined applicable rsu agreements employee rsu agreements generally provide vesting accelerated certain circumstances retirement death extended absence delivery underlying shares common stock conditioned grantees satisfying certain vesting requirements outlined award agreements table presents activity related rsus goldman sachs group inc subsidiaries notes consolidated financial statements continued 1 weighted average grantdate fair value rsus granted years ended december 2010 december 2009 november 2008 one month ended december 2008 13264 15131 15431 6760 respectively fair value rsus granted year ended december 2010 one month ended december 2008 includes liquidity discount 132 143 respectively reflect postvesting transfer restrictions 4 years 2 aggregate fair value awards vested years ended december 2010 december 2009 november 2008 one month ended december 2008 407 billion 218 billion 103 billion 41 million respectively 3 includes rsus cash settled january 2011 firm granted employees 153 million yearend rsus 84 million rsus require future service condition delivery awards subject additional conditions outlined award agreements generally shares underlying awards net required withholding tax deliver threeyear period subject postvesting transfer restrictions january 2016 grants included table stock options stock options generally vest outlined applicable stock option agreement options granted february 2010 generally become exercisable onethird installments january 2011 january 2012 january 2013 expire february 2014 employee stock option agreements provide vesting accelerated certain circumstances retirement death extended absence general options granted prior february 2010 expire tenth anniversary grant date although may subject earlier termination cancellation certain circumstances accordance terms sip applicable stock option agreement dilutive effect firm’s outstanding stock options included “average common shares outstanding diluted” consolidated statements earnings see note 21 information eps table presents activity related stock options total intrinsic value options exercised years ended december 2010 december 2009 november 2008 one month ended december 2008 510 million 484 million 433 million 1 million respectively table presents options outstanding goldman sachs group inc subsidiaries notes consolidated financial statements continued weighted average fair value options granted year ended december 2010 one month ended december 2008 3758 1408 per option respectively table presents primary weighted average assumptions used estimate fair value grant date based blackscholes optionpricing model common stock underlying options granted one month ended december 2008 subject transfer restrictions january 2014 value common stock underlying options granted one month ended december 2008 reflects liquidity discount 267 result transfer restrictions liquidity discount based firm’s predetermined written liquidity discount policy consistently applied financial instruments transfer restrictions table presents sharebased compensation related tax benefit 1 represents tax benefitprovision recognized additional paidin capital stock options exercised delivery common stock underlying rsus december 2010 150 billion total unrecognized compensation cost related nonvested sharebased compensation arrangements cost expected recognized weighted average period 161 years goldman sachs group inc subsidiaries notes consolidated financial statements continued note 26 income taxes provision income taxes income taxes provided using asset liability method deferred tax assets liabilities recognized temporary differences financial reporting tax bases assets liabilities firm reports interest expense related income tax matters “provision taxes” consolidated statements earnings income tax penalties “other expenses” tables present components provisionbenefit taxes reconciliation us federal statutory income tax rate firm’s effective income tax rate 1 primarily includes effect sec settlement 550 million substantially nondeductible 2 primarily includes effect liability increase result adopting amended principles related accounting uncertainty income taxes goldman sachs group inc subsidiaries notes consolidated financial statements continued deferred income taxes deferred income taxes reflect net tax effects temporary differences financial reporting tax bases assets liabilities temporary differences result taxable deductible amounts future years measured using tax rates laws effect differences expected reverse valuation allowances established reduce deferred tax assets amount likely realized tax assets liabilities presented component “other assets” “other liabilities accrued expenses” respectively see notes 12 17 information table presents significant components deferred tax assets liabilities 1 relates primarily ability utilize losses various tax jurisdictions 2 netting within tax jurisdictions 3 relates depreciation amortization firm recorded deferred tax assets 250 million 184 million december 2010 december 2009 respectively connection us federal state local foreign net operating loss carryforwards firm also recorded valuation allowance 42 million 46 million december 2010 december 2009 respectively related net operating loss carryforwards december 2010 us federal state local foreign net operating loss carryforwards 341 million 154 billion 240 million respectively utilized us federal net operating loss carryforward begin expire 2016 state local net operating loss carryforwards begin expire 2012 foreign net operating loss carryforwards carried forward indefinitely firm foreign tax credit carryforwards 11 million 277 million december 2010 december 2009 respectively firm recorded related net deferred income tax asset 5 million 271 million december 2010 december 2009 respectively carryforwards begin expire 2013 firm capital loss carryforwards 12 million 99 million december 2010 december 2009 respectively firm recorded related net deferred income tax asset 2 million 35 million december 2010 december 2009 respectively carryforwards expire 2014 2010 2009 valuation allowance decreased 24 million 19 million respectively primarily due utilization losses previously considered likely expire unused goldman sachs group inc subsidiaries notes consolidated financial statements continued firm permanently reinvests eligible earnings certain foreign subsidiaries accordingly accrue us income taxes would arise earnings repatriated december 2010 december 2009 policy resulted unrecognized net deferred tax liability 267 billion 234 billion respectively attributable reinvested earnings 1770 billion 1621 billion respectively firm adopted amended principles related accounting uncertainty income taxes december 1 2007 recorded transition adjustment resulting reduction 201 million beginning retained earnings unrecognized tax benefits firm recognizes tax positions financial statements likely position sustained examination relevant taxing authority based technical merits position meets standard measured largest amount benefit likely realized settlement liability established differences positions taken tax return amounts recognized financial statements table presents changes liability unrecognized tax benefits recorded “other liabilities accrued expenses” see note 17 information 1 included “other assets” see note 12 2 recognized net tax benefit would reduce firm’s effective income tax rate 3 includes 175 million recorded one month ended december 2008 goldman sachs group inc subsidiaries notes consolidated financial statements continued december 2010 december 2009 accrued liability interest expense related income tax matters income tax penalties 213 million 194 million respectively firm recognized 28 million 62 million 37 million 3 million interest income tax penalties years ended december 2010 december 2009 november 2008 one month ended december 2008 respectively reasonably possible unrecognized tax benefits could change significantly twelve months subsequent december 2010 due potential audit settlements time possible estimate change impact firm’s effective tax rate next twelve months regulatory tax examinations firm subject examination us internal revenue service irs taxing authorities jurisdictions firm significant business operations united kingdom japan hong kong korea various states new york tax years examination vary jurisdiction firm believes 2011 certain audits reasonable possibility completed firm expect completion audits material impact firm’s financial condition may material operating results particular period depending part operating results period table presents earliest tax years remain subject examination major jurisdiction 1 irs examination fiscal 2005 2006 2007 began 2008 irs examination fiscal 2003 2004 completed liabilities years yet final 2 new york state city examination fiscal 2004 2005 2006 began 2008 3 japan national tax agency examination fiscal 2005 2009 began first quarter 2010 years subsequent remain open examination taxing authorities firm believes liability unrecognized tax benefits established adequate relation potential additional assessments note 27 business segments fourth quarter 2010 firm reorganized three previous reportable business segments four new reportable business segments investment banking institutional client services investing lending investment management prior periods presented comparable basis presentation reporting segments certain firm’s business lines aggregated similar economic characteristics similar following areas nature services provide ii methods distribution iii types clients serve iv regulatory environments operate cost drivers firm taken whole compensation headcount levels business activity broadly similar firm’s business segments compensation benefits expenses firm’s segments reflect among factors overall performance firm well performance individual businesses consequently pretax margins one segment firm’s business may significantly affected performance firm’s business segments firm allocates revenues expenses among four reportable business segments due integrated nature segments estimates judgments made allocating certain revenue expense items transactions segments based specific criteria approximate thirdparty rates total operating expenses include corporate items allocated individual business segments allocation process based manner management views business firm goldman sachs group inc subsidiaries notes consolidated financial statements continued segment information presented table prepared according following methodologies • revenues expenses directly associated segment included determining pretax earnings • net revenues firm’s segments include allocations interest income interest expense specific securities commodities positions relation cash generated funding requirements underlying positions net interest included segment net revenues consistent way management assesses segment performance • overhead expenses directly allocable specific segments allocated ratably based direct segment expenses management believes following information provides reasonable representation segment’s contribution consolidated pretax earningsloss total assets 1 includes 111 million 36 million 61 million 2 million years ended december 2010 december 2009 november 2008 one month ended december 2008 respectively realized gainslosses securities held firm’s insurance subsidiaries accounted availableforsale goldman sachs group inc subsidiaries notes consolidated financial statements continued operating expenses table include following expenses allocated firm’s segments • charitable contributions 345 million 810 million years ended december 2010 december 2009 respectively • net provisions number litigation regulatory proceedings 682 million 104 million 4 million 68 million years ended december 2010 december 2009 november 2008 one month ended december 2008 respectively • real estaterelated exit costs 28 million 61 million 80 million years ended december 2010 december 2009 november 2008 respectively table presents amounts net interest income included net revenues table presents amounts depreciation amortization expense included pretax earnings 1 includes real estaterelated exit costs 1 million 5 million years ended december 2010 december 2009 respectively allocated firm’s segments goldman sachs group inc subsidiaries notes consolidated financial statements continued geographic information due highly integrated nature international financial markets firm manages businesses based profitability enterprise whole methodology allocating profitability geographic regions dependent estimates management judgment significant portion firm’s activities require crossborder coordination order facilitate needs firm’s clients geographic results generally allocated follows • investment banking location client investment banking team • institutional client services fixed income currency commodities client execution equities excluding securities services location marketmaking desk securities services location primary market underlying security • investing lending investing location investment lending location client • investment management location sales team table presents total net revenues pretax earnings net earnings firm geographic region allocated based methodology referred well percentage total net revenues pretax earnings excluding corporate net earnings excluding corporate geographic region 1 substantially relates us 2 emea europe middle east africa pretax earnings net earnings include impact uk bank payroll tax year ended december 2010 3 consists net provisions number litigation regulatory proceedings 682 million 104 million 4 million 68 million years ended december 2010 december 2009 november 2008 one month ended december 2008 respectively charitable contributions 345 million 810 million years ended december 2010 december 2009 respectively real estaterelated exit costs 28 million 61 million 80 million years ended december 2010 december 2009 november 2008 respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued note 28 credit concentrations credit concentrations may arise market making client facilitation investing underwriting lending collateralized transactions may impacted changes economic industry political factors firm seeks mitigate credit risk actively monitoring exposures obtaining collateral counterparties deemed appropriate firm’s activities expose many different industries counterparties firm routinely executes high volume transactions asset managers investment funds commercial banks brokers dealers clearing houses exchanges results significant credit concentrations ordinary course business firm may also subject concentration credit risk particular counterparty borrower issuer including sovereign issuers particular clearing house exchange table presents credit concentrations assets held firm december 2010 december 2009 firm credit exposure counterparty exceeded 2 total assets 1 included “financial instruments owned fair value” “cash securities segregated regulatory purposes” 2 principally consisting securities issued governments united kingdom japan france december 2010 united kingdom japan december 2009 table presents collateral posted firm counterparties resale agreements securities borrowed transactions including “cash securities segregated regulatory purposes” see note 9 information collateralized agreements financings 1 principally consisting securities issued governments france germany december 2010 germany united kingdom japan december 2009 goldman sachs group inc subsidiaries notes consolidated financial statements continued note 29 parent company group inc condensed statements earnings group inc condensed statements financial condition group inc condensed statements cash flows supplemental disclosures cash payments thirdparty interest net capitalized interest 307 billion 277 billion 718 billion 248 million years ended december 2010 december 2009 november 2008 one month ended december 2008 respectively cash payments income taxes net refunds 205 billion 277 billion 991 million 1 million years ended december 2010 december 2009 november 2008 one month ended december 2008 respectively 1 includes 782 billion 657 billion fair value december 2010 december 2009 respectively 2 includes 1344 billion 1367 billion fair value december 2010 december 2009 respectively 3 unsecured longterm borrowings subsidiaries maturity date 306 million 2012 200 million 2013 119 million 2014 94 million 2015 281 million 2016thereafter goldman sachs group inc subsidiaries notes consolidated financial statements continued note 30 legal proceedings firm involved number judicial regulatory arbitration proceedings including described concerning matters arising connection conduct firm’s businesses many proceedings preliminary stages many cases seek indeterminate amount damages respect matters described management estimated upper end range reasonably possible loss equal amount money damages claimed applicable ii amount securities firm sold cases involving underwritings firm sued purchasers indemnified party firm believes pay judgment iii cases purchasers demanding firm repurchase securities price purchasers paid securities less estimated value december 2010 relevant securities december 2010 firm estimated aggregate amount reasonably possible losses matters approximately 34 billion asc 450 event “reasonably possible” “the chance future event events occurring remote less likely” event “remote” “the chance future event events occurring slight” thus references upper end range reasonably possible loss cases firm able estimate range reasonably possible loss mean upper end range loss cases firm believes risk loss slight amounts reserved matters significant compared upper end range reasonably possible loss management unable estimate range reasonably possible loss cases described damages specified proceedings early stages ii uncertainty likelihood class certified ultimate size class iii uncertainty outcome pending appeals motions iv significant factual issues resolved andor v novel legal issues presented however cases management believe based currently available information outcomes proceedings material adverse effect firm’s financial condition though outcomes could material firm’s operating results particular period depending part upon operating results period ipo process matters group inc gsco among numerous financial services companies named defendants variety lawsuits alleging improprieties process companies participated underwriting public offerings recent years gsco together underwriters certain offerings well issuers certain officers directors named defendant number related lawsuits filed us district court southern district new york alleging among things prospectuses offerings violated federal securities laws failing disclose existence alleged arrangements tying allocations certain offerings higher customer brokerage commission rates well purchase orders aftermarket alleged arrangements resulted market manipulation october 5 2009 district court approved settlement agreement entered parties firm paid settlement fund full amount gsco would contribute proposed settlement october 23 2009 certain objectors filed petition us court appeals second circuit seeking review district court’s certification class purposes settlement various objectors appealed certain aspects settlement’s approval certain appeals withdrawn december 8 2010 january 14 2011 february 3 2011 plaintiffs moved dismiss remaining appeals gsco among numerous underwriting firms named defendants number complaints filed commencing october 3 2007 us district court western district washington alleging violations section 16 exchange act connection offerings securities 15 issuers 1999 2000 complaints generally assert underwriters together issuer’s directors officers principal shareholders entered purported agreements tie allocations offerings increased brokerage commissions aftermarket purchase orders complaints allege based upon purported agreements underwriters violated reporting provisions subject shortswing profit recovery section 16 exchange act district court granted defendants’ motions dismiss decision dated march 12 2009 december 2 2010 appellate court affirmed part reversed part upholding dismissal goldman sachs group inc subsidiaries notes consolidated financial statements continued seven actions gsco defendant remanding remaining eight actions gsco defendant consideration bases dismissal december 16 2010 underwriters plaintiff filed petitions rehearing andor rehearing en banc denied january 18 2011 issuance mandate stayed permit parties seek supreme court review gsco named defendant action commenced may 15 2002 new york supreme court new york county official committee unsecured creditors behalf etoys inc alleging firm intentionally underpriced etoys inc’s initial public offering action seeks among things unspecified compensatory damages resulting alleged lower amount offering proceeds court granted gsco’s motion dismiss five claims plaintiff appealed dismissal five claims gsco appealed denial motion remaining claim new york appellate division first department affirmed part reversed part lower court’s ruling firm’s motion dismiss permitting claims proceed except claim fraud appellate court granted leave replead new york court appeals affirmed part reversed part dismissing claims breach contract professional malpractice unjust enrichment permitting claims breach fiduciary duty fraud continue remand lower court gsco moved dismiss surviving claims alternative summary judgment motion denied decision dated march 21 2006 court subsequently permitted plaintiff amend complaint november 8 2010 gsco’s motion summary judgment granted lower court plaintiff appealed group inc certain affiliates together various underwriters certain offerings received subpoenas requests documents information various governmental agencies selfregulatory organizations connection investigations relating public offering process goldman sachs cooperated investigations world online litigation march 2001 dutch shareholders association initiated legal proceedings unspecified amount damages gsi others amsterdam district court connection initial public offering world online march 2000 alleging misstatements omissions offering materials market artificially inflated improper public statements stabilization activities goldman sachs abn amro rothschild served joint global coordinators approximately 29 billion offering gsi underwrote 20268846 shares gsco underwrote 6756282 shares total offering price approximately 116 billion district court rejected claims gsi abn amro found world online liable amount determined appeal netherlands court appeals affirmed part reversed part decision district court holding certain alleged disclosure deficiencies actionable gsi abn amro appeal netherlands supreme court november 27 2009 affirmed rulings court appeals except found certain additional aspects offering materials actionable held gsi abn amro could potentially held responsible certain public statements press releases world online former ceo november 18 2010 parties reached settlement principle subject documentation pursuant gsi contribute 48 million settlement fund firm reserved full amount gsi’s proposed contribution settlement research matters gsco one several investment firms named defendants substantively identical purported class actions filed us district court southern district new york alleging violations federal securities laws connection research coverage certain issuers seeking compensatory damages one action relating coverage rsl communications inc commenced july 15 2003 parties entered settlement agreement august 23 2010 received final court approval february 23 2011 settlement agreement gsco paid approximately 338 million group inc gsco named defendants purported class action filed july 18 2003 behalf purchasers group inc stock july 1 1999 may 7 2002 complaint us district court southern district new york alleged defendants breached fiduciary duties violated federal securities laws connection firm’s research activities sought among things unspecified compensatory damages andor rescission july 12 2010 parties entered settlement agreement pursuant settlement goldman sachs group inc subsidiaries notes consolidated financial statements continued funded firm’s insurers settlement received court approval december 15 2010 become final group inc certain affiliates subject number investigations reviews various governmental regulatory bodies selfregulatory organizations relating research practices including communications among research analysts sales trading personnel clients goldman sachs cooperating investigations reviews adelphia communications fraudulent conveyance litigation gsco among numerous entities named defendants two adversary proceedings commenced us bankruptcy court southern district new york one july 6 2003 creditors committee second july 31 2003 equity committee adelphia communications inc proceedings consolidated single amended complaint filed adelphia recovery trust october 31 2007 complaint seeks among things recover fraudulent conveyances payments made allegedly adelphia communications inc affiliates certain brokerage firms including approximately 629 million allegedly paid gsco respect margin calls made ordinary course business accounts owned members family formerly controlled adelphia communications inc decision dated june 15 2009 district court required plaintiff amend complaint specify source margin payments gsco decision dated july 30 2009 district court held sufficiency amended claim would determined summary judgment stage march 2 2010 gsco moved summary judgment specialist matters spear leeds kellogg specialists llc slks certain affiliates received requests information various governmental agencies selfregulatory organizations part industrywide investigation relating activities floor specialists recent years goldman sachs cooperated requests march 30 2004 certain specialist firms nyse including slks without admitting denying allegations entered final global settlement sec nyse covering certain activities years 1999 2003 slks settlement involves among things findings sec nyse slks violated certain federal securities laws nyse rules cases failed supervise certain individual specialists connection trades allegedly disadvantaged customer orders ii cease desist order slks iii censure slks iv slks’ agreement pay aggregate 453 million disgorgement penalty used compensate customers v certain undertakings respect slks’ systems procedures vi slks’ retention independent consultant review evaluate certain slks’ compliance systems policies procedures comparable findings made sanctions imposed settlements specialist firms settlement resolve related private civil actions slks firms regulatory investigations involving individuals conduct exchanges slks spear leeds kellogg lp group inc among numerous defendants named purported class actions brought beginning october 2003 behalf investors us district court southern district new york alleging violations federal securities laws state common law connection nyse floor specialist activities actions consolidated seek unspecified compensatory damages restitution disgorgement behalf purchasers sellers unspecified securities october 17 1998 october 15 2003 decision dated march 14 2009 district court granted plaintiffs’ motion class certification defendants’ petition us court appeals second circuit seeking review certification ruling denied order dated october 1 2009 specialist defendants’ petition rehearing andor rehearing en banc denied february 24 2010 goldman sachs group inc subsidiaries notes consolidated financial statements continued treasury matters gsco named defendant purported class action filed march 10 2004 us district court northern district illinois behalf holders short positions 30year us treasury futures options morning october 31 2001 complaint alleges firm purchased 30year bonds futures prior forthcoming treasury refunding announcement morning based nonpublic information announcement purchases increased costs covering short positions complaint also names defendants washington dcbased political consultant allegedly source information former gsco economist allegedly received information another company one employees also allegedly received traded information prior public announcement complaint alleges violations federal commodities antitrust laws well illinois statutory common law seeks among things unspecified damages including treble damages antitrust laws district court dismissed antitrust illinois state law claims permitted federal commodities law claims proceed plaintiff’s motion class certification denied decision dated august 22 2008 gsco moved summary judgment district court granted motion insofar claim relates trading treasury bonds october 13 2009 parties filed offer judgment notice acceptance respect plaintiff’s individual claim december 11 2009 plaintiff purported appeal respect district court’s prior denial class certification gsco moved dismiss appeal january 25 2010 order dated april 13 2010 us court appeals seventh circuit ruled gsco’s motion would entertained together merits appeal mutual fund matters gsco certain mutual fund affiliates received subpoenas requests information various governmental agencies selfregulatory organizations including sec part industrywide investigation relating practices mutual funds customers gsco affiliates cooperated requests refco securities litigation gsco lead underwriters august 2005 initial public offering 265 million shares common stock refco inc among defendants various putative class actions filed us district court southern district new york beginning october 2005 investors refco inc response certain publicly reported events culminated october 17 2005 filing refco inc certain affiliates protection us bankruptcy laws actions consolidated allege violations disclosure requirements federal securities laws seek compensatory damages addition underwriters consolidated complaint names defendants refco inc certain affiliates certain officers directors refco inc thomas h lee partners lp held majority refco inc’s equity certain funds manages grant thornton refco inc’s outside auditor bawag psk bank fur arbeit und wirtschaft und osterreichische postsparkasse aktiengesellschaft bawag lead plaintiffs entered settlement bawag approved following certain amendments june 29 2007 gsco underwrote 5639200 shares common stock price 22 per share total offering price approximately 124 million april 20 2010 certain underwriting defendants including gsco entered settlement action pursuant contribute 495 million settlement fund settlement received court approval october 27 2010 become final gsco together underwriters refco inc initial public offering received requests information various governmental agencies selfregulatory organizations gsco cooperated requests fannie mae litigation gsco added defendant amended complaint filed august 14 2006 purported class action pending us district court district columbia complaint asserts violations federal securities laws generally arising allegations concerning fannie mae’s accounting practices connection certain fannie maesponsored remic transactions allegedly arranged gsco complaint specify dollar amount damages defendants include fannie mae certain past present officers directors accountants decision dated may 8 2007 goldman sachs group inc subsidiaries notes consolidated financial statements continued district court granted gsco’s motion dismiss claim time appeal begin run disposition claims defendants beginning september 2006 group inc andor gsco named defendants four fannie mae shareholder derivative actions us district court district columbia complaints generally allege goldman sachs defendants aided abetted breach fiduciary duty fannie mae’s directors officers connection certain fannie maesponsored remic transactions one complaints also asserts breach contract claim complaints also name defendants certain former officers directors fannie mae well outside accounting firm complaints seek inter alia unspecified damages goldman sachs defendants dismissed without prejudice first filed actions remaining claims action dismissed failure make demand fannie mae’s board directors dismissal affirmed appeal district court dismissed remaining three actions july 28 2010 plaintiffs filed motions reconsideration denied october 22 2010 revised notices appeal actions compensationrelated litigation january 17 2008 group inc board executive officers members management committee named defendants purported shareholder derivative action us district court eastern district new york predicting firm’s 2008 proxy statement violate federal securities laws undervaluing certain stock option awards alleging senior management received excessive compensation 2007 complaint seeks among things injunction distribution 2008 proxy statement voiding election directors absence injunction equitable accounting allegedly excessive compensation january 25 2008 plaintiff moved preliminary injunction prevent 2008 proxy statement using options valuations plaintiff alleges incorrect require amendment sec form 4s filed certain executive officers named complaint reflect stock option valuations alleged plaintiff’s motion preliminary injunction denied plaintiff’s appeal denial dismissed february 13 2009 plaintiff filed amended complaint added purported direct ie nonderivative claims based substantially theory plaintiff filed amended complaint march 24 2010 defendants’ motion dismiss amended complaint granted september 30 2010 october 22 2010 plaintiff filed notice appeal dismissal complaint march 24 2009 plaintiff filed action new york supreme court new york county group inc directors certain senior executives alleging violation delaware statutory common law connection substantively similar allegations regarding stock option awards april 14 2009 group inc removed action us district court southern district new york moved transfer district court judge presiding actions described section dismiss action transferred consent us district court eastern district new york defendants moved dismiss april 23 2009 july 10 2009 plaintiff moved remand action state court motion granted july 29 2010 january 7 2011 plaintiff filed amended complaint purported shareholder derivative actions commenced new york supreme court new york county delaware court chancery beginning december 14 2009 alleging board breached fiduciary duties connection setting compensation levels year 2009 levels excessive complaints name defendants group inc board certain senior executives complaints seek inter alia unspecified damages restitution certain compensation paid order requiring firm adopt corporate reforms actions new york state court april 8 2010 plaintiffs filed motion indicating longer intend pursue claims seeking award attorney’s fees connection bringing suit defendants opposed actions brought delaware court chancery defendants moved dismiss march 9 2010 plaintiffs amended complaint april 28 2010 include among things allegations included sec’s action described “mortgagerelated matters” section defendants moved dismiss amended complaint may 12 2010 lieu responding defendants’ motion plaintiffs moved december 8 2010 permission file goldman sachs group inc subsidiaries notes consolidated financial statements continued amended complaint defendants opposed court granted plaintiffs’ motion amend january 19 2011 defendants moved dismiss second amended complaint february 4 2011 group inc certain affiliates subject number investigations reviews various governmental agencies selfregulatory organizations regarding firm’s compensation processes firm cooperating investigations reviews mortgagerelated matters april 16 2010 sec brought action sec action us federal securities laws us district court southern district new york gsco fabrice tourre one employees connection cdo offering made early 2007 abacus 2007ac1 transaction alleging defendants made materially false misleading statements investors seeking among things unspecified monetary penalties investigations gsco finra gsi uk financial services authority fsa subsequently initiated group inc certain affiliates received requests information regulators regarding cdo offerings including abacus 2007ac1 transaction related matters july 14 2010 gsco entered consent agreement sec settling claims made gsco sec action sec settlement pursuant gsco paid 550 million disgorgement civil penalties approved us district court southern district new york july 20 2010 september 9 2010 fsa announced settlement gsi pursuant fsa found gsi violated certain fsa principles failing provide notification sec wells notice issued mr tourre worked abacus 2007ac1 transaction subsequently transferred gsi became registered fsa ii procedures controls ensure gsi’s compliance department would alerted various aspects sec investigation position determine whether aspects reportable fsa assessed fine £175 million november 9 2010 finra announced settlement gsco relating gsco’s failure file form u4 updates within 30 days learning receipt wells notices mr tourre another employee well deficiencies firm’s systems controls filings finra assessed fine 650000 gsco agreed undertake review remediation applicable systems controls january 6 2011 aca financial guaranty corp filed action gsco respect abacus 2007ac1 transaction new york supreme court new york county complaint includes allegations fraudulent inducement fraudulent concealment unjust enrichment seeks least 30 million compensatory damages least 90 million punitive damages unspecified disgorgement since april 22 2010 number putative shareholder derivative actions filed new york supreme court new york county us district court southern district new york group inc board certain officers employees group inc affiliates connection mortgagerelated matters 2004 2007 including abacus 2007ac1 transaction cdo offerings derivative complaints generally include allegations breach fiduciary duty corporate waste abuse control mismanagement unjust enrichment misappropriation information securities fraud insider trading challenge accuracy adequacy group inc’s disclosure derivative complaints seek among things declaratory relief unspecified compensatory damages restitution certain corporate governance reforms new york supreme court consolidated two actions pending court certain plaintiffs federal court cases moved consolidate actions appoint lead plaintiff lead counsel addition described “compensationrelated litigation” section plaintiffs compensationrelated delaware court chancery actions amended complaint assert among things allegations similar derivative claims referred defendants moved dismiss amended complaint plaintiffs sought permission amend court granted january 19 2011 defendants moved dismiss second amended complaint february 4 2011 goldman sachs group inc subsidiaries notes consolidated financial statements continued since april 23 2010 board received letters shareholders demanding board take action address alleged misconduct gsco board certain officers employees group inc affiliates demands generally allege misconduct connection abacus 2007ac1 transaction alleged failure group inc adequately disclose sec investigation led sec action group inc’s 2009 compensation practices demands include letter group inc shareholder previously made demand board investigate take action connection auction products matters expanded demand address foregoing matters board previously rejected demands relating auction products matters addition beginning april 26 2010 number purported securities law class actions filed us district court southern district new york challenging adequacy group inc’s public disclosure among things firm’s activities cdo market sec investigation led sec action purported class action complaints name defendants group inc certain officers employees group inc affiliates generally allege violations sections 10b 20a exchange act seek unspecified damages june 25 2010 certain shareholders groups shareholders moved consolidate actions appoint lead plaintiffs lead counsel gsco goldman sachs mortgage company gs mortgage securities corp three current former goldman sachs employees defendants putative class action commenced december 11 2008 us district court southern district new york brought behalf purchasers various mortgage passthrough certificates assetbacked certificates issued various securitization trusts 2007 underwritten gsco second amended complaint generally alleges registration statement prospectus supplements certificates violated federal securities laws seeks unspecified compensatory damages rescission recessionary damages defendants’ motion dismiss second amended complaint granted january 28 2010 leave replead certain claims march 31 2010 plaintiff filed third amended complaint relating two offerings defendants moved dismiss june 22 2010 motion dismiss denied plaintiff’s section 12a2 claims september 22 2010 granted plaintiff’s section 11 claims october 15 2010 plaintiff’s motion reconsideration denied november 17 2010 december 9 2010 plaintiff filed motion entry final judgment certification interlocutory appeal plaintiff’s section 11 claims denied january 11 2011 june 3 2010 another investor unsuccessfully sought intervene action filed separate putative class action asserting substantively similar allegations relating additional offering pursuant 2007 registration statement defendants moved dismiss separate action november 1 2010 gsco underwrote approximately 951 million principal amount certificates purchasers offerings issue complaint excluding offerings claims dismissed group inc gsco goldman sachs mortgage company gs mortgage securities corp among defendants separate putative class action commenced february 6 2009 us district court southern district new york brought behalf purchasers various mortgage passthrough certificates assetbacked certificates issued various securitization trusts 2006 underwritten gsco defendants include three current former goldman sachs employees various rating agencies second amended complaint generally alleges registration statement prospectus supplements certificates violated federal securities laws seeks unspecified compensatory rescissionary damages defendants moved dismiss second amended complaint january 12 2011 district court granted motion dismiss respect offerings plaintiff purchased securities denied motion dismiss respect single offering plaintiff allegedly purchased securities gsco underwrote approximately 698 million principal amount certificates purchasers offerings issue complaint excluding offerings claims dismissed september 30 2010 putative class action filed us district court southern district new york gsco group inc two former gsco employees behalf investors notes issued 2006 2007 two synthetic cdos hudson mezzanine 20061 20062 goldman sachs group inc subsidiaries notes consolidated financial statements continued complaint amended february 4 2011 asserts federal securities law common law claims seeks unspecified compensatory punitive damages various alleged purchasers counterparties involved transactions relating mortgage passthrough certificates cdos mortgagerelated products including federal home loan banks seattle chicago indianapolis charles schwab corporation cambridge place investment management inc basis yield alpha fund master landesbank badenwürttemberg among others filed complaints state federal court firm affiliates generally alleging offering documents securities purchased contained untrue statements material facts material omissions generally seeking rescission damages certain complaints also name firms defendants additionally national credit union administration ncua stated intends pursue similar claims behalf certain credit unions acts conservator firm ncua entered agreement tolling relevant statutes limitation number entities threatened assert claims firm connection various mortgagerelated offerings firm entered agreements number entities toll relevant statute limitations firm estimates based currently available information aggregate cumulative losses experienced plaintiffs respect securities issue active cases brought firm purchasers seeking rescission mortgagerelated securities approximately 457 million december 2010 amount calculated aggregate amount initial purchase price securities allegedly purchased plaintiffs exceeds estimated december 2010 value securities estimate include potential ncua claims purchasers mortgagerelated offerings actually brought claims firm also received requests information regulators relating mortgagerelated securitization process subprime mortgages cdos synthetic mortgagerelated products particular transactions servicing foreclosure activities cooperating requests firm expects subject additional putative shareholder derivative actions purported class actions rescission “put back” claims litigation additional investor shareholder demands additional regulatory investigations actions respect mortgagerelated offerings loan sales cdos servicing foreclosure activities see note 18 information regarding mortgagerelated contingencies gsco along numerous financial institutions defendant action brought city cleveland alleging defendants’ activities connection securitizations subprime mortgages created “public nuisance” cleveland action pending us district court northern district ohio complaint seeks among things unspecified compensatory damages district court granted defendants’ motion dismiss decision dated may 15 2009 city appealed may 18 2009 appellate court affirmed complaint’s dismissal decision dated july 27 2010 october 14 2010 denied city’s petition rehearing en banc january 12 2011 city filed petition writ certiorari us supreme court auction products matters august 21 2008 gsco entered settlement principle office attorney general state new york illinois securities department behalf north american securities administrators association regarding auction rate securities agreement goldman sachs agreed among things offer repurchase par outstanding auction rate securities private wealth management clients purchased firm prior february 11 2008 exception auction rate securities auctions clearing ii continue work issuers interested parties including regulatory governmental entities expeditiously provide liquidity solutions institutional investors iii pay 225 million fine settlement subject definitive documentation approval various states june 2 2009 gsco entered assurance discontinuance new york state attorney general march 19 2010 gsco entered administrative consent order illinois secretary state securities department conducted investigation behalf states new york gsco entered similar consent orders states process remaining states august 28 2008 putative shareholder derivative action filed us district court southern district new york naming defendants group inc board certain senior officers complaint alleges generally board breached goldman sachs group inc subsidiaries notes consolidated financial statements continued fiduciary duties committed mismanagement connection oversight auction rate securities marketing trading operations certain individual defendants engaged insider selling shares group inc firm’s public filings false misleading violation federal securities laws failing accurately disclose alleged practices involving auction rate securities complaint seeks damages injunctive declaratory relief restitution order requiring firm adopt corporate reforms may 19 2009 district court granted defendants’ motion dismiss july 20 2009 denied plaintiffs’ motion reconsideration following dismissal shareholder derivative action named plaintiff action sent board letter demanding board investigate allegations set forth complaint board ultimately rejected demand september 4 2008 group inc named defendant together numerous financial services firms two complaints filed us district court southern district new york alleging defendants engaged conspiracy manipulate auction securities market violation federal antitrust laws actions filed respectively behalf putative classes issuers investors auction rate securities seek among things treble damages unspecified amount defendants’ motion dismiss granted january 26 2010 march 1 2010 plaintiffs filed notice appeal dismissal complaints private equitysponsored acquisitions litigation group inc “gs capital partners” among numerous private equity firms investment banks named defendants federal antitrust action filed us district court district massachusetts december 2007 amended complaint generally alleges defendants colluded limit competition bidding private equitysponsored acquisitions public companies thereby resulting lower prevailing bids extension less consideration shareholders companies violation section 1 us sherman antitrust act common law complaint seeks among things treble damages unspecified amount defendants moved dismiss august 27 2008 district court dismissed claims relating certain transactions subject releases part settlement shareholder actions challenging transactions order dated december 15 2008 otherwise denied motion dismiss april 26 2010 plaintiffs moved leave proceed second phase discovery encompassing additional transactions august 18 2010 court permitted discovery eight additional transactions plaintiffs filed fourth amended complaint october 7 2010 defendants filed motion dismiss certain aspects fourth amended complaint october 21 2010 court granted motion january 13 2011 washington mutual securities litigation gsco among numerous underwriters named defendants putative securities class action amended complaint filed august 5 2008 us district court western district washington underwriters plaintiffs allege offering documents connection various securities offerings washington mutual inc failed describe accurately company’s exposure mortgagerelated activities violation disclosure requirements federal securities laws defendants include past present directors officers washington mutual company’s former outside auditors numerous underwriters decision dated may 15 2009 district court granted part denied part underwriter defendants’ motion dismiss leave replead june 15 2009 plaintiffs filed amended complaint decision dated october 27 2009 federal district court granted denied part underwriters’ motion dismiss october 12 2010 court granted class certification except one transaction december 1 2010 defendants moved partial judgment pleadings two offerings decision dated january 28 2011 district court denied defendants’ motion partial judgment pleadings gsco underwrote approximately 520 million principal amount securities purchasers offerings issue complaint excluding offerings claims dismissed september 25 2008 fdic took primary banking operations washington mutual inc sold september 27 2008 washington mutual inc filed chapter 11 bankruptcy us bankruptcy court delaware goldman sachs group inc subsidiaries notes consolidated financial statements continued indymac passthrough certificates litigation gsco among numerous underwriters named defendants putative securities class action filed may 14 2009 us district court southern district new york underwriters plaintiffs allege offering documents connection various securitizations mortgagerelated assets violated disclosure requirements federal securities laws defendants include indymacrelated entities formed connection securitizations underwriters offerings certain ratings agencies evaluated credit quality securities certain former officers directors indymac affiliates november 2 2009 underwriters moved dismiss complaint motion granted part february 17 2010 extent dismissing claims based offerings plaintiff purchased court reserved judgment aspects motion decision dated june 21 2010 district court formally dismissed claims relating offerings named plaintiff purchased certificates including offerings underwritten gsco granted denied defendants’ motions dismiss various respects may 17 2010 four additional investors filed motion seeking intervene order assert claims based additional offerings including two underwritten gsco july 6 2010 another additional investor filed motion intervene order assert claims based additional offerings none underwritten gsco underwrote approximately 751 million principal amount securities purchasers offerings issue may 2010 motion intervene july 11 2008 indymac bank placed fdic receivership july 31 2008 indymac bancorp inc filed chapter 7 bankruptcy us bankruptcy court los angeles california employmentrelated matters may 27 2010 putative class action filed us district court southern district new york several contingent technology workers employees thirdparty vendors plaintiffs seeking overtime pay alleged hours worked excess 40 per work week complaint alleges plaintiffs de facto employees gsco responsible overtime pay federal state overtime laws complaint seeks class action status unspecified damages september 15 2010 putative class action filed us district southern district new york three former female employees alleging group inc gsco systematically discriminated female employees respect compensation promotion assignments mentoring performance evaluations complaint alleges class consisting female employees employed specified levels group inc gsco since july 2002 asserts claims federal new york city discrimination laws complaint seeks class action status injunctive relief unspecified amounts compensatory punitive damages november 22 2010 group inc gsco filed motion stay claims one named plaintiffs compel individual arbitration individual based arbitration provision contained employment agreement group inc individual transactions hellenic republic greece group inc certain affiliates subject number investigations reviews various governmental regulatory bodies selfregulatory organizations connection firm’s transactions hellenic republic greece including financing swap transactions goldman sachs cooperating investigations reviews sales trading clearance practices group inc certain affiliates subject number investigations reviews various governmental regulatory bodies selfregulatory organizations relating sales trading clearance corporate government securities financial products including compliance sec’s short sale rule algorithmic quantitative trading futures trading securities lending practices trading credit derivative instruments commodities trading effectiveness insider trading controls internal information barriers goldman sachs cooperating investigations reviews goldman sachs group inc subsidiaries notes consolidated financial statements continued municipal securities matters group inc certain affiliates subject number investigations reviews various governmental regulatory bodies selfregulatory organizations relating transactions involving municipal securities including wallcross procedures conflict interest disclosure respect state municipal clients trading municipal derivative instruments connection municipal offerings political contribution rules possible impact credit default swap transactions municipal issuers goldman sachs cooperating investigations reviews group inc goldman sachs mitsui marine derivative products lp gsmmdp gs bank usa among numerous financial services firms named defendants numerous substantially identical individual antitrust actions filed beginning november 12 2009 coordinated related antitrust class action litigation individual actions goldman sachs affiliate named pretrial proceedings us district court southern district new york plaintiffs include individual california municipal entities three new york nonprofit entities april 26 2010 goldman sachs defendants’ motion dismiss complaints filed several individual california municipal plaintiffs denied complaints group inc gsmmdp gs bank usa generally allege goldman sachs defendants participated conspiracy arrange bids fix prices divide market derivatives used municipalities refinancing hedging transactions 1992 2008 complaints assert claims federal antitrust laws either california’s cartwright act new york’s donnelly act seek among things treble damages antitrust laws unspecified amount injunctive relief financial crisisrelated matters group inc certain affiliates subject number investigations reviews various governmental regulatory bodies selfregulatory organizations relating 2008 financial crisis including establishment unwind credit default swaps goldman sachs american international group inc aig transactions securities aig bear stearns companies inc lehman brothers holdings inc firms goldman sachs cooperating investigations reviews supplemental financial information quarterly results unaudited following represents firm’s unaudited quarterly results fiscal years ended december 2010 december 2009 quarterly results prepared accordance generally accepted accounting principles reflect adjustments opinion management necessary fair statement results adjustments normal recurring nature 1 timing magnitude changes firm’s discretionary compensation accruals significant effect results given quarter supplemental financial information common stock price range table presents high low sales prices per share firm’s common stock february 11 2011 12165 holders record firm’s common stock february 11 2011 last reported sales price firm’s common stock new york stock exchange 16666 per share supplemental financial information selected financial data 1 book value per common share based common shares outstanding including rsus granted employees future service requirements 5469 million 5427 million 4854 million 4390 million 4501 million 4859 million december 2010 december 2009 november 2008 november 2007 november 2006 december 2008 respectively 2 includes employees consultants temporary staff 3 substantially assets management valued calendar monthend 4 primarily includes hedge funds private equity real estate currencies commodities asset allocation strategies 5 rounded nearest penny exact dividend amount 04666666 per common share reflective fourmonth period december 2008 march 2009 due change firm’s fiscal yearend supplemental financial information statistical disclosures distribution assets liabilities shareholders’ equity table presents summary consolidated average balances interest rates supplemental financial information 1 consists cash financial instruments including equity securities convertible debentures 2 derivative instruments commodities included noninterestearning assets noninterestbearing liabilities 3 primarily consists cash securities segregated regulatory purposes certain receivables customers counterparties 4 consists shortterm secured financings unsecured shortterm borrowings excluding commercial paper 5 interest rates include effects interest rate swaps accounted hedges 6 consists longterm secured financings unsecured longterm borrowings 7 primarily consists certain payables customers counterparties 8 assets liabilities interest attributed us nonus based location legal entity assets liabilities held supplemental financial information changes net interest income volume rate analysis table presents analysis effect net interest income volume rate changes analysis changes due volumerate variance allocated volume supplemental financial information availableforsale securities portfolio table presents fair value availableforsale securities supplemental financial information table presents fair value amortized cost weighted average yields availableforsale securities contractual maturity yields calculated weighted average basis supplemental financial information deposits table presents summary firm’s interestbearing deposits 1 amounts available withdrawal upon short notice generally within seven days ratios table presents selected financial ratios 1 based net earnings applicable common shareholders divided average monthly common shareholders’ equity 2 based net earnings divided average monthly total shareholders’ equity supplemental financial information shortterm borrowed funds table presents summary firm’s securities loaned securities sold agreements repurchase shortterm borrowings generally mature within one year financial statement date include borrowings redeemable option holder within one year financial statement date 1 includes shortterm secured financings 2453 billion 1293 billion 2123 billion december 2010 december 2009 november 2008 respectively 2 december 2010 december 2009 november 2008 weighted average interest rates include effects hedging supplemental financial information crossborder outstandings crossborder outstandings based upon federal financial institutions examination council’s ffiec regulatory guidelines reporting crossborder risk claims include cash receivables securities purchased agreements resell securities borrowed cash financial instruments exclude derivative instruments commitments securities purchased agreements resell securities borrowed presented based domicile counterparty without reduction related securities collateral held tables present crossborder outstandings country crossborder outstandings exceed 075 consolidated assets accordance ffiec guidelines item 9item 8 financial statements supplementary data index management’s report internal control financial reporting management goldman sachs group inc together consolidated subsidiaries firm responsible establishing maintaining adequate internal control financial reporting firm’s internal control financial reporting process designed supervision firm’s principal executive principal financial officers provide reasonable assurance regarding reliability financial reporting preparation firm’s financial statements external reporting purposes accordance us generally accepted accounting principles december 31 2011 management conducted assessment firm’s internal control financial reporting based framework established internal control integrated framework issued committee sponsoring organizations treadway commission coso based assessment management determined firm’s internal control financial reporting december 31 2011 effective internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets provide reasonable assurances transactions recorded necessary permit preparation financial statements accordance us generally accepted accounting principles receipts expenditures made accordance authorizations management directors firm provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition firm’s assets could material effect financial statements firm’s internal control financial reporting december 31 2011 audited pricewaterhousecoopers llp independent registered public accounting firm stated report appearing page 109 expresses unqualified opinion effectiveness firm’s internal control financial reporting december 31 2011 goldman sachs 2011 form 10k report independent registered public accounting firm board directors shareholders goldman sachs group inc opinion consolidated financial statements listed accompanying index present fairly material respects financial position goldman sachs group inc subsidiaries company december 31 2011 2010 results operations cash flows three years period ended december 31 2011 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2011 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing page 108 responsibility express opinions financial statements company’s internal control financial reporting based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp new york new york february 28 2012 goldman sachs group inc subsidiaries consolidated statements earnings accompanying notes integral part consolidated financial statements goldman sachs 2011 form 10k goldman sachs group inc subsidiaries consolidated statements financial condition accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements changes shareholders’ equity 1 relates primarily repurchases common stock brokerdealer subsidiary facilitate customer transactions ordinary course business shares withheld satisfy withholding tax requirements accompanying notes integral part consolidated financial statements goldman sachs 2011 form 10k goldman sachs group inc subsidiaries consolidated statements cash flows supplemental disclosures cash payments interest net capitalized interest 805 billion 674 billion 732 billion years ended december 2011 december 2010 december 2009 respectively cash payments income taxes net refunds 178 billion 448 billion 478 billion years ended december 2011 december 2010 december 2009 respectively noncash activities year ended december 2011 firm assumed 209 billion debt issued 103 million common stock connection acquisition goldman sachs australia pty ltd gs australia formerly goldman sachs partners australia group holdings pty ltd years ended december 2010 december 2009 firm assumed 90 million 16 million respectively debt connection business acquisitions addition first quarter 2010 firm recorded increase approximately 3 billion assets primarily financial instruments owned fair value liabilities primarily unsecured shortterm borrowings liabilities upon adoption accounting standards update asu 200917 “consolidations topic 810 improvements financial reporting enterprises involved variable interest entities” accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements comprehensive income accompanying notes integral part consolidated financial statements goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements description business note 1 description business goldman sachs group inc group inc delaware corporation together consolidated subsidiaries collectively firm leading global investment banking securities investment management firm provides wide range financial services substantial diversified client base includes corporations financial institutions governments highnetworth individuals founded 1869 firm headquartered new york maintains offices major financial centers around world firm reports activities following four business segments investment banking firm provides broad range investment banking services diverse group corporations financial institutions investment funds governments services include advisory assignments respect mergers acquisitions divestitures corporate defense activities risk management restructurings spinoffs debt equity underwriting public offerings private placements well derivative transactions directly related activities institutional client services firm facilitates client transactions makes markets fixed income equity currency commodity products primarily institutional clients corporates financial institutions investment funds governments firm also makes markets clears client transactions major stock options futures exchanges worldwide provides financing securities lending prime brokerage services institutional clients investing lending firm invests originates loans provide financing clients investments loans typically longerterm nature firm makes investments directly indirectly funds firm manages debt securities loans public private equity securities real estate consolidated investment entities power generation facilities investment management firm provides investment management services offers investment products primarily separately managed accounts commingled vehicles mutual funds private investment funds across major asset classes diverse set institutional individual clients firm also offers wealth advisory services including portfolio management financial counseling brokerage transaction services highnetworth individuals families basis presentation note 2 basis presentation consolidated financial statements prepared accordance accounting principles generally accepted united states us gaap include accounts group inc entities firm controlling financial interest intercompany transactions balances eliminated references 2011 2010 2009 refer firm’s years ended dates context requires december 31 2011 december 31 2010 december 31 2009 respectively connection becoming bank holding company 2008 firm required change fiscal yearend november december beginning year ended december 2009 december 27 2008 reference future year refers year ending december 31 year certain reclassifications made previously reported amounts conform current presentation goldman sachs group inc subsidiaries notes consolidated financial statements significant accounting policies note 3 significant accounting policies firm’s significant accounting policies include measure fair value assets liabilities accounting goodwill identifiable intangible assets consolidate entity see notes 5 8 policies fair value measurements note 13 policies goodwill identifiable intangible assets note 11 policies consolidation accounting significant accounting policies either discussed included following footnotes consolidation firm consolidates entities firm controlling financial interest firm determines whether controlling financial interest entity first evaluating whether entity voting interest entity variable interest entity vie voting interest entities voting interest entities total equity investment risk sufficient enable entity finance activities independently ii equity holders power direct activities entity significantly impact economic performance obligation absorb losses entity right receive residual returns entity usual condition controlling financial interest voting interest entity ownership majority voting interest firm majority voting interest voting interest entity consolidated variable interest entities vie entity lacks one characteristics voting interest entity firm controlling financial interest vie firm variable interest interests provide power direct activities vie significantly impact vie’s economic performance ii obligation absorb losses vie right receive benefits vie could potentially significant vie see note 11 information vies equitymethod investments firm controlling financial interest entity exert significant influence entity’s operating financial policies investment accounted either equity method accounting ii fair value electing fair value option available us gaap significant influence generally exists firm owns 20 50 entity’s common stock insubstance common stock goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements general firm accounts investments acquired subsequent november 24 2006 fair value option became available fair value certain cases firm applies equity method accounting new investments strategic nature closely related firm’s principal business activities firm significant degree involvement cash flows operations investee costbenefit considerations less significant see note 12 information equitymethod investments investment funds firm formed numerous investment funds thirdparty investors funds typically organized limited partnerships limited liability companies firm acts general partner manager generally firm hold majority economic interests funds usually voting interest entities generally consolidated thirdparty investors typically rights terminate funds remove firm general partner manager investments funds included “financial instruments owned fair value” see notes 6 18 22 information investments funds use estimates preparation consolidated financial statements requires management make certain estimates assumptions important relate fair value measurements accounting goodwill identifiable intangible assets provision losses may arise litigation regulatory proceedings tax audits estimates assumptions based best available information actual results could materially different revenue recognition financial assets financial liabilities fair value financial instruments owned fair value financial instruments sold yet purchased fair value recorded fair value either fair value option accordance us gaap addition firm elected account certain financial assets financial liabilities fair value electing fair value option fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date financial assets marked bid prices financial liabilities marked offer prices fair value measurements include transaction costs fair value gains losses generally included “market making” positions institutional client services “other principal transactions” positions investing lending see notes 5 8 information fair value measurements investment banking fees financial advisory assignments underwriting revenues recognized earnings services related underlying transaction completed terms assignment expenses associated transactions deferred related revenue recognized assignment otherwise concluded expenses associated financial advisory assignments recorded noncompensation expenses net client reimbursements underwriting revenues presented net related expenses investment management firm earns management fees incentive fees investment management services management fees calculated percentage net asset value invested capital commitments recognized period related service provided incentive fees calculated percentage fund’s separately managed account’s return excess return specified benchmark performance target incentive fees generally based investment performance 12month period life fund fees based performance 12month period subject adjustment prior end measurement period fees based investment performance life fund future investment underperformance may require fees previously distributed firm returned fund incentive fees recognized material contingencies resolved management incentive fee revenues included “investment management” revenues commissions fees firm earns “commissions fees” executing clearing client transactions stock options futures markets commissions fees recognized day trade executed goldman sachs group inc subsidiaries notes consolidated financial statements transfers assets transfers assets accounted sales firm relinquished control assets transferred transfers assets accounted sales related gains losses recognized net revenues assets liabilities arise firm’s continuing involvement transferred assets measured fair value transfers assets accounted sales assets remain “financial instruments owned fair value” transfer accounted collateralized financing related interest expense recognized life transaction see note 9 information transfers assets accounted collateralized financings note 10 information transfers assets accounted sales receivables customers counterparties receivables customers counterparties generally relate collateralized transactions receivables primarily comprised customer margin loans transfers assets accounted secured loans rather purchases collateral posted connection certain derivative transactions certain firm’s receivables customers counterparties accounted fair value fair value option changes fair value generally included “market making” revenues see note 8 information fair values receivables customers counterparties accounted fair value accounted amortized cost net estimated uncollectible amounts generally approximates fair value interest receivables customers counterparties recognized life transaction included “interest income” insurance activities certain firm’s insurance reinsurance contracts accounted fair value fair value option changes fair value included “market making” revenues see note 8 information fair values insurance reinsurance contracts revenues variable annuity life insurance reinsurance contracts accounted fair value generally consist fees assessed contract holder account balances mortality charges policy administration fees surrender charges revenues recognized earnings period services provided included “market making” revenues changes reserves including interest credited policyholder account balances recognized “insurance reserves” premiums earned underwriting property catastrophe reinsurance recognized earnings coverage period net premiums ceded cost reinsurance included “market making” revenues expenses liabilities related property catastrophe reinsurance claims including estimates losses incurred reported included “insurance reserves” foreign currency translation assets liabilities denominated nonus currencies translated rates exchange prevailing date consolidated statements financial condition revenues expenses translated average rates exchange period foreign currency remeasurement gains losses transactions nonfunctional currencies recognized earnings gains losses translation financial statements nonus operation functional currency us dollar included net hedges taxes consolidated statements comprehensive income cash equivalents firm defines cash equivalents highly liquid overnight deposits held ordinary course business december 2011 december 2010 “cash equivalents” included 795 billion 575 billion respectively cash due banks 4805 billion 3404 billion respectively interestbearing deposits banks goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements recent accounting developments improving disclosures fair value measurements fasb accounting standards codification asc 820 january 2010 fasb issued asu 201006 “fair value measurements disclosures topic 820 improving disclosures fair value measurements” asu 201006 provides amended disclosure requirements related fair value measurements certain disclosure requirements became effective firm beginning first quarter 2010 others became effective firm beginning first quarter 2011 since amended principles require additional disclosures concerning fair value measurements adoption affect firm’s financial condition results operations cash flows reconsideration effective control repurchase agreements asc 860 april 2011 fasb issued asu 201103 “transfers servicing topic 860 reconsideration effective control repurchase agreements” asu 201103 changes assessment effective control removing criterion requires transferor ability repurchase redeem financial assets substantially agreed terms even event default transferee ii collateral maintenance implementation guidance related criterion asu 201103 effective periods beginning december 15 2011 adoption asu 201103 affect firm’s financial condition results operations cash flows amendments achieve common fair value measurement disclosure requirements us gaap ifrss asc 820 may 2011 fasb issued asu 201104 “fair value measurements disclosures topic 820 amendments achieve common fair value measurement disclosure requirements us gaap ifrss” asu 201104 clarifies application existing fair value measurement disclosure requirements changes certain principles related measuring fair value requires additional disclosures fair value measurements asu 201104 effective periods beginning december 15 2011 adoption asu 201104 materially affect firm’s financial condition results operations cash flows testing goodwill impairment asc 350 september 2011 fasb issued asu 201108 “intangibles goodwill topic 350 testing goodwill impairment” asu 201108 simplifies entities test goodwill impairment permitting entity first assess qualitative factors determine whether likely fair value reporting unit less carrying amount basis determining whether necessary perform quantitative twostep goodwill impairment test asu 201108 effective annual interim goodwill impairment tests performed fiscal years beginning december 15 2011 early adoption permitted firm adopted amended principles conjunction goodwill impairment test performed fourth quarter 2011 adoption asu 201108 affect firm’s financial condition results operations cash flows derecognition substance real estate asc 360 december 2011 fasb issued asu 201110 “property plant equipment topic 360 derecognition substance real estate scope clarification” asu 201110 clarifies order deconsolidate subsidiary substance real estate result parent longer controlling subsidiary due default subsidiary’s nonrecourse debt parent also must satisfy sale criteria asc 36020 “property plant equipment real estate sales” asu effective fiscal years beginning june 15 2012 firm apply provisions asu events occurring january 1 2013 adoption expected materially affect firm’s financial condition results operations cash flows disclosures offsetting assets liabilities asc 210 december 2011 fasb issued asu 201111 “balance sheet topic 210 disclosures offsetting assets liabilities” asu 201111 require disclosure effect potential effect offsetting arrangements firm’s financial position well enhanced disclosure rights setoff associated firm’s recognized assets recognized liabilities asu 201111 effective annual reporting periods beginning january 1 2013 interim periods within annual periods since amended principles require additional disclosures concerning offsetting related arrangements adoption affect firm’s financial condition results operations cash flows goldman sachs group inc subsidiaries notes consolidated financial statements financial instruments owned fair value financial instruments sold yet purchased fair value note 4 financial instruments owned fair value financial instruments sold yet purchased fair value financial instruments owned fair value financial instruments sold yet purchased fair value accounted fair value either fair value option accordance us gaap see note 8 information fair value option table presents firm’s financial instruments owned fair value including pledged collateral financial instruments sold yet purchased fair value financial instruments owned fair value included 486 billion 367 billion december 2011 december 2010 respectively securities accounted availableforsale substantially held firm’s insurance subsidiaries 1 net cash collateral received posted credit support agreements reported netbycounterparty basis legal right setoff exists enforceable netting agreement 2 includes fair value unfunded commitments extend credit fair value partially funded commitments primarily included “financial instruments owned fair value” 3 includes 406 billion december 2010 money market instruments held william street funding corporation funding corp support william street credit extension program see note 18 information william street credit extension program goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements gains losses market making principal transactions table presents major product type firm’s “market making” “other principal transactions” revenues gainslosses primarily related firm’s financial instruments owned fair value financial instruments sold yet purchased fair value including derivative nonderivative financial instruments gainslosses exclude related interest income interest expense see note 23 information interest income interest expense gainslosses table representative manner firm manages business activities many firm’s marketmaking client facilitation investing lending strategies utilize financial instruments across various product types accordingly gains losses one product type frequently offset gains losses product types example firm’s longerterm derivatives sensitive changes interest rates may economically hedged interest rate swaps similarly significant portion firm’s cash instruments derivatives exposure foreign currencies may economically hedged foreign currency contracts fair value measurements note 5 fair value measurements fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date financial assets marked bid prices financial liabilities marked offer prices fair value measurements include transaction costs best evidence fair value quoted price active market listed prices quotations available fair value determined reference prices similar instruments quoted prices recent transactions less active markets internally developed models primarily use inputs marketbased independently sourced parameters including limited interest rates volatilities equity debt prices foreign exchange rates commodities prices credit curves funding rates us gaap threelevel fair value hierarchy disclosure fair value measurements fair value hierarchy prioritizes inputs valuation techniques used measure fair value giving highest priority level 1 inputs lowest priority level 3 inputs financial instrument’s level fair value hierarchy based lowest level input significant fair value measurement fair value hierarchy follows level 1 inputs unadjusted quoted prices active markets firm access measurement date identical unrestricted assets liabilities level 2 inputs valuation techniques observable either directly indirectly level 3 one inputs valuation techniques significant unobservable fair values substantially financial assets financial liabilities based observable prices inputs classified levels 1 2 hierarchy certain level 2 level 3 financial assets financial liabilities may require appropriate valuation adjustments market participant would require arrive fair value factors counterparty firm’s credit quality funding risk transfer restrictions liquidity bidoffer spreads valuation adjustments generally based market evidence see notes 6 7 8 information valuation adjustments see notes 6 7 information fair value measurements cash instruments derivatives respectively included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” note 8 information financial assets financial liabilities accounted fair value fair value option goldman sachs group inc subsidiaries notes consolidated financial statements financial assets financial liabilities fair value summarized 1 represents impact derivatives cash collateral counterparty netting across levels fair value hierarchy netting among positions classified level included level increase level 3 financial assets year ended december 2011 primarily reflected increase private equity investments principally due purchases net transfers level 2 partially offset sales level 3 bank loans bridge loans also increased primarily reflecting purchases partially offset sales settlements net transfers level 2 see notes 6 7 8 information level 3 cash instruments derivatives financial assets financial liabilities accounted fair value fair value option respectively including information significant unrealized gainslosses significant transfers level 3 goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements cash instruments note 6 cash instruments cash instruments include us government federal agency obligations nonus government obligations bank loans bridge loans corporate debt securities equities convertible debentures nonderivative financial instruments owned financial instruments sold yet purchased see types cash instruments included level fair value hierarchy valuation techniques significant inputs used determine fair values see note 5 overview firm’s fair value measurement policies level 1 cash instruments level 1 cash instruments include us government obligations nonus government obligations actively traded listed equities certain money market instruments valued using quoted prices identical unrestricted instruments active markets firm defines active markets equity instruments based average daily trading volume absolute terms relative market capitalization instrument firm defines active markets debt instruments based average daily trading volume number days trading activity fair value level 1 instrument calculated quantity held multiplied quoted market price us gaap prohibits valuation adjustments applied level 1 instruments even situations firm holds large position sale could impact quoted price level 2 cash instruments level 2 cash instruments include commercial paper certificates deposit time deposits government agency obligations corporate debt securities commodities certain mortgagebacked loans securities certain bank loans bridge loans restricted less liquid publicly listed equities state municipal obligations certain money market instruments lending commitments valuations level 2 cash instruments verified quoted prices recent trading activity identical similar instruments broker dealer quotations alternative pricing sources reasonable levels price transparency consideration given nature quotations eg indicative firm relationship recent market activity prices provided alternative pricing sources valuation adjustments typically made level 2 cash instruments cash instrument subject transfer restrictions andor ii premiums liquidity discounts market participant would require arrive fair value valuation adjustments generally based market evidence level 3 cash instruments level 3 cash instruments one significant valuation inputs observable absent evidence contrary level 3 cash instruments initially valued transaction price considered best initial estimate fair value subsequently firm uses methodologies determine fair value vary based type instrument valuation inputs assumptions changed corroborated substantive observable evidence including values realized sales level 3 financial assets table presents valuation techniques nature significant inputs generally used determine fair values class level 3 cash instrument goldman sachs group inc subsidiaries notes consolidated financial statements level 3 cash instrument valuation techniques significant inputs loans securities backed commercial real estate  collateralized single commercial real estate property portfolio properties  may include tranches varying levels subordination valuation techniques vary instrument generally based discounted cash flow techniques significant inputs valuations include  transaction prices underlying collateral instruments similar underlying collateral  current levels changes market indices cmbx index tracks performance commercial mortgage bonds  market yields implied transactions similar related assets  current performance underlying collateral  capitalization rates multiples  amount timing future cash flows loans securities backed residential real estate  collateralized portfolios residential real estate  may include tranches varying levels subordination valuation techniques vary instrument generally based relative value analyses discounted cash flow techniques combination thereof significant inputs determined based relative value analyses incorporate comparisons instruments similar collateral risk profiles including relevant indices abx index tracks performance subprime residential mortgage bonds significant inputs include  home price projections residential property liquidation timelines related costs  underlying loan prepayment default cumulative loss expectations  transaction prices underlying collateral instruments similar underlying collateral  market yields implied transactions similar related assets bank loans bridge loans corporate debt securities state municipal obligations debt obligations valuation techniques vary instrument generally based discounted cash flow techniques significant inputs generally determined based relative value analyses incorporate comparisons prices credit default swaps reference similar underlying credit risk debt instruments issuer observable prices broker quotations available significant inputs include  amount timing expected future cash flows  current levels trends market indices cdx lcdx mcdx indices track performance corporate credit loans municipal obligations respectively  market yields implied transactions similar related assets  current performance recovery assumptions firm uses credit default swaps value related cash instrument cost borrowing underlying reference obligation equities convertible debentures  private equity investments recent thirdparty investments pending transactions considered best evidence change fair value available following valuation methodologies used appropriate available  transactions similar instruments  discounted cash flow techniques  thirdparty appraisals  industry multiples public comparables evidence includes recent pending reorganizations eg merger proposals tender offers debt restructurings significant changes financial metrics  current financial performance compared projected performance  capitalization rates multiples  market yields implied transactions similar related assets goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements fair value cash instruments level tables present level within fair value hierarchy cash instrument assets liabilities fair value cash instrument assets liabilities included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” respectively 1 includes 213 million 595 million collateralized debt obligations cdos backed real estate level 2 level 3 respectively 2 includes 403 million 119 billion cdos collateralized loan obligations clos backed corporate obligations level 2 level 3 respectively 3 consists publicly listed equity securities 4 principally consists restricted less liquid publicly listed securities 5 includes 1207 billion private equity investments 110 billion real estate investments 497 million convertible debentures 6 includes 27 million cdos clos backed corporate obligations level 3 goldman sachs group inc subsidiaries notes consolidated financial statements 1 includes 212 million 565 million cdos backed real estate level 2 level 3 respectively 2 includes 368 million 107 billion cdos clos backed corporate obligations level 2 level 3 respectively 3 consists publicly listed equity securities 4 substantially consists restricted less liquid publicly listed securities 5 includes 1003 billion private equity investments 874 million real estate investments 156 million convertible debentures 6 includes 35 million cdos clos backed corporate obligations level 3 goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements level 3 rollforward cash instrument asset liability transferred level 3 reporting period entire gain loss period included level 3 transfers levels reported beginning reporting period occur level 3 cash instruments frequently economically hedged level 1 level 2 cash instruments andor level 1 level 2 level 3 derivatives accordingly gains losses reported level 3 partially offset gains losses attributable level 1 level 2 cash instruments andor level 1 level 2 level 3 derivatives result gains losses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources tables present changes fair value cash instrument assets liabilities categorized level 3 end year 1 includes originations secondary market purchases 2 aggregate amounts include approximately 202 million 623 million 129 billion reported “market making” “other principal transactions” “interest income” respectively net unrealized loss level 3 cash instrument assets liabilities 310 million year ended december 2011 primarily consisted losses bank loans bridge loans corporate debt securities primarily reflecting impact unfavorable credit markets losses relationship lending losses partially offset gains private equity investments prices generally corroborated market transactions similar financial instruments year significant transfers level 3 cash instrument assets year ended december 2011 included  bank loans bridge loans net transfer level 3 179 billion primarily due transfers level 2 certain loans due improved transparency market prices result market transactions similar loans partially offset transfers level 3 loans primarily due reduced transparency market prices result less market activity loans goldman sachs group inc subsidiaries notes consolidated financial statements  equities convertible debentures net transfer level 3 135 billion primarily due transfers level 3 certain private equity investments due reduced transparency market prices result less market activity financial instruments partially offset transfers level 2 private equity investments due improved transparency market prices result market transactions financial instruments  loans securities backed residential real estate net transfer level 3 574 million principally due transfers level 2 certain loans due improved transparency market prices used value loans well unobservable inputs longer significant valuation loans significant transfers level 3 cash instrument liabilities year ended december 2011 1 aggregate amounts include approximately 836 million 103 billion 126 billion reported “market making” “other principal transactions” “interest income” respectively net unrealized gain level 3 cash instrument assets liabilities 167 billion year ended december 2010 primarily consisted unrealized gains private equity investments bank loans bridge loans corporate debt securities prices generally corroborated sales partial sales similar assets asset classes period significant transfers level 3 cash instrument assets year ended december 2010 included  loans securities backed commercial real estate net transfer level 3 830 million principally due transfers level 2 certain loans due improved transparency market prices result partial sales  corporate debt securities net transfer level 3 573 million principally due reduction financial instruments result consolidation vie holds intangible assets  debt obligations net transfer level 3 861 million principally due reduction financial instruments result consolidation vie holds real estate assets included “other assets”  equities convertible debentures net transfer level 3 631 million principally due transfers level 2 certain private equity investments due improved transparency market prices result partial sales initial public offerings goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements investments funds calculate net asset value per share cash instruments fair value include investments funds valued based net asset value per share nav investment fund firm uses nav measure fair value fund investments fund investment readily determinable fair value ii nav investment fund calculated manner consistent measurement principles investment company accounting including measurement underlying investments fair value firm’s investments funds calculate nav primarily consist investments firmsponsored funds firm coinvests thirdparty investors private equity private debt real estate funds primarily closedend funds firm’s investments eligible redemption distributions received funds underlying assets liquidated estimated substantially underlying assets existing funds liquidated next 10 years firm continues manage existing private equity funds taking account transition periods volcker rule us doddfrank wall street reform consumer protection act doddfrank act although rules yet finalized firm’s investments hedge funds generally redeemable quarterly basis 91 days’ notice subject maximum redemption level 25 firm’s initial investments quarterend firm currently plans comply volcker rule redeeming certain interests hedge funds table presents fair value firm’s investments unfunded commitments funds calculate nav 1 funds primarily invest broad range industries worldwide variety situations including leveraged buyouts recapitalizations growth investments 2 funds generally invest loans fixed income instruments focused providing private highyield capital mid largesized leveraged management buyout transactions recapitalizations financings refinancings acquisitions restructurings private equity firms private family companies corporate issuers 3 funds primarily multidisciplinary hedge funds employ fundamental bottomup investment approach across various asset classes strategies including longshort equity credit convertibles risk arbitrage special situations capital structure arbitrage 4 funds invest globally primarily real estate companies loan portfolios debt recapitalizations direct property goldman sachs group inc subsidiaries notes consolidated financial statements derivatives hedging activities note 7 derivatives hedging activities derivative activities derivatives instruments derive value underlying asset prices indices reference rates inputs combination factors derivatives may privately negotiated contracts usually referred overthecounter otc derivatives may listed traded exchange exchangetraded marketmaking market maker firm enters derivative transactions clients market participants provide liquidity facilitate transfer hedging risk capacity firm typically acts principal consequently required commit capital provide execution market maker essential maintain inventory financial instruments sufficient meet expected client market demands risk management firm also enters derivatives actively manage risk exposures arise marketmaking investing lending activities derivative cash instruments firm’s holdings exposures hedged many cases either portfolio riskspecific basis opposed instrumentbyinstrument basis offsetting impact economic hedging reflected business segment related revenues addition firm may enter derivatives designated hedges us gaap derivatives used manage foreign currency exposure net investment certain nonus operations manage interest rate exposure certain fixedrate unsecured longterm shortterm borrowings certificates deposit firm enters various types derivatives including  futures forwards contracts commit counterparties purchase sell financial instruments commodities currencies future  swaps contracts require counterparties exchange cash flows currency interest payment streams amounts exchanged based specific terms contract reference specified rates financial instruments commodities currencies indices  options contracts option purchaser right obligation purchase sell option writer financial instruments commodities currencies within defined time period specified price derivatives accounted fair value net cash collateral received posted credit support agreements derivatives reported netbycounterparty basis ie net payable receivable derivative assets liabilities given counterparty legal right setoff exists enforceable netting agreement derivative assets liabilities included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” respectively substantially gains losses derivatives designated hedges asc 815 included “market making” “other principal transactions” goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents fair value derivatives netbycounterparty basis table presents fair value number derivative contracts major product type gross basis gross fair values table exclude effects netting enforceable netting agreements netting cash collateral received posted credit support agreements therefore representative firm’s exposure 1 represents netting receivable balances payable balances counterparty enforceable netting agreements 2 represents netting cash collateral received posted counterparty basis credit support agreements goldman sachs group inc subsidiaries notes consolidated financial statements valuation techniques derivatives see note 5 overview firm’s fair value measurement policies level 1 derivatives exchangetraded derivatives fall within level 1 actively traded valued quoted market price level 2 derivatives level 2 derivatives include exchangetraded derivatives actively traded otc derivatives significant valuation inputs corroborated market evidence level 2 exchangetraded derivatives valued using models calibrate marketclearing levels otc derivatives inputs valuations level 2 otc derivatives verified marketclearing transactions broker dealer quotations alternative pricing sources reasonable levels price transparency consideration given nature quotations eg indicative firm relationship recent market activity prices provided alternative pricing sources models used selection particular model value otc derivative depends contractual terms specific risks inherent instrument well availability pricing information market valuation models require variety inputs including contractual terms market prices yield curves credit curves measures volatility prepayment rates loss severity rates correlations inputs otc derivatives trade liquid markets model selection involve significant management judgment outputs models calibrated marketclearing levels price transparency otc derivatives generally characterized product type interest rate general prices inputs used value interest rate derivatives transparent even longdated contracts interest rate swaps options denominated currencies leading industrialized nations characterized high trading volumes tight bidoffer spreads interest rate derivatives reference indices inflation index shape yield curve eg 10year swap rate vs 2year swap rate complex therefore less transparent prices inputs generally observable credit price transparency credit default swaps including single names baskets credits varies market underlying reference entity obligation credit default swaps reference indices large corporates major sovereigns generally exhibit price transparency credit default swaps underliers price transparency varies based credit rating cost borrowing underlying reference obligations availability underlying reference obligations delivery upon default issuer credit default swaps reference loans assetbacked securities emerging market debt instruments tend less transparent reference corporate bonds addition complex credit derivatives sensitive correlation two underlying reference obligations generally less price transparency currency prices currency derivatives based exchange rates leading industrialized nations including longer tenors generally transparent primary difference transparency developed emerging market currency derivatives emerging markets tend observable contracts shorter tenors commodity derivatives include transactions referenced energy eg oil natural gas metals eg precious base soft commodities eg agricultural price transparency varies based underlying commodity delivery location tenor product quality eg diesel fuel compared unleaded gasoline general price transparency commodity derivatives greater contracts shorter tenors contracts closely aligned major andor benchmark commodity indices goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements equity price transparency equity derivatives varies market underlier options indices common stock corporates included major equity indices exhibit price transparency exchangetraded otc equity derivatives generally observable market prices except contracts long tenors reference prices differ significantly current market prices complex equity derivatives sensitive correlation two individual stocks generally less price transparency liquidity essential observability product types transaction volumes decline previously transparent prices inputs may become unobservable conversely even highly structured products may times trading volumes large enough provide observability prices inputs level 3 derivatives level 3 otc derivatives valued using models utilize observable level 1 andor level 2 inputs well unobservable level 3 inputs  majority firm’s interest rate currency derivatives classified within level 3 significant unobservable inputs correlations certain currencies interest rates eg correlation japanese yen foreign exchange rates us dollar interest rates  credit derivatives classified within level 3 significant level 3 inputs include longdated credit funding spreads well certain correlation inputs required value credit mortgage derivatives eg likelihood default underlying reference obligations relative one another  level 3 equity derivatives significant level 3 inputs generally include equity volatility inputs options longdated andor strike prices differ significantly current market prices addition valuation certain structured trades requires use level 3 inputs correlation price performance two individual stocks  level 3 commodity derivatives significant level 3 inputs include volatilities options strike prices differ significantly current market prices certain products product quality aligned benchmark indices subsequent initial valuation level 3 otc derivative firm updates level 1 level 2 inputs reflect observable market changes resulting gains losses recorded level 3 level 3 inputs changed corroborated evidence similar market transactions thirdparty pricing services andor broker dealer quotations empirical market data circumstances firm cannot verify model value reference market transactions possible different valuation model could produce materially different estimate fair value valuation adjustments valuation adjustments integral determining fair value derivatives used adjust midmarket valuations produced derivative pricing models appropriate exit price valuation adjustments incorporate bidoffer spreads cost liquidity illiquid positions credit valuation adjustments cva funding valuation adjustments account credit funding risk inherent derivative portfolios marketbased inputs generally used calibrating valuation adjustments marketclearing levels addition derivatives include significant unobservable inputs firm makes model exit price adjustments account valuation uncertainty present transaction goldman sachs group inc subsidiaries notes consolidated financial statements fair value derivatives level tables present fair value derivatives gross basis level major product type gross fair values tables exclude effects netting enforceable netting agreements netting cash received posted credit support agreements across levels fair value hierarchy therefore representative firm’s exposure 1 represents netting receivable balances payable balances counterparty enforceable netting agreements 2 represents netting cash collateral received posted counterparty basis credit support agreements 3 represents netting receivable balances payable balances counterparty across levels fair value hierarchy enforceable netting agreements goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements 1 represents netting receivable balances payable balances counterparty enforceable netting agreements 2 represents netting cash collateral received posted counterparty basis credit support agreements 3 represents netting receivable balances payable balances counterparty across levels fair value hierarchy enforceable netting agreements goldman sachs group inc subsidiaries notes consolidated financial statements level 3 rollforward derivative transferred level 3 reporting period entire gain loss period included level 3 transfers levels reported beginning reporting period occur gains losses level 3 derivatives considered context following  derivative level 1 andor level 2 inputs classified level 3 entirety least one significant level 3 input  one significant level 3 input entire gain loss adjusting observable inputs ie level 1 level 2 inputs classified level 3  gains losses reported level 3 resulting changes level 1 level 2 inputs frequently offset gains losses attributable level 1 level 2 derivatives andor level 1 level 2 level 3 cash instruments result gainslosses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources tables present changes fair value derivatives categorized level 3 end year 1 aggregate amounts include approximately 235 billion 62 million reported “market making” “other principal transactions” respectively 2 principally resulted changes level 2 inputs net unrealized gain level 3 derivatives 228 billion year ended december 2011 primarily attributable impact changes interest rates exchange rates underlying certain credit derivatives unrealized gains level 3 derivatives substantially offset unrealized losses derivatives classified within level 2 economically hedge derivatives classified within level 3 significant transfers level 3 derivatives year ended december 2011 included  credit net transfer level 3 636 million primarily reflecting transfers level 2 certain credit derivative assets principally due unobservable inputs longer significant valuation derivatives transfers level 3 certain credit derivative liabilities due reduced transparency correlation inputs used value derivatives impact transfers partially offset transfers level 3 certain credit mortgage derivative assets primarily due reduced transparency correlation inputs used value derivatives  commodities net transfer level 3 489 million primarily reflecting transfers level 2 due increased transparency market prices used value certain commodity derivative assets result market activity similar instruments unobservable inputs becoming less significant valuation commodity derivative assets addition certain commodity derivative liabilities transferred level 3 due reduced transparency volatility inputs used value derivatives goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements 1 aggregate amounts include approximately 499 billion 55 million reported “market making” “other principal transactions” respectively 2 principally resulted changes level 2 inputs net unrealized gain level 3 derivatives 518 billion year ended december 2010 primarily attributable lower interest rates underlying certain credit derivatives unrealized gains substantially offset unrealized losses currency interest rate credit derivatives categorized level 2 economically hedge level 3 derivatives significant transfers level 3 derivatives year ended december 2010 included  interest rates net currencies net transfer level 3 306 million 539 million respectively principally due reduced transparency correlation inputs used value financial instruments  credit net transfer level 3 106 billion principally due improved transparency correlation inputs used value certain mortgage derivatives impact credit spreads derivatives ongoing basis firm realizes gains losses relating changes credit risk unwind derivative contracts changes credit mitigants net gain attributable impact changes credit exposure credit spreads counterparty firm’s derivatives 573 million 68 million 572 million years ended december 2011 december 2010 december 2009 respectively bifurcated embedded derivatives table presents derivatives primarily equity interest rate products bifurcated related borrowings derivatives recorded fair value included “unsecured shortterm borrowings” “unsecured longterm borrowings” see note 8 information goldman sachs group inc subsidiaries notes consolidated financial statements otc derivatives tables present fair values otc derivative assets liabilities tenor product type tenor based expected duration mortgagerelated credit derivatives generally remaining contractual maturity derivatives 1 represents netting receivable balances payable balances counterparty across product types within tenor category enforceable netting agreements receivable payable balances counterparty product type tenor category netted within product type tenor category 2 represents netting receivable balances payable balances counterparty across tenor categories enforceable netting agreements 3 represents netting cash collateral received posted counterparty basis credit support agreements goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements 1 represents netting receivable balances payable balances counterparty across product types within tenor category enforceable netting agreements receivable payable balances counterparty product type tenor category netted within product type tenor category 2 represents netting receivable balances payable balances counterparty across tenor categories enforceable netting agreements 3 represents netting cash collateral received posted counterparty basis credit support agreements goldman sachs group inc subsidiaries notes consolidated financial statements derivatives creditrelated contingent features certain firm’s derivatives transacted bilateral agreements counterparties may require firm post collateral terminate transactions based changes firm’s credit ratings table presents aggregate fair value net derivative liabilities agreements excluding application collateral posted reduce liabilities related aggregate fair value assets posted collateral additional collateral termination payments could called reporting date counterparties event onenotch twonotch downgrade firm’s credit ratings credit derivatives firm enters broad array credit derivatives locations around world facilitate client transactions manage credit risk associated marketmaking investing lending activities credit derivatives actively managed based firm’s net risk position credit derivatives individually negotiated contracts various settlement payment conventions credit events include failure pay bankruptcy acceleration indebtedness restructuring repudiation dissolution reference entity credit default swaps singlename credit default swaps protect buyer loss principal one bonds loans mortgages reference obligations event issuer reference entity reference obligations suffers credit event buyer protection pays initial periodic premium seller receives protection period contract credit event defined contract seller protection makes payments buyer protection however credit event occurs seller protection required make payment buyer protection calculated accordance terms contract credit indices baskets tranches credit derivatives may reference basket singlename credit default swaps broadbased index credit event occurs one underlying reference obligations protection seller pays protection buyer payment typically prorata portion transaction’s total notional amount based underlying defaulted reference obligation certain transactions credit risk basket index separated various portions tranches different levels subordination junior tranches cover initial defaults losses exceed notional amount junior tranches excess loss covered next senior tranche capital structure total return swaps total return swap transfers risks relating economic performance reference obligation protection buyer protection seller typically protection buyer receives protection seller floating rate interest protection reduction fair value reference obligation return protection seller receives cash flows associated reference obligation plus increase fair value reference obligation goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements credit options credit option writer assumes obligation purchase sell reference obligation specified price credit spread option purchaser buys right obligation sell reference obligation purchase option writer payments credit options depend either particular credit spread price reference obligation firm economically hedges exposure written credit derivatives primarily entering offsetting purchased credit derivatives identical underlyings substantially firm’s purchased credit derivative transactions financial institutions subject stringent collateral thresholds addition upon occurrence specified trigger event firm may take possession reference obligations underlying particular written credit derivative consequently may upon liquidation reference obligations recover amounts underlying reference obligations event default december 2011 written purchased credit derivatives total gross notional amounts 196 trillion 208 trillion respectively total net notional purchased protection 11693 billion december 2010 written purchased credit derivatives total gross notional amounts 205 trillion 219 trillion respectively total net notional purchased protection 14063 billion table presents certain information credit derivatives table  fair values exclude effects netting enforceable netting agreements netting cash received posted credit support agreements therefore representative firm’s exposure  tenor based expected duration mortgagerelated credit derivatives remaining contractual maturity credit derivatives  credit spread underlying together tenor contract indicators paymentperformance risk firm less likely pay otherwise required perform credit spread tenor lower 1 offsetting purchased credit derivatives represent notional amount purchased credit derivatives extent economically hedge written credit derivatives identical underlyings 2 purchased protection represents notional amount purchased credit derivatives excess notional amount included “offsetting purchased credit derivatives” goldman sachs group inc subsidiaries notes consolidated financial statements hedge accounting firm applies hedge accounting certain interest rate swaps used manage interest rate exposure certain fixedrate unsecured longterm shortterm borrowings certain fixedrate certificates deposit ii certain foreign currency forward contracts foreign currencydenominated debt used manage foreign currency exposures firm’s net investment certain nonus operations qualify hedge accounting derivative hedge must highly effective reducing risk exposure hedged additionally firm must formally document hedging relationship inception test hedging relationship least quarterly basis ensure derivative hedge continues highly effective life hedging relationship interest rate hedges firm designates certain interest rate swaps fair value hedges interest rate swaps hedge changes fair value attributable relevant benchmark interest rate eg london interbank offered rate libor effectively converting substantial portion fixedrate obligations floatingrate obligations firm applies “longhaul method” assessing effectiveness fair value hedging relationships achieving offsetting changes fair values hedging instrument risk hedged ie interest rate risk three months ended march 2010 firm changed method prospectively retrospectively assessing effectiveness fair value hedging relationships dollaroffset method nonstatistical method regression analysis statistical method interest rate swap considered highly effective offsetting changes fair value attributable changes hedged risk regression analysis results coefficient determination 80 greater slope 80 125 dollaroffset method compared change fair value hedging instrument change fair value hedged item excluding effect passage time prospective dollaroffset assessment used scenario analyses test hedge effectiveness simulations numerous parallel slope shifts relevant yield curve parallel shifts changed interest rate maturities identical amounts slope shifts changed curvature yield curve prospective assessment response simulated yield curve shifts retrospective assessment hedging relationship considered effective fair value hedging instrument hedged item changed inversely within range 80 125 qualifying fair value hedges gains losses derivatives included “interest expense” change fair value hedged item attributable risk hedged reported adjustment carrying value subsequently amortized interest expense remaining life gains losses resulting hedge ineffectiveness included “interest expense” derivative longer designated hedge remaining difference carrying value par value hedged item amortized interest expense remaining life hedged item using effective interest method see note 23 information interest income interest expense years ended december 2011 december 2010 december 2009 gainloss recognized interest rate derivatives accounted hedges 468 billion 162 billion 1007 billion respectively related gainloss recognized hedged borrowings bank deposits 630 billion 345 billion 995 billion respectively hedge ineffectiveness recognized derivatives years ended december 2011 december 2010 loss 162 billion 184 billion respectively material year ended december 2009 losses consisted primarily amortization prepaid credit spreads gainloss excluded assessment hedge effectiveness material years ended december 2011 december 2010 loss 123 billion year ended december 2009 goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements net investment hedges firm seeks reduce impact fluctuations foreign exchange rates net investment certain nonus operations use foreign currency forward contracts foreign currencydenominated debt foreign currency forward contracts designated hedges effectiveness hedge assessed based overall changes fair value forward contracts ie based changes forward rates foreign currencydenominated debt designated hedge effectiveness hedge assessed based changes spot rates qualifying net investment hedges gains losses hedging instruments extent effective included consolidated statements comprehensive income table presents gainslosses net investment hedging gainslosses included “currency translation adjustment net tax” gainloss related ineffectiveness material years ended december 2011 december 2010 december 2009 loss reclassified earnings accumulated comprehensive income 186 million year ended december 2011 material years ended december 2010 december 2009 december 2011 december 2010 firm designated 311 billion 388 billion respectively foreign currencydenominated debt included “unsecured longterm borrowings” “unsecured shortterm borrowings” hedges net investments nonus subsidiaries fair value option note 8 fair value option financial assets financial liabilities fair value addition cash derivative instruments included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” firm elected account certain financial assets financial liabilities fair value fair value option primary reasons electing fair value option  reflect economic events earnings timely basis  mitigate volatility earnings using different measurement attributes eg transfers financial instruments owned accounted financings recorded fair value whereas related secured financing would recorded accrual basis absent electing fair value option  address simplification costbenefit considerations eg accounting hybrid financial instruments fair value entirety versus bifurcation embedded derivatives hedge accounting debt hosts hybrid financial instruments contain bifurcatable embedded derivatives require settlement physical delivery nonfinancial assets eg physical commodities firm elects bifurcate embedded derivative associated debt derivative accounted fair value host contract accounted amortized cost adjusted effective portion fair value hedges firm elect bifurcate entire hybrid financial instrument accounted fair value fair value option financial assets financial liabilities accounted fair value fair value option include  resale repurchase agreements  securities borrowed loaned within fixed income currency commodities client execution goldman sachs group inc subsidiaries notes consolidated financial statements  certain secured financings primarily transfers assets accounted financings rather sales certain nonrecourse financings including debt raised firm’s william street credit extension program outstanding december 2010  certain unsecured shortterm borrowings consisting promissory notes commercial paper certain hybrid financial instruments  certain unsecured longterm borrowings including prepaid commodity transactions certain hybrid financial instruments  certain receivables customers counterparties including certain margin loans transfers assets accounted secured loans rather purchases  certain insurance reinsurance contract assets liabilities certain guarantees  certain subordinated liabilities issued consolidated vies  certain deposits issued firm’s bank subsidiaries deposits stated maturity eligible fair value option election financial assets financial liabilities fair value generally valued based discounted cash flow techniques incorporate inputs reasonable levels price transparency generally classified level 2 inputs observable valuation adjustments may made liquidity counterparty firm’s credit quality significant inputs category financial assets financial liabilities fair value follows resale repurchase agreements securities borrowed loaned significant inputs valuation resale repurchase agreements securities borrowed loaned amount timing expected future cash flows interest rates collateral funding spreads see note 9 information secured financings significant inputs valuation secured financings fair value amount timing expected future cash flows interest rates fair value collateral delivered firm determined using amount timing expected future cash flows market yields recovery assumptions frequency additional collateral calls credit spreads firm see note 9 information unsecured shortterm longterm borrowings significant inputs valuation unsecured shortterm longterm borrowings fair value amount timing expected future cash flows interest rates credit spreads firm well commodity prices case prepaid commodity transactions certain hybrid financial instruments equity prices inflation rates index levels see notes 15 16 information receivables customers counterparties significant inputs valuation certain receivables customers counterparties commodity prices interest rates amount timing expected future cash flows insurance reinsurance contracts insurance reinsurance contracts fair value included “receivables customers counterparties” “other liabilities accrued expenses” insurance reinsurance contracts firm elected fair value option contracts settled cash qualify fair value option recognized financial instruments contracts valued using market transactions market evidence possible including marketbased inputs models calibration marketclearing transactions alternative pricing sources reasonable levels price transparency significant level 2 inputs typically include interest rates inflation risk significant level 3 inputs typically include mortality funding benefit assumptions unobservable inputs valuation model significant fair value measurement instrument classified level 3 deposits significant inputs valuation deposits interest rates goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements fair value financial assets financial liabilities level tables present level within fair value hierarchy financial assets financial liabilities accounted fair value fair value option 1 includes securities segregated regulatory purposes accounted fair value fair value option consists securities borrowed resale agreements table also includes 2126 billion level 1 528 million level 2 securities segregated regulatory purposes accounted fair value us gaap principally consisting us treasury securities money market instruments insurance separate account assets goldman sachs group inc subsidiaries notes consolidated financial statements 1 includes securities segregated regulatory purposes accounted fair value fair value option consists securities borrowed resale agreements table also includes 1979 billion level 1 353 billion level 2 securities segregated regulatory purposes accounted fair value us gaap principally consisting us treasury securities money market instruments insurance separate account assets goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements level 3 rollforward financial asset financial liability transferred level 3 reporting period entire gain loss period included level 3 transfers levels recognized beginning reporting period occur tables present changes fair value financial assets financial liabilities accounted fair value fair value option categorized level 3 end year level 3 financial assets liabilities frequently economically hedged cash instruments derivatives accordingly gains losses reported level 3 partially offset gains losses attributable level 1 2 3 cash instruments derivatives result gains losses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources goldman sachs group inc subsidiaries notes consolidated financial statements net unrealized loss level 3 financial assets liabilities fair value 709 million year ended december 2011 primarily consisted losses liabilities accrued expenses primarily attributable impact change interest rates certain insurance liabilities losses partially offset gains unsecured shortterm borrowings primarily reflecting gains certain equitylinked notes principally due decline global equity markets significant transfers level 3 year ended december 2011 included  secured financings net transfer level 3 303 billion principally due transfers level 2 certain borrowings unobservable inputs longer significant valuation borrowings neared maturity  unsecured shortterm borrowings net transfer level 3 443 million principally due transfers level 3 certain borrowings due less transparency market prices result less activity financial instruments significant transfers level 3 year ended december 2010 principally due consolidation certain vies upon adoption asu 200917 january 1 2010 included  unsecured shortterm borrowings net transfer level 3 134 billion principally due consolidation certain vies  unsecured longterm borrowings net transfer level 3 125 billion principally due consolidation certain vies caused firm’s borrowings vies become intercompany borrowings eliminated consolidation substantially borrowings level 3  liabilities accrued expenses net transfer level 3 587 million principally due increase subordinated liabilities issued certain consolidated vies goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements gains losses financial assets financial liabilities fair value “fair value option” columns table present gains losses recognized result firm electing apply fair value option certain financial assets financial liabilities gains losses included “market making” “other principal transactions” amounts table exclude contractual interest included “interest income” “interest expense” instruments hybrid financial instruments see note 23 information interest income interest expense table also excludes gains losses related financial instruments owned fair value financial instruments sold yet purchased fair value included “other” columns table  gains losses embedded derivative component hybrid financial instruments included unsecured shortterm borrowings unsecured longterm borrowings gains losses would recognized us gaap even firm elected account entire hybrid instrument fair value  gains losses secured financings related transfers assets accounted financings rather sales gains losses offset gains losses related instruments included “financial instruments owned fair value” “receivables customers counterparties”  gains losses receivables customers counterparties related transfers assets accounted receivables rather purchases gains losses offset gains losses related financial instruments included “other secured financings”  gains losses subordinated liabilities issued consolidated vies included “other liabilities accrued expenses” gains losses offset gains losses financial assets held consolidated vies 1 primarily consists gainslosses certain transfers accounted receivables rather purchases certain reinsurance contracts 2 primarily consists gainslosses certain insurance contracts 3 primarily consists gainslosses resale repurchase agreements securities borrowed loaned deposits excluding gains losses instruments accounted fair value option described “market making” “other principal transactions” primarily represents gains losses “financial instruments owned fair value” “financial instruments sold yet purchased fair value” goldman sachs group inc subsidiaries notes consolidated financial statements loans lending commitments table presents difference aggregate fair value aggregate contractual principal amount loans longterm receivables fair value option elected 1 aggregate contractual principal exceeds related fair value primarily firm regularly purchases loans distressed loans values significantly contractual principal amounts december 2011 december 2010 fair value unfunded lending commitments fair value option elected liability 282 billion 126 billion respectively related total contractual amount lending commitments 6612 billion 5120 billion respectively longterm debt instruments aggregate contractual principal amount longterm debt instruments principal nonprincipal protected fair value option elected exceeded related fair value 932 million 701 million december 2011 december 2010 respectively amounts 693 million 349 million december 2011 december 2010 respectively related unsecured longterm borrowings remainder related longterm secured financings impact credit spreads loans lending commitments estimated net gainloss attributable changes instrumentspecific credit spreads loans lending commitments fair value option elected 805 million 185 billion 165 billion years ended december 2011 december 2010 december 2009 respectively changes fair value loans lending commitments primarily attributable changes instrumentspecific credit spreads substantially firm’s performing loans lending commitments floatingrate impact credit spreads borrowings table presents net gainslosses attributable impact changes firm’s credit spreads borrowings fair value option elected firm calculates fair value borrowings discounting future cash flows rate incorporates firm’s credit spreads goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements collateralized agreements financings note 9 collateralized agreements financings collateralized agreements securities purchased agreements resell resale agreements reverse repurchase agreements securities borrowed collateralized financings securities sold agreements repurchase agreements securities loaned secured financings firm enters transactions order among things facilitate client activities invest excess cash acquire securities cover short positions finance certain firm activities collateralized agreements financings presented netbycounterparty basis legal right setoff exists interest collateralized agreements collateralized financings recognized life transaction included “interest income” “interest expense” respectively see note 23 information interest income interest expense table presents carrying value resale repurchase agreements securities borrowed loaned transactions 1 resale repurchase agreements carried fair value fair value option see note 8 information valuation techniques significant inputs used determine fair value 2 december 2011 december 2010 4762 billion 4882 billion securities borrowed 107 million 151 billion securities loaned fair value respectively resale repurchase agreements resale agreement transaction firm purchases financial instruments seller typically exchange cash simultaneously enters agreement resell substantially financial instruments seller stated price plus accrued interest future date repurchase agreement transaction firm sells financial instruments buyer typically exchange cash simultaneously enters agreement repurchase substantially financial instruments buyer stated price plus accrued interest future date financial instruments purchased sold resale repurchase agreements typically include us government federal agency investmentgrade sovereign obligations firm receives financial instruments purchased resale agreements makes delivery financial instruments sold repurchase agreements monitors market value financial instruments daily basis delivers obtains additional collateral due changes market value financial instruments appropriate resale agreements firm typically requires delivery collateral fair value approximately equal carrying value relevant assets consolidated statements financial condition even though repurchase resale agreements involve legal transfer ownership financial instruments accounted financing arrangements require financial instruments repurchased resold maturity agreement however “repos maturity” accounted sales repo maturity transaction firm transfers security agreement repurchase security maturity date repurchase agreement matches maturity date underlying security therefore firm effectively longer repurchase obligation relinquished control underlying security accordingly accounts transaction sale firm repos maturity outstanding december 2011 december 2010 goldman sachs group inc subsidiaries notes consolidated financial statements securities borrowed loaned transactions securities borrowed transaction firm borrows securities counterparty exchange cash firm returns securities counterparty returns cash interest generally paid periodically life transaction securities loaned transaction firm lends securities counterparty typically exchange cash securities letter credit counterparty returns securities firm returns cash securities posted collateral interest generally paid periodically life transaction firm receives securities borrowed makes delivery securities loaned monitors market value securities daily basis delivers obtains additional collateral due changes market value securities appropriate securities borrowed transactions firm typically requires delivery collateral fair value approximately equal carrying value securities borrowed transaction securities borrowed loaned within fixed income currency commodities client execution recorded fair value fair value option securities borrowed loaned within securities services recorded based amount cash collateral advanced received plus accrued interest arrangements generally terminated demand exhibit little sensitivity changes interest rates december 2011 december 2010 firm 2022 billion 1286 billion respectively securities received resale agreements securities borrowed transactions segregated satisfy certain regulatory requirements securities included “cash securities segregated regulatory purposes” secured financings addition repurchase agreements securities lending transactions firm funds certain assets use secured financings pledges financial instruments assets collateral transactions secured financings consist  liabilities consolidated vies  transfers assets accounted financings rather sales primarily collateralized central bank financings pledged commodities bank loans mortgage whole loans  structured financing arrangements  debt raised firm’s william street credit extension program outstanding december 2010 secured financings include arrangements nonrecourse december 2011 december 2010 nonrecourse secured financings 314 billion 842 billion respectively firm elected apply fair value option following secured financings use fair value eliminates noneconomic volatility earnings would arise using different measurement attributes  transfers assets accounted financings rather sales  certain nonrecourse financings  debt raised firm’s william street credit extension program outstanding december 2010 see note 8 information secured financings accounted fair value secured financings recorded fair value recorded based amount cash received plus accrued interest generally approximates fair value goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents information secured financings table  shortterm secured financings include financings maturing within one year financial statement date financings redeemable within one year financial statement date option holder  longterm secured financings repayable prior maturity option firm reflected contractual maturity dates  longterm secured financings redeemable prior maturity option holders reflected dates options become exercisable 1 weighted average interest rates exclude secured financings fair value include effect hedging activities see note 7 information hedging activities 2 includes 936 billion 832 billion related transfers financial assets accounted financings rather sales december 2011 december 2010 respectively financings collateralized financial assets included “financial instruments owned fair value” 951 billion 853 billion december 2011 december 2010 respectively 3 includes 1482 billion 2563 billion secured financings collateralized financial instruments owned fair value 2106 billion 1014 billion secured financings collateralized financial instruments received collateral repledged december 2011 december 2010 respectively 4 primarily real estate cash table presents secured financings maturity aggregate contractual principal amount secured financings longterm fair value option elected exceeded related fair value 239 million 352 million december 2011 december 2010 respectively collateral received pledged firm receives financial instruments eg us government federal agency sovereign corporate obligations well equities convertible debentures collateral primarily connection resale agreements securities borrowed derivative transactions customer margin loans goldman sachs group inc subsidiaries notes consolidated financial statements many cases firm permitted deliver repledge financial instruments entering repurchase agreements securities lending agreements primarily connection secured client financing activities firm also permitted deliver repledge financial instruments connection secured financings collateralizing derivative transactions meeting firm customer settlement requirements table presents financial instruments fair value received collateral available delivered repledged delivered repledged firm also pledges certain financial instruments owned fair value connection repurchase agreements securities lending agreements secured financings assets primarily real estate cash connection secured financings counterparties may right deliver repledge table presents information assets pledged firm securitization activities note 10 securitization activities firm securitizes residential commercial mortgages corporate bonds loans types financial assets selling assets securitization vehicles eg trusts corporate entities limited liability companies acts underwriter beneficial interests sold investors firm’s residential mortgage securitizations substantially connection government agency securitizations beneficial interests issued securitization entities debt equity securities give investors rights receive portions specified cash inflows securitization vehicle include senior subordinated shares principal interest andor cash inflows proceeds sale beneficial interests used pay transferor financial assets sold securitization vehicle purchase securities serve collateral firm accounts securitization sale relinquished control transferred assets prior securitization firm accounts assets pending transfer fair value therefore typically recognize significant gains losses upon transfer assets net revenues underwriting activities recognized connection sales underlying beneficial interests investors transfers assets accounted sales assets remain “financial instruments owned fair value” transfer accounted collateralized financing related interest expense recognized life transaction see notes 9 23 information collateralized financings interest expense respectively firm generally receives cash exchange transferred assets may also continuing involvement transferred assets including ownership beneficial interests securitized financial assets primarily form senior subordinated securities servicing rights firm retains time securitization firm may also purchase senior subordinated securities issued securitization vehicles typically vies connection secondary marketmaking activities goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements primary risks included beneficial interests firm’s continuing involvement securitization vehicles performance underlying collateral position firm’s investment capital structure securitization vehicle market yield security interests accounted fair value included “financial instruments owned fair value” generally classified level 2 fair value hierarchy see notes 5 8 information fair value measurements table presents amount financial assets securitized cash flows received retained interests securitization entities firm continuing involvement table presents firm’s continuing involvement nonconsolidated securitization entities firm sold assets well total outstanding principal amount transferred assets firm continuing involvement table  outstanding principal amount presented purpose providing information size securitization entities firm continuing involvement representative firm’s risk loss  retained purchased interests firm’s risk loss limited fair value interests  purchased interests represent senior subordinated interests purchased connection secondary marketmaking activities securitization entities firm also holds retained interests 1 outstanding principal amount fair value retained interests primarily relate securitizations 2011 2010 december 2011 securitizations 2010 2009 december 2010 2 outstanding principal amount fair value retained interests december 2011 december 2010 primarily relate prime alta securitizations 2007 2006 3 outstanding principal amount december 2011 december 2010 primarily relate securitizations 2010 2007 2006 fair value retained interests december 2011 december 2010 primarily relate securitizations 2010 4 outstanding principal amount fair value retained interests december 2011 december 2010 primarily relate cdo clo securitizations 2007 2006 5 outstanding principal amount fair value retained interests include 774 million 0 respectively december 2011 764 billion 16 million respectively december 2010 related securitization entities firm’s continuing involvement retained servicing variable interest goldman sachs group inc subsidiaries notes consolidated financial statements addition interests table firm continuing involvement form derivative transactions guarantees certain nonconsolidated vies carrying value derivatives guarantees net liability 52 million 98 million december 2011 december 2010 respectively notional amounts derivatives guarantees included maximum exposure loss nonconsolidated vie tables note 11 table presents weighted average key economic assumptions used measuring fair value retained interests sensitivity fair value immediate adverse changes 10 20 assumptions 1 due nature current fair value certain retained interests weighted average assumptions constant prepayment discount rates related sensitivity adverse changes meaningful december 2011 december 2010 firm’s maximum exposure adverse changes value interests carrying value 32 million 62 million december 2011 december 2010 respectively 2 constant prepayment rate included positions constant prepayment rate key assumption determination fair value 3 majority mortgagebacked retained interests us government agencyissued collateralized mortgage obligations anticipated credit loss remainder retained interests expected credit loss assumptions reflected discount rate preceding table give effect offsetting benefit financial instruments held mitigate risks inherent retained interests changes fair value based adverse variation assumptions generally cannot extrapolated relationship change assumptions change fair value usually linear addition impact change particular assumption preceding table calculated independently changes assumption practice simultaneous changes assumptions might magnify counteract sensitivities disclosed goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements variable interest entities note 11 variable interest entities vies generally finance purchase assets issuing debt equity securities either collateralized indexed assets held vie debt equity securities issued vie may include tranches varying levels subordination firm’s involvement vies includes securitization financial assets described note 10 investments loans types vies described see note 10 additional information securitization activities including definition beneficial interests see note 3 firm’s consolidation policies including definition vie firm principally involved vies following business activities mortgagebacked vies corporate cdo clo vies firm sells residential commercial mortgage loans securities mortgagebacked vies corporate bonds loans corporate cdo clo vies may retain beneficial interests assets sold vies firm purchases sells beneficial interests issued mortgagebacked corporate cdo clo vies connection marketmaking activities addition firm may enter derivatives certain vies primarily interest rate swaps typically variable interests firm generally enters derivatives counterparties mitigate risk derivatives vies certain mortgagebacked corporate cdo clo vies usually referred synthetic cdos creditlinked note vies synthetically create exposure beneficial interests issue entering credit derivatives rather purchasing underlying assets credit derivatives may reference single asset index portfoliobasket assets indices see note 7 information credit derivatives vies use funds sale beneficial interests premiums received credit derivative counterparties purchase securities serve collateralize beneficial interest holders andor credit derivative counterparty vies may enter derivatives primarily interest rate swaps typically variable interests firm may counterparty derivatives vies generally enters derivatives counterparties mitigate risk real estate creditrelated investing vies firm purchases equity debt securities issued makes loans vies hold real estate performing nonperforming debt distressed loans equity securities assetbacked vies firm structures vies issue notes clients purchases sells beneficial interests issued assetbacked vies connection marketmaking activities addition firm may enter derivatives certain assetbacked vies primarily total return swaps collateral assets held vies firm pays vie return due note holders receives return collateral assets owned vie firm generally removed total return swap counterparty firm generally enters derivatives counterparties mitigate risk derivatives vies firm typically sell assets assetbacked vies structures powerrelated vies firm purchases debt equity securities issued may provide guarantees vies hold powerrelated assets firm typically sell assets enter derivatives vies investment funds firm purchases equity securities issued may provide guarantees certain investment funds manages firm typically sell assets enter derivatives vies principalprotected note vies firm structures vies issue principalprotected notes clients vies portfolios assets principally exposure hedge funds substantially principal protection notes issued vies provided asset portfolio rebalancing required terms notes firm enters total return swaps vies firm pays vie return due principalprotected note holders receives return assets owned vie firm may enter derivatives counterparties mitigate risk derivatives enters vies firm also obtains funding vies goldman sachs group inc subsidiaries notes consolidated financial statements municipal bond securitizations firm sold municipal securities vies issued shortterm qualifying taxexempt securities 2011 firm dissolved vies redeemed andor purchased outstanding securities issued vie consolidation analysis variable interest vie investment eg debt equity securities interest eg derivatives loans lending commitments vie absorb portions vie’s expected losses receive portions vie’s expected residual returns firm’s variable interests vies include senior subordinated debt residential commercial mortgagebacked assetbacked securitization entities cdos clos loans lending commitments limited general partnership interests preferred common equity derivatives may include foreign currency equity andor credit risk guarantees certain fees firm receives investment funds certain interest rate foreign currency credit derivatives firm enters vies variable interests create rather absorb risk enterprise controlling financial interest vie known primary beneficiary consolidates vie firm determines whether primary beneficiary vie performing analysis principally considers  variable interest holder power direct activities vie significantly impact vie’s economic performance  variable interest holder obligation absorb losses right receive benefits vie could potentially significant vie  vie’s purpose design including risks vie designed create pass variable interest holders  vie’s capital structure  terms vie variable interest holders parties involved vie  relatedparty relationships firm reassesses initial evaluation whether entity vie certain reconsideration events occur firm reassesses determination whether primary beneficiary vie ongoing basis based current facts circumstances nonconsolidated vies firm’s exposure obligations vies generally limited interests entities certain instances firm provides guarantees including derivative guarantees vies holders variable interests vies tables present information nonconsolidated vies firm holds variable interests nonconsolidated vies aggregated based principal business activity nature firm’s variable interests take different forms described rows maximum exposure loss tables  maximum exposure loss excludes benefit offsetting financial instruments held mitigate risks associated variable interests  retained purchased interests loans investments maximum exposure loss carrying value interests  commitments guarantees derivatives maximum exposure loss notional amount represent anticipated losses also reduced unrealized losses already recorded result maximum exposure loss exceeds liabilities recorded commitments guarantees derivatives provided vies carrying values firm’s variable interests nonconsolidated vies included consolidated statement financial condition follows  substantially assets held firm related mortgagebacked corporate cdo clo assetbacked vies investment funds included “financial instruments owned fair value” substantially liabilities held firm related mortgagebacked corporate cdo clo assetbacked vies included “financial instruments sold yet purchased fair value” goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements  assets liabilities held firm related real estate creditrelated investing vies primarily included “financial instruments owned fair value” “payables customers counterparties” “financial instruments sold yet purchased fair value” “other liabilities accrued expenses” respectively  assets liabilities held firm related powerrelated vies primarily included “other assets” “other liabilities accrued expenses” respectively 1 aggregate amounts include 417 billion 452 billion december 2011 december 2010 respectively related guarantees derivative transactions vies firm transferred assets 2 assets vie maximum exposure loss include 615 billion 262 billion respectively december 2011 614 billion 325 billion respectively december 2010 related cdos backed mortgage obligations goldman sachs group inc subsidiaries notes consolidated financial statements consolidated vies tables present carrying amount classification assets liabilities consolidated vies excluding benefit offsetting financial instruments held mitigate risks associated firm’s variable interests consolidated vies aggregated based principal business activity assets liabilities presented net intercompany eliminations majority assets principalprotected notes vies intercompany eliminated consolidation substantially assets consolidated vies used settle obligations vie tables exclude vies firm holds majority voting interest vie meets definition business ii vie’s assets used purposes settlement obligations liabilities real estate creditrelated investing vies cdos mortgagebacked assetbacked vies recourse general credit firm goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements goldman sachs group inc subsidiaries notes consolidated financial statements assets note 12 assets generally less liquid nonfinancial assets table presents assets type 1 net accumulated depreciation amortization 846 billion 787 billion december 2011 december 2010 respectively 2 see note 13 information goodwill identifiable intangible assets 3 see note 24 information income taxes 4 excludes investments accounted fair value fair value option firm would otherwise apply equity method accounting 417 billion 377 billion december 2011 december 2010 respectively included “financial instruments owned fair value” firm generally elected fair value option investments acquired fair value option became available property leasehold improvements equipment property leasehold improvements equipment included 648 billion 644 billion december 2011 december 2010 respectively related property leasehold improvements equipment firm uses connection operations remainder held investment entities including vies consolidated firm substantially property equipment depreciated straightline basis useful life asset leasehold improvements amortized straightline basis useful life improvement term lease whichever shorter certain costs software developed obtained internal use capitalized amortized straightline basis useful life software property leasehold improvements equipment tested impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable firm’s policy impairment testing property leasehold improvements equipment used identifiable intangible assets finite lives see note 13 information impairments first quarter 2011 firm classified certain assets held sale primarily related litton loan servicing lp litton recognized impairment losses approximately 220 million principally firm’s institutional client services segment impairment losses included “depreciation amortization” represent excess carrying value assets ii estimated fair value less estimated cost sell assets sold third quarter 2011 firm received total consideration approximated firm’s adjusted carrying value litton see note 18 information sale litton result decline market conditions certain firm’s consolidated investments operate 2011 firm tested certain commodityrelated intangible assets property leasehold improvements equipment associated investments impairment accordance asc 360 carrying value assets exceeded projected undiscounted cash flows estimated remaining useful lives assets firm determined assets impaired recorded impairment loss approximately 220 million 120 million related commodityrelated intangible assets 100 million related property leasehold improvements equipment included “depreciation amortization” firm’s investing lending segment impairment loss represented excess carrying value assets estimated fair value level 3 measurement using combination discounted cash flow analyses relative value analyses including estimated cash flows expected received disposition certain assets goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements fourth quarter 2010 result continuing weak operating results firm’s nyse dmm business firm tested nyse dmm rights impairment accordance asc 360 carrying value firm’s nyse dmm rights exceeded projected undiscounted cash flows estimated remaining useful life firm’s nyse dmm rights firm determined rights impaired firm recorded impairment loss 305 million included “depreciation amortization” firm’s institutional client services segment fourth quarter 2010 impairment loss represented excess carrying value firm’s nyse dmm rights estimated fair value firm estimated fair value level 3 measurement using relative value analysis incorporated comparison another dmm portfolio transacted third parties goodwill identifiable intangible assets note 13 goodwill identifiable intangible assets tables present carrying values goodwill identifiable intangible assets included “other assets” 1 increase december 2010 december 2011 related acquisition gs australia 2 increase december 2010 december 2011 related acquisition gs australia partially offset sale litton see note 12 information sale litton goodwill cost acquired companies excess fair value net assets including identifiable intangible assets acquisition date goodwill assessed annually impairment frequently events occur circumstances change indicate impairment may exist qualitative factors assessed determine whether likely fair value reporting unit less carrying amount results qualitative assessment conclusive quantitative goodwill impairment test performed see note 3 information amended accounting principles goodwill impairment testing quantitative goodwill impairment test consists two steps  first step compares estimated fair value reporting unit estimated net book value including goodwill identified intangible assets reporting unit’s fair value exceeds estimated net book value goodwill impaired  estimated fair value reporting unit less estimated net book value second step goodwill impairment test performed measure amount impairment loss impairment loss equal excess carrying amount goodwill fair value goodwill tested impairment using quantitative test fourth quarter 2011 goodwill impaired estimate fair value reporting unit relative value residual income valuation techniques used firm believes market participants would use techniques value firm’s reporting units relative value techniques apply average observable pricetoearnings multiples comparable competitors certain reporting units’ net earnings reporting units fair value estimated using pricetobook multiples based residual income techniques consider reporting unit’s return equity excess firm’s cost equity capital net book value reporting unit reflects estimated amount shareholders’ equity required support activities reporting unit goldman sachs group inc subsidiaries notes consolidated financial statements identifiable intangible assets table presents gross carrying amount accumulated amortization net carrying amount identifiable intangible assets weighted average remaining lives 1 primarily includes commodityrelated customer contracts relationships permits access rights 2 represents television broadcast royalties held consolidated vie 3 represents value business acquired related firm’s insurance businesses 4 primarily includes firm’s new york stock exchange nyse designated market maker dmm rights exchangetraded fund lead market maker rights substantially firm’s identifiable intangible assets considered finite lives amortized estimated lives ii based economic usage certain commodityrelated intangibles iii proportion estimated gross profits premium revenues amortization expense identifiable intangible assets included “depreciation amortization” goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements tables present amortization expense identifiable intangible assets years ended december 2011 december 2010 december 2009 estimated future amortization expense 2016 identifiable intangible assets december 2011 identifiable intangible assets tested recoverability whenever events changes circumstances indicate asset’s asset group’s carrying value may recoverable recoverability test necessary carrying value asset group compared total undiscounted cash flows expected received remaining useful life disposition asset group  total undiscounted cash flows exceeds carrying value asset group impaired  total undiscounted cash flows less carrying value asset group fully recoverable impairment loss recognized difference carrying amount asset group estimated fair value see note 12 information impairments identifiable intangible assets goldman sachs group inc subsidiaries notes consolidated financial statements deposits note 14 deposits tables present deposits held us nonus offices maturities time deposits substantially us deposits held goldman sachs bank usa gs bank usa interestbearing substantially nonus deposits held goldman sachs bank europe plc gs bank europe interestbearing 1 includes 71 million greater 100000 4 million matures within three months 2 million matures within three six months 35 million matures within six twelve months 30 million matures twelve months 2 substantially greater 100000 shortterm borrowings note 15 shortterm borrowings shortterm borrowings comprised following see note 9 information secured financings unsecured shortterm borrowings include portion unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holder firm accounts promissory notes commercial paper certain hybrid financial instruments fair value fair value option see note 8 information unsecured shortterm borrowings accounted fair value shortterm borrowings recorded fair value recorded based amount cash received plus accrued interest amounts approximate fair value due shortterm nature obligations table presents unsecured shortterm borrowings 1 includes 853 billion 1043 billion december 2011 december 2010 respectively issued group inc guaranteed federal deposit insurance corporation fdic temporary liquidity guarantee program tlgp 2 includes 2795 billion 2446 billion december 2011 december 2010 respectively issued group inc 3 weighted average interest rates borrowings include effect hedging activities exclude financial instruments accounted fair value fair value option see note 7 information hedging activities goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements longterm borrowings note 16 longterm borrowings longterm borrowings comprised following see note 9 information secured financings table presents unsecured longterm borrowings extending 2061 consisting principally senior borrowings 1 interest rates us dollardenominated debt ranged 010 1004 weighted average rate 562 020 1004 weighted average rate 552 december 2011 december 2010 respectively interest rates nonus dollardenominated debt ranged 085 1485 weighted average rate 475 085 1485 weighted average rate 465 december 2011 december 2010 respectively 2 floating interest rates generally based libor federal funds target rate equitylinked indexed instruments included floatingrate obligations 3 includes 0 858 billion december 2011 december 2010 respectively guaranteed fdic tlgp goldman sachs group inc subsidiaries notes consolidated financial statements table presents unsecured longterm borrowings maturity date table  unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holder included unsecured shortterm borrowings  unsecured longterm borrowings repayable prior maturity option firm reflected contractual maturity dates  unsecured longterm borrowings redeemable prior maturity option holders reflected dates options become exercisable 1 includes 1084 billion related interest rate hedges certain unsecured longterm borrowings year maturity follows 542 million 2013 882 million 2014 653 million 2015 119 billion 2016 757 billion 2017 thereafter aggregate contractual principal amount unsecured longterm borrowings principal nonprincipal protected fair value option elected exceeded related fair value 693 million 349 million december 2011 december 2010 respectively firm designates certain derivatives fair value hedges effectively convert substantial portion fixedrate unsecured longterm borrowings accounted fair value floatingrate obligations accordingly excluding cumulative impact changes firm’s credit spreads carrying value unsecured longterm borrowings approximated fair value december 2011 december 2010 unsecured longterm borrowings firm elect fair value option cumulative impact due changes firm’s credit spreads would reduction carrying value total unsecured longterm borrowings less 4 december 2011 december 2010 see note 7 information hedging activities table presents unsecured longterm borrowings giving effect hedging activities converted substantial portion fixedrate obligations floatingrate obligations 1 weighted average interest rates aggregate amounts 259 518 related fixedrate obligations 203 related floatingrate obligations 190 569 related fixedrate obligations 174 related floatingrate obligations december 2011 december 2010 respectively rates exclude financial instruments accounted fair value fair value option 2 2011 certain fair value hedges dedesignated resulting larger portion fixedrate debt carried amortized cost goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements subordinated borrowings unsecured longterm borrowings include subordinated debt junior subordinated debt junior subordinated debt junior right payment subordinated borrowings junior senior borrowings december 2011 december 2010 subordinated debt maturities ranging 2017 2038 2012 2038 respectively table presents subordinated borrowings 1 weighted average interest rate giving effect fair value hedges used convert fixedrate obligations floatingrate obligations see note 7 information hedging activities see information interest rates junior subordinated debt 2 par amount carrying amount subordinated debt issued group inc 1375 billion 1680 billion respectively december 2011 1381 billion 1644 billion respectively december 2010 3 increase weighted average interest rate december 2011 compared december 2010 primarily due dedesignation certain fair value hedges resulting larger portion subordinated debt carried fixedrate obligation junior subordinated debt junior subordinated debt issued apex trusts 2007 group inc issued total 225 billion remarketable junior subordinated debt goldman sachs capital ii goldman sachs capital iii apex trusts delaware statutory trusts apex trusts issued 225 billion guaranteed perpetual normal automatic preferred enhanced capital securities apex third parties de minimis amount common securities group inc group inc also entered contracts apex trusts sell 225 billion group inc perpetual noncumulative preferred stock purchase contracts see note 19 information preferred stock group inc issue connection stock purchase contracts apex trusts whollyowned finance subsidiaries firm regulatory legal purposes consolidated accounting purposes firm accounted stock purchase contracts equity instruments accordingly recorded cost stock purchase contracts reduction additional paidin capital firm pays interest semiannually 175 billion junior subordinated debt issued goldman sachs capital ii fixed annual rate 559 debt matures june 1 2043 firm pays interest quarterly 500 million junior subordinated debt issued goldman sachs capital iii rate per annum equal threemonth libor plus 057 debt matures september 1 2043 addition firm makes contract payments rate 020 per annum stock purchase contracts held apex trusts firm right defer payments junior subordinated debt stock purchase contracts subject limitations therefore cause payment apex deferred extension period firm permitted among things pay dividends make certain repurchases common preferred stock connection apex issuance firm covenanted favor certain debtholders initially currently holders group inc’s 6345 junior subordinated debentures due february 15 2034 subject certain exceptions firm would redeem purchase group inc’s junior subordinated debt issued apex trusts prior applicable stock purchase date ii apex shares group inc’s perpetual noncumulative preferred stock series e series e preferred stock perpetual noncumulative preferred stock series f series f preferred stock prior date ten years applicable stock purchase date unless applicable redemption purchase price exceed maximum amount determined reference aggregate amount net cash proceeds firm received sale qualifying equity securities 180day period preceding redemption purchase goldman sachs group inc subsidiaries notes consolidated financial statements junior subordinated debt issued connection trust preferred securities group inc issued 284 billion junior subordinated debentures 2004 goldman sachs capital trust delaware statutory trust issued 275 billion guaranteed preferred beneficial interests third parties 85 million common beneficial interests group inc used proceeds issuances purchase junior subordinated debentures group inc trust whollyowned finance subsidiary firm regulatory legal purposes consolidated accounting purposes firm pays interest semiannually debentures annual rate 6345 debentures mature february 15 2034 coupon rate payment dates applicable beneficial interests interest rate payment dates debentures firm right time defer payment interest debentures therefore cause payment trust’s preferred beneficial interests deferred case ten consecutive semiannual periods extension period firm permitted among things pay dividends make certain repurchases common stock trust permitted pay distributions common beneficial interests held group inc unless dividends payable preferred beneficial interests paid full liabilities accrued expenses note 17 liabilities accrued expenses table presents liabilities accrued expenses type 1 includes 117 billion 593 million related consolidated investment funds december 2011 december 2010 respectively 2 see note 24 information income taxes table presents insurancerelated liabilities type 1 substantially increase december 2010 december 2011 related acquisitions connection acquisitions firm acquired 750 billion assets primarily financial instruments owned fair value principally consisting corporate debt securities assumed 710 billion liabilities separate account liabilities supported separate account assets representing segregated contract holder funds variable annuity life insurance contracts separate account assets included “cash securities segregated regulatory purposes” liabilities future benefits unpaid claims include liabilities arising reinsurance provided firm insurers firm receivable 130 billion 126 billion december 2011 december 2010 respectively related reinsurance contracts reported “receivables customers counterparties” addition firm ceded risks reinsurers related certain liabilities future benefits unpaid claims receivable 648 million 839 million december 2011 december 2010 respectively related reinsurance contracts reported “receivables customers counterparties” contracts cede risks reinsurers relieve firm obligations contract holders liabilities future benefits unpaid claims include 875 billion 205 billion carried fair value fair value option december 2011 december 2010 respectively reserves guaranteed minimum death income benefits represent liability expected value guaranteed benefits excess projected annuity account balances reserves based total payments expected made less total fees expected assessed life contract goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements commitments contingencies guarantees note 18 commitments contingencies guarantees commitments table presents firm’s commitments 1 commitments extend credit presented net amounts syndicated third parties 2 agreements generally settle within three business days 3 consists commitments letters credit issued various banks firm provides counterparties lieu securities cash satisfy various collateral margin deposit requirements commitments extend credit firm’s commitments extend credit agreements lend fixed termination dates depend satisfaction contractual conditions borrowing total commitment amount necessarily reflect actual future cash flows firm may syndicate substantial portions commitments expire unused reduced cancelled counterparty’s request firm generally accounts commitments extend credit fair value losses generally recorded net fees “other principal transactions” commercial lending firm’s commercial lending commitments generally extended connection contingent acquisition financing types corporate lending well commercial real estate financing commitments extended contingent acquisition financing often intended shortterm nature borrowers often seek replace funding sources william street credit extension program substantially commitments provided william street credit extension program investmentgrade corporate borrowers commitments program principally extended gs bank usa subsidiaries including william street commitment corporation commitment corp historically commitments extended commitment corp supported part funding raised funding corp another consolidated whollyowned subsidiary gs bank usa april 26 2011 funding raised funding corp repaid entirety commitments extended commitment corp supported funding supported funding gs bank usa goldman sachs group inc subsidiaries notes consolidated financial statements assets liabilities commitment corp legally separated assets liabilities firm assets commitment corp available shareholders claims creditors paid addition affiliate commitment corp except limited cases expressly agreed writing responsible obligation commitment corp sumitomo mitsui financial group inc smfg provides firm credit loss protection generally limited 95 first loss firm realizes approved loan commitments maximum approximately 950 million respect william street commitments addition subject satisfaction certain conditions upon firm’s request smfg provide protection 70 additional losses commitments maximum 113 billion 300 million 375 million protection provided december 2011 december 2010 respectively firm also uses financial instruments mitigate credit risks related certain william street commitments covered smfg warehouse financing firm provides financing clients warehouse financial assets arrangements secured warehoused assets primarily consisting residential commercial mortgages contingent forward starting resale securities borrowing agreementsforward starting repurchase secured lending agreements firm enters resale securities borrowing agreements repurchase secured lending agreements settle future date firm also enters commitments provide contingent financing clients resale agreements firm’s funding commitments depends satisfaction contractual conditions resale agreement commitments expire unused investment commitments firm’s investment commitments consist commitments invest private equity real estate assets directly funds firm raises manages commitments include 162 billion 197 billion december 2011 december 2010 respectively related real estate private investments 750 billion 912 billion december 2011 december 2010 respectively related corporate private investments amounts 838 billion 1010 billion december 2011 december 2010 respectively relate commitments invest funds managed firm funded market value date investment leases firm contractual obligations longterm noncancelable lease agreements principally office space expiring various dates 2069 certain agreements subject periodic escalation provisions increases real estate taxes charges table presents future minimum rental payments net minimum sublease rentals rent charged operating expense years ended december 2011 december 2010 december 2009 475 million 508 million 434 million respectively operating leases include office space held excess current requirements rent expense relating space held growth included “occupancy” firm records liability based fair value remaining lease rentals reduced potential existing sublease rentals leases firm ceased using space management concluded firm derive future economic benefits costs terminate lease end term recognized measured fair value termination goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements contingencies legal proceedings see note 27 information legal proceedings including certain mortgagerelated matters certain mortgagerelated contingencies multiple areas focus regulators governmental agencies others within mortgage market may impact originators issuers servicers investors remains significant uncertainty surrounding nature extent potential exposure participants market  representations warranties firm significant originator residential mortgage loans firm purchase loans originated others generally received loanlevel representations type described originators period 2005 2008 firm sold approximately 10 billion loans governmentsponsored enterprises approximately 11 billion loans third parties addition firm transferred loans trusts mortgage securitization vehicles december 2011 december 2010 outstanding balance loans transferred trusts mortgage securitization vehicles period 2005 2008 approximately 42 billion 49 billion respectively amount reflects paydowns cumulative losses approximately 83 billion 17 billion cumulative losses december 2011 approximately 76 billion 14 billion cumulative losses december 2010 small number goldman sachsissued securitizations outstanding principal balance 635 million total paydowns cumulative losses 142 billion 465 million cumulative losses december 2011 outstanding principal balance 739 million total paydowns cumulative losses 132 billion 410 million cumulative losses december 2010 structured credit protection obtained monoline insurers connection sales loans securitizations firm provided loan level representations type described andor assigned loan level representations party firm purchased loans loan level representations made connection sale securitization mortgage loans varied among transactions generally detailed representations applicable loan portfolio addressed matters relating property borrower note representations generally included limited following certain attributes borrower’s financial status ii loantovalue ratios owner occupancy status certain characteristics property iii lien position iv fact loan originated compliance law v completeness loan documentation date repurchase claims actual repurchases residential mortgage loans based upon alleged breaches representations significant mainly involved governmentsponsored enterprises year ended december 2011 firm repurchased loans unpaid principal balance less 10 million year ended december 2010 firm repurchased loans unpaid principal balance less 50 million loss related repurchase loans material years ended december 2011 december 2010 ultimately firm’s exposure claims repurchase residential mortgage loans based alleged breaches representations depend number factors including following extent claims actually made ii extent underlying breaches representations give rise valid claims repurchase iii case loans originated others extent firm could held liable firm’s ability pursue collect claims parties made representations firm iv macroeconomic factors including developments residential real estate market v legal regulatory developments based upon large number defaults residential mortgages including sold securitized firm potential increasing claims repurchases however firm position make meaningful estimate exposure time goldman sachs group inc subsidiaries notes consolidated financial statements  foreclosure mortgage loan servicing practices procedures firm received number requests information regulators agencies including state attorneys general banking regulators part industrywide focus practices lenders servicers connection foreclosure proceedings aspects mortgage loan servicing practices procedures requests sought information foreclosure servicing protocols activities litton residential mortgage servicing subsidiary sold firm thirdparty purchaser third quarter 2011 firm cooperating requests inquiries may result imposition fines regulatory action third quarter 2010 prior firm’s sale litton temporarily suspended evictions foreclosure real estate owned sales number states including judicial foreclosure procedures litton resumed activities beginning fourth quarter 2010 connection sale litton firm agreed provide certain representations warranties specific indemnities related litton’s servicing foreclosure practices prior close sale liability associated certain indemnities capped indemnities subject cap management unable develop estimate maximum potential amount future payments amounts yet specified claimed however management believe based currently available information payments indemnities material adverse effect firm’s financial condition september 1 2011 group inc gs bank usa entered consent order board governors federal reserve system federal reserve board relating servicing residential mortgage loans terms order substantially similar many respects identical orders entered federal reserve board large us financial institutions order sets forth various allegations improper conduct servicing litton requires group inc gs bank usa cease desist conduct requires group inc gs bank usa boards directors take various affirmative steps order requires group inc gs bank usa engage thirdparty consultant conduct review certain foreclosure actions proceedings occurred pending january 1 2009 december 31 2010 ii adoption policies procedures related management third parties used outsource residential mortgage servicing loss mitigation foreclosure iii “validation report” independent thirdparty consultant regarding compliance order first year iv submission quarterly progress reports compliance order boards directors committees thereof group inc gs bank usa addition september 1 2011 gs bank usa entered agreement mortgage servicing practices new york state banking department litton acquirer litton relating servicing residential mortgage loans related agreement new york state banking department group inc agreed forgive 25 unpaid principal balance certain delinquent first lien residential mortgage loans owned group inc subsidiary totaling approximately 13 million principal forgiveness guaranteed minimum death income benefits connection insurance business firm contingently liable provide guaranteed minimum death income benefits certain contract holders established reserve related 552 billion 611 billion contract holder account balances december 2011 december 2010 respectively benefits weighted average attained age contract holders 69 years december 2011 december 2010 net amount risk representing guaranteed minimum death income benefits excess contract holder account balances 151 billion 160 billion december 2011 december 2010 respectively see note 17 information insurance liabilities goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements guarantees firm enters various derivatives meet definition guarantee us gaap including written equity commodity put options written currency contracts interest rate caps floors swaptions disclosures derivatives required may cash settled firm basis conclude probable counterparties held underlying instruments inception contract firm concluded conditions met certain large internationally active commercial investment bank counterparties certain counterparties accordingly firm included contracts table firm capacity agency lender indemnifies securities lending customers losses incurred event borrowers return securities collateral held insufficient cover market value securities borrowed ordinary course business firm provides financial guarantees obligations third parties eg standby letters credit guarantees enable clients complete transactions fundrelated guarantees represent obligations make payments beneficiaries guaranteed party fails fulfill obligation contractual arrangement beneficiary table presents certain information derivatives meet definition guarantee certain guarantees maximum payout table based notional amount contract therefore represent anticipated losses see note 7 information credit derivatives meet definition guarantee included derivatives accounted fair value carrying value considered best indication paymentperformance risk individual contracts however carrying values exclude effect legal right setoff may exist enforceable netting agreement effect netting cash collateral posted credit support agreements 1 derivatives risk managed together derivatives meet definition guarantee therefore amounts reflect firm’s overall risk related derivative activities december 2010 carrying value net liability related derivative guarantees 826 billion 2 collateral held lenders connection securities lending indemnifications 2858 billion december 2011 contractual nature arrangements requires firm obtain collateral market value exceeds value securities lent borrower minimal performance risk associated guarantees 3 financial guarantees excludes certain commitments issue standby letters credit included “commitments extend credit” see table “commitments” summary firm’s commitments december 2010 carrying value net liability related financial guarantees 28 million goldman sachs group inc subsidiaries notes consolidated financial statements guarantees securities issued trusts firm established trusts including goldman sachs capital ii iii entities limited purpose issuing securities third parties lending proceeds firm entering contractual arrangements firm third parties related purpose firm consolidate entities see note 16 information transactions involving goldman sachs capital ii iii firm effectively provides full unconditional guarantee securities issued entities timely payment firm amounts due entities borrowing preferred stock related contractual arrangements sufficient cover payments due securities issued entities management believes unlikely circumstances occur nonperformance part paying agents service providers would make necessary firm make payments related entities required terms borrowing preferred stock related contractual arrangements connection certain expenses incurred entities indemnities guarantees service providers ordinary course business firm indemnifies guarantees certain service providers clearing custody agents trustees administrators specified potential losses connection acting agent providing services firm affiliates firm also indemnifies clients potential losses incurred event specified thirdparty service providers including subcustodians thirdparty brokers improperly execute transactions addition firm member payment clearing settlement networks well securities exchanges around world may require firm meet obligations networks exchanges event member defaults connection prime brokerage clearing businesses firm agrees clear settle behalf clients transactions entered brokerage firms firm’s obligations respect transactions secured assets client’s account well proceeds received transactions cleared settled firm behalf client connection joint venture investments firm may issue loan guarantees may liable event fraud misappropriation environmental liabilities certain matters involving borrower firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements material liabilities related guarantees indemnifications recognized consolidated statements financial condition december 2011 december 2010 representations warranties indemnifications firm provides representations warranties counterparties connection variety commercial transactions occasionally indemnifies potential losses caused breach representations warranties firm may also provide indemnifications protecting changes adverse application certain us tax laws connection ordinarycourse transactions securities issuances borrowings derivatives addition firm may provide indemnifications counterparties protect event additional taxes owed payments withheld due either change adverse application certain nonus tax laws indemnifications generally standard contractual terms entered ordinary course business generally stated notional amounts included indemnifications contingencies triggering obligation indemnify expected occur firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements material liabilities related arrangements recognized consolidated statements financial condition december 2011 december 2010 goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements guarantees subsidiaries group inc fully unconditionally guarantees securities issued gs finance corp whollyowned finance subsidiary firm group inc guaranteed payment obligations goldman sachs co gsco gs bank usa gs bank europe goldman sachs execution clearing lp gsec subject certain exceptions november 2008 firm contributed subsidiaries gs bank usa group inc agreed guarantee reimbursement certain losses including creditrelated losses relating assets held contributed entities connection guarantee group inc also agreed pledge gs bank usa certain collateral including interests subsidiaries illiquid assets addition group inc guarantees many obligations consolidated subsidiaries transactionbytransaction basis negotiated counterparties group inc unable develop estimate maximum payout subsidiary guarantees however guaranteed obligations also obligations consolidated subsidiaries included table group inc’s liabilities guarantor separately disclosed group inc established program issuance securities goldman sachs secured finance limited insured gs secured guaranty company limited sgcl whollyowned subsidiary group inc financial guaranty insurer organized laws bermuda funds raised sgcl used enter repurchase transactions gsco goldman sachs international gsi group inc fully unconditionally guaranteed securities issued goldman sachs secured finance limited well obligations gsco gsi respective repurchase transactions group inc guaranteed obligations sgcl assets liabilities sgcl legally separated assets liabilities firm assets sgcl available holder capital stock claims creditors paid shareholders equity note 19 shareholders’ equity common equity dividends declared per common share 140 2011 140 2010 105 2009 january 17 2012 group inc declared dividend 035 per common share paid march 29 2012 common shareholders record march 1 2012 july 1 2011 firm issued 103 million common stock 774823 shares connection acquisition gs australia firm’s share repurchase program intended help maintain appropriate level common equity substantially offset increases share count time resulting employee sharebased compensation repurchase program effected primarily regular openmarket purchases amounts timing determined primarily firm’s current projected capital positions ie comparisons firm’s desired level composition capital actual level composition capital issuance shares resulting employee sharebased compensation may also influenced general market conditions prevailing price trading volumes firm’s common stock repurchase firm’s common stock requires approval federal reserve board 2011 2010 2009 firm repurchased 470 million 253 million 19578 shares common stock average cost per share 12833 16448 8083 total cost 604 billion 416 billion 2 million respectively share repurchase program addition pursuant terms certain sharebased compensation plans employees may remit shares firm may cancel restricted stock units rsus satisfy minimum statutory employee tax withholding requirements plans 2011 2010 2009 employees remitted 75517 shares 164172 shares 4506 shares total value 12 million 25 million 342153 firm cancelled 120 million 62 million 112 million rsus total value 191 billion 972 million 863 million respectively goldman sachs group inc subsidiaries notes consolidated financial statements preferred equity table presents perpetual preferred stock issued outstanding share noncumulative series preferred stock series b preferred stock series c preferred stock series preferred stock issued outstanding par value 001 liquidation preference 25000 represented 1000 depositary shares redeemable firm’s option subject approval federal reserve board redemption price equal 25000 plus declared unpaid dividends series preferred stock pari passu preference firm’s common stock liquidation dividends series preferred stock declared payable quarterly arrears firm’s ability declare pay dividends purchase redeem otherwise acquire common stock subject certain restrictions event firm fails pay set aside full dividends preferred stock latest completed dividend period 2007 board directors group inc board authorized 175001 shares series e preferred stock 50001 shares series f preferred stock connection apex trusts see note 16 information apex trusts stock purchase contracts apex trusts group inc issue 225 billion preferred stock aggregate relevant stock purchase dates june 1 2013 september 1 2013 series e series f preferred stock respectively comprised one share series e series f preferred stock goldman sachs capital ii iii respectively 100000 principal amount subordinated debt held trusts issued share series e series f preferred stock par value 001 liquidation preference 100000 per share dividends series e preferred stock declared payable semiannually fixed annual rate 579 stock issued prior june 1 2012 quarterly thereafter rate per annum equal greater threemonth libor plus 077 ii 400 dividends series f preferred stock declared payable quarterly rate per annum equal threemonth libor plus 077 stock issued prior september 1 2012 quarterly thereafter rate per annum equal greater threemonth libor plus 077 ii 400 preferred stock may redeemed option firm stock purchase dates day thereafter subject approval federal reserve board certain covenant restrictions governing firm’s ability redeem purchase preferred stock without issuing common stock instruments equitylike characteristics goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements june 2009 group inc repurchased us treasury 100 million shares company’s fixed rate cumulative perpetual preferred stock series h series h preferred stock issued us treasury pursuant us treasury’s tarp capital purchase program repurchase resulted preferred dividend 426 million calculated difference carrying value redemption value preferred stock included consolidated statement earnings 2009 repurchase also resulted payment 44 million accrued dividends connection issuance series h preferred stock october 2008 firm issued 10year warrant us treasury purchase 122 million shares common stock exercise price 12290 per share firm repurchased warrant full july 2009 11 billion amount recorded reduction additional paidin capital 2011 firm redeemed 50000 shares firm’s 10 cumulative perpetual preferred stock series g series g preferred stock held berkshire hathaway inc certain subsidiaries collectively berkshire hathaway stated redemption price 550 billion 110000 per share plus accrued unpaid dividends connection redemption firm recognized preferred dividend 164 billion calculated difference carrying value redemption value preferred stock included consolidated statement earnings 2011 berkshire hathaway continues hold fiveyear warrant issued october 2008 purchase 435 million shares common stock exercise price 11500 per share january 12 2012 group inc declared dividends 23958 38750 25556 per share series preferred stock series b preferred stock series c preferred stock series preferred stock respectively paid february 10 2012 preferred shareholders record january 26 2012 table presents preferred dividends declared preferred stock 1 amount year ended december 2011 excludes preferred dividends related redemption firm’s series g preferred stock 2 amount year ended december 2009 excludes preferred dividend related repurchase tarp series h preferred stock well accrued dividends paid repurchase series h preferred stock accumulated comprehensive incomeloss table presents accumulated comprehensive incomeloss type 1 substantially consists net unrealized gains securities held firm’s insurance subsidiaries december 2011 december 2010 goldman sachs group inc subsidiaries notes consolidated financial statements regulation capital adequacy note 20 regulation capital adequacy federal reserve board primary regulator group inc bank holding company financial holding company us bank holding company act 1956 bank holding company firm subject consolidated regulatory capital requirements computed accordance federal reserve board’s capital adequacy regulations currently applicable bank holding companies based ‘basel 1’ capital accord basel committee banking supervision basel committee capital requirements expressed capital ratios compare measures capital riskweighted assets rwas firm’s bank depository institution subsidiaries including gs bank usa subject similar capital requirements federal reserve board’s capital adequacy requirements regulatory framework prompt corrective action applicable gs bank usa firm bank depository institution subsidiaries must meet specific capital requirements involve quantitative measures assets liabilities certain offbalancesheet items calculated regulatory reporting practices firm bank depository institution subsidiaries’ capital amounts well gs bank usa’s prompt corrective action classification also subject qualitative judgments regulators components risk weightings factors many firm’s subsidiaries including gsco firm’s brokerdealer subsidiaries subject separate regulation capital requirements described group inc federal reserve board regulations require bank holding companies maintain minimum tier 1 capital ratio 4 minimum total capital ratio 8 required minimum tier 1 capital ratio total capital ratio order considered “wellcapitalized” bank holding company federal reserve board guidelines 6 10 respectively bank holding companies may expected maintain ratios well minimum levels depending particular condition risk profile growth plans minimum tier 1 leverage ratio 3 bank holding companies received highest supervisory rating federal reserve board guidelines implemented federal reserve board’s riskbased capital measure market risk bank holding companies must minimum tier 1 leverage ratio 4 table presents information regarding group inc’s regulatory capital ratios rwas federal reserve board’s riskbased capital guidelines calculated based amount market risk credit risk rwas market risk determined reference firm’s valueatrisk var models supplemented measures capture risks reflected var models credit risk onbalance sheet assets based balance sheet value offbalance sheet exposures including otc derivatives commitments credit equivalent amount calculated based notional amount trade assets amounts assigned risk weight depending among things whether counterparty sovereign bank qualifying securities firm entity collateral held depending nature collateral tier 1 leverage ratio defined tier 1 capital basel 1 divided average adjusted total assets includes adjustments disallowed goodwill intangible assets carrying value equity investments nonfinancial companies subject deductions tier 1 capital goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements regulatory reform firm currently working implement requirements set federal reserve board’s riskbased capital standards advanced capital adequacy framework basel 2 applicable group inc bank holding company basel 2 based advanced approaches revised framework international convergence capital measurement capital standards issued basel committee us banking regulators incorporated basel 2 framework existing riskbased capital requirements requiring internationally active banking organizations group inc adopt basel 2 approved regulators required doddfrank act us banking regulators adopted rule requires large banking organizations upon adoption basel 2 continue calculate riskbased capital ratios basel 1 basel 2 tier 1 total capital ratios lower basel 1 basel 2 ratios calculated used determine whether bank meets minimum riskbased capital requirements december 2011 us federal bank regulatory agencies issued revised proposals modify market risk regulatory capital requirements banking organizations united states significant trading activities modifications designed address adjustments market risk framework announced basel committee june 2010 basel 25 well prohibition use credit ratings required doddfrank act implemented likely changes result increased capital requirements market risk additionally guidelines issued basel committee december 2010 basel 3 revise definition tier 1 capital introduce tier 1 common equity regulatory metric set new minimum capital ratios including new “capital conservation buffer” must composed exclusively tier 1 common equity addition minimum capital ratios introduce tier 1 leverage ratio within international guidelines first time make substantial revisions computation rwas credit exposures implementation new requirements expected take place next several years federal banking agencies yet proposed rules implement basel 3 guidelines united states basel committee published final provisions assessing global systemic importance banking institutions range additional tier 1 common equity maintained banking institutions deemed globally systemically important additional capital institutions would initially range 1 25 tier 1 common equity could much 35 bank increases systemic footprint eg increasing total assets firm one 29 institutions identified financial stability board established direction leaders group 20 globally systemically important basel committee’s methodology therefore depending upon manner timing us banking regulators’ implementation basel committee’s methodology firm expects minimum tier 1 common ratio requirement applicable firm include additional capital assessment final determination whether institution classified globally systemically important calculation required additional capital amount expected disclosed basel committee later november 2014 based data end 2013 federal reserve board proposed regulations designed strengthen regulation supervision large bank holding companies systemically important nonbank financial firms proposals address riskbased capital leverage requirements liquidity requirements stress tests single counterparty limits early remediation requirements designed address financial weakness early stage although many proposals mirror initiatives bank holding companies already subject full impact firm known certainty rules finalized doddfrank act subject firm firmwide level leverage riskbased capital requirements apply depository institutions directs banking regulators impose additional capital requirements disclosed federal reserve board expected adopt new leverage riskbased capital regulations 2012 consequence changes tier 1 capital treatment firm’s junior subordinated debt issued trusts phased threeyear period beginning january 1 2013 interaction among doddfrank act basel committee’s proposed changes proposed announced changes governmental entities regulators adds uncertainty firm’s future capital requirements subsidiaries goldman sachs group inc subsidiaries notes consolidated financial statements number governmental entities regulators including european union eu uk’s financial services authority fsa also proposed announced changes result increased capital requirements financial institutions consequence developments firm expects minimum capital ratios required maintained federal reserve board regulations increased changes prescribed calculation methodology expected result higher rwas lower capital ratios currently computed capital liquidity requirements several firm’s subsidiaries also impacted future various developments arising basel committee doddfrank act governmental entities regulators bank subsidiaries gs bank usa fdicinsured new york statechartered bank member federal reserve system supervised regulated federal reserve board fdic new york state department financial services formerly new york state banking department subject minimum capital requirements described calculated manner similar applicable bank holding companies gs bank usa computes capital ratios accordance regulatory capital guidelines currently applicable state member banks based basel 1 implemented federal reserve board purposes assessing adequacy capital regulatory framework prompt corrective action applicable gs bank usa order considered “wellcapitalized” depository institution gs bank usa must maintain tier 1 capital ratio least 6 total capital ratio least 10 tier 1 leverage ratio least 5 gs bank usa agreed federal reserve board minimum capital ratios excess “wellcapitalized” levels accordingly period time gs bank usa expected maintain tier 1 capital ratio least 8 total capital ratio least 11 tier 1 leverage ratio least 6 noted table gs bank usa compliance minimum capital requirements december 2011 december 2010 table presents information regarding gs bank usa’s regulatory capital ratios basel 1 implemented federal reserve board 1 decrease december 2010 december 2011 primarily related gs bank usa’s repayment 500 billion subordinated debt group inc 100 billion dividend group inc 2011 gs bank usa currently working implement basel 2 framework implemented federal reserve board similar firm’s requirement bank holding company gs bank usa required adopt basel 2 approved regulators addition capital requirements gs bank usa expected impacted changes basel committee’s capital guidelines outlined furthermore firm expects gs bank usa impacted aspects doddfrank act including stress test resolution plan requirements deposits gs bank usa insured fdic extent provided law federal reserve board requires depository institutions maintain cash reserves federal reserve bank amount deposited firm’s depository institution held federal reserve bank approximately 4006 billion 2812 billion december 2011 december 2010 respectively exceeded required reserve amounts 3951 billion 2745 billion december 2011 december 2010 respectively goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements transactions gs bank usa subsidiaries group inc subsidiaries affiliates generally subsidiaries gs bank usa regulated federal reserve board regulations generally limit types amounts transactions including loans borrowings gs bank usa may take place generally require transactions arm’slength basis goldman sachs international bank whollyowned credit institution regulated fsa gs bank europe whollyowned credit institution regulated central bank ireland subject minimum capital requirements december 2011 december 2010 goldman sachs international bank gs bank europe compliance regulatory capital requirements brokerdealer subsidiaries firm’s us regulated brokerdealer subsidiaries include gsco gsec gsco gsec registered us brokerdealers futures commission merchants subject regulatory capital requirements including imposed sec us commodity futures trading commission cftc chicago mercantile exchange financial industry regulatory authority inc finra national futures association rule 15c31 sec rule 117 cftc specify uniform minimum net capital requirements defined registrants also effectively require significant part registrants’ assets kept relatively liquid form gsco gsec elected compute minimum capital requirements accordance “alternative net capital requirement” permitted rule 15c31 december 2011 gsco regulatory net capital defined rule 15c31 1124 billion exceeded amount required 934 billion december 2011 gsec regulatory net capital defined rule 15c31 210 billion exceeded amount required 200 billion addition alternative minimum net capital requirements gsco also required hold tentative net capital excess 1 billion net capital excess 500 million accordance market credit risk standards appendix e rule 15c31 gsco also required notify sec event tentative net capital less 5 billion december 2011 december 2010 gsco tentative net capital net capital excess minimum notification requirements insurance subsidiaries firm us insurance subsidiaries subject state insurance regulation oversight states domiciled states licensed addition certain firm’s insurance subsidiaries outside us regulated fsa certain regulated bermuda monetary authority firm’s insurance subsidiaries compliance regulatory capital requirements december 2011 december 2010 nonus regulated subsidiaries firm’s principal nonus regulated subsidiaries include gsi goldman sachs japan co ltd gsjcl gsi firm’s regulated uk brokerdealer subject capital requirements imposed fsa gsjcl firm’s regulated japanese brokerdealer subject capital requirements imposed japan’s financial services agency december 2011 december 2010 gsi gsjcl compliance local capital adequacy requirements certain nonus subsidiaries firm also subject capital adequacy requirements promulgated authorities countries operate december 2011 december 2010 subsidiaries compliance local capital adequacy requirements restrictions payments regulatory requirements referred restrict group inc’s ability withdraw capital regulated subsidiaries december 2011 december 2010 approximately 2553 billion 2470 billion respectively net assets regulated subsidiaries restricted payment dividends group inc addition limitations payment dividends imposed federal state laws federal reserve board fdic new york state department financial services authority prohibit limit payment dividends banking organizations supervise including gs bank usa relevant regulator’s opinion payment dividend would constitute unsafe unsound practice light financial condition banking organization goldman sachs group inc subsidiaries notes consolidated financial statements earnings per common share note 21 earnings per common share basic earnings per common share eps calculated dividing net earnings applicable common shareholders weighted average number common shares outstanding common shares outstanding includes common stock rsus future service required condition delivery underlying common stock diluted eps includes determinants basic eps addition reflects dilutive effect common stock deliverable stock warrants options rsus future service required condition delivery underlying common stock table presents computations basic diluted eps table unvested sharebased payment awards nonforfeitable rights dividends dividend equivalents treated separate class securities calculating eps impact applying methodology reduction basic eps 007 008 006 years ended december 2011 december 2010 december 2009 respectively diluted eps computations table include following goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements transactions affiliated funds note 22 transactions affiliated funds firm formed numerous nonconsolidated investment funds thirdparty investors firm generally acts investment manager funds entitled receive management fees certain cases advisory fees incentive fees funds additionally firm invests alongside thirdparty investors certain funds tables present fees earned affiliated funds fees receivable affiliated funds aggregate carrying value firm’s interests affiliated funds firm provided voluntary financial support certain funds experienced significant reductions capital liquidity limited access debt markets financial crisis december 2011 december 2010 firm exposure funds form loans guarantees 289 million 253 million respectively primarily related certain real estate funds addition december 2011 2010 firm outstanding commitments extend credit funds 0 160 million respectively firm may provide additional voluntary financial support funds experience significant financial distress however amounts expected material firm ordinary course business firm may also engage activities funds including among others securities lending trade execution market making custody acquisition bridge financing see note 18 firm’s investment commitments related funds goldman sachs group inc subsidiaries notes consolidated financial statements interest income interest expense note 23 interest income interest expense interest income recorded accrual basis based contractual interest rates table presents sources interest income interest expense 1 primarily includes interest income customer debit balances interestearning assets 2 includes interest unsecured borrowings secured financings 3 primarily includes interest expense customer credit balances interestbearing liabilities goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements income taxes note 24 income taxes provision income taxes income taxes provided using asset liability method deferred tax assets liabilities recognized temporary differences financial reporting tax bases assets liabilities firm reports interest expense related income tax matters “provision taxes” income tax penalties “other expenses” tables present components provisionbenefit taxes reconciliation us federal statutory income tax rate firm’s effective income tax rate 1 primarily includes effect sec settlement 550 million substantially nondeductible goldman sachs group inc subsidiaries notes consolidated financial statements deferred income taxes deferred income taxes reflect net tax effects temporary differences financial reporting tax bases assets liabilities temporary differences result taxable deductible amounts future years measured using tax rates laws effect differences expected reverse valuation allowances established reduce deferred tax assets amount likely realized tax assets liabilities presented component “other assets” “other liabilities accrued expenses” respectively table presents significant components deferred tax assets liabilities 1 relates primarily ability utilize losses various tax jurisdictions 2 netting within tax jurisdictions goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements firm recorded deferred tax assets 213 million 250 million december 2011 december 2010 respectively connection us federal state local foreign net operating loss carryforwards firm also recorded valuation allowance 59 million 42 million december 2011 december 2010 respectively related net operating loss carryforwards december 2011 us federal state local foreign net operating loss carryforwards 96 million 165 billion 378 million respectively utilized us federal net operating loss carryforward begin expire 2017 state local net operating loss carryforwards begin expire 2012 foreign net operating loss carryforwards carried forward indefinitely firm foreign tax credit carryforwards 12 million 11 million december 2011 december 2010 respectively firm recorded related net deferred income tax asset 6 million 5 million december 2011 december 2010 respectively carryforwards begin expire 2013 firm capital loss carryforwards 6 million 12 million december 2011 december 2010 respectively firm recorded related net deferred income tax asset 2 million december 2011 december 2010 carryforwards expire 2013 valuation allowance increased 15 million decreased 24 million 2011 2010 respectively increase due losses considered likely expire unused decrease primarily due utilization losses previously considered likely expire unused firm permanently reinvests eligible earnings certain foreign subsidiaries accordingly accrue us income taxes would arise earnings repatriated december 2011 december 2010 policy resulted unrecognized net deferred tax liability 332 billion 267 billion respectively attributable reinvested earnings 2063 billion 1770 billion respectively unrecognized tax benefits firm recognizes tax positions financial statements likely position sustained examination relevant taxing authority based technical merits position meets standard measured largest amount benefit likely realized settlement liability established differences positions taken tax return amounts recognized financial statements december 2011 december 2010 accrued liability interest expense related income tax matters income tax penalties 233 million 213 million respectively firm recognized 21 million 28 million 62 million interest income tax penalties years ended december 2011 december 2010 december 2009 respectively reasonably possible unrecognized tax benefits could change significantly twelve months subsequent december 2011 due potential audit settlements time possible estimate change impact firm’s effective tax rate next twelve months table presents changes liability unrecognized tax benefits recorded “other liabilities accrued expenses” see note 17 information 1 included “other assets” see note 12 2 recognized net tax benefit would reduce firm’s effective income tax rate goldman sachs group inc subsidiaries notes consolidated financial statements regulatory tax examinations firm subject examination us internal revenue service irs taxing authorities jurisdictions firm significant business operations united kingdom japan hong kong korea various states new york tax years examination vary jurisdiction firm believes 2012 certain audits reasonable possibility completed firm expect completion audits material impact firm’s financial condition may material operating results particular period depending part operating results period table presents earliest tax years remain subject examination major jurisdiction 1 irs examination fiscal 2008 calendar 2010 began 2011 irs examination fiscal 2005 2006 2007 began 2008 irs examination fiscal 2003 2004 completed liabilities years yet final 2 new york state city examination fiscal 2004 2005 2006 began 2008 3 japan national tax agency examination fiscal 2005 2009 began first quarter 2010 examinations completed liabilities 2008 2009 yet final years subsequent remain open examination taxing authorities firm believes liability unrecognized tax benefits established adequate relation potential additional assessments business segments note 25 business segments fourth quarter 2010 firm reorganized three previous reportable business segments four new reportable business segments investment banking institutional client services investing lending investment management prior periods presented comparable basis presentation reporting segments certain firm’s business lines aggregated similar economic characteristics similar following areas nature services provide ii methods distribution iii types clients serve iv regulatory environments operate cost drivers firm taken whole compensation headcount levels business activity broadly similar firm’s business segments compensation benefits expenses firm’s segments reflect among factors overall performance firm well performance individual businesses consequently pretax margins one segment firm’s business may significantly affected performance firm’s business segments firm allocates revenues expenses among four reportable business segments due integrated nature segments estimates judgments made allocating certain revenue expense items transactions segments based specific criteria approximate thirdparty rates total operating expenses include corporate items allocated individual business segments allocation process based manner management views business firm goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements segment information presented table prepared according following methodologies  revenues expenses directly associated segment included determining pretax earnings  net revenues firm’s segments include allocations interest income interest expense specific securities commodities positions relation cash generated funding requirements underlying positions net interest included segment net revenues consistent way management assesses segment performance  overhead expenses directly allocable specific segments allocated ratably based direct segment expenses management believes following information provides reasonable representation segment’s contribution consolidated pretax earnings total assets 1 includes 115 million 111 million 36 million years ended december 2011 december 2010 december 2009 respectively realized gains availableforsale securities held firm’s insurance subsidiaries goldman sachs group inc subsidiaries notes consolidated financial statements operating expenses table include following expenses allocated firm’s segments  net provisions number litigation regulatory proceedings 175 million 682 million 104 million years ended december 2011 december 2010 december 2009 respectively  charitable contributions 103 million 345 million 810 million years ended december 2011 december 2010 december 2009 respectively  real estaterelated exit costs 14 million 28 million 61 million years ended december 2011 december 2010 december 2009 respectively tables present amounts net interest income included net revenues amounts depreciation amortization expense included pretax earnings 1 includes real estaterelated exit costs 1 million 5 million years ended december 2010 december 2009 respectively allocated firm’s segments geographic information due highly integrated nature international financial markets firm manages businesses based profitability enterprise whole methodology allocating profitability geographic regions dependent estimates management judgment significant portion firm’s activities require crossborder coordination order facilitate needs firm’s clients geographic results generally allocated follows  investment banking location client investment banking team  institutional client services fixed income currency commodities client execution equities excluding securities services location marketmaking desk securities services location primary market underlying security  investing lending investing location investment lending location client  investment management location sales team goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents total net revenues pretax earnings net earnings firm geographic region allocated based methodology referred well percentage total net revenues pretax earnings net earnings excluding corporate geographic region 1 substantially relates us 2 emea europe middle east africa pretax earnings net earnings include impact uk bank payroll tax year ended december 2010 3 asia also includes australia new zealand 4 decline net revenues asia compared 2010 primarily reflects lower results investing lending principally due losses public equities reflecting significant decline equity markets asia 2011 5 consists net provisions number litigation regulatory proceedings 175 million 682 million 104 million years ended december 2011 december 2010 december 2009 respectively charitable contributions 103 million 345 million 810 million years ended december 2011 december 2010 december 2009 respectively real estaterelated exit costs 14 million 28 million 61 million years ended december 2011 december 2010 december 2009 respectively goldman sachs group inc subsidiaries notes consolidated financial statements credit concentrations note 26 credit concentrations credit concentrations may arise market making client facilitation investing underwriting lending collateralized transactions may impacted changes economic industry political factors firm seeks mitigate credit risk actively monitoring exposures obtaining collateral counterparties deemed appropriate firm’s activities expose many different industries counterparties firm routinely executes high volume transactions asset managers investment funds commercial banks brokers dealers clearing houses exchanges results significant credit concentrations ordinary course business firm may also subject concentration credit risk particular counterparty borrower issuer including sovereign issuers particular clearing house exchange table presents credit concentrations assets held firm december 2011 december 2010 firm credit exposure counterparty exceeded 2 total assets 1 included “financial instruments owned fair value” “cash securities segregated regulatory purposes” 2 principally consisting securities issued governments united kingdom japan germany december 2011 united kingdom japan france december 2010 reduce credit exposures firm may enter agreements counterparties permit firm offset receivables payables counterparties andor enable firm obtain collateral upfront contingent basis collateral obtained firm related derivative assets principally cash held firm thirdparty custodian collateral obtained firm related resale agreements securities borrowed transactions primarily us government federal agency obligations sovereign obligations see note 9 information collateralized agreements financings table presents us government federal agency obligations sovereign obligations collateralize resale agreements securities borrowed transactions including “cash securities segregated regulatory purposes” firm’s primary credit exposure transactions counterparty transaction firm would exposed collateral issuer event counterparty default 1 principally consisting securities issued governments germany france goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements legal proceedings note 27 legal proceedings firm involved number judicial regulatory arbitration proceedings including described concerning matters arising connection conduct firm’s businesses many proceedings early stages many cases seek indeterminate amount damages asc 450 event “reasonably possible” “the chance future event events occurring remote less likely” event “remote” “the chance future event events occurring slight” thus references upper end range reasonably possible loss cases firm able estimate range reasonably possible loss mean upper end range loss cases firm believes risk loss slight amounts reserved matters significant compared upper end range reasonably possible loss respect proceedings described management able estimate range reasonably possible loss plaintiffs claimed amount money damages ii firm sued purchasers underwriting indemnified party firm believes pay judgment iii purchasers demanding firm repurchase securities management estimated upper end range reasonably possible loss equal case amount money damages claimed b case ii amount securities firm sold underwritings c case iii price purchasers paid securities less estimated value december 2011 relevant securities cases ii iii taking account factors believed relevant particular proceeding date hereof firm estimated aggregate amount reasonably possible losses proceedings described management able estimate range reasonably possible loss approximately 24 billion management generally unable estimate range reasonably possible loss proceedings included estimate including plaintiffs claimed amount money damages unless management otherwise determine appropriate amount ii proceedings early stages iii uncertainty likelihood class certified ultimate size class iv uncertainty outcome pending appeals motions v significant factual issues resolved andor vi novel legal issues presented however cases management believe based currently available information outcomes proceedings material adverse effect firm’s financial condition though outcomes could material firm’s operating results particular period depending part upon operating results period ipo process matters group inc gsco among numerous financial services companies named defendants variety lawsuits alleging improprieties process companies participated underwriting public offerings recent years gsco together underwriters certain offerings well issuers certain officers directors named defendant number related lawsuits filed us district court southern district new york alleging among things prospectuses offerings violated federal securities laws failing disclose existence alleged arrangements tying allocations certain offerings higher customer brokerage commission rates well purchase orders aftermarket alleged arrangements resulted market manipulation october 5 2009 district court approved settlement agreement entered parties firm paid settlement fund full amount gsco would contribute settlement certain objectors appealed certain aspects settlement’s approval appeals withdrawn finally dismissed thereby concluding matter goldman sachs group inc subsidiaries notes consolidated financial statements gsco among numerous underwriting firms named defendants number complaints filed commencing october 3 2007 us district court western district washington alleging violations section 16 exchange act connection offerings securities 15 issuers 1999 2000 complaints generally assert underwriters together issuer’s directors officers principal shareholders entered purported agreements tie allocations offerings increased brokerage commissions aftermarket purchase orders complaints allege based upon purported agreements underwriters violated reporting provisions subject shortswing profit recovery section 16 exchange act district court granted defendants’ motions dismiss grounds plaintiff’s demands inadequate respect certain actions remaining actions timebarred december 2 2010 appellate court affirmed part reversed part upholding dismissal seven actions gsco defendant dismissed based deficient demands remanding remaining eight actions gsco defendant dismissed timebarred consideration bases dismissal june 27 2011 us supreme court granted defendants’ petition review whether actions remanded timebarred denied plaintiff’s petition gsco named defendant action commenced may 15 2002 new york supreme court new york county official committee unsecured creditors behalf etoys inc alleging firm intentionally underpriced etoys inc’s initial public offering action seeks among things unspecified compensatory damages resulting alleged lower amount offering proceeds appeal rulings gsco’s motion dismiss new york court appeals dismissed claims breach contract professional malpractice unjust enrichment permitted claims breach fiduciary duty fraud continue remand lower court granted gsco’s motion summary judgment december 8 2011 appellate court affirmed lower court’s decision january 9 2012 creditors moved permission either reargue appellate decision appeal new york court appeals group inc certain affiliates together various underwriters certain offerings received subpoenas requests documents information various governmental agencies selfregulatory organizations connection investigations relating public offering process goldman sachs cooperated investigations world online litigation march 2001 dutch shareholders’ association initiated legal proceedings unspecified amount damages gsi others amsterdam district court connection initial public offering world online march 2000 alleging misstatements omissions offering materials market artificially inflated improper public statements stabilization activities goldman sachs abn amro rothschild served joint global coordinators approximately 29 billion offering gsi underwrote 20268846 shares gsco underwrote 6756282 shares total offering price approximately 116 billion district court rejected claims gsi abn amro found world online liable amount determined appeal netherlands court appeals affirmed part reversed part decision district court holding certain alleged disclosure deficiencies actionable gsi abn amro appeal netherlands supreme court affirmed rulings court appeals except found certain additional aspects offering materials actionable held individual investors could potentially hold gsi abn amro responsible certain public statements press releases world online former ceo parties entered definitive settlement agreement dated july 15 2011 pursuant gsi contribute 48 million settlement fund firm paid full amount gsi’s proposed contribution settlement escrow account shareholders’ associations made demands filed claims compensation alleged damages goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements research matters group inc certain affiliates subject number investigations reviews various governmental regulatory bodies selfregulatory organizations relating research practices including among things research analysts’ methods obtaining receipt distribution information communications among research analysts sales trading personnel clients june 9 2011 pursuant settlement consent order entered massachusetts securities division pursuant gsco paid 10 million civil penalty agreed various undertakings regarding certain research practices regulators including sec finra investigating matters similar involved massachusetts settlement goldman sachs discussing potential resolution proposed charges adelphia communications fraudulent conveyance litigation gsco named defendant two adversary proceedings commenced us bankruptcy court southern district new york one july 6 2003 creditors committee second july 31 2003 equity committee adelphia communications inc proceedings consolidated single amended complaint filed adelphia recovery trust october 31 2007 complaint seeks among things recover fraudulent conveyances approximately 629 million allegedly paid gsco adelphia communications inc affiliates respect margin calls made ordinary course business accounts owned members family formerly controlled adelphia communications inc district court assumed jurisdiction action april 8 2011 granted gsco’s motion summary judgment plaintiff appealed specialist matters spear leeds kellogg specialists llc slks certain affiliates received requests information various governmental agencies selfregulatory organizations part industrywide investigation relating activities floor specialists recent years goldman sachs cooperated requests march 30 2004 certain specialist firms nyse including slks without admitting denying allegations entered final global settlement sec nyse covering certain activities years 1999 2003 slks settlement involves among things findings sec nyse slks violated certain federal securities laws nyse rules cases failed supervise certain individual specialists connection trades allegedly disadvantaged customer orders ii cease desist order slks iii censure slks iv slks’ agreement pay aggregate 453 million disgorgement penalty used compensate customers v certain undertakings respect slks’ systems procedures vi slks’ retention independent consultant review evaluate certain slks’ compliance systems policies procedures comparable findings made sanctions imposed settlements specialist firms settlement resolve related private civil actions slks firms regulatory investigations involving individuals conduct exchanges may 26 2011 sec issued order directing undistributed settlement funds transferred us treasury funds accordingly allocated settlement fund civil actions described slks spear leeds kellogg lp group inc among numerous defendants named purported class actions brought beginning october 2003 behalf investors us district court southern district new york alleging violations federal securities laws state common law connection nyse floor specialist activities actions consolidated seek unspecified compensatory damages restitution disgorgement behalf purchasers sellers unspecified securities october 17 1998 october 15 2003 decision dated march 14 2009 district court granted plaintiffs’ motion class certification defendants’ petition us court appeals second circuit seeking review certification ruling denied specialist defendants’ petition rehearing andor rehearing en banc denied february 24 2010 december 5 2011 parties reached settlement principle subject documentation court approval firm reserved full amount proposed contribution settlement goldman sachs group inc subsidiaries notes consolidated financial statements treasury matters gsco named defendant purported class action filed march 10 2004 us district court northern district illinois behalf holders short positions 30year us treasury futures options morning october 31 2001 complaint alleged firm purchased 30year bonds futures prior forthcoming us treasury refunding announcement morning based nonpublic information announcement purchases increased costs covering short positions complaint also named defendants washington dcbased political consultant allegedly source information former gsco economist allegedly received information another company one employees also allegedly received traded information prior public announcement complaint alleged violations federal commodities antitrust laws well illinois statutory common law seeks among things unspecified damages including treble damages antitrust laws district court dismissed antitrust illinois state law claims permitted federal commodities law claims proceed plaintiff’s motion class certification denied gsco moved summary judgment district court granted motion insofar claim relates trading treasury bonds october 13 2009 parties filed offer judgment notice acceptance respect plaintiff’s individual claim plaintiff attempted pursue appeal denial class certification another individual trader previously litigated lost individual claim unsuccessfully sought intervene purported class action august 5 2011 us court appeals seventh circuit affirmed lower court’s rulings neither plaintiff proposed intervenor could pursue class issues appeal remanded consideration amount prejudgment interest plaintiff’s individual claim appellants’ petition reconsideration en banc denied october 19 2011 remand district court entered final stipulation order december 7 2011 regarding calculation prejudgment interest concluded matter fannie mae litigation gsco added defendant amended complaint filed august 14 2006 purported class action pending us district court district columbia complaint asserts violations federal securities laws generally arising allegations concerning fannie mae’s accounting practices connection certain fannie maesponsored remic transactions allegedly arranged gsco complaint specify dollar amount damages defendants include fannie mae certain past present officers directors accountants decision dated may 8 2007 district court granted gsco’s motion dismiss claim time appeal begin run disposition claims defendants motion stay action filed federal housing finance agency fhfa took control foregoing action following fannie mae’s conservatorship denied november 14 2011 beginning september 2006 group inc andor gsco named defendants four fannie mae shareholder derivative actions us district court district columbia complaints generally allege goldman sachs defendants aided abetted breach fiduciary duty fannie mae’s directors officers connection certain fannie maesponsored remic transactions one complaints also asserts breach contract claim complaints also name defendants certain former officers directors fannie mae well outside accounting firm complaints seek inter alia unspecified damages goldman sachs defendants dismissed without prejudice first filed actions remaining claims action dismissed failure make demand fannie mae’s board directors dismissal affirmed appeal district court dismissed remaining three actions july 28 2010 plaintiffs filed motions reconsideration denied october 22 2010 revised notices appeal actions january 20 2011 appellate court consolidated actions appeal goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements compensationrelated litigation january 17 2008 group inc board executive officers members management committee named defendants purported shareholder derivative action us district court eastern district new york predicting firm’s 2008 proxy statement would violate federal securities laws undervaluing certain stock option awards alleging senior management received excessive compensation 2007 complaint seeks among things equitable accounting allegedly excessive compensation plaintiff’s motion preliminary injunction prevent 2008 proxy statement using options valuations plaintiff alleges incorrect require amendment sec form 4s filed certain executive officers named complaint reflect stock option valuations alleged plaintiff denied plaintiff’s appeal denial dismissed february 13 2009 plaintiff filed amended complaint added purported direct ie nonderivative claims based substantially theory plaintiff filed amended complaint march 24 2010 defendants’ motion dismiss amended complaint granted ground dismissal shareholder plaintiff’s prior action relating firm’s 2007 proxy statement based failure make demand board precluded relitigation demand futility december 19 2011 appellate court vacated order dismissal holding preclusion principles mandate dismissal remanding consideration alternative grounds dismissal march 24 2009 plaintiff filed action new york supreme court new york county group inc directors certain senior executives alleging violation delaware statutory common law connection substantively similar allegations regarding stock option awards january 7 2011 plaintiff filed amended complaint defendants moved dismiss amended complaint parties subsequently agreed stay state court action pending final resolution appeal dismissal federal court action respect firm’s 2008 proxy statement described well remanded proceedings adjudicating defendants’ motion dismiss purported shareholder derivative actions commenced new york supreme court new york county delaware court chancery beginning december 14 2009 alleging board breached fiduciary duties connection setting compensation levels year 2009 levels excessive complaints name defendants group inc board certain senior executives complaints sought inter alia unspecified damages restitution certain compensation paid order requiring firm adopt corporate reforms actions new york state court april 8 2010 plaintiffs filed motion indicating longer intend pursue claims seeking award attorneys’ fees connection bringing suit defendants opposed decision dated september 21 2011 new york court dismissed plaintiffs’ claims moot denied plaintiffs’ application attorneys’ fees october 25 2011 plaintiffs appealed denial fee award actions brought delaware court chancery defendants moved dismiss plaintiffs amended complaint april 28 2010 include among things allegations included sec’s action described “mortgagerelated matters” section plaintiffs amended complaint second time january 20 2011 defendants moved dismiss second amended complaint decision dated october 12 2011 delaware court dismissed plaintiffs’ second amended complaint plaintiffs appealed november 9 2011 group inc certain affiliates subject number investigations reviews various governmental agencies selfregulatory organizations regarding firm’s compensation processes firm cooperating investigations reviews goldman sachs group inc subsidiaries notes consolidated financial statements mortgagerelated matters april 16 2010 sec brought action sec action us federal securities laws us district court southern district new york gsco fabrice tourre one employees connection cdo offering made early 2007 abacus 2007ac1 transaction alleging defendants made materially false misleading statements investors seeking among things unspecified monetary penalties investigations gsco finra gsi fsa subsequently initiated group inc certain affiliates received subpoenas requests information regulators regarding cdo offerings including abacus 2007ac1 transaction related matters july 14 2010 gsco entered consent agreement sec settling claims made gsco sec action sec settlement pursuant gsco paid 550 million disgorgement civil penalties approved us district court southern district new york july 20 2010 january 6 2011 aca financial guaranty corp filed action gsco respect abacus 2007ac1 transaction new york supreme court new york county complaint includes allegations fraudulent inducement fraudulent concealment unjust enrichment seeks least 30 million compensatory damages least 90 million punitive damages unspecified disgorgement march 8 2011 gsco filed motion compel arbitration andor dismiss complaint april 25 2011 plaintiff filed amended complaint june 3 2011 gsco moved dismiss amended complaint since april 22 2010 number putative shareholder derivative actions filed new york supreme court new york county us district court southern district new york group inc board certain officers employees group inc affiliates connection mortgagerelated matters 2004 2007 including abacus 2007ac1 transaction cdo offerings derivative complaints generally include allegations breach fiduciary duty corporate waste abuse control mismanagement unjust enrichment misappropriation information securities fraud insider trading challenge accuracy adequacy group inc’s disclosure derivative complaints seek among things declaratory relief unspecified compensatory damages restitution certain corporate governance reforms addition described “compensationrelated litigation” section plaintiffs compensationrelated delaware court chancery actions twice amended complaint including assert allegations similar derivative claims referred delaware court granted defendants’ motion dismiss second amended complaint plaintiffs appealed november 9 2011 federal court cases consolidated plaintiffs filed consolidated amended complaint august 1 2011 october 6 2011 defendants moved dismiss action december 8 2011 parties federal court action stipulated dismissal delaware action affirmed parties submit proposed order dismissing federal court action prejudice ii delaware action remanded federal court action reinstated new york supreme court consolidated two actions pending court defendants moved dismiss december 2 2011 since july 1 2011 two putative shareholder derivative actions filed us district court southern district new york group inc board certain officers employees group inc litton connection servicing residential mortgage loans mortgagerelated activities beginning january 2009 complaints generally include allegations breach fiduciary duty waste abuse control mismanagement seek among things declaratory relief unspecified damages certain governance reforms district court consolidated actions december 20 2011 plaintiffs filed consolidated amended complaint january 31 2012 defendants moved dismiss addition october 2011 board received books records demand shareholder materials relating among subjects firm’s mortgage servicing foreclosure activities participation federal programs providing assistance financial institutions homeowners loan sales fannie mae freddie mac goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements since april 23 2010 board received letters shareholders demanding board take action address alleged misconduct gsco board certain officers employees group inc affiliates demands generally allege misconduct connection firm’s securitization practices including abacus 2007ac1 transaction alleged failure group inc adequately disclose sec investigation led sec action group inc’s 2009 compensation practices demands include letter group inc shareholder previously made demand board investigate take action connection auction products matters expanded demand address foregoing matters board previously rejected demand relating auction products matters september 2010 august 2011 shareholder made books records demand materials related board’s rejection shareholder’s demand letter addition beginning april 26 2010 number purported securities law class actions filed us district court southern district new york challenging adequacy group inc’s public disclosure among things firm’s activities cdo market sec investigation led sec action purported class action complaints name defendants group inc certain officers employees group inc affiliates consolidated generally allege violations sections 10b 20a exchange act seek unspecified damages plaintiffs filed consolidated amended complaint july 25 2011 october 6 2011 defendants moved dismiss gsco goldman sachs mortgage company gsmc gs mortgage securities corp gsmsc three current former goldman sachs employees defendants putative class action commenced december 11 2008 us district court southern district new york brought behalf purchasers various mortgage passthrough certificates assetbacked certificates issued various securitization trusts established firm underwritten gsco 2007 complaint generally alleges registration statement prospectus supplements certificates violated federal securities laws seeks unspecified compensatory damages rescission rescissionary damages defendants’ motion dismiss second amended complaint granted leave replead certain claims march 31 2010 plaintiff filed third amended complaint relating two offerings defendants moved dismiss motion dismiss denied plaintiff’s section 12a2 claims granted plaintiff’s section 11 claims plaintiff’s motion reconsideration denied plaintiff filed motion entry final judgment certification interlocutory appeal plaintiff’s section 11 claims denied plaintiff filed motion leave amend reinstate damages claims based allegations sold securities denied may 5 2011 court granted plaintiff’s motion entry final judgment dismissing claims plaintiff appealed dismissal respect offerings included original complaint june 3 2010 another investor unsuccessfully sought intervene action filed separate putative class action asserting substantively similar allegations relating additional offering pursuant 2007 registration statement defendants moved dismiss separate action district court dismissed action leave replead plaintiff filed amended complaint october 20 2011 december 16 2011 defendants moved dismiss trusts issued gsco underwrote approximately 785 million principal amount certificates purchasers offering issue amended complaint goldman sachs group inc subsidiaries notes consolidated financial statements group inc gsco gsmc gsmsc among defendants separate putative class action commenced february 6 2009 us district court southern district new york brought behalf purchasers various mortgage passthrough certificates assetbacked certificates issued various securitization trusts established firm underwritten gsco 2006 original defendants include three current former goldman sachs employees various rating agencies second amended complaint generally alleges registration statement prospectus supplements certificates violated federal securities laws seeks unspecified compensatory rescissionary damages defendants moved dismiss second amended complaint january 12 2011 district court granted motion dismiss respect offerings plaintiff purchased securities well claims rating agencies denied motion dismiss respect single offering plaintiff allegedly purchased securities trusts issued gsco underwrote approximately 698 million principal amount certificates purchasers offerings issue complaint excluding offerings claims dismissed february 2 2012 district court granted plaintiff’s motion class certification february 16 2012 defendants filed petition review ruling us court appeals second circuit september 30 2010 putative class action filed us district court southern district new york gsco group inc two former gsco employees behalf investors notes issued 2006 2007 two synthetic cdos hudson mezzanine 20061 20062 complaint amended february 4 2011 asserts federal securities law common law claims seeks unspecified compensatory punitive damages defendants moved dismiss april 5 2011 gsco gsmc gsmsc among defendants lawsuit filed august 2011 cifg assurance north america inc cifg new york supreme court complaint alleges cifg fraudulently induced provide credit enhancement 2007 securitization sponsored gsmc seeks among things repurchase 247 million aggregate principal amount mortgages cifg previously stated nonconforming accounting proceeds associated mortgages discharged securitization unspecified compensatory damages october 17 2011 goldman sachs defendants moved dismiss various alleged purchasers counterparties involved transactions relating mortgage passthrough certificates cdos mortgagerelated products including certain allstate affiliates basis yield alpha fund master cambridge place investment management inc charles schwab corporation federal home loan banks boston chicago indianapolis seattle fhfa conservator fannie mae freddie mac heungkuk life insurance co limited heungkuk landesbank badenwürttemberg massachusetts mutual life insurance company moneygram payment systems inc national credit union administration stichting pensioenfonds abp union central life insurance company ameritas life insurance corp acacia life insurance company western southern life insurance co filed complaints state federal court firm affiliates generally alleging offering documents securities purchased contained untrue statements material facts material omissions generally seeking rescission damages certain complaints allege fraud seek punitive damages certain complaints also name firms defendants number entities including american international group inc aig bayerische landesbank deutsche bank national trust company deutsche zentralgenossenschaftbank erste abwicklungsanstalt related parties hsh nordbank ikb deutsche industriebank ag john hancock related parties mt bank norges bank investment management prudential insurance company america related parties sealink funding ltd threatened assert claims various types firm connection various mortgagerelated transactions firm entered agreements number entities toll relevant statute limitations date hereof aggregate notional amount mortgagerelated securities sold plaintiffs active cases brought firm plaintiffs seeking rescission securities approximately 165 billion reflect adjustment subsequent paydowns distributions residual value securities amount include threatened claims noted potential claims purchasers mortgagerelated offerings actually brought claims firm claims dismissed including claim landesbank badenwürttemberg dismissed decision dated september 26 2011 plaintiff appealed october 24 2011 goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements june 2011 heungkuk filed criminal complaint certain past present employees firm south korea relating purchase cdo securitization goldman sachs filing represent judgment governmental entity starts process whereby prosecutor investigates complaint determines whether take action september 1 2011 group inc gs bank usa entered consent order federal reserve board relating servicing residential mortgage loans addition september 1 2011 gs bank usa entered agreement mortgage servicing practices new york state banking department litton acquirer litton connection group inc agreed forgive 25 unpaid principal balance certain delinquent first lien residential mortgage loans owned group inc subsidiary totaling approximately 13 million principal forgiveness see note 18 information settlements group inc gsco gsmc among numerous financial services firms named defendants qui tam action originally filed realtor april 7 2010 purportedly behalf city chicago state illinois cook county illinois circuit court asserting claims illinois whistleblower reward protection act chicago false claims act based allegations defendants falsely certified compliance various illinois laws purportedly violated connection mortgage origination servicing activities complaint originally filed seal seeks treble damages civil penalties plaintiff filed amended complaint december 28 2011 naming gsco gsmc among others additional defendants second amended complaint february 8 2012 firm also received continues receive requests information andor subpoenas federal state local regulators law enforcement authorities relating mortgagerelated securitization process subprime mortgages cdos synthetic mortgagerelated products particular transactions involving products servicing foreclosure activities cooperating regulators authorities see also “financial crisisrelated matters” february 24 2012 firm received “wells” notice staff sec respect disclosures contained offering documents used connection late 2006 offering approximately 13 billion subprime residential mortgagebacked securities underwritten gsco firm making submission intends engage dialogue sec staff seeking address concerns firm expects subject additional putative shareholder derivative actions purported class actions rescission “put back” claims litigation additional investor shareholder demands additional regulatory investigations actions respect mortgagerelated offerings loan sales cdos servicing foreclosure activities see note 18 information regarding mortgagerelated contingencies auction products matters august 21 2008 gsco entered settlement principle office attorney general state new york illinois securities department behalf north american securities administrators association regarding auction rate securities agreement goldman sachs agreed among things offer repurchase par outstanding auction rate securities private wealth management clients purchased firm prior february 11 2008 exception auction rate securities auctions clearing ii continue work issuers interested parties including regulatory governmental entities expeditiously provide liquidity solutions institutional investors iii pay 225 million fine settlement subject definitive documentation approval various states june 2 2009 gsco entered assurance discontinuance new york state attorney general march 19 2010 gsco entered administrative consent order illinois secretary state securities department conducted investigation behalf states new york gsco entered similar consent orders states process remaining states september 4 2008 group inc named defendant together numerous financial services firms two complaints filed us district court southern district new york alleging defendants engaged conspiracy manipulate auction securities market violation federal antitrust laws actions filed respectively behalf putative classes issuers investors auction rate securities seek among things treble damages unspecified amount defendants’ motion dismiss granted january 26 2010 march 1 2010 plaintiffs appealed dismissal complaints goldman sachs group inc subsidiaries notes consolidated financial statements private equitysponsored acquisitions litigation group inc “gs capital partners” among numerous private equity firms investment banks named defendants federal antitrust action filed us district court district massachusetts december 2007 amended complaint generally alleges defendants colluded limit competition bidding private equitysponsored acquisitions public companies thereby resulting lower prevailing bids extension less consideration shareholders companies violation section 1 us sherman antitrust act common law complaint seeks among things treble damages unspecified amount defendants moved dismiss august 27 2008 district court dismissed claims relating certain transactions subject releases part settlement shareholder actions challenging transactions order dated december 15 2008 otherwise denied motion dismiss april 26 2010 plaintiffs moved leave proceed second phase discovery encompassing additional transactions august 18 2010 court permitted discovery eight additional transactions plaintiffs filed fourth amended complaint october 7 2010 defendants filed motion dismiss certain aspects fourth amended complaint october 21 2010 court granted motion january 13 2011 january 21 2011 certain defendants including group inc filed motion dismiss another claim fourth amended complaint grounds transaction subject release part settlement shareholder action challenging transaction court granted motion march 1 2011 july 11 2011 plaintiffs moved leave file fifth amended complaint encompassing additional transactions take discovery concerning transactions september 7 2011 district court denied plaintiffs’ motion without prejudice insofar sought leave file fifth amended complaint permitted additional sixmonth phase discovery respect additional transactions washington mutual securities litigation gsco among numerous underwriters named defendants putative securities class action amended complaint filed august 5 2008 us district court western district washington underwriters plaintiffs allege offering documents connection various securities offerings washington mutual inc failed describe accurately company’s exposure mortgagerelated activities violation disclosure requirements federal securities laws defendants include past present directors officers washington mutual company’s former outside auditors numerous underwriters june 30 2011 underwriter defendants plaintiffs entered definitive settlement agreement pursuant gsco would contribute settlement fund november 4 2011 court approved settlement time appeal run thereby concluding matter firm paid full amount gsco’s contribution settlement fund indymac passthrough certificates litigation gsco among numerous underwriters named defendants putative securities class action filed may 14 2009 us district court southern district new york underwriters plaintiffs allege offering documents connection various securitizations mortgagerelated assets violated disclosure requirements federal securities laws defendants include indymacrelated entities formed connection securitizations underwriters offerings certain ratings agencies evaluated credit quality securities certain former officers directors indymac affiliates november 2 2009 underwriters moved dismiss complaint motion granted part february 17 2010 extent dismissing claims based offerings plaintiff purchased court reserved judgment aspects motion decision dated june 21 2010 district court formally dismissed claims relating offerings named plaintiff purchased certificates including offerings underwritten gsco granted denied defendants’ motions dismiss various respects may 17 2010 four additional investors filed motion seeking intervene order assert claims based additional offerings including two underwritten gsco july 6 2010 august 19 2010 two additional investors filed motions intervene order assert claims based additional offerings none underwritten gsco defendants opposed motions ground putative intervenors’ claims timebarred june 21 2011 court denied motions intervene respect among others claims based offerings underwritten gsco certain putative intervenors including seeking assert claims based two offerings underwritten gsco appealed goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements gsco underwrote approximately 751 million principal amount securities purchasers offerings issue may 2010 motion intervene july 11 2008 indymac bank placed fdic receivership july 31 2008 indymac bancorp inc filed chapter 7 bankruptcy us bankruptcy court los angeles california mf global securities litigation gsco among numerous underwriters named defendants class action complaints filed us district court southern district new york commencing november 18 2011 complaints generally allege offering materials two offerings mf global holdings ltd convertible notes aggregating approximately 575 million principal amount february 2011 july 2011 failed among things describe adequately extent mf global’s exposure european sovereign debt violation disclosure requirements federal securities laws gsco underwrote aggregate principal amount approximately 214 million notes october 31 2011 mf global holdings ltd filed chapter 11 bankruptcy us bankruptcy court manhattan new york gsco also received inquiries various governmental regulatory bodies selfregulatory organizations concerning certain transactions mf global prior bankruptcy filing goldman sachs cooperating inquiries employmentrelated matters may 27 2010 putative class action filed us district court southern district new york several contingent technology workers employees thirdparty vendors plaintiffs seeking overtime pay alleged hours worked excess 40 per work week complaint alleges plaintiffs de facto employees gsco responsible overtime pay federal state overtime laws complaint seeks class action status unspecified damages march 21 2011 parties agreed terms settlement principle february 10 2012 court approved terms settlement firm reserved full amount proposed settlement september 15 2010 putative class action filed us district southern district new york three former female employees alleging group inc gsco systematically discriminated female employees respect compensation promotion assignments mentoring performance evaluations complaint alleges class consisting female employees employed specified levels group inc gsco since july 2002 asserts claims federal new york city discrimination laws complaint seeks class action status injunctive relief unspecified amounts compensatory punitive damages group inc gsco filed motion stay claims one named plaintiffs compel individual arbitration individual based arbitration provision contained employment agreement group inc individual april 28 2011 magistrate judge district judge assigned motion denied motion july 7 2011 magistrate judge denied group inc’s gsco’s motion reconsideration magistrate judge’s decision july 21 2011 group inc gsco appealed magistrate judge’s decision district court june 13 2011 group inc gsco moved strike class allegations one three named plaintiffs based failure exhaust administrative remedies september 29 2011 magistrate judge recommended denial motion strike group inc gsco filed objections recommendation district judge presiding case october 11 2011 decision dated january 10 2012 district court denied motion strike july 22 2011 group inc gsco moved strike plaintiffs’ class allegations partial summary judgment plaintiffs’ disparate impact claims decision dated january 19 2012 magistrate judge recommended defendants’ motion denied premature defendants filed objections recommendation district judge november 15 2011 district court denied defendants’ motion compel arbitration one three named plaintiffs defendants appealed goldman sachs group inc subsidiaries notes consolidated financial statements transactions hellenic republic greece group inc certain affiliates subject number investigations reviews various governmental regulatory bodies selfregulatory organizations connection firm’s transactions hellenic republic greece including financing swap transactions goldman sachs cooperated investigations reviews investment management services group inc certain affiliates parties various civil litigation arbitration proceedings disputes clients relating losses allegedly sustained result firm’s investment management services claims generally seek among things restitution compensatory damages cases punitive damages addition group inc affiliates subject time investigations reviews various governmental regulatory bodies selfregulatory organizations connection firm’s investment management services goldman sachs cooperating investigations reviews sales trading clearance practices group inc certain affiliates subject number investigations reviews certain industrywide various governmental regulatory bodies selfregulatory organizations relating sales trading clearance corporate government securities financial products including compliance sec’s short sale rule algorithmic quantitative trading futures trading transaction reporting securities lending practices trading clearance credit derivative instruments commodities trading private placement practices compliance us foreign corrupt practices act european commission announced april 2011 initiating proceedings investigate numerous financial services companies including group inc connection supply data related credit default swaps connection profit sharing fee arrangements clearing credit default swaps including potential anticompetitive practices proceedings ongoing firm received civil investigative demands us department justice doj information similar matters cftc investigating role gsec clearing broker secregistered brokerdealer client cftc staff orally advised gsec intends recommend cftc bring aiding abetting civil fraud supervisionrelated charges gsec arising provision clearing services brokerdealer client based allegations gsec knew known client’s subaccounts maintained gsec actually accounts belonging customers brokerdealer client’s proprietary accounts gsec discussing potential resolution goldman sachs cooperating investigations reviews insider trading investigations time firm employees subject otherwise involved regulatory investigations relating insider trading potential misuse material nonpublic information effectiveness firm’s insider trading controls information barriers firm’s practice fully cooperate investigations eu pricefixing matter july 5 2011 european commission issued statement objections group inc raising allegations industrywide conspiracy fix prices power cables including italian cable company certain goldman sachsaffiliated investment funds held ownership interests 2005 2009 statement objections proposes hold group inc jointly severally liable fine levied cable company concept parental liability eu competition law goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements municipal securities matters group inc certain affiliates subject number investigations reviews various governmental regulatory bodies selfregulatory organizations relating transactions involving municipal securities including wallcross procedures conflict interest disclosure respect state municipal clients trading structuring municipal derivative instruments connection municipal offerings political contribution rules underwriting build america bonds possible impact credit default swap transactions municipal issuers goldman sachs cooperating investigations reviews group inc goldman sachs mitsui marine derivative products lp gsmmdp gs bank usa among numerous financial services firms named defendants numerous substantially identical individual antitrust actions filed beginning november 12 2009 coordinated related antitrust class action litigation individual actions goldman sachs affiliate named pretrial proceedings us district court southern district new york plaintiffs include individual california municipal entities three new york nonprofit entities complaints group inc gsmmdp gs bank usa generally allege goldman sachs defendants participated conspiracy arrange bids fix prices divide market derivatives used municipalities refinancing hedging transactions 1992 2008 complaints assert claims federal antitrust laws either california’s cartwright act new york’s donnelly act seek among things treble damages antitrust laws unspecified amount injunctive relief april 26 2010 goldman sachs defendants’ motion dismiss complaints filed several individual california municipal plaintiffs denied august 19 2011 group inc gsmmdp gs bank usa voluntarily dismissed without prejudice actions except one brought california municipal entity financial crisisrelated matters group inc certain affiliates subject number investigations reviews various governmental regulatory bodies selfregulatory organizations litigation relating 2008 financial crisis including establishment unwind credit default swaps goldman sachs aig transactions securities aig bear stearns companies inc lehman brothers holdings inc firms goldman sachs cooperating investigations reviews second quarter 2011 staff report senate permanent subcommittee investigations concerning key causes financial crisis issued goldman sachs another financial institution used case studies respect role investment banks report referred doj sec review firm cooperating investigations arising referral ongoing goldman sachs group inc subsidiaries notes consolidated financial statements employee benefit plans note 28 employee benefit plans firm sponsors various pension plans certain postretirement benefit plans primarily healthcare life insurance firm also provides certain benefits former inactive employees prior retirement defined benefit pension plans postretirement plans employees certain nonus subsidiaries participate various defined benefit pension plans generally provide benefits based years credited service percentage employee’s eligible compensation firm maintains defined benefit pension plan certain uk employees april 2008 uk defined benefit plan closed new participants continue accrue benefits existing participants plans material impact firm’s consolidated results operations firm also maintains defined benefit pension plan substantially us employees hired prior november 1 2003 november 2004 plan closed new participants frozen existing participants would accrue additional benefits addition firm maintains unfunded postretirement benefit plans provide medical life insurance eligible retirees dependents covered programs plans material impact firm’s consolidated results operations firm recognizes funded status defined benefit pension postretirement plans measured difference fair value plan assets benefit obligation consolidated statements financial condition december 2011 “other assets” “other liabilities accrued expenses” included 135 million related overfunded pension plan 858 million respectively related plans december 2010 “other assets” “other liabilities accrued expenses” included 164 million related overfunded pension plan 641 million respectively related plans defined contribution plans firm contributes employersponsored us nonus defined contribution plans firm’s contribution plans 225 million 193 million 178 million years ended december 2011 december 2010 december 2009 respectively goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements employee incentive plans note 29 employee incentive plans cost employee services received exchange sharebased award generally measured based grantdate fair value award sharebased awards require future service ie vested awards including awards granted retirementeligible employees expensed immediately sharebased awards require future service amortized relevant service period expected forfeitures included determining sharebased employee compensation expense firm pays cash dividend equivalents outstanding rsus dividend equivalents paid rsus generally charged retained earnings dividend equivalents paid rsus expected forfeited included compensation expense firm accounts tax benefit related dividend equivalents paid rsus increase additional paidin capital certain cases primarily related conflicted employment outlined applicable award agreements firm may cash settle sharebased compensation awards accounted equity instruments additional paidin capital adjusted extent difference current value award grantdate value award stock incentive plan firm sponsors stock incentive plan goldman sachs amended restated stock incentive plan sip provides grants incentive stock options nonqualified stock options stock appreciation rights dividend equivalent rights restricted stock rsus awards performance conditions sharebased awards second quarter 2003 sip approved firm’s shareholders effective grants april 1 2003 sip amended restated effective december 31 2008 total number shares common stock may delivered pursuant awards granted sip end 2008 fiscal year could exceed 250 million shares total number shares common stock may delivered awards granted sip 2009 fiscal year fiscal year thereafter cannot exceed 5 issued outstanding shares common stock determined last day immediately preceding fiscal year increased number shares available awards previous years covered awards granted years december 2011 december 2010 1610 million 1392 million shares respectively available grant sip restricted stock units firm issues rsus employees sip primarily connection yearend compensation acquisitions rsus valued based closing price underlying shares date grant taking account liquidity discount applicable postvesting transfer restrictions yearend rsus generally vest deliver outlined applicable rsu agreements employee rsu agreements generally provide vesting accelerated certain circumstances retirement death extended absence delivery underlying shares common stock conditioned grantees satisfying certain vesting requirements outlined award agreements table presents activity related rsus goldman sachs group inc subsidiaries notes consolidated financial statements 1 weighted average grantdate fair value rsus granted years ended december 2011 december 2010 december 2009 14121 13264 15131 respectively fair value rsus granted year ended december 2011 december 2010 includes liquidity discount 127 132 respectively reflect postvesting transfer restrictions 4 years 2 aggregate fair value awards vested years ended december 2011 december 2010 december 2009 240 billion 407 billion 218 billion respectively 3 includes rsus cash settled 4 includes 754482 shares restricted stock subject future service requirements first quarter 2012 firm granted employees 104 million yearend rsus 62 million rsus require future service condition delivery awards subject additional conditions outlined award agreements generally shares underlying awards net required withholding tax deliver threeyear period subject postvesting transfer restrictions january 2017 grants included table stock options stock options generally vest outlined applicable stock option agreement options granted february 2010 generally become exercisable onethird installments january 2011 january 2012 january 2013 expire february 2014 general options granted prior february 2010 expire tenth anniversary grant date although may subject earlier termination cancellation certain circumstances accordance terms sip applicable stock option agreement table presents activity related stock options goldman sachs 2011 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements total intrinsic value options exercised years ended december 2011 december 2010 december 2009 143 million 510 million 484 million respectively table presents options outstanding weighted average fair value options granted year ended december 2010 3758 per option tables present primary weighted average assumptions used estimate fair value grant date based blackscholes optionpricing model sharebased compensation related tax benefit 1 represents tax benefitprovision recognized additional paidin capital stock options exercised delivery common stock underlying sharebased awards december 2011 926 million total unrecognized compensation cost related nonvested sharebased compensation arrangements cost expected recognized weighted average period 162 years goldman sachs group inc subsidiaries notes consolidated financial statements parent company note 30 parent company supplemental disclosures cash payments thirdparty interest net capitalized interest 383 billion 307 billion 277 billion years ended december 2011 december 2010 december 2009 respectively cash payments income taxes net refunds 139 billion 205 billion 277 billion years ended december 2011 december 2010 december 2009 respectively 1 includes 625 billion 782 billion fair value december 2011 december 2010 respectively 2 includes 1291 billion 1344 billion fair value december 2011 december 2010 respectively 3 unsecured longterm borrowings subsidiaries maturity date 263 million 2013 656 million 2014 243 million 2015 97 million 2016 277 million 2017thereafter noncash activity year ended december 2011 103 million common stock issued connection acquisition goldman sachs australia pty ltd gs australia formerly goldman sachs partners australia group holdings pty ltd goldman sachs 2011 form 10k goldman sachs group inc subsidiaries supplemental financial information quarterly results unaudited following represents firm’s unaudited quarterly results years ended december 2011 december 2010 quarterly results prepared accordance generally accepted accounting principles reflect adjustments opinion management necessary fair statement results adjustments normal recurring nature 1 timing magnitude changes firm’s discretionary compensation accruals significant effect results given quarter goldman sachs group inc subsidiaries supplemental financial information common stock price range table presents high low sales prices per share firm’s common stock february 17 2012 13340 holders record firm’s common stock february 17 2012 last reported sales price firm’s common stock new york stock exchange 11591 per share common stock price performance following graph compares performance investment firm’s common stock november 24 2006 december 31 2011 sp 500 index sp 500 financials index graph assumes 100 invested november 24 2006 firm’s common stock sp 500 index sp 500 financials index dividends reinvested date payment without payment commissions performance shown graph represents past performance considered indication future performance table shows cumulative total returns dollars firm’s common stock sp 500 index sp 500 financials index goldman sachs’ last five fiscal year ends 1 assuming 100 invested november 24 2006 firm’s common stock sp 500 index sp 500 financials index dividends reinvested date payment without payment commissions performance shown table represents past performance considered indication future performance 1 result firm’s change fiscal yearend 2009 table includes 61 months beginning november 24 2006 ending december 31 2011 goldman sachs 2011 form 10k goldman sachs group inc subsidiaries supplemental financial information selected financial data 1 connection becoming bank holding company firm required change fiscal yearend november december 2008 represents period november 29 2008 december 26 2008 2 book value per common share based common shares outstanding including rsus granted employees future service requirements 5163 million 5469 million 5427 million 4854 million 4390 million 4859 million december 2011 december 2010 december 2009 november 2008 november 2007 december 2008 respectively 3 rounded nearest penny exact dividend amount 04666666 per common share reflective fourmonth period december 2008 march 2009 due change firm’s fiscal yearend goldman sachs group inc subsidiaries supplemental financial information statistical disclosures distribution assets liabilities shareholders’ equity table presents summary consolidated average balances interest rates goldman sachs 2011 form 10k goldman sachs group inc subsidiaries supplemental financial information 1 consists cash financial instruments including equity securities convertible debentures 2 derivative instruments commodities included noninterestearning assets noninterestbearing liabilities 3 primarily consists cash securities segregated regulatory purposes certain receivables customers counterparties 4 consists shortterm secured financings unsecured shortterm borrowings excluding commercial paper 5 interest rates include effects interest rate swaps accounted hedges 6 consists longterm secured financings unsecured longterm borrowings 7 primarily consists certain payables customers counterparties 8 assets liabilities interest attributed us nonus based location legal entity assets liabilities held goldman sachs group inc subsidiaries supplemental financial information changes net interest income volume rate analysis table presents analysis effect net interest income volume rate changes analysis changes due volumerate variance allocated volume goldman sachs 2011 form 10k goldman sachs group inc subsidiaries supplemental financial information availableforsale securities portfolio table presents fair value availableforsale securities goldman sachs group inc subsidiaries supplemental financial information table presents fair value amortized cost weighted average yields availableforsale securities contractual maturity yields calculated weighted average basis goldman sachs 2011 form 10k goldman sachs group inc subsidiaries supplemental financial information deposits table presents summary firm’s interestbearing deposits 1 amounts available withdrawal upon short notice generally within seven days ratios table presents selected financial ratios 1 based net earnings applicable common shareholders divided average monthly common shareholders’ equity 2 based net earnings divided average monthly total shareholders’ equity 3 dividends declared per common share percentage diluted earnings per common share shortterm borrowed funds table presents summary firm’s securities loaned securities sold agreements repurchase shortterm borrowings generally mature within one year financial statement date include borrowings redeemable option holder within one year financial statement date 1 includes shortterm secured financings 2919 billion 2453 billion 1293 billion december 2011 december 2010 december 2009 respectively 2 december 2011 december 2010 december 2009 weighted average interest rates include effects hedging goldman sachs group inc subsidiaries supplemental financial information crossborder outstandings crossborder outstandings based federal financial institutions examination council’s ffiec regulatory guidelines reporting crossborder information represent amounts firm may able obtain foreign country due countryspecific events including unfavorable economic political conditions economic social instability changes government policies credit exposure represents potential loss due default deterioration credit quality counterparty issuer securities instruments firm holds measured based potential loss event nonpayment counterparty credit exposure reduced effect risk mitigants netting agreements counterparties permit firm offset receivables payables counterparties obtaining collateral counterparties tables include effects risk mitigants represent firm’s credit exposure claims tables include cash receivables securities purchased agreements resell securities borrowed cash financial instruments exclude derivative instruments commitments securities purchased agreements resell securities borrowed presented gross without reduction related securities collateral held based domicile counterparty margin loans included receivables presented based amount collateral advanced counterparty tables present crossborder outstandings country crossborder outstandings exceed 075 consolidated assets accordance ffiec guidelines 1 primarily comprised secured lending transactions clearing house secured collateral 2 primarily comprised interests receivables funds domiciled ireland whose underlying investments primarily located outside ireland secured lending transactions secured us government obligations 3 excludes claims 227 billion 699 billion 5301 billion december 2011 121 billion 706 billion 2684 billion december 2010 cayman islands japan united kingdom respectively firm’s subsidiary counterparty domiciled within foreign country claim denominated country’s local currency 4 primarily comprised secured lending transactions primarily secured german government obligations goldman sachs 2011 form 10k item 9item 8 financial statements supplementary data index management’s report internal control financial reporting management goldman sachs group inc together consolidated subsidiaries firm responsible establishing maintaining adequate internal control financial reporting firm’s internal control financial reporting process designed supervision firm’s principal executive principal financial officers provide reasonable assurance regarding reliability financial reporting preparation firm’s financial statements external reporting purposes accordance us generally accepted accounting principles december 31 2012 management conducted assessment firm’s internal control financial reporting based framework established internal control integrated framework issued committee sponsoring organizations treadway commission coso based assessment management determined firm’s internal control financial reporting december 31 2012 effective internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance us generally accepted accounting principles receipts expenditures made accordance authorizations management directors firm provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition firm’s assets could material effect financial statements firm’s internal control financial reporting december 31 2012 audited pricewaterhousecoopers llp independent registered public accounting firm stated report appearing page 116 expresses unqualified opinion effectiveness firm’s internal control financial reporting december 31 2012 report independent registered public accounting firm board directors shareholders goldman sachs group inc opinion consolidated financial statements listed accompanying index present fairly material respects financial position goldman sachs group inc subsidiaries company december 31 2012 2011 results operations cash flows three years period ended december 31 2012 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2012 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing page 115 responsibility express opinions financial statements company’s internal control financial reporting based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp new york new york february 28 2013 fiscal year ended december 31 2012 goldman sachs group inc subsidiaries consolidated statements earnings accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements comprehensive income accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements financial condition accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements changes shareholders’ equity accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements cash flows supplemental disclosures cash payments interest net capitalized interest 925 billion 805 billion 674 billion years ended december 2012 december 2011 december 2010 respectively cash payments income taxes net refunds 188 billion 178 billion 448 billion years ended december 2012 december 2011 december 2010 respectively noncash activities year ended december 2012 firm assumed 77 million debt connection business acquisitions year ended december 2011 firm assumed 209 billion debt issued 103 million common stock connection acquisition goldman sachs australia pty ltd gs australia formerly goldman sachs partners australia group holdings pty ltd year ended december 2010 firm assumed 90 million debt connection business acquisitions addition first quarter 2010 firm recorded increase approximately 3 billion assets primarily financial instruments owned fair value liabilities primarily unsecured shortterm borrowings liabilities upon adoption accounting standards update asu 200917 “consolidations topic 810 improvements financial reporting enterprises involved variable interest entities” accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries notes consolidated financial statements note 1 description business note 1 description business goldman sachs group inc group inc delaware corporation together consolidated subsidiaries collectively firm leading global investment banking securities investment management firm provides wide range financial services substantial diversified client base includes corporations financial institutions governments highnetworth individuals founded 1869 firm headquartered new york maintains offices major financial centers around world firm reports activities following four business segments investment banking firm provides broad range investment banking services diverse group corporations financial institutions investment funds governments services include strategic advisory assignments respect mergers acquisitions divestitures corporate defense activities risk management restructurings spinoffs debt equity underwriting public offerings private placements including domestic crossborder transactions well derivative transactions directly related activities institutional client services firm facilitates client transactions makes markets fixed income equity currency commodity products primarily institutional clients corporations financial institutions investment funds governments firm also makes markets clears client transactions major stock options futures exchanges worldwide provides financing securities lending prime brokerage services institutional clients investing lending firm invests originates loans provide financing clients investments loans typically longerterm nature firm makes investments directly indirectly funds firm manages debt securities loans public private equity securities real estate consolidated investment entities power generation facilities investment management firm provides investment management services offers investment products primarily separately managed accounts commingled vehicles mutual funds private investment funds across major asset classes diverse set institutional individual clients firm also offers wealth advisory services including portfolio management financial counseling brokerage transaction services highnetworth individuals families note 2 basis presentation note 2 basis presentation consolidated financial statements prepared accordance accounting principles generally accepted united states us gaap include accounts group inc entities firm controlling financial interest intercompany transactions balances eliminated references 2012 2011 2010 refer firm’s years ended dates context requires december 31 2012 december 31 2011 december 31 2010 respectively reference future year refers year ending december 31 year certain reclassifications made previously reported amounts conform current presentation goldman sachs group inc subsidiaries notes consolidated financial statements note 3 significant accounting policies note 3 significant accounting policies firm’s significant accounting policies include measure fair value assets liabilities accounting goodwill identifiable intangible assets consolidate entity see notes 5 8 policies fair value measurements note 13 policies goodwill identifiable intangible assets note 11 policies consolidation accounting significant accounting policies either discussed included following footnotes consolidation firm consolidates entities firm controlling financial interest firm determines whether controlling financial interest entity first evaluating whether entity voting interest entity variable interest entity vie voting interest entities voting interest entities total equity investment risk sufficient enable entity finance activities independently ii equity holders power direct activities entity significantly impact economic performance obligation absorb losses entity right receive residual returns entity usual condition controlling financial interest voting interest entity ownership majority voting interest firm majority voting interest voting interest entity consolidated variable interest entities vie entity lacks one characteristics voting interest entity firm controlling financial interest vie firm variable interest interests provide power direct activities vie significantly impact vie’s economic performance ii obligation absorb losses vie right receive benefits vie could potentially significant vie see note 11 information vies equitymethod investments firm controlling financial interest entity exert significant influence entity’s operating financial policies investment accounted either equity method accounting ii fair value electing fair value option available us gaap significant influence generally exists firm owns 20 50 entity’s common stock insubstance common stock goldman sachs group inc subsidiaries notes consolidated financial statements general firm accounts investments acquired fair value option became available fair value certain cases firm applies equity method accounting new investments strategic nature closely related firm’s principal business activities firm significant degree involvement cash flows operations investee costbenefit considerations less significant see note 12 information equitymethod investments investment funds firm formed numerous investment funds thirdparty investors funds typically organized limited partnerships limited liability companies firm acts general partner manager generally firm hold majority economic interests funds usually voting interest entities generally consolidated thirdparty investors typically rights terminate funds remove firm general partner manager investments funds included “financial instruments owned fair value” see notes 6 18 22 information investments funds use estimates preparation consolidated financial statements requires management make certain estimates assumptions important relate fair value measurements accounting goodwill identifiable intangible assets provision losses may arise litigation regulatory proceedings tax audits estimates assumptions based best available information actual results could materially different revenue recognition financial assets financial liabilities fair value financial instruments owned fair value financial instruments sold yet purchased fair value recorded fair value either fair value option accordance us gaap addition firm elected account certain financial assets financial liabilities fair value electing fair value option fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date financial assets marked bid prices financial liabilities marked offer prices fair value measurements include transaction costs fair value gains losses generally included “market making” positions institutional client services “other principal transactions” positions investing lending see notes 5 8 information fair value measurements investment banking fees financial advisory assignments underwriting revenues recognized earnings services related underlying transaction completed terms assignment expenses associated transactions deferred related revenue recognized assignment otherwise concluded expenses associated financial advisory assignments recorded noncompensation expenses net client reimbursements underwriting revenues presented net related expenses investment management firm earns management fees incentive fees investment management services management fees calculated percentage net asset value invested capital commitments recognized period related service provided incentive fees calculated percentage fund’s separately managed account’s return excess return specified benchmark performance target incentive fees generally based investment performance 12month period life fund fees based performance 12month period subject adjustment prior end measurement period fees based investment performance life fund future investment underperformance may require fees previously distributed firm returned fund incentive fees recognized material contingencies resolved management incentive fee revenues included “investment management” revenues commissions fees firm earns “commissions fees” executing clearing client transactions stock options futures markets commissions fees recognized day trade executed goldman sachs group inc subsidiaries notes consolidated financial statements transfers assets transfers assets accounted sales firm relinquished control assets transferred transfers assets accounted sales related gains losses recognized net revenues assets liabilities arise firm’s continuing involvement transferred assets measured fair value transfers assets accounted sales assets remain “financial instruments owned fair value” transfer accounted collateralized financing related interest expense recognized life transaction see note 9 information transfers assets accounted collateralized financings note 10 information transfers assets accounted sales receivables customers counterparties receivables customers counterparties generally relate collateralized transactions receivables primarily comprised customer margin loans certain transfers assets accounted secured loans rather purchases fair value collateral posted connection certain derivative transactions loans held investment certain firm’s receivables customers counterparties accounted fair value fair value option changes fair value generally included “market making” revenues receivables customers counterparties accounted fair value accounted amortized cost net estimated uncollectible amounts interest receivables customers counterparties recognized life transaction included “interest income” see note 8 information receivables customers counterparties payables customers counterparties payables customers counterparties primarily consist customer credit balances related firm’s prime brokerage activities payables customers counterparties accounted cost plus accrued interest generally approximates fair value payables carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 7 8 payables included firm’s fair value hierarchy substantially would classified level 2 december 2012 receivables payables brokers dealers clearing organizations receivables payables brokers dealers clearing organizations accounted cost plus accrued interest generally approximates fair value receivables payables carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 7 8 receivables payables included firm’s fair value hierarchy substantially would classified level 2 december 2012 insurance activities certain firm’s insurance reinsurance contracts accounted fair value fair value option changes fair value included “market making” revenues see note 8 information fair values insurance reinsurance contracts see note 12 information firm’s reinsurance business classified held sale december 2012 revenues variable annuity life insurance reinsurance contracts accounted fair value generally consist fees assessed contract holder account balances mortality charges policy administration fees surrender charges revenues recognized earnings period services provided included “market making” revenues changes reserves including interest credited policyholder account balances recognized “insurance reserves” premiums earned underwriting property catastrophe reinsurance recognized earnings coverage period net premiums ceded cost reinsurance included “market making” revenues expenses liabilities related property catastrophe reinsurance claims including estimates losses incurred reported included “insurance reserves” goldman sachs group inc subsidiaries notes consolidated financial statements foreign currency translation assets liabilities denominated nonus currencies translated rates exchange prevailing date consolidated statements financial condition revenues expenses translated average rates exchange period foreign currency remeasurement gains losses transactions nonfunctional currencies recognized earnings gains losses translation financial statements nonus operation functional currency us dollar included net hedges taxes consolidated statements comprehensive income cash equivalents firm defines cash equivalents highly liquid overnight deposits held ordinary course business december 2012 december 2011 “cash equivalents” included 675 billion 795 billion respectively cash due banks 6592 billion 4805 billion respectively interestbearing deposits banks recent accounting developments reconsideration effective control repurchase agreements asc 860 april 2011 fasb issued asu 201103 “transfers servicing topic 860 reconsideration effective control repurchase agreements” asu 201103 changes assessment effective control removing criterion requires transferor ability repurchase redeem financial assets substantially agreed terms even event default transferee ii collateral maintenance implementation guidance related criterion asu 201103 effective periods beginning december 15 2011 firm adopted standard january 1 2012 adoption asu 201103 affect firm’s financial condition results operations cash flows amendments achieve common fair value measurement disclosure requirements us gaap ifrss asc 820 may 2011 fasb issued asu 201104 “fair value measurements disclosures topic 820 amendments achieve common fair value measurement disclosure requirements us gaap ifrss” asu 201104 clarifies application existing fair value measurement disclosure requirements changes certain principles related measuring fair value requires additional disclosures fair value measurements asu 201104 effective periods beginning december 15 2011 firm adopted standard january 1 2012 adoption asu 201104 materially affect firm’s financial condition results operations cash flows derecognition substance real estate asc 360 december 2011 fasb issued asu 201110 “property plant equipment topic 360 derecognition substance real estate scope clarification” asu 201110 clarifies order deconsolidate subsidiary substance real estate result parent longer controlling subsidiary due default subsidiary’s nonrecourse debt parent also must satisfy sale criteria asc 36020 “property plant equipment real estate sales” asu effective fiscal years beginning june 15 2012 firm apply provisions asu events occurring january 1 2013 since asu applies events occurring january 1 2013 adoption affect firm’s financial condition results operations cash flows disclosures offsetting assets liabilities asc 210 december 2011 fasb issued asu 201111 “balance sheet topic 210 disclosures offsetting assets liabilities” asu 201111 amended asu 201301 “balance sheet topic 210 clarifying scope disclosures offsetting assets liabilities” requires disclosure effect potential effect offsetting arrangements firm’s financial position well enhanced disclosure rights setoff associated firm’s recognized derivative instruments including bifurcated embedded derivatives repurchase agreements reverse repurchase agreements securities borrowing lending transactions asu 201111 effective periods beginning january 1 2013 since amended principles require additional disclosures concerning offsetting related arrangements adoption affect firm’s financial condition results operations cash flows goldman sachs group inc subsidiaries notes consolidated financial statements note 4 financial instruments owned fair value financial instruments sold yet purchased fair value note 4 financial instruments owned fair value financial instruments sold yet purchased fair value financial instruments owned fair value financial instruments sold yet purchased fair value accounted fair value either fair value option accordance us gaap see note 8 information fair value option table presents firm’s financial instruments owned fair value including pledged collateral financial instruments sold yet purchased fair value firm held 907 billion 486 billion december 2012 december 2011 respectively securities accounted availableforsale related firm’s reinsurance business december 2012 assets classified held sale included “other assets” see note 12 information assets held sale december 2011 availableforsale securities included “financial instruments owned fair value” 1 includes commodities transferred third parties accounted collateralized financings rather sales 429 billion 249 billion december 2012 december 2011 respectively 2 net cash collateral received posted credit support agreements reported netbycounterparty basis legal right setoff exists enforceable netting agreement 3 primarily relates fair value unfunded lending commitments fair value option elected goldman sachs group inc subsidiaries notes consolidated financial statements gains losses market making principal transactions table presents major product type firm’s “market making” “other principal transactions” revenues gainslosses primarily related firm’s financial instruments owned fair value financial instruments sold yet purchased fair value including derivative nonderivative financial instruments gainslosses exclude related interest income interest expense see note 23 information interest income interest expense gainslosses table representative manner firm manages business activities many firm’s marketmaking client facilitation investing lending strategies utilize financial instruments across various product types accordingly gains losses one product type frequently offset gains losses product types example firm’s longerterm derivatives sensitive changes interest rates may economically hedged interest rate swaps similarly significant portion firm’s cash instruments derivatives exposure foreign currencies may economically hedged foreign currency contracts 1 includes gain approximately 500 million sale firm’s hedge fund administration business included “market making” revenues note 5 fair value measurements note 5 fair value measurements fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date financial assets marked bid prices financial liabilities marked offer prices fair value measurements include transaction costs firm measures certain financial assets financial liabilities portfolio ie based net exposure market andor credit risks best evidence fair value quoted price active market quoted prices active markets available fair value determined reference prices similar instruments quoted prices recent transactions less active markets internally developed models primarily use marketbased independently sourced parameters inputs including limited interest rates volatilities equity debt prices foreign exchange rates commodity prices credit spreads funding spreads ie spread difference interest rate borrower could finance given financial instrument relative benchmark interest rate us gaap threelevel fair value hierarchy disclosure fair value measurements fair value hierarchy prioritizes inputs valuation techniques used measure fair value giving highest priority level 1 inputs lowest priority level 3 inputs financial instrument’s level fair value hierarchy based lowest level input significant fair value measurement fair value hierarchy follows level 1 inputs unadjusted quoted prices active markets firm access measurement date identical unrestricted assets liabilities level 2 inputs valuation techniques observable either directly indirectly level 3 one inputs valuation techniques significant unobservable goldman sachs group inc subsidiaries notes consolidated financial statements fair values substantially firm’s financial assets financial liabilities based observable prices inputs classified levels 1 2 fair value hierarchy certain level 2 level 3 financial assets financial liabilities may require appropriate valuation adjustments market participant would require arrive fair value factors counterparty firm’s credit quality funding risk transfer restrictions liquidity bidoffer spreads valuation adjustments generally based market evidence see notes 6 7 information fair value measurements cash instruments derivatives respectively included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” note 8 information fair value measurements financial assets financial liabilities accounted fair value fair value option financial assets financial liabilities accounted fair value fair value option accordance us gaap summarized 1 represents impact derivatives cash collateral netting counterparty netting across levels fair value hierarchy netting among positions classified level included level 3 financial assets december 2012 decreased compared december 2011 primarily reflecting decrease derivative assets partially offset increase private equity investments decrease derivative assets primarily reflected decline credit derivative assets principally due settlements unrealized losses sales partially offset net transfers level 2 level 3 currency derivative assets also declined compared december 2011 principally due unrealized losses net transfers level 2 increase private equity investments primarily reflected purchases unrealized gains partially offset settlements net transfers level 2 see notes 6 7 8 information level 3 cash instruments derivatives financial assets financial liabilities accounted fair value fair value option respectively including information significant unrealized gains losses transfers level 3 goldman sachs group inc subsidiaries notes consolidated financial statements note 6 cash instruments note 6 cash instruments cash instruments include us government federal agency obligations nonus government agency obligations bank loans bridge loans corporate debt securities equities convertible debentures nonderivative financial instruments owned financial instruments sold yet purchased see types cash instruments included level fair value hierarchy valuation techniques significant inputs used determine fair values see note 5 overview firm’s fair value measurement policies level 1 cash instruments level 1 cash instruments include us government obligations nonus government obligations actively traded listed equities certain government agency obligations money market instruments valued using quoted prices identical unrestricted instruments active markets firm defines active markets equity instruments based average daily trading volume absolute terms relative market capitalization instrument firm defines active markets debt instruments based average daily trading volume number days trading activity level 2 cash instruments level 2 cash instruments include commercial paper certificates deposit time deposits government agency obligations certain nonus government obligations corporate debt securities commodities certain mortgagebacked loans securities certain bank loans bridge loans restricted less liquid listed equities state municipal obligations certain lending commitments valuations level 2 cash instruments verified quoted prices recent trading activity identical similar instruments broker dealer quotations alternative pricing sources reasonable levels price transparency consideration given nature quotations eg indicative firm relationship recent market activity prices provided alternative pricing sources valuation adjustments typically made level 2 cash instruments cash instrument subject transfer restrictions andor ii premiums liquidity discounts market participant would require arrive fair value valuation adjustments generally based market evidence level 3 cash instruments level 3 cash instruments one significant valuation inputs observable absent evidence contrary level 3 cash instruments initially valued transaction price considered best initial estimate fair value subsequently firm uses methodologies determine fair value vary based type instrument valuation inputs assumptions changed corroborated substantive observable evidence including values realized sales financial assets goldman sachs group inc subsidiaries notes consolidated financial statements table presents valuation techniques nature significant inputs generally used determine fair values type level 3 cash instrument goldman sachs group inc subsidiaries notes consolidated financial statements significant unobservable inputs table presents ranges significant unobservable inputs used value firm’s level 3 cash instruments ranges represent significant unobservable inputs used valuation type cash instrument ranges weighted averages inputs representative appropriate inputs use calculating fair value one cash instrument example highest multiple presented table private equity investments appropriate valuing specific private equity investment may appropriate valuing private equity investment accordingly ranges inputs presented represent uncertainty possible ranges fair value measurements firm’s level 3 cash instruments 1 weighted averages calculated weighting input relative fair value respective financial instruments 2 fair value one instrument may determined using multiple valuation techniques example market comparables discounted cash flows may used together determine fair value therefore level 3 balance encompasses techniques 3 recovery rate measure expected future cash flows default scenario expressed percentage notional face value instrument reflects benefit credit enhancement certain instruments 4 duration estimate timing future cash flows certain cases may incorporate impact unobservable inputs eg prepayment speeds increases yield discount rate capitalization rate duration cumulative loss rate used valuation firm’s level 3 cash instruments would result lower fair value measurement increases recovery rate basis multiples longterm growth rate compound annual growth rate would result higher fair value measurement due distinctive nature firm’s level 3 cash instruments interrelationship inputs necessarily uniform within product type goldman sachs group inc subsidiaries notes consolidated financial statements fair value cash instruments level tables present level within fair value hierarchy cash instrument assets liabilities fair value cash instrument assets liabilities included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” respectively 1 includes 489 million 446 million collateralized debt obligations cdos backed real estate level 2 level 3 respectively 2 includes 284 million 176 billion cdos collateralized loan obligations clos backed corporate obligations level 2 level 3 respectively 3 includes 1267 billion private equity investments 158 billion investments real estate entities 600 million convertible debentures goldman sachs group inc subsidiaries notes consolidated financial statements 1 includes 213 million 595 million cdos backed real estate level 2 level 3 respectively 2 includes 403 million 119 billion cdos clos backed corporate obligations level 2 level 3 respectively 3 includes 1207 billion private equity investments 110 billion investments real estate entities 497 million convertible debentures 4 includes 27 million cdos clos backed corporate obligations level 3 transfers levels fair value hierarchy transfers levels fair value hierarchy reported beginning reporting period occur year ended december 2012 transfers level 2 level 1 cash instruments 185 billion including transfers nonus government obligations 105 billion reflecting level market activity instruments transfers equity securities 806 million primarily reflecting impact transfer restrictions transfers level 1 level 2 cash instruments 302 million including transfers nonus government obligations 180 million reflecting level market activity instruments transfers equity securities 102 million firm able obtain quoted prices certain actively traded instruments goldman sachs group inc subsidiaries notes consolidated financial statements level 3 rollforward cash instrument asset liability transferred level 3 reporting period entire gain loss period included level 3 level 3 cash instruments frequently economically hedged level 1 level 2 cash instruments andor level 1 level 2 level 3 derivatives accordingly gains losses reported level 3 partially offset gains losses attributable level 1 level 2 cash instruments andor level 1 level 2 level 3 derivatives result gains losses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources tables present changes fair value cash instrument assets liabilities categorized level 3 end year 1 includes originations secondary market purchases 2 primarily reflects transfers related firm’s reinsurance business level 3 debt obligations within cash instruments fair value level 3 “other assets” within financial assets fair value business classified held sale december 2012 see note 8 information 3 aggregate amounts include approximately 617 million 213 billion 962 million reported “market making” “other principal transactions” “interest income” respectively net unrealized gain level 3 cash instruments 207 billion reflecting 201 billion cash instrument assets 54 million cash instrument liabilities year ended december 2012 primarily consisted gains private equity investments mortgage assetbacked loans securities bank loans bridge loans corporate debt securities unrealized gains year ended december 2012 primarily reflected impact increase global equity prices tighter credit spreads transfers level 3 year ended december 2012 primarily reflected transfers level 2 certain bank loans bridge loans private equity investments principally due lack market transactions instruments transfers level 3 year ended december 2012 primarily reflected transfers level 2 certain private equity investments bank loans bridge loans transfers private equity investments level 2 principally due improved transparency market prices result market transactions instruments transfers bank loans bridge loans level 2 principally due market transactions instruments unobservable inputs longer significant valuation certain loans goldman sachs group inc subsidiaries notes consolidated financial statements 1 includes originations secondary market purchases 2 aggregate amounts include approximately 202 million 623 million 129 billion reported “market making” “other principal transactions” “interest income” respectively net unrealized loss level 3 cash instruments 310 million reflecting losses 92 million cash instrument assets 218 million cash instrument liabilities year ended december 2011 primarily consisted losses bank loans bridge loans corporate debt securities primarily reflecting impact unfavorable credit markets losses relationship lending losses partially offset gains private equity investments prices generally corroborated market transactions similar financial instruments year significant transfers level 3 year ended december 2011 included  bank loans bridge loans net transfer level 3 179 billion primarily due transfers level 2 certain loans due improved transparency market prices result market transactions similar loans partially offset transfers level 3 loans primarily due reduced transparency market prices result less market activity loans  equities convertible debentures net transfer level 3 135 billion primarily due transfers level 3 certain private equity investments due reduced transparency market prices result less market activity financial instruments partially offset transfers level 2 private equity investments due improved transparency market prices result market transactions financial instruments  loans securities backed residential real estate net transfer level 3 574 million principally due transfers level 2 certain loans due improved transparency market prices used value loans well unobservable inputs longer significant valuation loans goldman sachs group inc subsidiaries notes consolidated financial statements investments funds calculate net asset value per share cash instruments fair value include investments funds valued based net asset value per share nav investment fund firm uses nav measure fair value fund investments fund investment readily determinable fair value ii nav investment fund calculated manner consistent measurement principles investment company accounting including measurement underlying investments fair value firm’s investments funds calculate nav primarily consist investments firmsponsored funds firm coinvests thirdparty investors private equity credit real estate funds primarily closedend funds firm’s investments eligible redemption distributions received funds underlying assets liquidated estimated substantially underlying assets existing funds liquidated next seven years firm continues manage existing funds taking account transition periods volcker rule us doddfrank wall street reform consumer protection act doddfrank act although rules yet finalized firm’s investments hedge funds generally redeemable quarterly basis 91 days’ notice subject maximum redemption level 25 firm’s initial investments quarterend firm currently plans comply volcker rule redeeming certain interests hedge funds firm redeemed approximately 106 billion interests hedge funds year ended december 2012 table presents fair value firm’s investments unfunded commitments funds calculate nav 1 funds primarily invest broad range industries worldwide variety situations including leveraged buyouts recapitalizations growth investments 2 funds generally invest loans fixed income instruments focused providing private highyield capital mid largesized leveraged management buyout transactions recapitalizations financings refinancings acquisitions restructurings private equity firms private family companies corporate issuers 3 funds primarily multidisciplinary hedge funds employ fundamental bottomup investment approach across various asset classes strategies including longshort equity credit convertibles risk arbitrage special situations capital structure arbitrage 4 funds invest globally primarily real estate companies loan portfolios debt recapitalizations direct property goldman sachs group inc subsidiaries notes consolidated financial statements note 7 derivatives hedging activities note 7 derivatives hedging activities derivative activities derivatives instruments derive value underlying asset prices indices reference rates inputs combination factors derivatives may privately negotiated contracts usually referred overthecounter otc derivatives may listed traded exchange exchangetraded marketmaking market maker firm enters derivative transactions provide liquidity facilitate transfer hedging risk capacity firm typically acts principal consequently required commit capital provide execution market maker essential maintain inventory financial instruments sufficient meet expected client market demands risk management firm also enters derivatives actively manage risk exposures arise marketmaking investing lending activities derivative cash instruments firm’s holdings exposures hedged many cases either portfolio riskspecific basis opposed instrumentbyinstrument basis offsetting impact economic hedging reflected business segment related revenues addition firm may enter derivatives designated hedges us gaap derivatives used manage foreign currency exposure net investment certain nonus operations manage interest rate exposure certain fixedrate unsecured longterm shortterm borrowings deposits firm enters various types derivatives including  futures forwards contracts commit counterparties purchase sell financial instruments commodities currencies future  swaps contracts require counterparties exchange cash flows currency interest payment streams amounts exchanged based specific terms contract reference specified rates financial instruments commodities currencies indices  options contracts option purchaser right obligation purchase sell option writer financial instruments commodities currencies within defined time period specified price derivatives accounted fair value net cash collateral received posted credit support agreements derivatives reported netbycounterparty basis ie net payable receivable derivative assets liabilities given counterparty legal right setoff exists enforceable netting agreement derivative assets liabilities included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” respectively substantially gains losses derivatives designated hedges asc 815 included “market making” “other principal transactions” goldman sachs group inc subsidiaries notes consolidated financial statements table presents fair value derivatives netbycounterparty basis table presents fair value notional amount derivative contracts major product type gross basis gross fair values table exclude effects netting receivable balances payable balances enforceable netting agreements netting cash collateral received posted credit support agreements therefore representative firm’s exposure notional amounts represent sum gross long short derivative contracts provide indication volume firm’s derivative activity however represent anticipated losses 1 represents netting receivable balances payable balances counterparty enforceable netting agreements 2 represents netting cash collateral received posted counterparty basis credit support agreements goldman sachs group inc subsidiaries notes consolidated financial statements valuation techniques derivatives firm’s level 2 level 3 derivatives valued using derivative pricing models eg models incorporate option pricing methodologies monte carlo simulations discounted cash flows price transparency derivatives generally characterized product type interest rate general prices inputs used value interest rate derivatives transparent even longdated contracts interest rate swaps options denominated currencies leading industrialized nations characterized high trading volumes tight bidoffer spreads interest rate derivatives reference indices inflation index shape yield curve eg 10year swap rate vs 2year swap rate complex prices inputs generally observable credit price transparency credit default swaps including single names baskets credits varies market underlying reference entity obligation credit default swaps reference indices large corporates major sovereigns generally exhibit price transparency credit default swaps underliers price transparency varies based credit rating cost borrowing underlying reference obligations availability underlying reference obligations delivery upon default issuer credit default swaps reference loans assetbacked securities emerging market debt instruments tend less price transparency reference corporate bonds addition complex credit derivatives sensitive correlation two underlying reference obligations generally less price transparency currency prices currency derivatives based exchange rates leading industrialized nations including longer tenors generally transparent primary difference price transparency developed emerging market currency derivatives emerging markets tend observable contracts shorter tenors commodity derivatives include transactions referenced energy eg oil natural gas metals eg precious base soft commodities eg agricultural price transparency varies based underlying commodity delivery location tenor product quality eg diesel fuel compared unleaded gasoline general price transparency commodity derivatives greater contracts shorter tenors contracts closely aligned major andor benchmark commodity indices equity price transparency equity derivatives varies market underlier options indices common stock corporates included major equity indices exhibit price transparency equity derivatives generally observable market prices except contracts long tenors reference prices differ significantly current market prices complex equity derivatives sensitive correlation two individual stocks generally less price transparency liquidity essential observability product types transaction volumes decline previously transparent prices inputs may become unobservable conversely even highly structured products may times trading volumes large enough provide observability prices inputs see note 5 overview firm’s fair value measurement policies level 1 derivatives level 1 derivatives include shortterm contracts future delivery securities underlying security level 1 instrument exchangetraded derivatives actively traded valued quoted market price level 2 derivatives level 2 derivatives include otc derivatives significant valuation inputs corroborated market evidence exchangetraded derivatives actively traded andor valued using models calibrate marketclearing levels otc derivatives selection particular model value derivative depends contractual terms specific risks inherent instrument well availability pricing information market derivatives trade liquid markets model selection involve significant management judgment outputs models calibrated marketclearing levels goldman sachs group inc subsidiaries notes consolidated financial statements valuation models require variety inputs including contractual terms market prices yield curves credit curves measures volatility prepayment rates loss severity rates correlations inputs valuations level 2 derivatives verified market transactions broker dealer quotations alternative pricing sources reasonable levels price transparency consideration given nature quotations eg indicative firm relationship recent market activity prices provided alternative pricing sources level 3 derivatives level 3 derivatives valued using models utilize observable level 1 andor level 2 inputs well unobservable level 3 inputs  majority firm’s interest rate currency derivatives classified within level 3 significant unobservable inputs include correlations certain currencies interest rates eg correlation euro inflation euro interest rates specific interest rate volatilities  level 3 credit derivatives significant level 3 inputs include illiquid credit spreads unique specific reference obligations reference entities recovery rates certain correlations required value credit mortgage derivatives eg likelihood default underlying reference obligation relative one another  level 3 equity derivatives significant level 3 inputs generally include equity volatility inputs options longdated andor strike prices differ significantly current market prices addition valuation certain structured trades requires use level 3 inputs correlation price performance two individual stocks correlation price performance basket stocks another asset class commodities  level 3 commodity derivatives significant level 3 inputs include volatilities options strike prices differ significantly current market prices spreads certain products product quality physical location commodity aligned benchmark indices subsequent initial valuation level 3 derivative firm updates level 1 level 2 inputs reflect observable market changes resulting gains losses recorded level 3 level 3 inputs changed corroborated evidence similar market transactions thirdparty pricing services andor broker dealer quotations empirical market data circumstances firm cannot verify model value reference market transactions possible different valuation model could produce materially different estimate fair value see information unobservable inputs used valuation level 3 derivatives valuation adjustments valuation adjustments integral determining fair value derivatives used adjust midmarket valuations produced derivative pricing models appropriate exit price valuation adjustments incorporate bidoffer spreads cost liquidity credit valuation adjustments cva funding valuation adjustments account credit funding risk inherent derivative portfolios marketbased inputs generally used calibrating valuation adjustments marketclearing levels addition derivatives include significant unobservable inputs firm makes model exit price adjustments account valuation uncertainty present transaction goldman sachs group inc subsidiaries notes consolidated financial statements significant unobservable inputs table presents ranges significant unobservable inputs used value firm’s level 3 derivatives ranges represent significant unobservable inputs used valuation type derivative ranges averages medians inputs representative appropriate inputs use calculating fair value one derivative example highest correlation presented table interest rate derivatives appropriate valuing specific interest rate derivative may appropriate valuing interest rate derivative accordingly ranges inputs presented represent uncertainty possible ranges fair value measurements firm’s level 3 derivatives 1 averages represent arithmetic average inputs weighted relative fair value notional respective financial instruments average greater median indicates majority inputs average 2 range unobservable inputs correlation across derivative product types ie crossasset correlation 51 66 average 30 median 35 december 2012 3 difference average median credit spreads input indicates majority inputs fall lower end range goldman sachs group inc subsidiaries notes consolidated financial statements range significant unobservable inputs following provides information ranges unobservable inputs used value firm’s level 3 derivative instruments  correlation ranges correlation cover variety underliers within one market eg equity index equity single stock names across markets eg correlation commodity price foreign exchange rate well across regions generally crossasset correlation inputs used value complex instruments lower correlation inputs assets within derivative product type  volatility ranges volatility cover numerous underliers across variety markets maturities strike prices example volatility equity indices generally lower volatility single stocks  credit spreads recovery rates ranges credit spreads recovery rates cover variety underliers index single names regions sectors maturities credit qualities highyield investmentgrade broad range population gives rise width ranges unobservable inputs  commodity prices spreads ranges commodity prices spreads cover variability products maturities locations well peak offpeak prices sensitivity fair value measurement changes significant unobservable inputs following provides description directional sensitivity firm’s level 3 fair value measurements changes significant unobservable inputs isolation due distinctive nature firm’s level 3 derivatives interrelationship inputs necessarily uniform within product type  correlation general contracts holder benefits convergence underlying asset index prices eg interest rates credit spreads foreign exchange rates inflation rates equity prices increase correlation results higher fair value measurement  volatility general purchased options increase volatility results higher fair value measurement  credit spreads recovery rates general fair value purchased credit protection increases credit spreads increase recovery rates decrease credit spreads recovery rates strongly related distinctive risk factors underlying reference obligations include reference entityspecific factors leverage volatility industry marketbased risk factors borrowing costs liquidity underlying reference obligation macroeconomic conditions  commodity prices spreads general contracts holder receiving commodity increase spread price difference benchmark index due differences quality delivery location price results higher fair value measurement goldman sachs group inc subsidiaries notes consolidated financial statements fair value derivatives level tables present fair value derivatives gross basis level major product type gross fair values tables exclude effects netting receivable balances payable balances enforceable netting agreements netting cash received posted credit support agreements across levels fair value hierarchy therefore representative firm’s exposure 1 represents netting receivable balances payable balances counterparty enforceable netting agreements 2 represents netting cash collateral received posted counterparty basis credit support agreements 3 represents netting receivable balances payable balances counterparty across levels fair value hierarchy enforceable netting agreements goldman sachs group inc subsidiaries notes consolidated financial statements 1 represents netting receivable balances payable balances counterparty enforceable netting agreements 2 represents netting cash collateral received posted counterparty basis credit support agreements 3 represents netting receivable balances payable balances counterparty across levels fair value hierarchy enforceable netting agreements goldman sachs group inc subsidiaries notes consolidated financial statements level 3 rollforward derivative transferred level 3 reporting period entire gain loss period included level 3 transfers levels reported beginning reporting period occur gains losses level 3 derivatives considered context following  derivative level 1 andor level 2 inputs classified level 3 entirety least one significant level 3 input  one significant level 3 input entire gain loss adjusting observable inputs ie level 1 level 2 inputs classified level 3  gains losses reported level 3 resulting changes level 1 level 2 inputs frequently offset gains losses attributable level 1 level 2 derivatives andor level 1 level 2 level 3 cash instruments result gainslosses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources tables present changes fair value derivatives categorized level 3 end year 1 aggregate amounts include approximately 903 million 251 million reported “market making” “other principal transactions” respectively 2 principally resulted changes level 2 inputs 3 reflects net transfer level 3 derivative liabilities 4 reflects net transfer level 2 derivative liabilities net unrealized loss level 3 derivatives 123 billion year ended december 2012 primarily attributable impact tighter credit spreads changes foreign exchange rates increases global equity prices certain derivatives partially offset impact decline volatility certain commodity derivatives transfers level 3 derivatives year ended december 2012 primarily reflected transfers level 2 certain credit derivative assets principally due unobservable inputs becoming significant valuation derivatives transfers level 2 credit derivative assets principally due reduced transparency correlation inputs used value derivatives transfers level 3 derivatives year ended december 2012 primarily reflected transfers level 2 certain credit derivative assets principally due unobservable inputs longer significant valuation derivatives transfers level 2 certain currency derivative assets principally due unobservable correlation inputs longer significant valuation derivatives transfers level 2 certain commodity derivative liabilities principally due increased transparency volatility inputs used value derivatives goldman sachs group inc subsidiaries notes consolidated financial statements 1 aggregate amounts include approximately 235 billion 62 million reported “market making” “other principal transactions” respectively 2 principally resulted changes level 2 inputs net unrealized gain level 3 derivatives 228 billion year ended december 2011 primarily attributable impact changes interest rates exchange rates underlying certain credit derivatives unrealized gains level 3 derivatives substantially offset unrealized losses derivatives classified within level 2 economically hedge derivatives classified within level 3 significant transfers level 3 derivatives year ended december 2011 included  credit net transfer level 3 636 million primarily reflecting transfers level 2 certain credit derivative assets principally due unobservable inputs longer significant valuation derivatives transfers level 3 certain credit derivative liabilities due reduced transparency correlation inputs used value derivatives impact transfers partially offset transfers level 3 certain credit mortgage derivative assets primarily due reduced transparency correlation inputs used value derivatives  commodities net transfer level 3 489 million primarily reflecting transfers level 2 due increased transparency market prices used value certain commodity derivative assets result market activity similar instruments unobservable inputs becoming less significant valuation commodity derivative assets addition certain commodity derivative liabilities transferred level 3 due reduced transparency volatility inputs used value derivatives impact credit spreads derivatives ongoing basis firm realizes gains losses relating changes credit risk unwind derivative contracts changes credit mitigants net gainloss including hedges attributable impact changes credit exposure credit spreads counterparty firm’s derivatives 735 million 573 million 68 million years ended december 2012 december 2011 december 2010 respectively bifurcated embedded derivatives table presents fair value notional amount derivatives bifurcated related borrowings derivatives recorded fair value primarily consist interest rate equity commodity products included “unsecured shortterm borrowings” “unsecured longterm borrowings” see note 8 information goldman sachs group inc subsidiaries notes consolidated financial statements otc derivatives tables present fair values otc derivative assets liabilities tenor product type tenor based expected duration mortgagerelated credit derivatives generally remaining contractual maturity derivatives 1 represents netting receivable balances payable balances counterparty across product types within tenor category enforceable netting agreements receivable payable balances counterparty product type tenor category netted within product type tenor category 2 represents netting receivable balances payable balances counterparty across tenor categories enforceable netting agreements 3 represents netting cash collateral received posted counterparty basis credit support agreements goldman sachs group inc subsidiaries notes consolidated financial statements 1 represents netting receivable balances payable balances counterparty across product types within tenor category enforceable netting agreements receivable payable balances counterparty product type tenor category netted within product type tenor category 2 represents netting receivable balances payable balances counterparty across tenor categories enforceable netting agreements 3 represents netting cash collateral received posted counterparty basis credit support agreements goldman sachs group inc subsidiaries notes consolidated financial statements derivatives creditrelated contingent features certain firm’s derivatives transacted bilateral agreements counterparties may require firm post collateral terminate transactions based changes firm’s credit ratings firm assesses impact bilateral agreements determining collateral termination payments would occur assuming downgrade rating agencies downgrade one rating agency depending agency’s relative ratings firm time downgrade may impact comparable impact downgrade rating agencies table presents aggregate fair value net derivative liabilities agreements excluding application collateral posted reduce liabilities related aggregate fair value assets posted collateral additional collateral termination payments could called reporting date counterparties event onenotch twonotch downgrade firm’s credit ratings credit derivatives firm enters broad array credit derivatives locations around world facilitate client transactions manage credit risk associated marketmaking investing lending activities credit derivatives actively managed based firm’s net risk position credit derivatives individually negotiated contracts various settlement payment conventions credit events include failure pay bankruptcy acceleration indebtedness restructuring repudiation dissolution reference entity credit default swaps singlename credit default swaps protect buyer loss principal one bonds loans mortgages reference obligations event issuer reference entity reference obligations suffers credit event buyer protection pays initial periodic premium seller receives protection period contract credit event defined contract seller protection makes payments buyer protection however credit event occurs seller protection required make payment buyer protection calculated accordance terms contract credit indices baskets tranches credit derivatives may reference basket singlename credit default swaps broadbased index credit event occurs one underlying reference obligations protection seller pays protection buyer payment typically prorata portion transaction’s total notional amount based underlying defaulted reference obligation certain transactions credit risk basket index separated various portions tranches different levels subordination junior tranches cover initial defaults losses exceed notional amount junior tranches excess loss covered next senior tranche capital structure total return swaps total return swap transfers risks relating economic performance reference obligation protection buyer protection seller typically protection buyer receives protection seller floating rate interest protection reduction fair value reference obligation return protection seller receives cash flows associated reference obligation plus increase fair value reference obligation credit options credit option writer assumes obligation purchase sell reference obligation specified price credit spread option purchaser buys right assume obligation sell reference obligation purchase option writer payments credit options depend either particular credit spread price reference obligation firm economically hedges exposure written credit derivatives primarily entering offsetting purchased credit derivatives identical underlyings substantially firm’s purchased credit derivative transactions financial institutions subject stringent collateral thresholds addition upon occurrence specified trigger event firm may take possession reference obligations underlying particular written credit derivative consequently may upon liquidation reference obligations recover amounts underlying reference obligations event default goldman sachs group inc subsidiaries notes consolidated financial statements december 2012 written purchased credit derivatives total gross notional amounts 176 trillion 186 trillion respectively total net notional purchased protection 9833 billion december 2011 written purchased credit derivatives total gross notional amounts 196 trillion 208 trillion respectively total net notional purchased protection 11693 billion table presents certain information credit derivatives table  fair values exclude effects netting receivable balances payable balances enforceable netting agreements netting cash received posted credit support agreements therefore representative firm’s credit exposure  tenor based expected duration mortgagerelated credit derivatives remaining contractual maturity credit derivatives  credit spread underlying together tenor contract indicators paymentperformance risk firm less likely pay otherwise required perform credit spread tenor lower 1 offsetting purchased credit derivatives represent notional amount purchased credit derivatives extent economically hedge written credit derivatives identical underlyings 2 purchased protection represents notional amount purchased credit derivatives excess notional amount included “offsetting purchased credit derivatives” hedge accounting firm applies hedge accounting certain interest rate swaps used manage interest rate exposure certain fixedrate unsecured longterm shortterm borrowings certain fixedrate certificates deposit ii certain foreign currency forward contracts foreign currencydenominated debt used manage foreign currency exposures firm’s net investment certain nonus operations qualify hedge accounting derivative hedge must highly effective reducing risk exposure hedged additionally firm must formally document hedging relationship inception test hedging relationship least quarterly basis ensure derivative hedge continues highly effective life hedging relationship goldman sachs group inc subsidiaries notes consolidated financial statements interest rate hedges firm designates certain interest rate swaps fair value hedges interest rate swaps hedge changes fair value attributable relevant benchmark interest rate eg london interbank offered rate libor effectively converting substantial portion fixedrate obligations floatingrate obligations firm applies statistical method utilizes regression analysis assessing effectiveness fair value hedging relationships achieving offsetting changes fair values hedging instrument risk hedged ie interest rate risk interest rate swap considered highly effective offsetting changes fair value attributable changes hedged risk regression analysis results coefficient determination 80 greater slope 80 125 qualifying fair value hedges gains losses derivatives included “interest expense” change fair value hedged item attributable risk hedged reported adjustment carrying value subsequently amortized interest expense remaining life gains losses resulting hedge ineffectiveness included “interest expense” derivative longer designated hedge remaining difference carrying value par value hedged item amortized interest expense remaining life hedged item using effective interest method see note 23 information interest income interest expense table presents gainslosses interest rate derivatives accounted hedges related hedged borrowings bank deposits hedge ineffectiveness derivatives 1 primarily consisted amortization prepaid credit spreads resulting passage time gainloss excluded assessment hedge effectiveness material years ended december 2012 december 2011 december 2010 net investment hedges firm seeks reduce impact fluctuations foreign exchange rates net investment certain nonus operations use foreign currency forward contracts foreign currencydenominated debt foreign currency forward contracts designated hedges effectiveness hedge assessed based overall changes fair value forward contracts ie based changes forward rates foreign currencydenominated debt designated hedge effectiveness hedge assessed based changes spot rates qualifying net investment hedges gains losses hedging instruments extent effective included “currency translation adjustment net tax” within consolidated statements comprehensive income table presents gainslosses net investment hedging gainloss related ineffectiveness material years ended december 2012 december 2011 december 2010 loss reclassified earnings accumulated comprehensive income material years ended december 2012 december 2010 186 million year ended december 2011 december 2012 december 2011 firm designated 277 billion 311 billion respectively foreign currencydenominated debt included “unsecured longterm borrowings” “unsecured shortterm borrowings” hedges net investments nonus subsidiaries goldman sachs group inc subsidiaries notes consolidated financial statements note 8 fair value option note 8 fair value option financial assets financial liabilities fair value addition cash derivative instruments included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” firm elected account certain financial assets financial liabilities fair value fair value option primary reasons electing fair value option  reflect economic events earnings timely basis  mitigate volatility earnings using different measurement attributes eg transfers financial instruments owned accounted financings recorded fair value whereas related secured financing would recorded accrual basis absent electing fair value option  address simplification costbenefit considerations eg accounting hybrid financial instruments fair value entirety versus bifurcation embedded derivatives hedge accounting debt hosts hybrid financial instruments contain bifurcatable embedded derivatives require settlement physical delivery nonfinancial assets eg physical commodities firm elects bifurcate embedded derivative associated debt derivative accounted fair value host contract accounted amortized cost adjusted effective portion fair value hedges firm elect bifurcate entire hybrid financial instrument accounted fair value fair value option financial assets financial liabilities accounted fair value fair value option include  repurchase agreements substantially resale agreements  securities borrowed loaned within fixed income currency commodities client execution  substantially secured financings including transfers assets accounted financings rather sales certain nonrecourse financings  certain unsecured shortterm borrowings consisting promissory notes commercial paper certain hybrid financial instruments  certain unsecured longterm borrowings including prepaid commodity transactions certain hybrid financial instruments  certain receivables customers counterparties including certain margin loans transfers assets accounted secured loans rather purchases  certain insurance reinsurance contract assets liabilities certain guarantees  certain subordinated liabilities issued consolidated vies  certain time deposits issued firm’s bank subsidiaries deposits stated maturity eligible fair value option election including structured certificates deposit hybrid financial instruments financial assets financial liabilities fair value generally valued based discounted cash flow techniques incorporate inputs reasonable levels price transparency generally classified level 2 inputs observable valuation adjustments may made liquidity counterparty firm’s credit quality see information significant inputs used value financial assets financial liabilities fair value including ranges significant unobservable inputs used value level 3 instruments within categories ranges represent significant unobservable inputs used valuation type financial assets financial liabilities fair value ranges weighted averages inputs representative appropriate inputs use calculating fair value one instrument example highest yield presented resale repurchase agreements appropriate valuing specific agreement category may appropriate valuing agreements category accordingly range inputs presented represent uncertainty possible ranges fair value measurements firm’s level 3 financial assets financial liabilities goldman sachs group inc subsidiaries notes consolidated financial statements resale repurchase agreements securities borrowed loaned significant inputs valuation resale repurchase agreements securities borrowed loaned collateral funding spreads amount timing expected future cash flows interest rates ranges significant unobservable inputs used value level 3 resale repurchase agreements december 2012 follows  yield 17 54 weighted average 19  duration 04 45 years weighted average 41 years generally increases yield duration isolation would result lower fair value measurement due distinctive nature firm’s level 3 resale repurchase agreements interrelationship inputs necessarily uniform across agreements see note 9 information collateralized agreements secured financings significant inputs valuation secured financings fair value amount timing expected future cash flows interest rates collateral funding spreads fair value collateral delivered firm determined using amount timing expected future cash flows market prices market yields recovery assumptions frequency additional collateral calls ranges significant unobservable inputs used value level 3 secured financings december 2012 follows  yield 03 200 weighted average 42  duration 03 108 years weighted average 24 years generally increases yield duration isolation would result lower fair value measurement due distinctive nature firm’s level 3 secured financings interrelationship inputs necessarily uniform across financings see note 9 information collateralized financings unsecured shortterm longterm borrowings significant inputs valuation unsecured shortterm longterm borrowings fair value amount timing expected future cash flows interest rates credit spreads firm well commodity prices case prepaid commodity transactions inputs used value embedded derivative component hybrid financial instruments consistent inputs used value firm’s derivative instruments see note 7 information derivatives see notes 15 16 information unsecured shortterm longterm borrowings respectively certain firm’s unsecured shortterm longterm instruments included level 3 substantially hybrid financial instruments significant unobservable inputs used value hybrid financial instruments primarily relate embedded derivative component borrowings inputs incorporated firm’s derivative disclosures related unobservable inputs note 7 insurance reinsurance contracts insurance reinsurance contracts fair value primarily included “receivables customers counterparties” “other liabilities accrued expenses” addition assets related firm’s reinsurance business classified held sale december 2012 included “other assets” insurance reinsurance contracts firm elected fair value option contracts settled cash qualify fair value option recognized financial instruments contracts valued using market transactions market evidence possible including marketbased inputs models calibration marketclearing transactions alternative pricing sources reasonable levels price transparency significant inputs interest rates inflation rates volatilities funding spreads yield duration incorporates policy lapse projected mortality assumptions unobservable inputs valuation model significant fair value measurement instrument classified level 3 range significant unobservable inputs used value level 3 insurance reinsurance contracts december 2012 follows  funding spreads 64 bps 105 bps weighted average 85 bps  yield 44 151 weighted average 62  duration 53 88 years weighted average 76 years generally increases funding spreads yield duration isolation would result lower fair value measurement goldman sachs group inc subsidiaries notes consolidated financial statements receivables customers counterparties receivables customers counterparties fair value excluding insurance reinsurance contracts primarily comprised transfers assets accounted secured loans rather purchases significant inputs valuation receivables commodity prices interest rates amount timing expected future cash flows funding spreads range significant unobservable inputs used value level 3 receivables customers counterparties december 2012 follows  funding spreads 57 bps 145 bps weighted average 105 bps generally increase funding spreads would result lower fair value measurement receivables customers counterparties accounted fair value accounted amortized cost net estimated uncollectible amounts generally approximates fair value receivables primarily comprised customer margin loans collateral posted connection certain derivative transactions items carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 7 8 items included firm’s fair value hierarchy substantially would classified level 2 december 2012 receivables customers counterparties accounted fair value also includes loans held investment primarily comprised collateralized loans private wealth management clients corporate loans december 2012 december 2011 carrying value loans 650 billion 376 billion respectively generally approximated fair value december 2012 loans carried fair value included fair value hierarchy 241 billion 406 billion would classified level 2 level 3 respectively deposits significant inputs valuation time deposits interest rates amount timing future cash flows inputs used value embedded derivative component hybrid financial instruments consistent inputs used value firm’s derivative instruments see note 7 information derivatives see note 14 information deposits firm’s deposits included level 3 hybrid financial instruments significant unobservable inputs used value hybrid financial instruments primarily relate embedded derivative component deposits inputs incorporated firm’s derivative disclosures related unobservable inputs note 7 goldman sachs group inc subsidiaries notes consolidated financial statements fair value financial assets financial liabilities level tables present level within fair value hierarchy financial assets financial liabilities accounted fair value primarily fair value option 1 includes securities segregated regulatory purposes accounted fair value fair value option consists securities borrowed resale agreements table includes 2155 billion level 1 securities segregated regulatory purposes accounted fair value us gaap consisting us treasury securities money market instruments 2 consists assets classified held sale related firm’s reinsurance business primarily consisting securities accounted availableforsale insurance separate account assets accounted fair value us gaap assets previously included “financial instruments owned fair value” “securities segregated regulatory purposes” respectively 3 consists insurance contracts derivatives classified held sale see “insurance reinsurance contracts” note 7 information valuation techniques inputs related insurance contracts derivatives respectively 4 includes 692 million liabilities classified held sale related firm’s reinsurance business accounted fair value fair value option goldman sachs group inc subsidiaries notes consolidated financial statements 1 includes securities segregated regulatory purposes accounted fair value fair value option consists securities borrowed resale agreements table includes 2126 billion level 1 528 million level 2 securities segregated regulatory purposes accounted fair value us gaap principally consisting us treasury securities money market instruments insurance separate account assets goldman sachs group inc subsidiaries notes consolidated financial statements transfers levels fair value hierarchy transfers levels fair value hierarchy reported beginning reporting period occur transfers financial assets financial liabilities level 1 level 2 year ended december 2012 tables present information transfers level 2 level 3 level 3 rollforward financial asset financial liability transferred level 3 reporting year entire gain loss year included level 3 tables present changes fair value financial assets financial liabilities accounted fair value categorized level 3 end year level 3 financial assets liabilities frequently economically hedged cash instruments derivatives accordingly gains losses reported level 3 partially offset gains losses attributable level 1 2 3 cash instruments derivatives result gains losses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources 1 aggregate amounts include gainslosses approximately 119 million 3 million 10 million reported “market making” “other principal transactions” “interest income” respectively 1 aggregate amounts include losses approximately 137 billion 113 million 15 million reported “market making” “other principal transactions” “interest expense” respectively net unrealized loss level 3 financial liabilities 139 billion year ended december 2012 primarily reflected impact tighter funding spreads changes foreign exchange rates certain insurance liabilities increase global equity prices tighter credit spreads certain hybrid financial instruments transfers level 3 financial assets year ended december 2012 reflected transfers level 3 assets classified held sale related firm’s reinsurance business previously included level 3 “financial instruments owned fair value” goldman sachs group inc subsidiaries notes consolidated financial statements transfers level 3 financial assets year ended december 2012 reflected transfers level 2 certain insurance receivables primarily due increased transparency mortality inputs used value receivables transfers level 3 financial liabilities year ended december 2012 primarily reflected transfers level 2 certain hybrid financial instruments principally due decreased transparency certain correlation volatility inputs used value instruments transfers level 3 financial liabilities year ended december 2012 primarily reflected transfers level 2 certain hybrid financial instruments principally due increased transparency certain correlation volatility inputs used value instruments unobservable inputs longer significant valuation instruments 1 aggregate amounts include gains approximately 54 million 2 million reported “market making” “other principal transactions” respectively 1 aggregate amounts include losses approximately 766 million 7 million 8 million reported “market making” “other principal transactions” “interest expense” respectively net unrealized loss financial assets liabilities fair value 709 million year ended december 2011 primarily consisted losses liabilities accrued expenses primarily attributable impact change interest rates certain insurance liabilities losses primarily offset gains unsecured shortterm borrowings primarily reflecting gains certain equitylinked notes principally due decline global equity markets significant transfers level 3 year ended december 2011 included  secured financings net transfer level 3 303 billion principally due transfers level 2 certain borrowings unobservable inputs longer significant valuation borrowings neared maturity  unsecured shortterm borrowings net transfer level 3 443 million principally due transfers level 3 certain borrowings due less transparency market prices result less activity financial instruments goldman sachs group inc subsidiaries notes consolidated financial statements gains losses financial assets financial liabilities accounted fair value fair value option table presents gains losses recognized result firm electing apply fair value option certain financial assets financial liabilities gains losses included “market making” “other principal transactions” table also includes gains losses embedded derivative component hybrid financial instruments included unsecured shortterm borrowings unsecured longterm borrowings gains losses would recognized us gaap even firm elected account entire hybrid instrument fair value amounts table exclude contractual interest included “interest income” “interest expense” instruments hybrid financial instruments see note 23 information interest income interest expense 1 primarily consists gainslosses certain reinsurance contracts certain transfers accounted receivables rather purchases 2 includes gainslosses embedded derivative component hybrid financial instruments 814 million 201 billion 149 billion december 2012 december 2011 december 2010 respectively 3 includes gainslosses embedded derivative component hybrid financial instruments 887 million 180 billion 132 billion december 2012 december 2011 december 2010 respectively 4 primarily consists gainslosses certain insurance contracts 5 primarily consists gainslosses resale repurchase agreements securities borrowed loaned deposits excluding gains losses instruments accounted fair value option described “market making” “other principal transactions” primarily represent gains losses “financial instruments owned fair value” “financial instruments sold yet purchased fair value” goldman sachs group inc subsidiaries notes consolidated financial statements loans lending commitments table presents difference aggregate fair value aggregate contractual principal amount loans longterm receivables fair value option elected 1 aggregate contractual principal exceeds related fair value primarily firm regularly purchases loans distressed loans values significantly contractual principal amounts december 2012 december 2011 fair value unfunded lending commitments fair value option elected liability 199 billion 282 billion respectively related total contractual amount lending commitments 5929 billion 6612 billion respectively see note 18 information lending commitments longterm debt instruments aggregate contractual principal amount longterm secured financings fair value option elected exceeded related fair value 115 million 239 million december 2012 december 2011 respectively fair value unsecured longterm borrowings fair value option elected exceeded related aggregate contractual principal amount 379 million december 2012 whereas aggregate contractual principal amount exceeded related fair value 693 million december 2011 amounts include principal nonprincipalprotected longterm borrowings impact credit spreads loans lending commitments estimated net gainloss attributable changes instrumentspecific credit spreads loans lending commitments fair value option elected 307 billion 805 million 185 billion years ended december 2012 december 2011 december 2010 respectively changes fair value loans lending commitments primarily attributable changes instrumentspecific credit spreads substantially firm’s performing loans lending commitments floatingrate impact credit spreads borrowings table presents net gainslosses attributable impact changes firm’s credit spreads borrowings fair value option elected firm calculates fair value borrowings discounting future cash flows rate incorporates firm’s credit spreads goldman sachs group inc subsidiaries notes consolidated financial statements note 9 collateralized agreements financings note 9 collateralized agreements financings collateralized agreements securities purchased agreements resell resale agreements reverse repurchase agreements securities borrowed collateralized financings securities sold agreements repurchase agreements securities loaned secured financings firm enters transactions order among things facilitate client activities invest excess cash acquire securities cover short positions finance certain firm activities collateralized agreements financings presented netbycounterparty basis legal right setoff exists interest collateralized agreements collateralized financings recognized life transaction included “interest income” “interest expense” respectively see note 23 information interest income interest expense table presents carrying value resale repurchase agreements securities borrowed loaned transactions 1 substantially resale repurchase agreements carried fair value fair value option see note 8 information valuation techniques significant inputs used determine fair value 2 december 2012 december 2011 3840 billion 4762 billion securities borrowed 156 billion 107 million securities loaned fair value respectively resale repurchase agreements resale agreement transaction firm purchases financial instruments seller typically exchange cash simultaneously enters agreement resell substantially financial instruments seller stated price plus accrued interest future date repurchase agreement transaction firm sells financial instruments buyer typically exchange cash simultaneously enters agreement repurchase substantially financial instruments buyer stated price plus accrued interest future date financial instruments purchased sold resale repurchase agreements typically include us government federal agency investmentgrade sovereign obligations firm receives financial instruments purchased resale agreements makes delivery financial instruments sold repurchase agreements monitors market value financial instruments daily basis delivers obtains additional collateral due changes market value financial instruments appropriate resale agreements firm typically requires delivery collateral fair value approximately equal carrying value relevant assets consolidated statements financial condition even though repurchase resale agreements involve legal transfer ownership financial instruments accounted financing arrangements require financial instruments repurchased resold maturity agreement however “repos maturity” accounted sales repo maturity transaction firm transfers security agreement repurchase security maturity date repurchase agreement matches maturity date underlying security therefore firm effectively longer repurchase obligation relinquished control underlying security accordingly accounts transaction sale firm repos maturity outstanding december 2012 december 2011 goldman sachs group inc subsidiaries notes consolidated financial statements securities borrowed loaned transactions securities borrowed transaction firm borrows securities counterparty exchange cash firm returns securities counterparty returns cash interest generally paid periodically life transaction securities loaned transaction firm lends securities counterparty typically exchange cash securities letter credit counterparty returns securities firm returns cash securities posted collateral interest generally paid periodically life transaction firm receives securities borrowed makes delivery securities loaned monitors market value securities daily basis delivers obtains additional collateral due changes market value securities appropriate securities borrowed transactions firm typically requires collateral fair value approximately equal carrying value securities borrowed transaction securities borrowed loaned within fixed income currency commodities client execution recorded fair value fair value option see note 8 information securities borrowed loaned accounted fair value securities borrowed loaned within securities services recorded based amount cash collateral advanced received plus accrued interest arrangements generally terminated demand exhibit little sensitivity changes interest rates therefore carrying value arrangements approximates fair value arrangements carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 7 8 arrangements included firm’s fair value hierarchy would classified level 2 december 2012 december 2012 december 2011 firm 894 billion 2022 billion respectively securities received resale agreements securities borrowed transactions segregated satisfy certain regulatory requirements securities included “cash securities segregated regulatory purposes” secured financings addition repurchase agreements securities lending transactions firm funds certain assets use secured financings pledges financial instruments assets collateral transactions secured financings consist  liabilities consolidated vies  transfers assets accounted financings rather sales primarily collateralized central bank financings pledged commodities bank loans mortgage whole loans  structured financing arrangements secured financings include arrangements nonrecourse december 2012 december 2011 nonrecourse secured financings 176 billion 314 billion respectively firm elected apply fair value option substantially secured financings use fair value eliminates noneconomic volatility earnings would arise using different measurement attributes see note 8 information secured financings accounted fair value secured financings recorded fair value recorded based amount cash received plus accrued interest generally approximates fair value financings carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 7 8 financings included firm’s fair value hierarchy would primarily classified level 3 december 2012 goldman sachs group inc subsidiaries notes consolidated financial statements table presents information secured financings table  shortterm secured financings include financings maturing within one year financial statement date financings redeemable within one year financial statement date option holder  longterm secured financings repayable prior maturity option firm reflected contractual maturity dates  longterm secured financings redeemable prior maturity option holders reflected dates options become exercisable 1 weighted average interest rates exclude secured financings fair value include effect hedging activities see note 7 information hedging activities 2 includes 868 billion 936 billion related transfers financial assets accounted financings rather sales december 2012 december 2011 respectively financings collateralized financial assets included “financial instruments owned fair value” 892 billion 951 billion december 2012 december 2011 respectively 3 includes 1724 billion 1433 billion secured financings collateralized financial instruments owned fair value december 2012 december 2011 respectively includes 1353 billion 2079 billion secured financings collateralized financial instruments received collateral repledged december 2012 december 2011 respectively 4 primarily real estate cash table presents secured financings maturity goldman sachs group inc subsidiaries notes consolidated financial statements collateral received pledged firm receives financial instruments eg us government federal agency sovereign corporate obligations well equities convertible debentures collateral primarily connection resale agreements securities borrowed derivative transactions customer margin loans many cases firm permitted deliver repledge financial instruments entering repurchase agreements securities lending agreements primarily connection secured client financing activities firm also permitted deliver repledge financial instruments connection secured financings collateralizing derivative transactions meeting firm customer settlement requirements table presents financial instruments fair value received collateral available delivered repledged delivered repledged firm also pledges certain financial instruments owned fair value connection repurchase agreements securities lending agreements secured financings assets primarily real estate cash connection secured financings counterparties may right deliver repledge table presents information assets pledged firm note 10 securitization activities note 10 securitization activities firm securitizes residential commercial mortgages corporate bonds loans types financial assets selling assets securitization vehicles eg trusts corporate entities limited liability companies acts underwriter beneficial interests sold investors firm’s residential mortgage securitizations substantially connection government agency securitizations beneficial interests issued securitization entities debt equity securities give investors rights receive portions specified cash inflows securitization vehicle include senior subordinated shares principal interest andor cash inflows proceeds sale beneficial interests used pay transferor financial assets sold securitization vehicle purchase securities serve collateral firm accounts securitization sale relinquished control transferred assets prior securitization firm accounts assets pending transfer fair value therefore typically recognize significant gains losses upon transfer assets net revenues underwriting activities recognized connection sales underlying beneficial interests investors transfers assets accounted sales assets remain “financial instruments owned fair value” transfer accounted collateralized financing related interest expense recognized life transaction see notes 9 23 information collateralized financings interest expense respectively firm generally receives cash exchange transferred assets may also continuing involvement transferred assets including ownership beneficial interests securitized financial assets primarily form senior subordinated securities firm may also purchase senior subordinated securities issued securitization vehicles typically vies connection secondary marketmaking activities goldman sachs group inc subsidiaries notes consolidated financial statements primary risks included beneficial interests firm’s continuing involvement securitization vehicles performance underlying collateral position firm’s investment capital structure securitization vehicle market yield security interests accounted fair value included “financial instruments owned fair value” generally classified level 2 fair value hierarchy see notes 5 8 information fair value measurements table presents amount financial assets securitized cash flows received retained interests securitization entities firm continuing involvement table presents firm’s continuing involvement nonconsolidated securitization entities firm sold assets well total outstanding principal amount transferred assets firm continuing involvement table  outstanding principal amount presented purpose providing information size securitization entities firm continuing involvement representative firm’s risk loss  retained purchased interests firm’s risk loss limited fair value interests  purchased interests represent senior subordinated interests purchased connection secondary marketmaking activities securitization entities firm also holds retained interests 1 outstanding principal amount fair value retained interests primarily relate securitizations 2012 2011 december 2012 securitizations 2011 2010 december 2011 2 outstanding principal amount fair value retained interests december 2012 december 2011 primarily relate prime alta securitizations 2007 2006 3 december 2012 outstanding principal amount primarily relates securitizations 2012 2007 fair value retained interests primarily relate securitizations 2012 december 2011 outstanding principal amount primarily relates securitizations 2010 2007 2006 fair value retained interests primarily relates securitizations 2010 4 outstanding principal amount fair value retained interests december 2012 december 2011 primarily relate cdo clo securitizations 2007 2006 5 outstanding principal amount includes 835 million 774 million december 2012 december 2011 respectively related securitization entities firm’s continuing involvement retained servicing variable interest goldman sachs group inc subsidiaries notes consolidated financial statements addition interests table firm continuing involvement form derivative transactions guarantees certain nonconsolidated vies carrying value derivatives guarantees net asset 45 million net liability 52 million december 2012 december 2011 respectively notional amounts derivatives guarantees included maximum exposure loss nonconsolidated vie tables note 11 table presents weighted average key economic assumptions used measuring fair value retained interests sensitivity fair value immediate adverse changes 10 20 assumptions 1 due nature current fair value certain retained interests weighted average assumptions constant prepayment discount rates related sensitivity adverse changes meaningful december 2012 december 2011 firm’s maximum exposure adverse changes value interests carrying value 51 million 32 million december 2012 december 2011 respectively 2 constant prepayment rate included positions constant prepayment rate key assumption determination fair value 3 majority mortgagebacked retained interests us government agencyissued collateralized mortgage obligations anticipated credit loss remainder retained interests expected credit loss assumptions reflected discount rate preceding table give effect offsetting benefit financial instruments held mitigate risks inherent retained interests changes fair value based adverse variation assumptions generally cannot extrapolated relationship change assumptions change fair value usually linear addition impact change particular assumption preceding table calculated independently changes assumption practice simultaneous changes assumptions might magnify counteract sensitivities disclosed goldman sachs group inc subsidiaries notes consolidated financial statements note 11 variable interest entities note 11 variable interest entities vies generally finance purchase assets issuing debt equity securities either collateralized indexed assets held vie debt equity securities issued vie may include tranches varying levels subordination firm’s involvement vies includes securitization financial assets described note 10 investments loans types vies described see note 10 additional information securitization activities including definition beneficial interests see note 3 firm’s consolidation policies including definition vie firm principally involved vies following business activities mortgagebacked vies corporate cdo clo vies firm sells residential commercial mortgage loans securities mortgagebacked vies corporate bonds loans corporate cdo clo vies may retain beneficial interests assets sold vies firm purchases sells beneficial interests issued mortgagebacked corporate cdo clo vies connection marketmaking activities addition firm may enter derivatives certain vies primarily interest rate swaps typically variable interests firm generally enters derivatives counterparties mitigate risk derivatives vies certain mortgagebacked corporate cdo clo vies usually referred synthetic cdos creditlinked note vies synthetically create exposure beneficial interests issue entering credit derivatives rather purchasing underlying assets credit derivatives may reference single asset index portfoliobasket assets indices see note 7 information credit derivatives vies use funds sale beneficial interests premiums received credit derivative counterparties purchase securities serve collateralize beneficial interest holders andor credit derivative counterparty vies may enter derivatives primarily interest rate swaps typically variable interests firm may counterparty derivatives vies generally enters derivatives counterparties mitigate risk real estate creditrelated investing vies firm purchases equity debt securities issued makes loans vies hold real estate performing nonperforming debt distressed loans equity securities firm typically sell assets enter derivatives vies assetbacked vies firm structures vies issue notes clients purchases sells beneficial interests issued assetbacked vies connection marketmaking activities addition firm may enter derivatives certain assetbacked vies primarily total return swaps collateral assets held vies firm pays vie return due note holders receives return collateral assets owned vie firm generally removed total return swap counterparty firm generally enters derivatives counterparties mitigate risk derivatives vies firm typically sell assets assetbacked vies structures powerrelated vies firm purchases debt equity securities issued may provide guarantees vies hold powerrelated assets firm typically sell assets enter derivatives vies investment funds firm purchases equity securities issued may provide guarantees certain investment funds manages firm typically sell assets enter derivatives vies principalprotected note vies firm structures vies issue principalprotected notes clients vies portfolios assets principally exposure hedge funds substantially principal protection notes issued vies provided asset portfolio rebalancing required terms notes firm enters total return swaps vies firm pays vie return due principalprotected note holders receives return assets owned vie firm may enter derivatives counterparties mitigate risk derivatives enters vies firm also obtains funding vies goldman sachs group inc subsidiaries notes consolidated financial statements vie consolidation analysis variable interest vie investment eg debt equity securities interest eg derivatives loans lending commitments vie absorb portions vie’s expected losses andor receive portions vie’s expected residual returns firm’s variable interests vies include senior subordinated debt residential commercial mortgagebacked assetbacked securitization entities cdos clos loans lending commitments limited general partnership interests preferred common equity derivatives may include foreign currency equity andor credit risk guarantees certain fees firm receives investment funds certain interest rate foreign currency credit derivatives firm enters vies variable interests create rather absorb risk enterprise controlling financial interest vie known primary beneficiary consolidates vie firm determines whether primary beneficiary vie performing analysis principally considers  variable interest holder power direct activities vie significantly impact vie’s economic performance  variable interest holder obligation absorb losses right receive benefits vie could potentially significant vie  vie’s purpose design including risks vie designed create pass variable interest holders  vie’s capital structure  terms vie variable interest holders parties involved vie  relatedparty relationships firm reassesses initial evaluation whether entity vie certain reconsideration events occur firm reassesses determination whether primary beneficiary vie ongoing basis based current facts circumstances nonconsolidated vies firm’s exposure obligations vies generally limited interests entities certain instances firm provides guarantees including derivative guarantees vies holders variable interests vies tables present information nonconsolidated vies firm holds variable interests nonconsolidated vies aggregated based principal business activity nature firm’s variable interests take different forms described rows maximum exposure loss tables  maximum exposure loss excludes benefit offsetting financial instruments held mitigate risks associated variable interests  retained purchased interests loans investments maximum exposure loss carrying value interests  commitments guarantees derivatives maximum exposure loss notional amount represent anticipated losses also reduced unrealized losses already recorded result maximum exposure loss exceeds liabilities recorded commitments guarantees derivatives provided vies carrying values firm’s variable interests nonconsolidated vies included consolidated statement financial condition follows  substantially assets held firm related mortgagebacked corporate cdo clo assetbacked vies investment funds included “financial instruments owned fair value” substantially liabilities held firm related corporate cdo clo assetbacked vies included “financial instruments sold yet purchased fair value” goldman sachs group inc subsidiaries notes consolidated financial statements  assets liabilities held firm related real estate creditrelated investing vies primarily included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” “other liabilities accrued expenses” respectively  assets liabilities held firm related powerrelated vies primarily included “financial instruments owned fair value” “other assets” “other liabilities accrued expenses” respectively 1 aggregate amounts include 325 billion 417 billion december 2012 december 2011 respectively related guarantees derivative transactions vies firm transferred assets 2 assets vie maximum exposure loss include 357 billion 172 billion respectively december 2012 615 billion 262 billion respectively december 2011 related cdos backed mortgage obligations goldman sachs group inc subsidiaries notes consolidated financial statements consolidated vies tables present carrying amount classification assets liabilities consolidated vies excluding benefit offsetting financial instruments held mitigate risks associated firm’s variable interests consolidated vies aggregated based principal business activity assets liabilities presented net intercompany eliminations majority assets principalprotected notes vies intercompany eliminated consolidation substantially assets consolidated vies used settle obligations vie tables exclude vies firm holds majority voting interest vie meets definition business ii vie’s assets used purposes settlement obligations liabilities real estate creditrelated investing vies cdos mortgagebacked assetbacked vies recourse general credit firm goldman sachs group inc subsidiaries notes consolidated financial statements goldman sachs group inc subsidiaries notes consolidated financial statements note 12 assets note 12 assets generally less liquid nonfinancial assets table presents assets type 1 net accumulated depreciation amortization 905 billion 846 billion december 2012 december 2011 respectively 2 includes 149 million intangible assets classified held sale see note 13 information goodwill identifiable intangible assets 3 see note 24 information income taxes 4 excludes investments accounted fair value fair value option firm would otherwise apply equity method accounting 554 billion 417 billion december 2012 december 2011 respectively included “financial instruments owned fair value” firm generally elected fair value option investments acquired fair value option became available 5 includes 1677 billion assets related firm’s reinsurance business classified held sale december 2012 assets held sale fourth quarter 2012 firm classified reinsurance business within institutional client services segment held sale assets related business 1692 billion consisting primarily availableforsale securities separate account assets fair value included “other assets” liabilities related business 1462 billion included “other liabilities accrued expenses” see note 8 information insurancerelated assets liabilities held sale fair value firm expects complete sale majority stake reinsurance business 2013 expect recognize material gain loss upon sale upon completion sale firm longer consolidate business property leasehold improvements equipment property leasehold improvements equipment included 620 billion 648 billion december 2012 december 2011 respectively related property leasehold improvements equipment firm uses connection operations remainder held investment entities including vies consolidated firm substantially property equipment depreciated straightline basis useful life asset leasehold improvements amortized straightline basis useful life improvement term lease whichever shorter certain costs software developed obtained internal use capitalized amortized straightline basis useful life software property leasehold improvements equipment tested impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable firm’s policy impairment testing property leasehold improvements equipment used identifiable intangible assets finite lives see note 13 information goldman sachs group inc subsidiaries notes consolidated financial statements impairments result decline market conditions certain firm’s consolidated investments operate 2012 2011 firm tested certain property leasehold improvements equipment intangible assets impairment accordance asc 360 carrying value assets exceeded projected undiscounted cash flows estimated remaining useful lives assets firm determined assets impaired recorded impairment losses addition firm sold assets 2012 2011 recognized impairment losses prior sale assets impairment losses represented excess carrying values assets estimated fair values primarily level 3 measurements using combination discounted cash flow analyses relative value analyses including estimated cash flows expected received disposition certain assets impairment losses approximately 400 million year ended december 2012 substantially included “depreciation amortization” within firm’s investing lending segment impairment losses related property leasehold improvements equipment approximately 250 million including approximately 160 million attributable commodityrelated assets impairment losses related intangible assets approximately 150 million including approximately 80 million attributable commodityrelated assets approximately 40 million attributable firm’s new york stock exchange nyse designated market maker dmm rights impairment losses approximately 440 million year ended december 2011 approximately 220 million related assets classified held sale primarily related litton loan servicing lp litton approximately 120 million related commodityrelated intangible assets approximately 100 million related property leasehold improvements equipment included “depreciation amortization” impairment losses related commodityrelated intangible assets property leasehold improvements equipment included firm’s investing lending segment impairment losses related assets classified held sale principally included firm’s institutional client services segment litton sold third quarter 2011 firm received total consideration approximated firm’s adjusted carrying value litton see note 18 information sale litton goldman sachs group inc subsidiaries notes consolidated financial statements note 13 goodwill identifiable intangible assets note 13 goodwill identifiable intangible assets tables present carrying values goodwill identifiable intangible assets included “other assets” goodwill cost acquired companies excess fair value net assets including identifiable intangible assets acquisition date goodwill assessed annually fourth quarter impairment frequently events occur circumstances change indicate impairment may exist qualitative factors assessed determine whether likely fair value reporting unit less carrying amount results qualitative assessment conclusive quantitative goodwill impairment test performed quantitative goodwill impairment test consists two steps  first step compares estimated fair value reporting unit estimated net book value including goodwill identified intangible assets reporting unit’s fair value exceeds estimated net book value goodwill impaired  estimated fair value reporting unit less estimated net book value second step goodwill impairment test performed measure amount impairment loss impairment loss equal excess carrying amount goodwill fair value goodwill tested impairment using quantitative test fourth quarter 2012 goodwill impaired estimate fair value reporting unit relative value residual income valuation techniques used firm believes market participants would use techniques value firm’s reporting units relative value techniques apply average observable pricetoearnings multiples comparable competitors certain reporting units’ net earnings reporting units fair value estimated using pricetobook multiples based residual income techniques consider reporting unit’s return equity excess firm’s cost equity capital net book value reporting unit reflects allocation total shareholders’ equity represents estimated amount shareholders’ equity required support activities reporting unit guidelines issued basel committee banking supervision basel committee december 2010 goldman sachs group inc subsidiaries notes consolidated financial statements identifiable intangible assets table presents gross carrying amount accumulated amortization net carrying amount identifiable intangible assets weighted average remaining lives 1 primarily includes commodityrelated customer contracts relationships permits access rights 2 primarily related firm’s reinsurance business classified held sale see note 12 information 3 primarily includes firm’s exchangetraded fund lead market maker rights nyse dmm rights substantially firm’s identifiable intangible assets considered finite lives amortized estimated lives ii based economic usage certain commodityrelated intangibles iii proportion estimated gross profits premium revenues amortization expense identifiable intangible assets included “depreciation amortization” goldman sachs group inc subsidiaries notes consolidated financial statements tables present amortization expense identifiable intangible assets years ended december 2012 december 2011 december 2010 estimated future amortization expense 2017 identifiable intangible assets december 2012 identifiable intangible assets tested recoverability whenever events changes circumstances indicate asset’s asset group’s carrying value may recoverable recoverability test necessary carrying value asset group compared total undiscounted cash flows expected received remaining useful life disposition asset group  total undiscounted cash flows exceeds carrying value asset group impaired  total undiscounted cash flows less carrying value asset group fully recoverable impairment loss recognized difference carrying amount asset group estimated fair value see note 12 information impairments firm’s identifiable intangible assets note 14 deposits note 14 deposits table presents deposits held us nonus offices substantially interestbearing substantially us deposits held goldman sachs bank usa gs bank usa substantially nonus deposits held goldman sachs bank europe plc gs bank europe goldman sachs international bank gsib january 18 2013 gs bank europe surrendered banking license central bank ireland transferring deposits gsib table presents maturities time deposits held us nonus offices 1 includes 510 billion 453 billion december 2012 december 2011 respectively time deposits accounted fair value fair value option see note 8 information deposits accounted fair value 2 includes 44 million greater 100000 7 million matures within three months 24 million matures within three six months 8 million matures within six twelve months 5 million matures twelve months 3 substantially greater 100000 december 2012 savings demand deposits represent deposits stated maturity 4651 billion recorded based amount cash received plus accrued interest approximates fair value addition firm designates certain derivatives fair value hedges substantially time deposits elected fair value option accordingly 1852 billion time deposits effectively converted fixedrate obligations floatingrate obligations recorded amounts generally approximate fair value savings demand deposits time deposits carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 7 8 deposits included firm’s fair value hierarchy would classified level 2 goldman sachs group inc subsidiaries notes consolidated financial statements note 15 shortterm borrowings note 15 shortterm borrowings shortterm borrowings comprised following see note 9 information secured financings unsecured shortterm borrowings include portion unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holder firm accounts promissory notes commercial paper certain hybrid financial instruments fair value fair value option see note 8 information unsecured shortterm borrowings accounted fair value carrying value shortterm borrowings recorded fair value generally approximates fair value due shortterm nature obligations shortterm borrowings carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 7 8 borrowings included firm’s fair value hierarchy substantially would classified level 2 december 2012 table presents unsecured shortterm borrowings 1 december 2012 borrowings guaranteed federal deposit insurance corporation fdic temporary liquidity guarantee program tlgp outstanding program expired new issuances includes 853 billion december 2011 issued group inc guaranteed fdic tlgp 2 includes 2465 billion 2795 billion december 2012 december 2011 respectively issued group inc 3 weighted average interest rates borrowings include effect hedging activities exclude financial instruments accounted fair value fair value option see note 7 information hedging activities goldman sachs group inc subsidiaries notes consolidated financial statements note 16 longterm borrowings note 16 longterm borrowings longterm borrowings comprised following see note 9 information secured financings table presents unsecured longterm borrowings extending 2061 consisting principally senior borrowings 1 interest rates us dollardenominated debt ranged 020 1004 weighted average rate 548 010 1004 weighted average rate 562 december 2012 december 2011 respectively interest rates nonus dollardenominated debt ranged 010 1485 weighted average rate 466 085 1485 weighted average rate 475 december 2012 december 2011 respectively 2 floating interest rates generally based libor federal funds target rate equitylinked indexed instruments included floatingrate obligations goldman sachs group inc subsidiaries notes consolidated financial statements table presents unsecured longterm borrowings maturity date table  unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holders included unsecured shortterm borrowings  unsecured longterm borrowings repayable prior maturity option firm reflected contractual maturity dates  unsecured longterm borrowings redeemable prior maturity option holders reflected dates options become exercisable 1 includes 1051 billion related interest rate hedges certain unsecured longterm borrowings year maturity follows 564 million 2014 536 million 2015 115 billion 2016 144 billion 2017 682 billion 2018 thereafter firm designates certain derivatives fair value hedges effectively convert substantial portion fixedrate unsecured longterm borrowings accounted fair value floatingrate obligations accordingly excluding cumulative impact changes firm’s credit spreads carrying value unsecured longterm borrowings approximated fair value december 2012 december 2011 see note 7 information hedging activities unsecured longterm borrowings firm elect fair value option cumulative impact due changes firm’s credit spreads would increase less 2 reduction less 4 carrying value total unsecured longterm borrowings december 2012 december 2011 respectively borrowings accounted fair value fair value option fair value accordance us gaap fair value included firm’s fair value hierarchy notes 6 7 8 borrowings included firm’s fair value hierarchy substantially would classified level 2 december 2012 table presents unsecured longterm borrowings giving effect hedging activities converted substantial portion fixedrate obligations floatingrate obligations 1 weighted average interest rates aggregate amounts 247 526 related fixedrate obligations 198 related floatingrate obligations 259 518 related fixedrate obligations 203 related floatingrate obligations december 2012 december 2011 respectively rates exclude financial instruments accounted fair value fair value option goldman sachs group inc subsidiaries notes consolidated financial statements subordinated borrowings unsecured longterm borrowings include subordinated debt junior subordinated debt junior subordinated debt junior right payment subordinated borrowings junior senior borrowings december 2012 december 2011 subordinated debt maturities ranging 2015 2038 2017 2038 respectively table presents subordinated borrowings 1 weighted average interest rate giving effect fair value hedges used convert fixedrate obligations floatingrate obligations see note 7 information hedging activities see information interest rates junior subordinated debt 2 par amount carrying amount subordinated debt issued group inc 1385 billion 1680 billion respectively december 2012 1375 billion 1680 billion respectively december 2011 junior subordinated debt junior subordinated debt issued apex trusts 2007 group inc issued total 225 billion remarketable junior subordinated debt goldman sachs capital ii goldman sachs capital iii apex trusts delaware statutory trusts apex trusts issued 225 billion guaranteed perpetual normal automatic preferred enhanced capital securities apex third parties de minimis amount common securities group inc group inc also entered contracts apex trusts sell 225 billion group inc perpetual noncumulative preferred stock purchase contracts see note 19 information preferred stock group inc issued connection stock purchase contracts firm accounted stock purchase contracts equity instruments accordingly recorded cost stock purchase contracts reduction additional paidin capital first quarter 2012 pursuant remarketing provided initial terms junior subordinated debt goldman sachs capital ii sold 175 billion junior subordinated debt murray street investment trust murray street trust new trust sponsored firm june 1 2012 pursuant stock purchase contracts goldman sachs capital ii used proceeds sale purchase shares group inc’s perpetual noncumulative preferred stock series e series e preferred stock third quarter 2012 pursuant remarketing provided initial terms junior subordinated debt goldman sachs capital iii sold 500 million junior subordinated debt vesey street investment trust vesey street trust new trust sponsored firm september 4 2012 pursuant stock purchase contracts goldman sachs capital iii used proceeds sale purchase shares group inc’s perpetual noncumulative preferred stock series f series f preferred stock connection remarketing junior subordinated debt murray street trust vesey street trust together 2012 trusts pursuant terms junior subordinated debt interest rate terms modified following sales firm pays interest semiannually 175 billion junior subordinated debt held murray street trust fixed annual rate 4647 debt matures march 9 2017 500 million junior subordinated debt held vesey street trust fixed annual rate 4404 debt matures september 1 2016 fund purchase junior subordinated debt 2012 trusts issued aggregate 225 billion senior guaranteed trust securities 2012 trusts required pay distributions senior guaranteed trust securities amounts dates scheduled receive interest junior subordinated debt hold required redeem respective senior guaranteed trust securities upon maturity earlier redemption junior subordinated debt hold group inc fully unconditionally guarantees payment distribution redemption amounts due senior basis 225 billion junior subordinated debt held 2012 trusts benefit investors longer classified junior subordinated debt goldman sachs group inc subsidiaries notes consolidated financial statements firm right defer payments junior subordinated debt subject limitations extension period firm permitted among things pay dividends make certain repurchases common preferred stock firm defer payment interest junior subordinated debt 2012 trusts therefore unable make scheduled distributions holders senior guaranteed trust securities guarantee group inc would obligated make payments holders senior guaranteed trust securities apex trusts 2012 trusts whollyowned finance subsidiaries firm regulatory legal purposes consolidated accounting purposes connection apex issuance firm covenanted favor certain debtholders initially currently holders group inc’s 6345 junior subordinated debentures due february 15 2034 subject certain exceptions firm would redeem purchase apex shares group inc’s series e preferred stock series f preferred stock prior date ten years applicable stock purchase date unless applicable redemption purchase price exceed maximum amount determined reference aggregate amount net cash proceeds firm received sale qualifying securities junior subordinated debt issued connection trust preferred securities group inc issued 284 billion junior subordinated debentures 2004 goldman sachs capital trust delaware statutory trust issued 275 billion guaranteed preferred beneficial interests third parties 85 million common beneficial interests group inc used proceeds issuances purchase junior subordinated debentures group inc trust whollyowned finance subsidiary firm regulatory legal purposes consolidated accounting purposes firm pays interest semiannually debentures annual rate 6345 debentures mature february 15 2034 coupon rate payment dates applicable beneficial interests interest rate payment dates debentures firm right time defer payment interest debentures therefore cause payment trust’s preferred beneficial interests deferred case ten consecutive semiannual periods extension period firm permitted among things pay dividends make certain repurchases common stock trust permitted pay distributions common beneficial interests held group inc unless dividends payable preferred beneficial interests paid full goldman sachs group inc subsidiaries notes consolidated financial statements note 17 liabilities accrued expenses note 17 liabilities accrued expenses table presents liabilities accrued expenses type 1 december 2012 certain insurancerelated liabilities classified held sale included within “accrued expenses other” see note 12 information 2 includes 419 million 117 billion related consolidated investment funds december 2012 december 2011 respectively 3 see note 24 information income taxes 4 includes 1462 billion liabilities related firm’s reinsurance business classified held sale december 2012 see note 12 information table presents insurancerelated liabilities type 1 december 2012 certain insurancerelated liabilities classified held sale included within “accrued expenses other” see note 12 information separate account liabilities supported separate account assets representing segregated contract holder funds variable annuity life insurance contracts december 2011 separate account assets included “cash securities segregated regulatory purposes” liabilities future benefits unpaid claims include liabilities arising reinsurance provided firm insurers firm receivable 130 billion december 2011 related reinsurance contracts reported “receivables customers counterparties” addition firm ceded risks reinsurers related certain liabilities future benefits unpaid claims receivable 648 million december 2011 related reinsurance contracts reported “receivables customers counterparties” contracts cede risks reinsurers relieve firm obligations contract holders liabilities future benefits unpaid claims include 1027 billion 875 billion carried fair value fair value option december 2012 december 2011 respectively contract holder account balances primarily include fixed annuities reinsurance contracts reserves guaranteed minimum death income benefits represent liability expected value guaranteed benefits excess projected annuity account balances reserves based total payments expected made less total fees expected assessed life contract december 2011 reserves related 552 billion contract holder account balances net amount risk representing guaranteed minimum death income benefits excess contract holder account balances 151 billion december 2011 weighted average attained age contract holders 69 years december 2011 goldman sachs group inc subsidiaries notes consolidated financial statements note 18 commitments contingencies guarantees note 18 commitments contingencies guarantees commitments table presents firm’s commitments 1 commitments extend credit presented net amounts syndicated third parties 2 includes commitments associated former william street credit extension program 3 agreements generally settle within three business days 4 consists commitments letters credit issued various banks firm provides counterparties lieu securities cash satisfy various collateral margin deposit requirements commitments extend credit firm’s commitments extend credit agreements lend fixed termination dates depend satisfaction contractual conditions borrowing total commitment amount necessarily reflect actual future cash flows firm may syndicate substantial portions commitments expire unused reduced cancelled counterparty’s request firm generally accounts commitments extend credit fair value losses generally recorded net fees “other principal transactions” december 2012 approximately 1609 billion firm’s lending commitments held investment accounted accrual basis december 2012 carrying value estimated fair value lending commitments liabilities 63 million 523 million respectively lending commitments accounted fair value fair value option fair value accordance us gaap fair value included firm’s fair value hierarchy notes 6 7 8 commitments included firm’s fair value hierarchy would primarily classified level 3 december 2012 commercial lending firm’s commercial lending commitments extended investmentgrade noninvestmentgrade corporate borrowers commitments investmentgrade corporate borrowers principally used operating liquidity general corporate purposes firm also extends lending commitments connection contingent acquisition financing types corporate lending well commercial real estate financing commitments extended contingent acquisition financing often intended shortterm nature borrowers often seek replace funding sources goldman sachs group inc subsidiaries notes consolidated financial statements sumitomo mitsui financial group inc smfg provides firm credit loss protection certain approved loan commitments primarily investmentgrade commercial lending commitments notional amount loan commitments 3241 billion 3194 billion december 2012 december 2011 respectively credit loss protection loan commitments provided smfg generally limited 95 first loss firm realizes commitments maximum approximately 950 million addition subject satisfaction certain conditions upon firm’s request smfg provide protection 70 additional losses commitments maximum 113 billion 300 million protection provided december 2012 december 2011 firm also uses financial instruments mitigate credit risks related certain commitments covered smfg instruments primarily include credit default swaps reference similar underlying instrument entity credit default swaps reference market index warehouse financing firm provides financing clients warehouse financial assets arrangements secured warehoused assets primarily consisting commercial mortgage loans contingent forward starting resale securities borrowing agreementsforward starting repurchase secured lending agreements firm enters resale securities borrowing agreements repurchase secured lending agreements settle future date firm also enters commitments provide contingent financing clients counterparties resale agreements firm’s funding commitments depends satisfaction contractual conditions resale agreement commitments expire unused investment commitments firm’s investment commitments consist commitments invest private equity real estate assets directly funds firm raises manages commitments include 872 million 162 billion december 2012 december 2011 respectively related real estate private investments 647 billion 750 billion december 2012 december 2011 respectively related corporate private investments amounts 621 billion 838 billion december 2012 december 2011 respectively relate commitments invest funds managed firm funded market value date investment leases firm contractual obligations longterm noncancelable lease agreements principally office space expiring various dates 2069 certain agreements subject periodic escalation provisions increases real estate taxes charges table presents future minimum rental payments net minimum sublease rentals rent charged operating expense years ended december 2012 december 2011 december 2010 374 million 475 million 508 million respectively operating leases include office space held excess current requirements rent expense relating space held growth included “occupancy” firm records liability based fair value remaining lease rentals reduced potential existing sublease rentals leases firm ceased using space management concluded firm derive future economic benefits costs terminate lease end term recognized measured fair value termination goldman sachs group inc subsidiaries notes consolidated financial statements contingencies legal proceedings see note 27 information legal proceedings including certain mortgagerelated matters certain mortgagerelated contingencies multiple areas focus regulators governmental agencies others within mortgage market may impact originators issuers servicers investors remains significant uncertainty surrounding nature extent potential exposure participants market  representations warranties firm significant originator residential mortgage loans firm purchase loans originated others generally received loanlevel representations type described originators period 2005 2008 firm sold approximately 10 billion loans governmentsponsored enterprises approximately 11 billion loans third parties addition firm transferred loans trusts mortgage securitization vehicles december 2012 december 2011 outstanding balance loans transferred trusts mortgage securitization vehicles period 2005 2008 approximately 35 billion 42 billion respectively amount reflects paydowns cumulative losses approximately 90 billion 20 billion cumulative losses december 2012 approximately 83 billion 17 billion cumulative losses december 2011 small number goldman sachsissued securitizations outstanding principal balance 540 million total paydowns cumulative losses 152 billion 508 million cumulative losses december 2012 outstanding principal balance 635 million total paydowns cumulative losses 142 billion 465 million cumulative losses december 2011 structured credit protection obtained monoline insurers connection sales loans securitizations firm provided loan level representations type described andor assigned loan level representations party firm purchased loans loan level representations made connection sale securitization mortgage loans varied among transactions generally detailed representations applicable loan portfolio addressed matters relating property borrower note representations generally included limited following certain attributes borrower’s financial status ii loantovalue ratios owner occupancy status certain characteristics property iii lien position iv fact loan originated compliance law v completeness loan documentation firm received repurchase claims residential mortgage loans based alleged breaches representations governmentsponsored enterprises third parties trusts mortgage securitization vehicles significant years ended december 2012 december 2011 firm repurchased loans unpaid principal balance less 10 million loss related repurchase loans material years ended december 2012 december 2011 ultimately firm’s exposure claims repurchase residential mortgage loans based alleged breaches representations depend number factors including following extent claims actually made ii extent underlying breaches representations give rise valid claims repurchase iii case loans originated others extent firm could held liable firm’s ability pursue collect claims parties made representations firm iv macroeconomic factors including developments residential real estate market v legal regulatory developments based upon large number defaults residential mortgages including sold securitized firm potential increasing claims repurchases however firm position make meaningful estimate exposure time goldman sachs group inc subsidiaries notes consolidated financial statements  foreclosure mortgage loan servicing practices procedures firm received number requests information regulators agencies including state attorneys general banking regulators part industrywide focus practices lenders servicers connection foreclosure proceedings aspects mortgage loan servicing practices procedures requests sought information foreclosure servicing protocols activities litton residential mortgage servicing subsidiary sold firm ocwen financial corporation ocwen third quarter 2011 firm cooperating requests inquiries may result imposition fines regulatory action third quarter 2010 prior firm’s sale litton temporarily suspended evictions foreclosure real estate owned sales number states including judicial foreclosure procedures litton resumed activities beginning fourth quarter 2010 connection sale litton firm provided customary representations warranties indemnities breaches representations warranties ocwen indemnities subject various limitations capped approximately 50 million firm yet received claims relating indemnities firm also agreed provide specific indemnities ocwen related claims made third parties respect servicing activities period litton owned firm excess related reserves accrued matters litton time sale indemnities capped approximately 125 million firm recorded reserve portion potential losses believes probable reasonably estimated december 2012 firm received material claims respect indemnities made material payments connection claims firm agreed provide indemnities ocwen subject cap primarily relate potential liabilities constituting fines civil monetary penalties could imposed settlements certain terms us states’ attorneys general consent orders certain terms federal reserve office thrift supervision office comptroller currency fdic new york state department financial services case relating litton’s foreclosure servicing practices owned firm entered settlement principle board governors federal reserve system federal reserve board relating foreclosure servicing matters described litton sale agreement firm also retained liabilities associated claims related litton’s failure maintain lenderplaced mortgage insurance obligations repurchase certain loans governmentsponsored enterprises subpoenas one litton’s regulators fines civil penalties imposed federal reserve new york state department financial services connection certain compliance matters management unable develop estimate maximum potential amount future payments indemnities firm received claims indemnities immaterial amount respect governmentsponsored enterprises however management believe based currently available information payments indemnities material adverse effect firm’s financial condition september 1 2011 group inc gs bank usa entered consent order federal reserve board relating servicing residential mortgage loans terms order substantially similar many respects identical orders entered federal reserve board large us financial institutions order set forth various allegations improper conduct servicing litton requires group inc gs bank usa cease desist conduct required group inc gs bank usa boards directors take various affirmative steps order required group inc gs bank usa engage thirdparty consultant conduct review certain foreclosure actions proceedings occurred pending january 1 2009 december 31 2010 ii adoption policies procedures related management third parties used outsource residential mortgage servicing loss mitigation foreclosure iii “validation report” independent thirdparty consultant regarding compliance order first year iv submission quarterly progress reports compliance order boards directors committees thereof group inc gs bank usa goldman sachs group inc subsidiaries notes consolidated financial statements january 16 2013 group inc gs bank usa entered settlement principle federal reserve board relating servicing residential mortgage loans foreclosure processing settlement principle amends order described provides termination independent foreclosure review order calls group inc gs bank usa collectively make cash payments settlement fund distribution eligible borrowers ii provide assistance foreclosure prevention loss mitigation next two years provisions order remain effect firm’s reserves legal regulatory matters december 2012 include provisions relating settlement addition september 1 2011 gs bank usa entered agreement mortgage servicing practices new york state department financial services litton ocwen relating servicing residential mortgage loans related agreement new york state department financial services group inc agreed forgive 25 unpaid principal balance certain delinquent first lien residential mortgage loans owned group inc subsidiary totaling approximately 13 million principal forgiveness guarantees firm enters various derivatives meet definition guarantee us gaap including written equity commodity put options written currency contracts interest rate caps floors swaptions disclosures derivatives required may cash settled firm basis conclude probable counterparties held underlying instruments inception contract firm concluded conditions met certain large internationally active commercial investment bank counterparties certain counterparties accordingly firm included contracts table firm capacity agency lender indemnifies securities lending customers losses incurred event borrowers return securities collateral held insufficient cover market value securities borrowed ordinary course business firm provides financial guarantees obligations third parties eg standby letters credit guarantees enable clients complete transactions fundrelated guarantees represent obligations make payments beneficiaries guaranteed party fails fulfill obligation contractual arrangement beneficiary goldman sachs group inc subsidiaries notes consolidated financial statements table presents certain information derivatives meet definition guarantee certain guarantees maximum payout table based notional amount contract therefore represent anticipated losses see note 7 information credit derivatives meet definition guarantee included derivatives accounted fair value carrying value considered best indication paymentperformance risk individual contracts however carrying values exclude effect legal right setoff may exist enforceable netting agreement effect netting cash collateral posted credit support agreements 1 derivatives risk managed together derivatives meet definition guarantee therefore amounts reflect firm’s overall risk related derivative activities december 2011 carrying value net liability related derivative guarantees 1188 billion 2 collateral held lenders connection securities lending indemnifications 2789 billion december 2012 contractual nature arrangements requires firm obtain collateral market value exceeds value securities lent borrower minimal performance risk associated guarantees 3 financial guarantees excludes certain commitments issue standby letters credit included “commitments extend credit” see table “commitments” summary firm’s commitments december 2011 carrying value net liability related financial guarantees 205 million goldman sachs group inc subsidiaries notes consolidated financial statements guarantees securities issued trusts firm established trusts including goldman sachs capital apex trusts 2012 trusts entities limited purpose issuing securities third parties lending proceeds firm entering contractual arrangements firm third parties related purpose firm consolidate entities see note 16 information transactions involving goldman sachs capital apex trusts 2012 trusts firm effectively provides full unconditional guarantee securities issued entities timely payment firm amounts due entities guarantee borrowing preferred stock related contractual arrangements sufficient cover payments due securities issued entities management believes unlikely circumstances occur nonperformance part paying agents service providers would make necessary firm make payments related entities required terms guarantee borrowing preferred stock related contractual arrangements connection certain expenses incurred entities indemnities guarantees service providers ordinary course business firm indemnifies guarantees certain service providers clearing custody agents trustees administrators specified potential losses connection acting agent providing services firm affiliates firm may also liable clients losses caused acts omissions thirdparty service providers including subcustodians thirdparty brokers addition firm member payment clearing settlement networks well securities exchanges around world may require firm meet obligations networks exchanges event member defaults connection prime brokerage clearing businesses firm agrees clear settle behalf clients transactions entered brokerage firms firm’s obligations respect transactions secured assets client’s account well proceeds received transactions cleared settled firm behalf client connection joint venture investments firm may issue loan guarantees may liable event fraud misappropriation environmental liabilities certain matters involving borrower firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements material liabilities related guarantees indemnifications recognized consolidated statements financial condition december 2012 december 2011 representations warranties indemnifications firm provides representations warranties counterparties connection variety commercial transactions occasionally indemnifies potential losses caused breach representations warranties firm may also provide indemnifications protecting changes adverse application certain us tax laws connection ordinarycourse transactions securities issuances borrowings derivatives addition firm may provide indemnifications counterparties protect event additional taxes owed payments withheld due either change adverse application certain nonus tax laws indemnifications generally standard contractual terms entered ordinary course business generally stated notional amounts included indemnifications contingencies triggering obligation indemnify expected occur firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements material liabilities related arrangements recognized consolidated statements financial condition december 2012 december 2011 goldman sachs group inc subsidiaries notes consolidated financial statements guarantees subsidiaries group inc fully unconditionally guarantees securities issued gs finance corp whollyowned finance subsidiary firm group inc guaranteed payment obligations goldman sachs co gsco gs bank usa goldman sachs execution clearing lp gsec subject certain exceptions november 2008 firm contributed subsidiaries gs bank usa group inc agreed guarantee reimbursement certain losses including creditrelated losses relating assets held contributed entities connection guarantee group inc also agreed pledge gs bank usa certain collateral including interests subsidiaries illiquid assets addition group inc guarantees many obligations consolidated subsidiaries transactionbytransaction basis negotiated counterparties group inc unable develop estimate maximum payout subsidiary guarantees however guaranteed obligations also obligations consolidated subsidiaries included table group inc’s liabilities guarantor separately disclosed note 19 shareholders equity note 19 shareholders’ equity common equity dividends declared per common share 177 2012 140 2011 140 2010 january 15 2013 group inc declared dividend 050 per common share paid march 28 2013 common shareholders record february 28 2013 firm’s share repurchase program intended help maintain appropriate level common equity repurchase program effected primarily regular openmarket purchases amounts timing determined primarily firm’s current projected capital positions ie comparisons firm’s desired level composition capital actual level composition capital may also influenced general market conditions prevailing price trading volumes firm’s common stock repurchase firm’s common stock requires approval federal reserve board 2012 2011 2010 firm repurchased 420 million shares 470 million shares 253 million shares common stock average cost per share 11031 12833 16448 total cost 464 billion 604 billion 416 billion respectively share repurchase program addition pursuant terms certain sharebased compensation plans employees may remit shares firm may cancel restricted stock units rsus satisfy minimum statutory employee tax withholding requirements plans 2012 2011 2010 employees remitted 33477 shares 75517 shares 164172 shares total value 3 million 12 million 25 million firm cancelled 127 million 120 million 62 million rsus total value 144 billion 191 billion 972 million respectively goldman sachs group inc subsidiaries notes consolidated financial statements preferred equity table presents perpetual preferred stock issued outstanding december 2012 share noncumulative series preferred stock series b preferred stock series c preferred stock series preferred stock issued outstanding par value 001 liquidation preference 25000 represented 1000 depositary shares redeemable firm’s option subject approval federal reserve board redemption price equal 25000 plus declared unpaid dividends october 24 2012 group inc issued 34000 shares noncumulative series preferred stock par value 001 per share series preferred stock issued outstanding liquidation preference 25000 represented 1000 depositary shares redeemable firm’s option beginning november 10 2017 subject approval federal reserve board redemption price equal 25000 plus accrued unpaid dividends 2007 board directors group inc board authorized 17500 shares series e preferred stock 5000 shares series f preferred stock connection apex trusts june 1 2012 group inc issued 17500 shares series e preferred stock goldman sachs capital ii pursuant stock purchase contracts held goldman sachs capital ii september 4 2012 group inc issued 5000 shares series f preferred stock goldman sachs capital iii pursuant stock purchase contracts held goldman sachs capital iii share series e series f preferred stock issued outstanding par value 001 liquidation preference 100000 redeemable option firm time subject approval federal reserve board certain covenant restrictions governing firm’s ability redeem purchase preferred stock without issuing common stock instruments equitylike characteristics redemption price equal 100000 plus declared unpaid dividends see note 16 information apex trusts series preferred stock pari passu preference firm’s common stock liquidation dividends series preferred stock declared payable quarterly arrears firm’s ability declare pay dividends purchase redeem otherwise acquire common stock subject certain restrictions event firm fails pay set aside full dividends preferred stock latest completed dividend period goldman sachs group inc subsidiaries notes consolidated financial statements march 2011 firm provided notice berkshire hathaway inc certain subsidiaries collectively berkshire hathaway would redeem full 50000 shares firm’s 10 cumulative perpetual preferred stock series g series g preferred stock held berkshire hathaway stated redemption price 550 billion 110000 per share plus accrued unpaid dividends connection notice firm recognized preferred dividend 164 billion calculated difference carrying value redemption value preferred stock recorded reduction earnings applicable common shareholders first quarter 2011 redemption also resulted acceleration 24 million preferred dividends related period april 1 2011 redemption date included firm’s results three months ended march 2011 series g preferred stock redeemed april 18 2011 berkshire hathaway continues hold fiveyear warrant issued october 2008 purchase 435 million shares common stock exercise price 11500 per share january 9 2013 group inc declared dividends 23438 38750 25000 43799 per share series preferred stock series b preferred stock series c preferred stock series preferred stock series preferred stock respectively paid february 11 2013 preferred shareholders record january 27 2013 addition firm declared dividends 97778 per share series e preferred stock series f preferred stock paid march 1 2013 preferred shareholders record february 14 2013 table presents preferred dividends declared preferred stock 1 amount year ended december 2011 excludes preferred dividends related redemption firm’s series g preferred stock accumulated comprehensive incomeloss tables present accumulated comprehensive incomeloss type 1 substantially consists net unrealized gains securities held firm’s insurance subsidiaries december 2012 december 2011 goldman sachs group inc subsidiaries notes consolidated financial statements note 20 regulation capital adequacy note 20 regulation capital adequacy federal reserve board primary regulator group inc bank holding company bank holding company act 1956 bhc act financial holding company amendments bhc act effected us grammleachbliley act 1999 bank holding company firm subject consolidated regulatory capital requirements computed accordance federal reserve board’s riskbased capital requirements based ‘basel 1’ capital accord basel committee capital requirements expressed capital ratios compare measures capital riskweighted assets rwas firm’s us bank depository institution subsidiaries including gs bank usa subject similar capital requirements federal reserve board’s capital adequacy requirements regulatory framework prompt corrective action applicable gs bank usa firm us bank depository institution subsidiaries must meet specific capital requirements involve quantitative measures assets liabilities certain offbalancesheet items calculated regulatory reporting practices firm us bank depository institution subsidiaries’ capital amounts well gs bank usa’s prompt corrective action classification also subject qualitative judgments regulators components risk weightings factors many firm’s subsidiaries including gsco firm’s brokerdealer subsidiaries subject separate regulation capital requirements described group inc federal reserve board regulations require bank holding companies maintain minimum tier 1 capital ratio 4 minimum total capital ratio 8 required minimum tier 1 capital ratio total capital ratio order considered “wellcapitalized” bank holding company federal reserve board guidelines 6 10 respectively bank holding companies may expected maintain ratios well minimum levels depending particular condition risk profile growth plans minimum tier 1 leverage ratio 3 bank holding companies received highest supervisory rating federal reserve board guidelines implemented federal reserve board’s riskbased capital measure market risk bank holding companies must minimum tier 1 leverage ratio 4 table presents information regarding group inc’s regulatory capital ratios rwas federal reserve board’s riskbased capital requirements calculated based amount market risk credit risk rwas market risk determined reference firm’s valueatrisk var model supplemented measures capture risks reflected firm’s var model credit risk onbalance sheet assets based balance sheet value offbalance sheet exposures including otc derivatives commitments credit equivalent amount calculated based notional amount trade assets exposures assigned risk weight depending among things whether counterparty sovereign bank qualifying securities firm entity collateral held depending nature collateral tier 1 leverage ratio defined tier 1 capital basel 1 divided average adjusted total assets includes adjustments disallowed goodwill intangible assets carrying value equity investments nonfinancial companies subject deductions tier 1 capital goldman sachs group inc subsidiaries notes consolidated financial statements regulatory reform changes market risk capital rules us federal bank regulatory agencies became effective january 1 2013 changes require addition several new modelbased capital requirements well increase capital requirements securitization positions designed implement new market risk framework basel committee well prohibition use external credit ratings required doddfrank act revised market risk framework significant part regulatory capital changes ultimately included firm’s capital ratios guidelines issued basel committee december 2010 basel 3 changes resulted increased regulatory capital requirements market risk reflected firm’s baselbased capital ratios periods beginning january 1 2013 firm currently working implement requirements set agencies’ riskbased capital standards advanced capital adequacy framework basel 2 applicable group inc bank holding company advanced approach banking organization basel 2 requirements based advanced approaches revised framework international convergence capital measurement capital standards issued basel committee basel 2 among things revises regulatory capital framework credit risk equity investments introduces new operational risk capital requirement firm adopt basel 2 approved regulators firm’s capital adequacy ratio also impacted changes outlined basel 3 provisions doddfrank act “collins amendment” doddfrank act requires advanced approach banking organizations continue upon adoption basel 2 calculate riskbased capital ratios basel 2 basel 1 tier 1 total capital ratios lower basel 1 basel 2 ratios calculated used determine whether advanced approach banking organizations meet minimum riskbased capital requirements furthermore june 2012 proposals described include provisions enacted proposed would modify minimum riskbased capital requirements june 2012 agencies proposed modifications capital adequacy regulations address aspects doddfrank act basel 3 enacted proposed significant changes would impact firm include revisions definition tier 1 capital including new deductions tier 1 capital ii higher minimum capital leverage ratios iii new minimum ratio tier 1 common equity rwas iv new capital conservation countercyclical capital buffers v additional leverage ratio includes measures offbalance sheet exposures vi revisions methodology calculating rwas particularly credit risk capital requirements derivatives vii new “standardized approach” calculation rwas would replace federal reserve’s current basel 1 riskbased capital framework 2015 including purposes calculating requisite capital floor collins amendment november 2012 agencies announced proposed effective date january 1 2013 modifications would deferred indicated revised effective date proposals incorporate phaseout tier 1 capital treatment firm’s junior subordinated debt issued trusts capital would instead eligible tier 2 capital proposals collins amendment phaseout scheduled begin january 1 2013 due aforementioned deferral effective date proposed capital rules however application phaseout remains uncertain time goldman sachs group inc subsidiaries notes consolidated financial statements november 2011 basel committee published final provisions assessing global systemic importance banking institutions range additional tier 1 common equity maintained banking institutions deemed globally systemically important additional capital institutions would initially range 1 25 tier 1 common equity could much 35 banking institution increases systemic footprint eg increasing total assets november 2012 financial stability board established direction leaders group 20 indicated firm based 2011 financial data would required hold additional 15 tier 1 common equity globally systemically important banking institution basel committee’s methodology final determination amount additional tier 1 common equity firm required hold based firm’s 2013 financial data manner timing us banking regulators’ implementation basel committee’s methodology basel committee indicated globally systemically important banking institutions required meet capital surcharges phasedin basis 2016 2019 october 2012 basel committee published final provisions calculating incremental capital requirements domestic systemically important banking institutions provisions complementary framework outlined global systemically important banking institutions principlesbased order provide appropriate degree national discretion impact provisions regulatory capital requirements gs bank usa firm’s subsidiaries including goldman sachs international gsi depend implemented banking nonbanking regulators united states jurisdictions basel committee released consultation papers may result changes regulatory capital requirements including “fundamental review trading book” “revisions basel securitization framework” full impact developments firm known certainty resulting rules finalized doddfrank act contains provisions require registration swap dealers major swap participants securitybased swap dealers major securitybased swap participants firm registered certain subsidiaries “swap dealers” us commodity futures trading commission cftc rules including gsco gs bank usa gsi j aron company entities would require registration cftc sec rules subject regulatory capital requirements yet finalized cftc sec interaction among doddfrank act reform initiatives contemplated agencies basel committee’s proposed announced changes proposed announced changes governmental entities regulators including european union eu uk’s financial services authority fsa adds uncertainty firm’s future capital liquidity requirements firm’s subsidiaries goldman sachs group inc subsidiaries notes consolidated financial statements bank subsidiaries gs bank usa fdicinsured new york statechartered bank member federal reserve system supervised regulated federal reserve board fdic new york state department financial services consumer financial protection bureau subject minimum capital requirements described calculated manner similar applicable bank holding companies gs bank usa computes capital ratios accordance regulatory capital requirements currently applicable state member banks based basel 1 implemented federal reserve board purposes assessing adequacy capital regulatory framework prompt corrective action applicable gs bank usa order considered “wellcapitalized” depository institution gs bank usa must maintain tier 1 capital ratio least 6 total capital ratio least 10 tier 1 leverage ratio least 5 gs bank usa agreed federal reserve board maintain minimum capital ratios excess “wellcapitalized” levels accordingly period time gs bank usa expected maintain tier 1 capital ratio least 8 total capital ratio least 11 tier 1 leverage ratio least 6 noted table gs bank usa compliance minimum capital requirements december 2012 december 2011 table presents information regarding gs bank usa’s regulatory capital ratios basel 1 implemented federal reserve board effective january 1 2013 gs bank usa implemented revised market risk regulatory framework outlined changes resulted increased regulatory capital requirements market risk reflected gs bank usa’s baselbased capital ratios periods beginning january 1 2013 gs bank usa also currently working implement basel 2 framework implemented federal reserve board gs bank usa adopt basel 2 approved regulators addition capital requirements gs bank usa expected impacted june 2012 proposed modifications agencies’ capital adequacy regulations outlined including requirements floor advanced riskbased capital ratios enacted proposed proposals would also change regulatory framework prompt corrective action applicable gs bank usa among things introducing common equity tier 1 ratio requirement increasing minimum tier 1 capital ratio requirement introducing supplementary leverage ratio component prompt corrective action analysis gs bank usa also impacted aspects doddfrank act including new stress tests deposits gs bank usa insured fdic extent provided law federal reserve board requires depository institutions maintain cash reserves federal reserve bank amount deposited firm’s depository institution held federal reserve bank approximately 5867 billion 4006 billion december 2012 december 2011 respectively exceeded required reserve amounts 5859 billion 3951 billion december 2012 december 2011 respectively transactions gs bank usa subsidiaries group inc subsidiaries affiliates generally subsidiaries gs bank usa regulated federal reserve board regulations generally limit types amounts transactions including credit extensions gs bank usa may take place generally require transactions market terms better gs bank usa firm’s principal nonus bank subsidiaries include gsib whollyowned credit institution regulated fsa gs bank europe whollyowned credit institution regulated central bank ireland subject minimum capital requirements december 2012 december 2011 gsib gs bank europe compliance regulatory capital requirements january 18 2013 gs bank europe surrendered banking license central bank ireland transferring deposits gsib goldman sachs group inc subsidiaries notes consolidated financial statements brokerdealer subsidiaries firm’s us regulated brokerdealer subsidiaries include gsco gsec gsco gsec registered us brokerdealers futures commission merchants subject regulatory capital requirements including imposed sec cftc chicago mercantile exchange financial industry regulatory authority inc finra national futures association rule 15c31 sec rule 117 cftc specify uniform minimum net capital requirements defined registrants also effectively require significant part registrants’ assets kept relatively liquid form gsco gsec elected compute minimum capital requirements accordance “alternative net capital requirement” permitted rule 15c31 december 2012 december 2011 gsco regulatory net capital defined rule 15c31 1412 billion 1124 billion respectively exceeded amount required 1242 billion 934 billion respectively december 2012 december 2011 gsec regulatory net capital defined rule 15c31 202 billion 210 billion respectively exceeded amount required 192 billion 200 billion respectively addition alternative minimum net capital requirements gsco also required hold tentative net capital excess 1 billion net capital excess 500 million accordance market credit risk standards appendix e rule 15c31 gsco also required notify sec event tentative net capital less 5 billion december 2012 december 2011 gsco tentative net capital net capital excess minimum notification requirements insurance subsidiaries firm us insurance subsidiaries subject state insurance regulation oversight states domiciled states licensed addition certain firm’s insurance subsidiaries outside us regulated fsa certain regulated bermuda monetary authority firm’s insurance subsidiaries compliance regulatory capital requirements december 2012 december 2011 nonus regulated subsidiaries firm’s principal nonus regulated subsidiaries include gsi goldman sachs japan co ltd gsjcl gsi firm’s regulated uk brokerdealer subject capital requirements imposed fsa gsjcl firm’s regulated japanese brokerdealer subject capital requirements imposed japan’s financial services agency december 2012 december 2011 gsi gsjcl compliance local capital adequacy requirements certain nonus subsidiaries firm also subject capital adequacy requirements promulgated authorities countries operate december 2012 december 2011 subsidiaries compliance local capital adequacy requirements restrictions payments regulatory requirements referred restrict group inc’s ability withdraw capital regulated subsidiaries december 2012 december 2011 group inc required maintain approximately 3101 billion 2553 billion respectively minimum equity capital regulated subsidiaries minimum equity capital requirement includes certain restrictions imposed federal state laws payment dividends group inc regulated subsidiaries addition limitations payment dividends imposed federal state laws federal reserve board fdic new york state department financial services authority prohibit limit payment dividends banking organizations supervise including gs bank usa relevant regulator’s opinion payment dividend would constitute unsafe unsound practice light financial condition banking organization goldman sachs group inc subsidiaries notes consolidated financial statements note 21 earnings per common share note 21 earnings per common share basic earnings per common share eps calculated dividing net earnings applicable common shareholders weighted average number common shares outstanding common shares outstanding includes common stock rsus future service required condition delivery underlying common stock diluted eps includes determinants basic eps addition reflects dilutive effect common stock deliverable stock warrants options rsus future service required condition delivery underlying common stock table presents computations basic diluted eps table unvested sharebased payment awards nonforfeitable rights dividends dividend equivalents treated separate class securities calculating eps impact applying methodology reduction basic eps 007 years ended december 2012 december 2011 008 year ended december 2010 diluted eps computations table include following goldman sachs group inc subsidiaries notes consolidated financial statements note 22 transactions affiliated funds note 22 transactions affiliated funds firm formed numerous nonconsolidated investment funds thirdparty investors firm generally acts investment manager funds entitled receive management fees certain cases advisory fees incentive fees funds additionally firm invests alongside thirdparty investors certain funds tables present fees earned affiliated funds fees receivable affiliated funds aggregate carrying value firm’s interests affiliated funds december 2012 december 2011 firm outstanding loans guarantees certain funds 582 million 289 million respectively collateralized certain fund assets amounts relate primarily certain real estate funds firm voluntarily provided financial support alleviate liquidity constraints financial crisis recently enable fund investment opportunities december 2012 december 2011 firm outstanding commitments extend credit funds volcker rule currently drafted would restrict firm providing additional voluntary financial support funds july 2014 subject extension federal reserve board general matter ordinary course business firm expect provide additional voluntary financial support funds however event support provided amount support expected material addition ordinary course business firm may also engage activities funds including among others securities lending trade execution market making custody acquisition bridge financing see note 18 firm’s investment commitments related funds goldman sachs group inc subsidiaries notes consolidated financial statements note 23 interest income interest expense note 23 interest income interest expense interest income recorded accrual basis based contractual interest rates table presents sources interest income interest expense 1 includes rebates paid interest income securities borrowed 2 includes interest income customer debit balances interestearning assets 3 includes interest unsecured borrowings secured financings 4 includes rebates received interestbearing liabilities interest expense customer credit balances goldman sachs group inc subsidiaries notes consolidated financial statements note 24 income taxes note 24 income taxes provision income taxes income taxes provided using asset liability method deferred tax assets liabilities recognized temporary differences financial reporting tax bases assets liabilities firm reports interest expense related income tax matters “provision taxes” income tax penalties “other expenses” tables present components provisionbenefit taxes reconciliation us federal statutory income tax rate firm’s effective income tax rate 1 primarily includes effect sec settlement 550 million substantially nondeductible goldman sachs group inc subsidiaries notes consolidated financial statements deferred income taxes deferred income taxes reflect net tax effects temporary differences financial reporting tax bases assets liabilities temporary differences result taxable deductible amounts future years measured using tax rates laws effect differences expected reverse valuation allowances established reduce deferred tax assets amount likely realized tax assets liabilities presented component “other assets” “other liabilities accrued expenses” respectively table presents significant components deferred tax assets liabilities 1 relates primarily ability utilize losses various tax jurisdictions 2 netting within tax jurisdictions firm recorded deferred tax assets 222 million 213 million december 2012 december 2011 respectively connection us federal state local foreign net operating loss carryforwards firm also recorded valuation allowance 60 million 59 million december 2012 december 2011 respectively related net operating loss carryforwards december 2012 us federal foreign net operating loss carryforwards 39 million 640 million respectively utilized us federal net operating loss carryforward begin expire 2026 foreign net operating loss carryforwards carried forward indefinitely state local net operating loss carryforwards 119 billion begin expire 2013 carryforwards expire material impact firm’s results operations firm foreign tax credit carryforwards 0 12 million december 2012 december 2011 respectively firm recorded related net deferred income tax asset 0 6 million december 2012 december 2011 respectively firm capital loss carryforwards 0 6 million december 2012 december 2011 respectively firm recorded related net deferred income tax asset 0 2 million december 2012 december 2011 respectively valuation allowance increased 103 million 15 million 2012 2011 respectively increase 2012 primarily due acquisition deferred tax assets considered likely unrealizable increase 2011 due losses considered likely expire unused goldman sachs group inc subsidiaries notes consolidated financial statements firm permanently reinvests eligible earnings certain foreign subsidiaries accordingly accrue us income taxes would arise earnings repatriated december 2012 december 2011 policy resulted unrecognized net deferred tax liability 375 billion 332 billion respectively attributable reinvested earnings 2169 billion 2063 billion respectively unrecognized tax benefits firm recognizes tax positions financial statements likely position sustained examination relevant taxing authority based technical merits position meets standard measured largest amount benefit likely realized settlement liability established differences positions taken tax return amounts recognized financial statements december 2012 december 2011 accrued liability interest expense related income tax matters income tax penalties 374 million 233 million respectively firm recognized 95 million 21 million 28 million interest income tax penalties years ended december 2012 december 2011 december 2010 respectively reasonably possible unrecognized tax benefits could change significantly twelve months subsequent december 2012 due potential audit settlements however time possible estimate potential change table presents changes liability unrecognized tax benefits liability included “other liabilities accrued expenses” see note 17 information 1 included “other assets” see note 12 2 recognized net tax benefit would reduce firm’s effective income tax rate goldman sachs group inc subsidiaries notes consolidated financial statements regulatory tax examinations firm subject examination us internal revenue service irs taxing authorities jurisdictions firm significant business operations united kingdom japan hong kong korea various states new york tax years examination vary jurisdiction firm believes 2013 certain audits reasonable possibility completed firm expect completion audits material impact firm’s financial condition may material operating results particular period depending part operating results period table presents earliest tax years remain subject examination major jurisdiction 1 irs examination fiscal 2008 calendar 2010 began 2011 irs examination fiscal 2005 2006 2007 began 2008 irs examination fiscal 2003 2004 completed liabilities years yet final firm anticipates audits fiscal 2005 calendar 2010 completed 2013 audits 2011 2012 begin 2013 2 new york state city examination fiscal 2004 2005 2006 began 2008 3 japan national tax agency examination fiscal 2005 2009 began 2010 examinations completed liabilities 2008 2009 yet final years subsequent remain open examination taxing authorities firm believes liability unrecognized tax benefits established adequate relation potential additional assessments january 2013 firm accepted compliance assurance process program irs program allow firm work irs identify resolve potential us federal tax issues filing tax returns 2013 tax year first year examined program note 25 business segments note 25 business segments firm reports activities following four business segments investment banking institutional client services investing lending investment management basis presentation reporting segments certain firm’s business lines aggregated similar economic characteristics similar following areas nature services provide ii methods distribution iii types clients serve iv regulatory environments operate cost drivers firm taken whole compensation headcount levels business activity broadly similar firm’s business segments compensation benefits expenses firm’s segments reflect among factors overall performance firm well performance individual businesses consequently pretax margins one segment firm’s business may significantly affected performance firm’s business segments firm allocates assets including allocations excess liquidity cash secured client financing assets revenues expenses among four reportable business segments due integrated nature segments estimates judgments made allocating certain assets revenues expenses transactions segments based specific criteria approximate thirdparty rates total operating expenses include corporate items allocated individual business segments allocation process based manner management currently views performance segments goldman sachs group inc subsidiaries notes consolidated financial statements segment information presented table prepared according following methodologies  revenues expenses directly associated segment included determining pretax earnings  net revenues firm’s segments include allocations interest income interest expense specific securities commodities positions relation cash generated funding requirements underlying positions net interest included segment net revenues consistent way management assesses segment performance  overhead expenses directly allocable specific segments allocated ratably based direct segment expenses management believes following information provides reasonable representation segment’s contribution consolidated pretax earnings total assets 1 includes 121 million 115 million 111 million years ended december 2012 december 2011 december 2010 respectively realized gains availableforsale securities held firm’s reinsurance subsidiaries total operating expenses table include following expenses allocated firm’s segments  charitable contributions 169 million 103 million 345 million years ended december 2012 december 2011 december 2010 respectively  real estaterelated exit costs 17 million 14 million 28 million years ended december 2012 december 2011 december 2010 respectively real estaterelated exit costs included “depreciation amortization” “occupancy” consolidated statements earnings operating expenses related net provisions litigation regulatory proceedings previously allocated firm’s segments allocated allocation consistent manner management currently views performance firm’s segments reclassifications made previously reported segment amounts conform current presentation goldman sachs group inc subsidiaries notes consolidated financial statements tables present amounts net interest income interest expense included net revenues amounts depreciation amortization expense included pretax earnings 1 includes real estaterelated exit costs 10 million 1 million years ended december 2012 december 2010 respectively allocated firm’s segments geographic information due highly integrated nature international financial markets firm manages businesses based profitability enterprise whole methodology allocating profitability geographic regions dependent estimates management judgment significant portion firm’s activities require crossborder coordination order facilitate needs firm’s clients geographic results generally allocated follows  investment banking location client investment banking team  institutional client services fixed income currency commodities client execution equities excluding securities services location marketmaking desk securities services location primary market underlying security  investing lending investing location investment lending location client  investment management location sales team goldman sachs group inc subsidiaries notes consolidated financial statements table presents total net revenues pretax earnings net earnings firm geographic region allocated based methodology referred well percentage total net revenues pretax earnings net earnings excluding corporate geographic region 1 substantially relates us 2 emea europe middle east africa 3 asia also includes australia new zealand 4 net revenues asia 2011 primarily reflect lower net revenues investing lending principally due losses public equities reflecting significant decline equity markets asia 2011 5 consists charitable contributions 169 million 103 million 345 million years ended december 2012 december 2011 december 2010 respectively real estaterelated exit costs 17 million 14 million 28 million years ended december 2012 december 2011 december 2010 respectively net provisions litigation regulatory proceedings previously included corporate allocated geographic regions reclassifications made previously reported geographic region amounts conform current presentation goldman sachs group inc subsidiaries notes consolidated financial statements note 26 credit concentrations note 26 credit concentrations credit concentrations may arise market making client facilitation investing underwriting lending collateralized transactions may impacted changes economic industry political factors firm seeks mitigate credit risk actively monitoring exposures obtaining collateral counterparties deemed appropriate firm’s activities expose many different industries counterparties firm routinely executes high volume transactions asset managers investment funds commercial banks brokers dealers clearing houses exchanges results significant credit concentrations ordinary course business firm may also subject concentration credit risk particular counterparty borrower issuer including sovereign issuers particular clearing house exchange table presents credit concentrations assets held firm december 2012 december 2011 firm credit exposure counterparty exceeded 2 total assets 1 substantially included “financial instruments owned fair value” “cash securities segregated regulatory purposes” 2 principally related germany japan united kingdom december 2012 december 2011 reduce credit exposures firm may enter agreements counterparties permit firm offset receivables payables counterparties andor enable firm obtain collateral upfront contingent basis collateral obtained firm related derivative assets principally cash held firm thirdparty custodian collateral obtained firm related resale agreements securities borrowed transactions primarily us government federal agency obligations nonus government agency obligations see note 9 information collateralized agreements financings table presents us government federal agency obligations nonus government agency obligations collateralize resale agreements securities borrowed transactions including “cash securities segregated regulatory purposes” firm’s primary credit exposure transactions counterparty transaction firm would exposed collateral issuer event counterparty default 1 principally consisting securities issued governments germany france goldman sachs group inc subsidiaries notes consolidated financial statements note 27 legal proceedings note 27 legal proceedings firm involved number judicial regulatory arbitration proceedings including described concerning matters arising connection conduct firm’s businesses many proceedings early stages many cases seek indeterminate amount damages asc 450 event “reasonably possible” “the chance future event events occurring remote less likely” event “remote” “the chance future event events occurring slight” thus references upper end range reasonably possible loss cases firm able estimate range reasonably possible loss mean upper end range loss cases firm believes risk loss slight amounts reserved matters significant compared upper end range reasonably possible loss respect proceedings described management able estimate range reasonably possible loss plaintiffs claimed amount money damages ii firm sued purchasers underwriting indemnified party firm believes pay judgment iii purchasers demanding firm repurchase securities management estimated upper end range reasonably possible loss equal case amount money damages claimed b case ii amount securities firm sold underwritings c case iii price purchasers paid securities less estimated value december 2012 relevant securities cases ii iii taking account factors believed relevant particular proceeding proceedings type date hereof firm estimated upper end range reasonably possible aggregate loss proceedings described management able estimate range reasonably possible aggregate loss approximately 35 billion management generally unable estimate range reasonably possible loss proceedings included estimate including plaintiffs claimed amount money damages unless management otherwise determine appropriate amount ii proceedings early stages iii uncertainty likelihood class certified ultimate size class iv uncertainty outcome pending appeals motions v significant factual issues resolved andor vi novel legal issues presented however cases management believe based currently available information outcomes proceedings material adverse effect firm’s financial condition though outcomes could material firm’s operating results particular period depending part upon operating results period ipo process matters group inc gsco among numerous financial services companies named defendants variety lawsuits alleging improprieties process companies participated underwriting public offerings gsco named defendant action commenced may 15 2002 new york supreme court new york county official committee unsecured creditors behalf etoys inc alleging firm intentionally underpriced etoys inc’s initial public offering action seeks among things unspecified compensatory damages resulting alleged lower amount offering proceeds appeal rulings gsco’s motion dismiss new york court appeals dismissed claims breach contract professional malpractice unjust enrichment permitted claims breach fiduciary duty fraud continue remand lower court granted gsco’s motion summary judgment december 8 2011 appellate court affirmed lower court’s decision september 6 2012 new york court appeals granted creditors’ motion leave appeal group inc certain affiliates together various underwriters certain offerings received subpoenas requests documents information various governmental agencies selfregulatory organizations connection investigations relating public offering process goldman sachs cooperated investigations goldman sachs group inc subsidiaries notes consolidated financial statements world online litigation march 2001 dutch shareholders’ association initiated legal proceedings unspecified amount damages gsi others amsterdam district court connection initial public offering world online march 2000 alleging misstatements omissions offering materials market artificially inflated improper public statements stabilization activities goldman sachs abn amro rothschild served joint global coordinators approximately 29 billion offering gsi underwrote 20268846 shares gsco underwrote 6756282 shares total offering price approximately 116 billion district court rejected claims gsi abn amro found world online liable amount determined appeal netherlands court appeals affirmed part reversed part decision district court holding certain alleged disclosure deficiencies actionable gsi abn amro appeal netherlands supreme court affirmed rulings court appeals except found certain additional aspects offering materials actionable held individual investors could potentially hold gsi abn amro responsible certain public statements press releases world online former ceo parties entered definitive settlement agreement dated july 15 2011 gsi paid full amount contribution first quarter 2012 gsi abn amro behalf underwriting syndicate entered settlement agreement respect claim filed another shareholders’ association paid settlement amount full shareholders made demands compensation alleged damages gsi syndicate members discussing possibility settlement certain shareholders adelphia communications fraudulent conveyance litigation gsco named defendant two proceedings commenced us bankruptcy court southern district new york one july 6 2003 creditors committee second july 31 2003 equity committee adelphia communications inc proceedings consolidated single amended complaint filed adelphia recovery trust october 31 2007 complaint seeks among things recover fraudulent conveyances approximately 629 million allegedly paid gsco adelphia communications inc affiliates respect margin calls made ordinary course business accounts owned members family formerly controlled adelphia communications inc district court assumed jurisdiction action april 8 2011 granted gsco’s motion summary judgment plaintiff appealed may 6 2011 specialist matters spear leeds kellogg specialists llc spear leeds kellogg lp group inc among numerous defendants named purported class actions brought beginning october 2003 behalf investors us district court southern district new york alleging violations federal securities laws state common law connection nyse floor specialist activities october 24 2012 parties entered definitive settlement agreement subject court approval firm reserved full amount proposed contribution settlement goldman sachs group inc subsidiaries notes consolidated financial statements fannie mae litigation gsco added defendant amended complaint filed august 14 2006 purported class action pending us district court district columbia complaint asserts violations federal securities laws generally arising allegations concerning fannie mae’s accounting practices connection certain fannie maesponsored remic transactions allegedly arranged gsco complaint specify dollar amount damages defendants include fannie mae certain past present officers directors accountants decision dated may 8 2007 district court granted gsco’s motion dismiss claim time appeal begin run disposition claims defendants motion stay action filed federal housing finance agency fhfa took control foregoing action following fannie mae’s conservatorship denied november 14 2011 compensationrelated litigation january 17 2008 group inc board executive officers members management committee named defendants purported shareholder derivative action us district court eastern district new york predicting firm’s 2008 proxy statement would violate federal securities laws undervaluing certain stock option awards alleging senior management received excessive compensation 2007 complaint seeks among things equitable accounting allegedly excessive compensation plaintiff’s motion preliminary injunction prevent 2008 proxy statement using options valuations plaintiff alleges incorrect require amendment sec forms 4 filed certain executive officers named complaint reflect stock option valuations alleged plaintiff denied plaintiff’s appeal denial dismissed february 13 2009 plaintiff filed amended complaint added purported direct ie nonderivative claims based substantially theory plaintiff filed amended complaint march 24 2010 defendants’ motion dismiss amended complaint granted ground dismissal shareholder plaintiff’s prior action relating firm’s 2007 proxy statement based failure make demand board precluded relitigation demand futility december 19 2011 appellate court vacated order dismissal holding preclusion principles mandate dismissal remanding consideration alternative grounds dismissal april 18 2012 plaintiff disclosed longer group inc shareholder thus lacks standing continue prosecute action january 7 2013 district court dismissed claim due plaintiff’s lack standing lack intervening shareholder march 24 2009 plaintiff filed action new york supreme court new york county group inc directors certain senior executives alleging violation delaware statutory common law connection substantively similar allegations regarding stock option awards january 4 2013 another purported shareholder moved intervene plaintiff defendants opposed january 15 2013 court dismissed action original plaintiff prejudice due lack standing mortgagerelated matters april 16 2010 sec brought action sec action us federal securities laws us district court southern district new york gsco fabrice tourre former employee connection cdo offering made early 2007 abacus 2007ac1 transaction alleging defendants made materially false misleading statements investors seeking among things unspecified monetary penalties investigations gsco finra gsi fsa subsequently initiated group inc certain affiliates received subpoenas requests information regulators regarding cdo offerings including abacus 2007ac1 transaction related matters july 14 2010 gsco entered consent agreement sec settling claims made gsco sec action pursuant gsco paid 550 million disgorgement civil penalties approved us district court southern district new york july 20 2010 goldman sachs group inc subsidiaries notes consolidated financial statements january 6 2011 aca financial guaranty corp filed action gsco respect abacus 2007ac1 transaction new york supreme court new york county complaint includes allegations fraudulent inducement fraudulent concealment unjust enrichment seeks least 30 million compensatory damages least 90 million punitive damages unspecified disgorgement april 25 2011 plaintiff filed amended complaint june 3 2011 gsco moved dismiss amended complaint decision dated april 23 2012 court granted motion dismiss unjust enrichment claim denied motion claims may 29 2012 gsco appealed decision extent motion denied filed counterclaims breach contract fraudulent inducement thirdparty claims aca management llc breach contract unjust enrichment indemnification aca financial guaranty corp aca management llc moved dismiss gsco’s counterclaims thirdparty claims august 31 2012 january 30 2013 court granted aca’s motion leave file amended complaint naming third party abacus 2007ac1 transaction additional defendant since april 23 2010 board received letters shareholders demanding board take action address alleged misconduct gsco board certain officers employees group inc affiliates demands board rejected generally alleged misconduct connection firm’s securitization practices including abacus 2007ac1 transaction alleged failure group inc adequately disclose sec investigation led sec action group inc’s 2009 compensation practices addition board received books records demands several shareholders materials relating among subjects firm’s mortgage servicing foreclosure activities participation federal programs providing assistance financial institutions homeowners loan sales fannie mae freddie mac mortgagerelated activities conflicts management beginning april 26 2010 number purported securities law class actions filed us district court southern district new york challenging adequacy group inc’s public disclosure among things firm’s activities cdo market sec investigation led sec action purported class action complaints name defendants group inc certain officers employees group inc affiliates consolidated generally allege violations sections 10b 20a exchange act seek unspecified damages plaintiffs filed consolidated amended complaint july 25 2011 october 6 2011 defendants moved dismiss decision dated june 21 2012 district court dismissed claims based group inc’s disclosing received “wells” notice staff sec related abacus 2007ac1 transaction permitted plaintiffs’ claims proceed february 1 2013 putative shareholder derivative action filed us district court southern district new york group inc certain officers directors connection mortgagerelated activities 2006 2007 including three cdo offerings derivative complaint based similar allegations issue consolidated class action discussed purported shareholder derivative actions previously dismissed includes allegations breach fiduciary duty challenges accuracy adequacy group inc’s disclosure seeks among things declaratory relief unspecified compensatory punitive damages restitution individual defendants certain corporate governance reforms june 2012 board received demand shareholder board investigate take action relating firm’s mortgagerelated activities stock sales certain directors executives firm february 15 2013 shareholder filed putative shareholder derivative action new york supreme court new york county group inc certain current former directors employees based activities stock sales derivative complaint includes allegations breach fiduciary duty unjust enrichment abuse control gross mismanagement corporate waste seeks among things unspecified monetary damages disgorgement profits certain corporate governance disclosure reforms goldman sachs group inc subsidiaries notes consolidated financial statements gsco goldman sachs mortgage company gsmc gs mortgage securities corp gsmsc three current former goldman sachs employees defendants putative class action commenced december 11 2008 us district court southern district new york brought behalf purchasers various mortgage passthrough certificates assetbacked certificates issued various securitization trusts established firm underwritten gsco 2007 complaint generally alleges registration statement prospectus supplements certificates violated federal securities laws seeks unspecified compensatory damages rescission rescissionary damages following dismissals certain plaintiff’s claims initial three amended complaints may 5 2011 court granted plaintiff’s motion entry final judgment dismissing claims thereby allowing plaintiff appeal plaintiff appealed dismissal respect 17 offerings included original complaint decision dated september 6 2012 us court appeals second circuit affirmed district court’s dismissal plaintiff’s claims respect 10 offerings included plaintiff’s original complaint vacated dismissal remanded case district court instructions reinstate plaintiff’s claims respect seven offerings october 26 2012 defendants filed petition certiorari us supreme court seeking review second circuit decision october 31 2012 plaintiff served defendants fourth amended complaint relating seven offerings plus seven additional offerings june 3 2010 another investor unsuccessfully sought intervene action filed separate putative class action asserting substantively similar allegations relating one offerings included initial plaintiff’s complaint district court twice granted defendants’ motions dismiss separate action times leave replead july 9 2012 separate plaintiff filed second amended complaint defendants moved dismiss september 21 2012 december 26 2012 separate plaintiff filed motion amend second amended complaint add claims respect two additional offerings included initial plaintiff’s complaint securitization trusts issued gsco underwrote approximately 11 billion principal amount certificates purchasers fourteen offerings issue complaints group inc gsco gsmc gsmsc among defendants separate putative class action commenced february 6 2009 us district court southern district new york brought behalf purchasers various mortgage passthrough certificates assetbacked certificates issued various securitization trusts established firm underwritten gsco 2006 original defendants include three current former goldman sachs employees various rating agencies second amended complaint generally alleges registration statement prospectus supplements certificates violated federal securities laws seeks unspecified compensatory rescissionary damages defendants moved dismiss second amended complaint january 12 2011 district court granted motion dismiss respect offerings plaintiff purchased securities well claims rating agencies denied motion dismiss respect single offering plaintiff allegedly purchased securities trusts issued gsco underwrote approximately 698 million principal amount certificates purchasers offerings issue complaint excluding offerings claims dismissed february 2 2012 district court granted plaintiff’s motion class certification june 13 2012 us court appeals second circuit granted defendants’ petition review ruling november 8 2012 court approved settlement parties gsco paid full amount settlement escrow account time appeal approval settlement expired goldman sachs group inc subsidiaries notes consolidated financial statements september 30 2010 putative class action filed us district court southern district new york gsco group inc two former gsco employees behalf investors 821 million notes issued 2006 2007 two synthetic cdos hudson mezzanine 20061 20062 complaint amended february 4 2011 asserts federal securities law common law claims seeks unspecified compensatory punitive damages defendants moved dismiss april 5 2011 motion granted plaintiff’s claim market manipulation denied remainder plaintiff’s claims decision dated march 21 2012 may 21 2012 defendants counterclaimed breach contract fraud december 17 2012 plaintiff moved class certification gsco gsmc gsmsc among defendants lawsuit filed august 2011 cifg assurance north america inc cifg new york supreme court new york county complaint alleges cifg fraudulently induced provide credit enhancement 2007 securitization sponsored gsmc seeks among things repurchase 247 million aggregate principal amount mortgages cifg previously stated nonconforming accounting proceeds associated mortgages discharged securitization unspecified compensatory damages october 17 2011 goldman sachs defendants moved dismiss decision dated may 1 2012 court dismissed fraud accounting claims denied motion certain breach contract claims also alleged june 6 2012 goldman sachs defendants filed counterclaims breach contract addition parties appealed court’s may 1 2012 decision extent adverse parties ordered mediate proceedings trial court stayed pending mediation addition january 15 2013 cifg filed complaint gsco new york supreme court new york county alleging gsco falsely represented third party would independently select collateral 2006 cdo cifg seeks unspecified compensatory punitive damages including approximately 10 million connection purchase notes 30 million payments discharge alleged liabilities arising issuance financial guaranty insurance policy guaranteeing payment credit default swap referencing cdo various alleged purchasers counterparties involved transactions relating mortgage passthrough certificates cdos mortgagerelated products including certain allstate affiliates bank hapoalim bm basis yield alpha fund master bayerische landesbank cambridge place investment management inc charles schwab corporation deutsche zentralgenossenschaftbank fdic receiver guaranty bank federal home loan banks boston chicago indianapolis seattle fhfa conservator fannie mae freddie mac hsh nordbank ikb deutsche industriebank ag landesbank badenwürttemberg joel sher chapter 11 trustee behalf tmst inc tmst fka thornburg mortgage inc certain tmst affiliates john hancock related parties massachusetts mutual life insurance company moneygram payment systems inc national australia bank national credit union administration phoenix light sf limited related parties prudential insurance company america related parties royal park investments sanv sealink funding limited stichting pensioenfonds abp union central life insurance company ameritas life insurance corp acacia life insurance company watertown savings bank western southern life insurance co filed complaints summonses notice state federal court initiated arbitration proceedings firm affiliates generally alleging offering documents securities purchased contained untrue statements material fact material omissions generally seeking rescission andor damages certain complaints allege fraud seek punitive damages certain complaints also name firms defendants number entities including american international group inc aig deutsche bank national trust company john hancock related parties mt bank norges bank investment management selective insurance company threatened assert claims various types firm connection various mortgagerelated transactions firm entered agreements number entities toll relevant statute limitations goldman sachs group inc subsidiaries notes consolidated financial statements date hereof aggregate notional amount mortgagerelated securities sold plaintiffs active cases brought firm plaintiffs seeking rescission securities approximately 207 billion reflect adjustment subsequent paydowns distributions residual value securities statutory interest adjustments may claimed amount include threatened claims noted potential claims purchasers mortgagerelated offerings actually brought firm claims dismissed june 2011 heungkuk life insurance co limited heungkuk filed criminal complaint certain past present employees firm south korea relating purchase cdo securitization goldman sachs heungkuk earlier initiated civil litigation firm relating matter civil litigation settled january 23 2013 heungkuk withdrew criminal complaint entirety group inc gs bank usa entered consent order settlement principle federal reserve board relating servicing residential mortgage loans foreclosure practices addition gs bank usa entered agreement mortgage servicing practices new york state department financial services litton ocwen see note 18 information settlements group inc gsco gsmc among numerous financial services firms named defendants qui tam action originally filed relator april 7 2010 purportedly behalf city chicago state illinois cook county illinois circuit court asserting claims illinois whistleblower reward protection act chicago false claims act based allegations defendants falsely certified compliance various illinois laws purportedly violated connection mortgage origination servicing activities complaint originally filed seal seeks treble damages civil penalties plaintiff filed amended complaint december 28 2011 naming gsco gsmc among others additional defendants second amended complaint february 8 2012 march 12 2012 action removed us district court northern district illinois september 17 2012 district court granted plaintiff’s motion remand action state court november 16 2012 defendants moved dismiss stay discovery group inc litton ocwen defendants putative class action filed january 23 2013 us district court southern district new york generally challenging procurement manner scope “forceplaced” hazard insurance arranged litton homeowners failed arrange insurance required mortgages complaint asserts claims breach contract breach fiduciary duty misappropriation conversion unjust enrichment violation florida unfair practices law seeks unspecified compensatory punitive damages well declaratory injunctive relief firm also received continues receive requests information andor subpoenas federal state local regulators law enforcement authorities relating mortgagerelated securitization process subprime mortgages cdos synthetic mortgagerelated products particular transactions involving products servicing foreclosure activities cooperating regulators authorities including cases agreeing tolling relevant statute limitations see also “financial crisisrelated matters” firm expects subject additional putative shareholder derivative actions purported class actions rescission “put back” claims litigation additional investor shareholder demands additional regulatory investigations actions respect mortgagerelated offerings loan sales cdos servicing foreclosure activities see note 18 information regarding mortgagerelated contingencies goldman sachs group inc subsidiaries notes consolidated financial statements private equitysponsored acquisitions litigation group inc “gs capital partners” among numerous private equity firms investment banks named defendants federal antitrust action filed us district court district massachusetts december 2007 amended complaint generally alleges defendants colluded limit competition bidding private equitysponsored acquisitions public companies thereby resulting lower prevailing bids extension less consideration shareholders companies violation section 1 us sherman antitrust act common law complaint seeks among things treble damages unspecified amount defendants moved dismiss august 27 2008 district court dismissed claims relating certain transactions subject releases part settlement shareholder actions challenging transactions order dated december 15 2008 otherwise denied motion dismiss april 26 2010 plaintiffs moved leave proceed second phase discovery encompassing additional transactions august 18 2010 court permitted discovery eight additional transactions plaintiffs filed fourth amended complaint october 7 2010 january 13 2011 court granted defendants’ motion dismiss certain aspects fourth amended complaint march 1 2011 court granted motion filed certain defendants including group inc dismiss another claim fourth amended complaint grounds transaction subject release part settlement shareholder action challenging transaction june 14 2012 plaintiffs filed fifth amended complaint encompassing additional transactions july 18 2012 court granted defendants’ motion dismiss certain newly asserted claims grounds certain transactions subject releases part settlements shareholder actions challenging transactions denied defendants’ motion dismiss certain additional claims timebarred july 23 2012 defendants filed motions summary judgment indymac passthrough certificates litigation gsco among numerous underwriters named defendants putative securities class action filed may 14 2009 us district court southern district new york underwriters plaintiffs allege offering documents connection various securitizations mortgagerelated assets violated disclosure requirements federal securities laws defendants include indymacrelated entities formed connection securitizations underwriters offerings certain ratings agencies evaluated credit quality securities certain former officers directors indymac affiliates november 2 2009 underwriters moved dismiss complaint motion granted part february 17 2010 extent dismissing claims based offerings plaintiff purchased court reserved judgment aspects motion decision dated june 21 2010 district court formally dismissed claims relating offerings named plaintiff purchased certificates including offerings underwritten gsco granted denied defendants’ motions dismiss various respects november 16 2012 district court denied plaintiffs’ motion seeking reinstatement claims relating 42 offerings previously dismissed lack standing one counderwritten gsco without prejudice renewal depending outcome petition writ certiorari us supreme court respect second circuit’s decision described may 17 2010 four additional investors filed motion seeking intervene order assert claims based additional offerings including two underwritten gsco defendants opposed motion ground putative intervenors’ claims timebarred june 21 2011 court denied motion intervene respect among others claims based offerings underwritten gsco certain putative intervenors including seeking assert claims based two offerings underwritten gsco appealed gsco underwrote approximately 751 million principal amount securities purchasers offerings issue may 2010 motion intervene july 11 2008 indymac bank placed fdic receivership july 31 2008 indymac bancorp inc filed chapter 7 bankruptcy us bankruptcy court los angeles california goldman sachs group inc subsidiaries notes consolidated financial statements rali passthrough certificates litigation gsco among numerous underwriters named defendants putative securities class action initially filed september 2008 new york supreme court subsequently removed us district court southern district new york underwriters plaintiffs allege offering documents connection various offerings mortgagebacked passthrough certificates violated disclosure requirements federal securities laws addition underwriters defendants include residential capital llc rescap residential accredit loans inc rali residential funding corporation rfc residential funding securities corporation rfsc certain officers directors march 31 2010 defendants’ motion dismiss granted part denied part district court resulting dismissal basis standing claims relating offerings plaintiff purchased securities order dated january 3 2013 district court denied without prejudice plaintiffs’ motion reconsideration june july 2010 lead plaintiff five additional investors moved intervene order assert claims based additional offerings including two underwritten gsco april 28 2011 court granted defendants’ motion dismiss certain claims including relating one offering underwritten gsco based release unrelated settlement otherwise permitted intervenor case proceed order dated january 3 2013 district court denied defendants’ motions dismiss certain intervenors’ remaining claims time barred class certification claims based preintervention offerings initially denied district court denial upheld appeal however following remand october 15 2012 district court certified class connection preintervention offerings november 5 2012 defendants filed petition seeking leave us court appeals appeal certification order dated january 3 2013 district court granted plaintiffs’ application modify class definition include initial purchasers bought securities directly underwriters agents later ten trading days offering date rather offering date january 18 2013 defendants filed supplemental petition seeking leave us court appeals appeal order modifying class definition gsco underwrote approximately 128 billion principal amount securities purchasers offerings claims dismissed may 14 2012 rescap rali rfc filed chapter 11 bankruptcy us bankruptcy court southern district new york action stayed respect rfsc certain officers directors mf global securities litigation gsco among numerous underwriters named defendants class action complaints filed us district court southern district new york commencing november 18 2011 complaints generally allege offering materials two offerings mf global holdings ltd convertible notes aggregating approximately 575 million principal amount february 2011 july 2011 among things failed describe adequately nature scope risks mf global’s exposure european sovereign debt violation disclosure requirements federal securities laws august 20 2012 plaintiffs filed consolidated amended complaint october 19 2012 defendants filed motions dismiss amended complaint gsco underwrote aggregate principal amount approximately 214 million notes october 31 2011 mf global holdings ltd filed chapter 11 bankruptcy us bankruptcy court manhattan new york gsco also received inquiries various governmental regulatory bodies selfregulatory organizations concerning certain transactions mf global prior bankruptcy filing goldman sachs cooperating inquiries goldman sachs group inc subsidiaries notes consolidated financial statements employmentrelated matters september 15 2010 putative class action filed us district southern district new york three former female employees alleging group inc gsco systematically discriminated female employees respect compensation promotion assignments mentoring performance evaluations complaint alleges class consisting female employees employed specified levels group inc gsco since july 2002 asserts claims federal new york city discrimination laws complaint seeks class action status injunctive relief unspecified amounts compensatory punitive damages group inc gsco filed motion stay claims one named plaintiffs compel individual arbitration individual based arbitration provision contained employment agreement group inc individual april 28 2011 magistrate judge district judge assigned motion denied motion district court affirmed magistrate judge’s decision november 15 2011 group inc gsco appealed decision us court appeals second circuit june 13 2011 group inc gsco moved strike class allegations one three named plaintiffs based failure exhaust administrative remedies september 29 2011 magistrate judge recommended denial motion strike january 10 2012 district court denied motion strike july 22 2011 group inc gsco moved strike plaintiffs’ class allegations partial summary judgment plaintiffs’ disparate impact claims decision dated january 19 2012 magistrate judge recommended defendants’ motion denied premature defendants filed objections recommendation district judge july 17 2012 district court issued decision granting part group inc’s gsco’s motion strike plaintiffs’ class allegations ground plaintiffs lacked standing pursue certain equitable remedies denying part group inc’s gsco’s motion strike plaintiffs’ class allegations entirety premature investment management services group inc certain affiliates parties various civil litigation arbitration proceedings disputes clients relating losses allegedly sustained result firm’s investment management services claims generally seek among things restitution compensatory damages cases punitive damages addition group inc affiliates subject time investigations reviews various governmental regulatory bodies selfregulatory organizations connection firm’s investment management services goldman sachs cooperating investigations reviews goldman sachs asset management international gsami defendant action filed july 9 2012 high court justice london certain entities representing vervoer dutch pension fund alleging gsami negligent performing duties investment manager connection allocation plaintiffs’ funds among asset managers accordance asset allocations provided plaintiffs gsami breached contractual common law duties plaintiffs specifically plaintiffs allege gsami caused assets invested unsuitable products extended period thereby causing excess 67 million losses caused underexposed period time certain investments performed well thereby resulting foregone potential gains plaintiffs seeking unspecified monetary damages november 2 2012 gsami served defense allegations december 21 2012 plaintiffs served reply defense goldman sachs group inc subsidiaries notes consolidated financial statements financial advisory services group inc certain affiliates parties various civil litigation arbitration proceedings disputes clients third parties relating firm’s financial advisory activities claims generally seek among things compensatory damages cases punitive damages certain cases allege firm appropriately disclose deal conflicts interest addition group inc affiliates subject time investigations reviews various governmental regulatory bodies selfregulatory organizations connection conflicts interest goldman sachs cooperating investigations reviews group inc gsco goldman sachs co llc defendants action brought founders former majority shareholders dragon systems inc dragon november 18 2008 alleging plaintiffs incurred losses due gsco’s financial advisory services provided connection plaintiffs’ exchange purported 300 million interest dragon stock lernout hauspie speech products nv lh 2000 lh filed chapter 11 bankruptcy us bankruptcy court wilmington delaware november 29 2000 action pending united states district court district massachusetts complaint amended november 2011 following 2009 dismissal certain plaintiffs’ initial claims seeks unspecified compensatory punitive damages alleges breach fiduciary duty violation massachusetts unfair trade practices laws negligence negligent intentional misrepresentation gross negligence willful misconduct bad faith former minority shareholders dragon brought similar action gsco respect purported 49 million interest dragon action consolidated action described parties moved summary judgment order dated october 31 2012 court granted summary judgment respect certain counterclaims indemnification claim brought goldman sachs defendants one shareholders denied summary judgment respect claims january 23 2013 jury found favor goldman sachs defendants plaintiffs’ claims negligence negligent intentional misrepresentation gross negligence breach fiduciary duty plaintiffs’ claims violation massachusetts unfair trade practices laws addressed district court yet decided sales trading clearance practices group inc certain affiliates subject number investigations reviews certain industrywide various governmental regulatory bodies selfregulatory organizations relating sales trading clearance corporate government securities financial products including compliance sec’s short sale rule algorithmic quantitative trading futures trading transaction reporting securities lending practices trading clearance credit derivative instruments commodities trading private placement practices compliance us foreign corrupt practices act european commission announced april 2011 initiating proceedings investigate numerous financial services companies including group inc connection supply data related credit default swaps connection profit sharing fee arrangements clearing credit default swaps including potential anticompetitive practices proceedings connection supply data related credit default swaps ongoing group inc’s current understanding proceedings related profit sharing fee arrangements clearing credit default swaps suspended indefinitely firm received civil investigative demands us department justice doj information similar matters goldman sachs cooperating investigations reviews insider trading investigations time firm employees subject otherwise involved regulatory investigations relating insider trading potential misuse material nonpublic information effectiveness firm’s insider trading controls information barriers firm’s practice cooperate fully investigations goldman sachs group inc subsidiaries notes consolidated financial statements research investigations time firm subject otherwise involved regulatory investigations relating research practices including research independence interactions research analysts firm personnel including investment banking personnel firm’s practice cooperate fully investigations eu pricefixing matter july 5 2011 european commission issued statement objections group inc raising allegations industrywide conspiracy fix prices power cables including italian cable company certain goldman sachsaffiliated investment funds held ownership interests 2005 2009 statement objections proposes hold group inc jointly severally liable fine levied cable company concept parental liability eu competition law municipal securities matters group inc certain affiliates subject number investigations reviews various governmental regulatory bodies selfregulatory organizations relating transactions involving municipal securities including wallcross procedures conflict interest disclosure respect state municipal clients trading structuring municipal derivative instruments connection municipal offerings political contribution rules underwriting build america bonds possible impact credit default swap transactions municipal issuers goldman sachs cooperating investigations reviews group inc goldman sachs mitsui marine derivative products lp gsmmdp gs bank usa among numerous financial services firms named defendants numerous substantially identical individual antitrust actions filed beginning november 12 2009 coordinated related antitrust class action litigation individual actions goldman sachs affiliate named pretrial proceedings us district court southern district new york plaintiffs include individual california municipal entities three new york nonprofit entities complaints group inc gsmmdp gs bank usa generally allege goldman sachs defendants participated conspiracy arrange bids fix prices divide market derivatives used municipalities refinancing hedging transactions 1992 2008 complaints assert claims federal antitrust laws either california’s cartwright act new york’s donnelly act seek among things treble damages antitrust laws unspecified amount injunctive relief april 26 2010 goldman sachs defendants’ motion dismiss complaints filed several individual california municipal plaintiffs denied august 19 2011 group inc gsmmdp gs bank usa voluntarily dismissed without prejudice actions except one brought california municipal entity august 21 2008 gsco entered settlement principle office attorney general state new york illinois securities department behalf north american securities administrators association regarding auction rate securities agreement goldman sachs agreed among things offer repurchase par outstanding auction rate securities private wealth management clients purchased firm prior february 11 2008 exception auction rate securities auctions clearing ii continue work issuers interested parties including regulatory governmental entities expeditiously provide liquidity solutions institutional investors iii pay 225 million fine settlement subject approval various states gsco entered consent orders new york illinois states process remaining states september 4 2008 group inc named defendant together numerous financial services firms two complaints filed us district court southern district new york alleging defendants engaged conspiracy manipulate auction securities market violation federal antitrust laws actions filed respectively behalf putative classes issuers investors auction rate securities seek among things treble damages unspecified amount defendants’ motion dismiss granted january 26 2010 march 1 2010 plaintiffs appealed dismissal complaints goldman sachs group inc subsidiaries notes consolidated financial statements beginning february 2012 gsco named respondent four finra arbitrations filed respectively cities houston texas reno nevada california school district north carolina municipal power authority based gsco’s role underwriter brokerdealer claimants’ issuances aggregate 18 billion auction rate securities 2003 2007 houston arbitration two financial services firms named respondents north carolina arbitration one financial services firm named claimant alleges gsco failed disclose practice placing cover bids auctions failed offer claimant option formulaic maximum rate rather fixed maximum rate result claimant forced engage series expensive refinancing conversion transactions failure auction market estimated cost case houston approximately 90 million houston reno also allege gsco advised enter interest rate swaps connection auction rate securities issuances causing incur additional losses including case reno swap termination obligation 8 million claimants assert claims breach fiduciary duty fraudulent concealment negligent misrepresentation breach contract violations exchange act state securities laws breach duties rules municipal securities rulemaking board nasd seek unspecified damages gsco moved federal court enjoin reno california school district arbitrations pursuant exclusive forum selection clause transaction documents november 26 2012 motion denied regard reno arbitration february 8 2013 motion granted regard california school district arbitration financial crisisrelated matters group inc certain affiliates subject number investigations reviews various governmental regulatory bodies selfregulatory organizations litigation relating 2008 financial crisis goldman sachs cooperating investigations reviews goldman sachs group inc subsidiaries notes consolidated financial statements note 28 employee benefit plans note 28 employee benefit plans firm sponsors various pension plans certain postretirement benefit plans primarily healthcare life insurance firm also provides certain benefits former inactive employees prior retirement defined benefit pension plans postretirement plans employees certain nonus subsidiaries participate various defined benefit pension plans generally provide benefits based years credited service percentage employee’s eligible compensation firm maintains defined benefit pension plan certain uk employees april 2008 uk defined benefit plan closed new participants continue accrue benefits existing participants plans material impact firm’s consolidated results operations firm also maintains defined benefit pension plan substantially us employees hired prior november 1 2003 november 2004 plan closed new participants frozen existing participants would accrue additional benefits addition firm maintains unfunded postretirement benefit plans provide medical life insurance eligible retirees dependents covered programs plans material impact firm’s consolidated results operations firm recognizes funded status defined benefit pension postretirement plans measured difference fair value plan assets benefit obligation consolidated statements financial condition december 2012 “other assets” “other liabilities accrued expenses” included 225 million related overfunded pension plan 645 million respectively related plans december 2011 “other assets” “other liabilities accrued expenses” included 135 million related overfunded pension plan 858 million respectively related plans defined contribution plans firm contributes employersponsored us nonus defined contribution plans firm’s contribution plans 221 million 225 million 193 million years ended december 2012 december 2011 december 2010 respectively goldman sachs group inc subsidiaries notes consolidated financial statements note 29 employee incentive plans note 29 employee incentive plans cost employee services received exchange sharebased award generally measured based grantdate fair value award sharebased awards require future service ie vested awards including awards granted retirementeligible employees expensed immediately sharebased awards require future service amortized relevant service period expected forfeitures included determining sharebased employee compensation expense firm pays cash dividend equivalents outstanding rsus dividend equivalents paid rsus generally charged retained earnings dividend equivalents paid rsus expected forfeited included compensation expense firm accounts tax benefit related dividend equivalents paid rsus increase additional paidin capital certain cases primarily related conflicted employment outlined applicable award agreements firm may cash settle sharebased compensation awards accounted equity instruments awards whose terms allow cash settlement additional paidin capital adjusted extent difference value award time cash settlement grantdate value award stock incentive plan firm sponsors stock incentive plan goldman sachs amended restated stock incentive plan sip provides grants incentive stock options nonqualified stock options stock appreciation rights dividend equivalent rights restricted stock rsus awards performance conditions sharebased awards second quarter 2003 sip approved firm’s shareholders effective grants april 1 2003 sip amended restated effective december 31 2008 amended december 20 2012 extend term group inc’s 2013 annual meeting shareholders meeting approval new equity compensation plan voted upon shareholders total number shares common stock may delivered pursuant awards granted sip end 2008 fiscal year could exceed 250 million shares total number shares common stock may delivered awards granted sip 2009 fiscal year fiscal year thereafter cannot exceed 5 issued outstanding shares common stock determined last day immediately preceding fiscal year increased number shares available awards previous years covered awards granted years december 2012 december 2011 1883 million 1610 million shares respectively available grant sip restricted stock units firm grants rsus employees sip primarily connection yearend compensation acquisitions rsus valued based closing price underlying shares date grant taking account liquidity discount applicable postvesting transfer restrictions yearend rsus generally vest underlying shares common stock deliver outlined applicable rsu agreements employee rsu agreements generally provide vesting accelerated certain circumstances retirement death extended absence delivery underlying shares common stock conditioned grantees satisfying certain vesting requirements outlined award agreements table presents activity related rsus goldman sachs group inc subsidiaries notes consolidated financial statements 1 weighted average grantdate fair value rsus granted years ended december 2012 december 2011 december 2010 8472 14121 13264 respectively fair value rsus granted year ended december 2012 december 2011 december 2010 includes liquidity discount 217 127 132 respectively reflect postvesting transfer restrictions 4 years 2 aggregate fair value awards vested years ended december 2012 december 2011 december 2010 157 billion 240 billion 407 billion respectively 3 includes rsus cash settled 4 includes restricted stock subject future service requirements december 2012 december 2011 276317 754482 shares respectively first quarter 2013 firm granted employees 167 million yearend rsus 57 million rsus require future service condition delivery awards subject additional conditions outlined award agreements generally shares underlying awards net required withholding tax deliver threeyear period subject postvesting transfer restrictions january 2018 grants included table stock options stock options generally vest outlined applicable stock option agreement options granted february 2010 generally became exercisable onethird installments january 2011 january 2012 january 2013 expire february 2014 general options granted prior february 2010 expire tenth anniversary grant date although may subject earlier termination cancellation certain circumstances accordance terms sip applicable stock option agreement table presents activity related stock options goldman sachs group inc subsidiaries notes consolidated financial statements total intrinsic value options exercised years ended december 2012 december 2011 december 2010 151 million 143 million 510 million respectively table presents options outstanding weighted average grantdate fair value options granted year ended december 2010 3758 tables present primary weighted average assumptions used estimate fair value grant date based blackscholes optionpricing model sharebased compensation related excess tax benefitprovision 1 represents tax benefitprovision recognized additional paidin capital stock options exercised delivery common stock underlying sharebased awards december 2012 434 million total unrecognized compensation cost related nonvested sharebased compensation arrangements cost expected recognized weighted average period 162 years goldman sachs group inc subsidiaries notes consolidated financial statements note 30 parent company note 30 parent company supplemental disclosures cash payments thirdparty interest net capitalized interest 511 billion 383 billion 307 billion years ended december 2012 december 2011 december 2010 respectively cash payments income taxes net refunds 159 billion 139 billion 205 billion years ended december 2012 december 2011 december 2010 respectively noncash activity year ended december 2011 103 million common stock issued connection acquisition gs australia 1 primarily includes overnight loans proceeds used satisfy shortterm obligations group inc 2 includes 491 billion 625 billion fair value december 2012 december 2011 respectively 3 includes 819 billion 1291 billion fair value december 2012 december 2011 respectively 4 unsecured longterm borrowings subsidiaries maturity date 434 million 2014 191 million 2015 208 billion 2016 107 million 2017 766 million 2018thereafter goldman sachs group inc subsidiaries supplemental financial information quarterly results unaudited following represents firm’s unaudited quarterly results years ended december 2012 december 2011 quarterly results prepared accordance us gaap reflect adjustments opinion management necessary fair statement results adjustments normal recurring nature 1 timing magnitude changes firm’s discretionary compensation accruals significant effect results given quarter goldman sachs group inc subsidiaries supplemental financial information common stock price range table presents high low sales prices per share firm’s common stock february 15 2013 13297 holders record firm’s common stock february 15 2013 last reported sales price firm’s common stock new york stock exchange 15499 per share common stock performance following graph compares performance investment firm’s common stock november 30 2007 december 31 2012 sp 500 index sp 500 financials index graph assumes 100 invested november 30 2007 firm’s common stock sp 500 index sp 500 financials index dividends reinvested date payment without payment commissions performance shown graph represents past performance considered indication future performance table shows cumulative total returns dollars firm’s common stock sp 500 index sp 500 financials index goldman sachs’ last five fiscal year ends 1 assuming 100 invested november 30 2007 firm’s common stock sp 500 index sp 500 financials index dividends reinvested date payment without payment commissions performance shown table represents past performance considered indication future performance 1 result firm’s change fiscal yearend 2009 table includes 61 months beginning november 30 2007 ending december 31 2012 goldman sachs group inc subsidiaries supplemental financial information selected financial data 1 connection becoming bank holding company firm required change fiscal yearend november december 2008 represents period november 29 2008 december 26 2008 2 book value per common share based common shares outstanding including rsus granted employees future service requirements 4805 million 5163 million 5469 million 5427 million 4854 million 4859 million december 2012 december 2011 december 2010 december 2009 november 2008 december 2008 respectively 3 rounded nearest penny exact dividend amount 04666666 per common share reflective fourmonth period december 2008 march 2009 due change firm’s fiscal yearend goldman sachs group inc subsidiaries supplemental financial information statistical disclosures distribution assets liabilities shareholders’ equity table presents summary consolidated average balances interest rates goldman sachs group inc subsidiaries supplemental financial information 1 consists cash financial instruments including equity securities convertible debentures 2 derivative instruments commodities included noninterestearning assets noninterestbearing liabilities 3 primarily consists cash securities segregated regulatory purposes certain receivables customers counterparties 4 consists shortterm secured financings unsecured shortterm borrowings 5 interest rates include effects interest rate swaps accounted hedges 6 consists longterm secured financings unsecured longterm borrowings 7 primarily consists certain payables customers counterparties 8 assets liabilities interest attributed us nonus based location legal entity assets liabilities held goldman sachs group inc subsidiaries supplemental financial information changes net interest income volume rate analysis table presents analysis effect net interest income volume rate changes analysis changes due volumerate variance allocated volume goldman sachs group inc subsidiaries supplemental financial information availableforsale securities portfolio table presents fair value availableforsale securities december 2012 assets related firm’s reinsurance business classified held sale included “other assets” see note 12 information assets held sale goldman sachs group inc subsidiaries supplemental financial information table presents fair value amortized cost weighted average yields availableforsale securities contractual maturity yields calculated weighted average basis goldman sachs group inc subsidiaries supplemental financial information deposits table presents summary firm’s interestbearing deposits 1 amounts available withdrawal upon short notice generally within seven days ratios table presents selected financial ratios 1 based net earnings applicable common shareholders divided average monthly common shareholders’ equity 2 based net earnings divided average monthly total shareholders’ equity 3 dividends declared per common share percentage diluted earnings per common share shortterm borrowed funds table presents summary firm’s securities loaned securities sold agreements repurchase shortterm borrowings generally mature within one year financial statement date include borrowings redeemable option holder within one year financial statement date 1 includes shortterm secured financings 2305 billion 2919 billion 2453 billion december 2012 december 2011 december 2010 respectively 2 weighted average interest rates borrowings include effect hedging activities goldman sachs group inc subsidiaries supplemental financial information crossborder outstandings crossborder outstandings based federal financial institutions examination council’s ffiec regulatory guidelines reporting crossborder information represent amounts firm may able obtain foreign country due countryspecific events including unfavorable economic political conditions economic social instability changes government policies credit exposure represents potential loss due default deterioration credit quality counterparty issuer securities instruments firm holds measured based potential loss event nonpayment counterparty credit exposure reduced effect risk mitigants netting agreements counterparties permit firm offset receivables payables counterparties obtaining collateral counterparties tables include effects risk mitigants represent firm’s credit exposure claims tables include cash receivables securities purchased agreements resell securities borrowed cash financial instruments exclude derivative instruments commitments securities purchased agreements resell securities borrowed presented gross without reduction related securities collateral held based domicile counterparty margin loans included receivables presented based amount collateral advanced counterparty tables present crossborder outstandings country crossborder outstandings exceed 075 consolidated assets accordance ffiec guidelines 1 primarily comprised secured lending transactions clearing house secured collateral 2 primarily comprised interests receivables funds domiciled ireland whose underlying investments primarily located outside ireland secured lending transactions 3 primarily comprised secured lending transactions primarily secured german government obligations goldman sachs group inc subsidiaries supplemental financial information 1 primarily comprised secured lending transactions clearing house secured collateral goldman sachs group inc subsidiaries item 9item 8 financial statements supplementary data index management’s report internal control financial reporting management goldman sachs group inc together consolidated subsidiaries firm responsible establishing maintaining adequate internal control financial reporting firm’s internal control financial reporting process designed supervision firm’s principal executive principal financial officers provide reasonable assurance regarding reliability financial reporting preparation firm’s financial statements external reporting purposes accordance us generally accepted accounting principles december 31 2013 management conducted assessment firm’s internal control financial reporting based framework established internal control integrated framework 1992 issued committee sponsoring organizations treadway commission coso based assessment management determined firm’s internal control financial reporting december 31 2013 effective internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance us generally accepted accounting principles receipts expenditures made accordance authorizations management directors firm provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition firm’s assets could material effect financial statements firm’s internal control financial reporting december 31 2013 audited pricewaterhousecoopers llp independent registered public accounting firm stated report appearing page 122 expresses unqualified opinion effectiveness firm’s internal control financial reporting december 31 2013 report independent registered public accounting firm board directors shareholders goldman sachs group inc opinion consolidated financial statements listed accompanying index present fairly material respects financial position goldman sachs group inc subsidiaries company december 31 2013 2012 results operations cash flows three years period ended december 31 2013 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2013 based criteria established internal control integrated framework 1992 issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing page 121 responsibility express opinions financial statements company’s internal control financial reporting based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp new york new york february 27 2014 goldman sachs group inc subsidiaries consolidated statements earnings accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements comprehensive income accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements financial condition accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements changes shareholders’ equity accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements cash flows supplemental disclosures cash payments interest net capitalized interest 569 billion 925 billion 805 billion 2013 2012 2011 respectively cash payments income taxes net refunds 407 billion 188 billion 178 billion 2013 2012 2011 respectively noncash activities 2012 firm assumed 77 million debt connection business acquisitions 2011 firm assumed 209 billion debt issued 103 million common stock connection acquisition goldman sachs australia pty ltd gs australia formerly goldman sachs partners australia group holdings pty ltd accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries notes consolidated financial statements note 1 description business note 1 description business goldman sachs group inc group inc delaware corporation together consolidated subsidiaries collectively firm leading global investment banking securities investment management firm provides wide range financial services substantial diversified client base includes corporations financial institutions governments highnetworth individuals founded 1869 firm headquartered new york maintains offices major financial centers around world firm reports activities following four business segments investment banking firm provides broad range investment banking services diverse group corporations financial institutions investment funds governments services include strategic advisory assignments respect mergers acquisitions divestitures corporate defense activities risk management restructurings spinoffs debt equity underwriting public offerings private placements including domestic crossborder transactions well derivative transactions directly related activities institutional client services firm facilitates client transactions makes markets fixed income equity currency commodity products primarily institutional clients corporations financial institutions investment funds governments firm also makes markets clears client transactions major stock options futures exchanges worldwide provides financing securities lending prime brokerage services institutional clients investing lending firm invests originates loans provide financing clients investments loans typically longerterm nature firm makes investments consolidated directly indirectly funds firm manages debt securities loans public private equity securities real estate entities investment management firm provides investment management services offers investment products primarily separately managed accounts commingled vehicles mutual funds private investment funds across major asset classes diverse set institutional individual clients firm also offers wealth advisory services including portfolio management financial counseling brokerage transaction services highnetworth individuals families note 2 basis presentation note 2 basis presentation consolidated financial statements prepared accordance accounting principles generally accepted united states us gaap include accounts group inc entities firm controlling financial interest intercompany transactions balances eliminated references 2013 2012 2011 refer firm’s years ended dates context requires december 31 2013 december 31 2012 december 31 2011 respectively reference future year refers year ending december 31 year certain reclassifications made previously reported amounts conform current presentation goldman sachs group inc subsidiaries notes consolidated financial statements note 3 significant accounting policies note 3 significant accounting policies firm’s significant accounting policies include measure fair value assets liabilities accounting goodwill identifiable intangible assets consolidate entity see notes 5 8 policies fair value measurements note 13 policies goodwill identifiable intangible assets note 11 policies consolidation accounting significant accounting policies either discussed included following footnotes consolidation firm consolidates entities firm controlling financial interest firm determines whether controlling financial interest entity first evaluating whether entity voting interest entity variable interest entity vie voting interest entities voting interest entities total equity investment risk sufficient enable entity finance activities independently ii equity holders power direct activities entity significantly impact economic performance obligation absorb losses entity right receive residual returns entity usual condition controlling financial interest voting interest entity ownership majority voting interest firm majority voting interest voting interest entity consolidated variable interest entities vie entity lacks one characteristics voting interest entity firm controlling financial interest vie firm one variable interests provide power direct activities vie significantly impact vie’s economic performance ii obligation absorb losses vie right receive benefits vie could potentially significant vie see note 11 information vies equitymethod investments firm controlling financial interest entity exert significant influence entity’s operating financial policies investment accounted either equity method accounting ii fair value electing fair value option available us gaap significant influence generally exists firm owns 20 50 entity’s common stock insubstance common stock general firm accounts investments acquired fair value option became available fair value certain cases firm applies equity method accounting new investments strategic nature closely related firm’s principal business activities firm significant degree involvement cash flows operations investee costbenefit considerations less significant see note 12 information equitymethod investments goldman sachs group inc subsidiaries notes consolidated financial statements investment funds firm formed numerous investment funds thirdparty investors funds typically organized limited partnerships limited liability companies firm acts general partner manager generally firm hold majority economic interests funds usually voting interest entities generally consolidated thirdparty investors typically rights terminate funds remove firm general partner manager investments funds included “financial instruments owned fair value” see notes 6 18 22 information investments funds use estimates preparation consolidated financial statements requires management make certain estimates assumptions important relate fair value measurements accounting goodwill identifiable intangible assets provisions losses may arise litigation regulatory proceedings tax audits estimates assumptions based best available information actual results could materially different revenue recognition financial assets financial liabilities fair value financial instruments owned fair value financial instruments sold yet purchased fair value recorded fair value either fair value option accordance us gaap addition firm elected account certain financial assets financial liabilities fair value electing fair value option fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date financial assets marked bid prices financial liabilities marked offer prices fair value measurements include transaction costs fair value gains losses generally included “market making” positions institutional client services “other principal transactions” positions investing lending see notes 5 8 information fair value measurements investment banking fees financial advisory assignments underwriting revenues recognized earnings services related underlying transaction completed terms assignment expenses associated transactions deferred related revenue recognized assignment otherwise concluded expenses associated financial advisory assignments recorded noncompensation expenses net client reimbursements underwriting revenues presented net related expenses investment management firm earns management fees incentive fees investment management services management fees mutual funds calculated percentage daily net asset value received monthly management fees hedge funds separately managed accounts calculated percentage monthend net asset value generally received quarterly management fees private equity funds calculated percentage monthly invested capital commitments received quarterly semiannually annually depending fund management fees recognized period related service provided incentive fees calculated percentage fund’s separately managed account’s return excess return specified benchmark performance target incentive fees generally based investment performance 12month period life fund fees based performance 12month period subject adjustment prior end measurement period fees based investment performance life fund future investment underperformance may require fees previously distributed firm returned fund incentive fees recognized material contingencies resolved management incentive fee revenues included “investment management” revenues firm makes payments brokers advisors related placement firm’s investment funds payments computed based either percentage management fee investment fund’s net asset value firm principal arrangement costs recorded gross basis included “brokerage clearing exchange distribution fees” firm agent arrangement costs recorded net basis “investment management” revenues goldman sachs group inc subsidiaries notes consolidated financial statements commissions fees firm earns “commissions fees” executing clearing client transactions stock options futures markets commissions fees recognized day trade executed transfers assets transfers assets accounted sales firm relinquished control assets transferred transfers assets accounted sales related gains losses recognized net revenues assets liabilities arise firm’s continuing involvement transferred assets measured fair value transfers assets accounted sales assets remain “financial instruments owned fair value” transfer accounted collateralized financing related interest expense recognized life transaction see note 9 information transfers assets accounted collateralized financings note 10 information transfers assets accounted sales cash equivalents firm defines cash equivalents highly liquid overnight deposits held ordinary course business december 2013 december 2012 “cash equivalents” included 414 billion 675 billion respectively cash due banks 5699 billion 6592 billion respectively interestbearing deposits banks receivables customers counterparties receivables customers counterparties generally relate collateralized transactions receivables primarily comprised customer margin loans certain transfers assets accounted secured loans rather purchases fair value collateral posted connection certain derivative transactions loans held investment certain firm’s receivables customers counterparties accounted fair value fair value option changes fair value generally included “market making” revenues receivables customers counterparties accounted fair value including loans held investment accounted amortized cost net estimated uncollectible amounts interest receivables customers counterparties recognized life transaction included “interest income” see note 8 information receivables customers counterparties receivables payables brokers dealers clearing organizations receivables payables brokers dealers clearing organizations accounted cost plus accrued interest generally approximates fair value receivables payables carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 7 8 receivables payables included firm’s fair value hierarchy substantially would classified level 2 december 2013 payables customers counterparties payables customers counterparties primarily consist customer credit balances related firm’s prime brokerage activities payables customers counterparties accounted cost plus accrued interest generally approximates fair value payables carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 7 8 payables included firm’s fair value hierarchy substantially would classified level 2 december 2013 goldman sachs group inc subsidiaries notes consolidated financial statements offsetting assets liabilities reduce credit exposures derivatives securities financing transactions firm may enter master netting agreements similar arrangements collectively netting agreements counterparties permit offset receivables payables counterparties netting agreement contract counterparty permits net settlement multiple transactions counterparty including upon exercise termination rights nondefaulting party upon exercise termination rights transactions governed netting agreement terminated net settlement amount calculated addition firm receives posts cash securities collateral respect derivatives securities financing transactions subject terms related credit support agreements similar arrangements collectively credit support agreements enforceable credit support agreement grants nondefaulting party exercising termination rights right liquidate collateral apply proceeds amounts owed order assess enforceability firm’s right setoff netting credit support agreements firm evaluates various factors including applicable bankruptcy laws local statutes regulatory provisions jurisdiction parties agreement derivatives reported netbycounterparty basis ie net payable receivable derivative assets liabilities given counterparty consolidated statements financial condition legal right setoff exists enforceable netting agreement resale repurchase agreements securities borrowed loaned transactions term currency presented netbycounterparty basis consolidated statements financial condition transactions meet certain settlement criteria subject netting agreements consolidated statements financial condition derivatives reported net cash collateral received posted enforceable credit support agreements transacted enforceable netting agreement consolidated statements financial condition resale repurchase agreements securities borrowed loaned reported net related cash securities received posted collateral see note 9 information collateral received pledged including rights deliver repledge collateral see notes 7 9 information offsetting insurance activities firm sold majority stake americas reinsurance business april 2013 european insurance business december 2013 result firm longer consolidates businesses remaining investments approximately 20 americas reinsurance business approximately 36 european insurance business accounted fair value fair value option included “financial instruments owned fair value” december 2013 results remaining investments included investing lending segment prior sales certain firm’s insurance contracts accounted fair value fair value option changes fair value included “market making” revenues see note 8 information fair values insurance contracts revenues variable annuity life insurance reinsurance contracts accounted fair value generally consisted fees assessed contract holder account balances mortality charges policy administration fees surrender charges revenues recognized earnings period services provided included “market making” revenues changes reserves including interest credited policyholder account balances recognized “insurance reserves” premiums earned underwriting property catastrophe reinsurance recognized earnings coverage period net premiums ceded cost reinsurance included “market making” revenues expenses liabilities related property catastrophe reinsurance claims including estimates losses incurred reported included “insurance reserves” goldman sachs group inc subsidiaries notes consolidated financial statements foreign currency translation assets liabilities denominated nonus currencies translated rates exchange prevailing date consolidated statements financial condition revenues expenses translated average rates exchange period foreign currency remeasurement gains losses transactions nonfunctional currencies recognized earnings gains losses translation financial statements nonus operation functional currency us dollar included net hedges taxes consolidated statements comprehensive income recent accounting developments derecognition substance real estate asc 360 december 2011 fasb issued asu 201110 “property plant equipment topic 360 derecognition substance real estate scope clarification” asu 201110 clarifies order deconsolidate subsidiary substance real estate due default subsidiary’s nonrecourse debt parent must longer control subsidiary also must satisfy sale criteria asc 36020 “property plant equipment real estate sales” asu effective fiscal years beginning june 15 2012 firm applied provisions asu events occurring january 1 2013 adoption asu 201110 materially affect firm’s financial condition results operations cash flows disclosures offsetting assets liabilities asc 210 december 2011 fasb issued asu 201111 “balance sheet topic 210 disclosures offsetting assets liabilities” asu 201111 amended asu 201301 “balance sheet topic 210 clarifying scope disclosures offsetting assets liabilities” requires disclosure effect potential effect offsetting arrangements firm’s financial position well enhanced disclosure rights setoff associated firm’s recognized derivative instruments resale repurchase agreements securities borrowing lending transactions asu 201111 effective periods beginning january 1 2013 since amended principles require additional disclosures concerning offsetting related arrangements adoption affect firm’s financial condition results operations cash flows see notes 7 9 information firm’s offsetting related arrangements investment companies asc 946 june 2013 fasb issued asu 201308 “financial services investment companies topic 946 amendments scope measurement disclosure requirements” asu 201308 clarifies approach used determining whether entity investment company provides new measurement disclosure requirements asu 201308 effective interim annual reporting periods fiscal years begin december 15 2013 earlier application prohibited adoption asu 201308 affect firm’s financial condition results operations cash flows inclusion fed funds effective swap rate overnight index swap rate benchmark interest rate hedge accounting purposes asc 815 july 2013 fasb issued asu 201310 “derivatives hedging topic 815 inclusion fed funds effective swap rate overnight index swap rate benchmark interest rate hedge accounting purposes” asu 201310 permits use fed funds effective swap rate ois us benchmark interest rate hedge accounting purposes asu also removes restriction using different benchmark rates similar hedges asu 201310 effective qualifying new redesignated hedging relationships entered july 17 2013 adoption materially affect firm’s financial condition results operations cash flows goldman sachs group inc subsidiaries notes consolidated financial statements note 4 financial instruments owned fair value financial instruments sold yet purchased fair value note 4 financial instruments owned fair value financial instruments sold yet purchased fair value financial instruments owned fair value financial instruments sold yet purchased fair value accounted fair value either fair value option accordance us gaap see note 8 information fair value option table presents firm’s financial instruments owned fair value including pledged collateral financial instruments sold yet purchased fair value 1 december 2012 includes 429 billion commodities transferred third parties accounted collateralized financings rather sales transactions related commodities included “financial instruments owned fair value” outstanding december 2013 2 primarily relates fair value unfunded lending commitments fair value option elected goldman sachs group inc subsidiaries notes consolidated financial statements gains losses market making principal transactions table presents “market making” revenues major product type well “other principal transactions” revenues gainslosses primarily related firm’s financial instruments owned fair value financial instruments sold yet purchased fair value including derivative nonderivative financial instruments gainslosses exclude related interest income interest expense see note 23 information interest income interest expense gainslosses table representative manner firm manages business activities many firm’s marketmaking client facilitation strategies utilize financial instruments across various product types accordingly gains losses one product type frequently offset gains losses product types example firm’s longerterm derivatives sensitive changes interest rates may economically hedged interest rate swaps similarly significant portion firm’s cash instruments derivatives exposure foreign currencies may economically hedged foreign currency contracts 1 principal transactions included firm’s investing lending segment see note 25 net revenues including net interest income product type investing lending well amount net interest income included investing lending “other” category note 25 relates firm’s consolidated investment entities primarily includes commoditiesrelated net revenues 2 includes gain 211 million sale majority stake firm’s european insurance business 3 includes gain 494 million sale firm’s hedge fund administration business goldman sachs group inc subsidiaries notes consolidated financial statements note 5 fair value measurements note 5 fair value measurements fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date financial assets marked bid prices financial liabilities marked offer prices fair value measurements include transaction costs firm measures certain financial assets financial liabilities portfolio ie based net exposure market andor credit risks best evidence fair value quoted price active market quoted prices active markets available fair value determined reference prices similar instruments quoted prices recent transactions less active markets internally developed models primarily use marketbased independently sourced parameters inputs including limited interest rates volatilities equity debt prices foreign exchange rates commodity prices credit spreads funding spreads ie spread difference interest rate borrower could finance given financial instrument relative benchmark interest rate us gaap threelevel fair value hierarchy disclosure fair value measurements fair value hierarchy prioritizes inputs valuation techniques used measure fair value giving highest priority level 1 inputs lowest priority level 3 inputs financial instrument’s level fair value hierarchy based lowest level input significant fair value measurement fair value hierarchy follows level 1 inputs unadjusted quoted prices active markets firm access measurement date identical unrestricted assets liabilities level 2 inputs valuation techniques observable either directly indirectly level 3 one inputs valuation techniques significant unobservable fair values substantially firm’s financial assets financial liabilities based observable prices inputs classified levels 1 2 fair value hierarchy certain level 2 level 3 financial assets financial liabilities may require appropriate valuation adjustments market participant would require arrive fair value factors counterparty firm’s credit quality funding risk transfer restrictions liquidity bidoffer spreads valuation adjustments generally based market evidence goldman sachs group inc subsidiaries notes consolidated financial statements see notes 6 7 information fair value measurements cash instruments derivatives respectively included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” note 8 information fair value measurements financial assets financial liabilities accounted fair value fair value option table presents financial assets financial liabilities accounted fair value fair value option accordance us gaap table cash collateral counterparty netting represents impact derivatives netting across levels fair value hierarchy netting among positions classified level included level 1 includes approximately 890 billion 915 billion december 2013 december 2012 respectively carried fair value amounts generally approximate fair value level 3 financial assets december 2013 decreased compared december 2012 primarily reflecting decrease derivative assets bank loans bridge loans securities backed commercial real estate decrease derivative assets primarily reflected decline credit derivative assets principally due settlements unrealized losses decrease bank loans bridge loans securities backed commercial real estate primarily reflected settlements sales partially offset purchases transfers level 3 level 3 financial liabilities december 2013 decreased compared december 2012 primarily reflecting decrease liabilities accrued expenses principally due sale majority stake firm’s european insurance business december 2013 see notes 6 7 8 information level 3 cash instruments derivatives financial assets financial liabilities accounted fair value fair value option respectively including information significant unrealized gains losses transfers level 3 goldman sachs group inc subsidiaries notes consolidated financial statements note 6 cash instruments note 6 cash instruments cash instruments include us government federal agency obligations nonus government agency obligations bank loans bridge loans corporate debt securities equities convertible debentures nonderivative financial instruments owned financial instruments sold yet purchased see types cash instruments included level fair value hierarchy valuation techniques significant inputs used determine fair values see note 5 overview firm’s fair value measurement policies level 1 cash instruments level 1 cash instruments include us government obligations nonus government obligations actively traded listed equities certain government agency obligations money market instruments valued using quoted prices identical unrestricted instruments active markets firm defines active markets equity instruments based average daily trading volume absolute terms relative market capitalization instrument firm defines active markets debt instruments based average daily trading volume number days trading activity level 2 cash instruments level 2 cash instruments include commercial paper certificates deposit time deposits government agency obligations certain nonus government obligations corporate debt securities commodities certain mortgagebacked loans securities certain bank loans bridge loans restricted less liquid listed equities state municipal obligations certain lending commitments valuations level 2 cash instruments verified quoted prices recent trading activity identical similar instruments broker dealer quotations alternative pricing sources reasonable levels price transparency consideration given nature quotations eg indicative firm relationship recent market activity prices provided alternative pricing sources valuation adjustments typically made level 2 cash instruments cash instrument subject transfer restrictions andor ii premiums liquidity discounts market participant would require arrive fair value valuation adjustments generally based market evidence level 3 cash instruments level 3 cash instruments one significant valuation inputs observable absent evidence contrary level 3 cash instruments initially valued transaction price considered best initial estimate fair value subsequently firm uses methodologies determine fair value vary based type instrument valuation inputs assumptions changed corroborated substantive observable evidence including values realized sales financial assets goldman sachs group inc subsidiaries notes consolidated financial statements valuation techniques significant inputs table presents valuation techniques nature significant inputs valuation techniques significant inputs generally used determine fair values type level 3 cash instrument goldman sachs group inc subsidiaries notes consolidated financial statements significant unobservable inputs tables present ranges significant unobservable inputs used value firm’s level 3 cash instruments ranges represent significant unobservable inputs used valuation type cash instrument weighted averages tables calculated weighting input relative fair value respective financial instruments ranges weighted averages inputs representative appropriate inputs use calculating fair value one cash instrument example highest multiple presented tables private equity investments appropriate valuing specific private equity investment may appropriate valuing private equity investment accordingly ranges inputs presented represent uncertainty possible ranges fair value measurements firm’s level 3 cash instruments 1 fair value one instrument may determined using multiple valuation techniques example market comparables discounted cash flows may used together determine fair value therefore level 3 balance encompasses techniques goldman sachs group inc subsidiaries notes consolidated financial statements 1 fair value one instrument may determined using multiple valuation techniques example market comparables discounted cash flows may used together determine fair value therefore level 3 balance encompasses techniques increases yield discount rate capitalization rate duration cumulative loss rate used valuation firm’s level 3 cash instruments would result lower fair value measurement increases recovery rate basis multiples longterm growth rate compound annual growth rate would result higher fair value measurement due distinctive nature firm’s level 3 cash instruments interrelationship inputs necessarily uniform within product type goldman sachs group inc subsidiaries notes consolidated financial statements fair value cash instruments level tables present level within fair value hierarchy cash instrument assets liabilities fair value cash instrument assets liabilities included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” respectively 1 includes 295 million 411 million collateralized debt obligations cdos backed real estate level 2 level 3 respectively 2 includes 451 million 162 billion cdos collateralized loan obligations clos backed corporate obligations level 2 level 3 respectively 3 includes 1282 billion private equity investments 137 billion investments real estate entities 491 million convertible debentures goldman sachs group inc subsidiaries notes consolidated financial statements 1 includes 489 million 446 million cdos backed real estate level 2 level 3 respectively 2 includes 284 million 176 billion cdos clos backed corporate obligations level 2 level 3 respectively 3 includes 1267 billion private equity investments 158 billion investments real estate entities 600 million convertible debentures transfers levels fair value hierarchy transfers levels fair value hierarchy reported beginning reporting period occur 2013 transfers level 2 level 1 cash instruments 1 million reflecting transfers public equity securities due decreased market activity instruments transfers level 1 level 2 cash instruments 79 million reflecting transfers public equity securities primarily due increased market activity instruments 2012 transfers level 2 level 1 cash instruments 185 billion including transfers nonus government obligations 105 billion reflecting level market activity instruments transfers equity securities 806 million primarily reflecting impact transfer restrictions transfers level 1 level 2 cash instruments 302 million including transfers nonus government obligations 180 million reflecting level market activity instruments transfers equity securities 102 million firm able obtain quoted prices certain actively traded instruments goldman sachs group inc subsidiaries notes consolidated financial statements level 3 rollforward cash instrument asset liability transferred level 3 reporting period entire gain loss period included level 3 level 3 cash instruments frequently economically hedged level 1 level 2 cash instruments andor level 1 level 2 level 3 derivatives accordingly gains losses reported level 3 partially offset gains losses attributable level 1 level 2 cash instruments andor level 1 level 2 level 3 derivatives result gains losses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources tables present changes fair value cash instrument assets liabilities categorized level 3 end year purchases tables include originations secondary market purchases 1 aggregate amounts include gains approximately 109 billion 269 billion 723 million reported “market making” “other principal transactions” “interest income” respectively net unrealized gain level 3 cash instruments 303 billion reflecting 297 billion cash instrument assets 64 million cash instrument liabilities 2013 primarily consisted gains private equity investments principally driven strong corporate performance bank loans bridge loans primarily due tighter credit spreads favorable companyspecific events corporate debt securities primarily due tighter credit spreads transfers level 3 2013 primarily reflected transfers certain bank loans bridge loans private equity investments level 2 principally due lack market transactions instruments transfers level 3 2013 primarily reflected transfers certain private equity investments level 2 principally due increased transparency market prices result market transactions instruments goldman sachs group inc subsidiaries notes consolidated financial statements 1 primarily reflects transfers related firm’s reinsurance business level 3 “other debt obligations” within cash instruments fair value level 3 “other assets” within financial assets fair value business classified held sale december 2012 see note 8 information 2 aggregate amounts include gains approximately 617 million 213 billion 962 million reported “market making” “other principal transactions” “interest income” respectively net unrealized gain level 3 cash instruments 207 billion reflecting 201 billion gains cash instrument assets 54 million gains cash instrument liabilities 2012 primarily consisted gains private equity investments mortgage assetbacked loans securities bank loans bridge loans corporate debt securities unrealized gains 2012 primarily reflected impact increase global equity prices tighter credit spreads transfers level 3 2012 primarily reflected transfers level 2 certain bank loans bridge loans private equity investments principally due lack market transactions instruments transfers level 3 2012 primarily reflected transfers level 2 certain private equity investments bank loans bridge loans transfers private equity investments level 2 principally due improved transparency market prices result market transactions instruments transfers bank loans bridge loans level 2 principally due market transactions instruments unobservable inputs longer significant valuation certain loans goldman sachs group inc subsidiaries notes consolidated financial statements investments funds calculate net asset value per share cash instruments fair value include investments funds valued based net asset value per share nav investment fund firm uses nav measure fair value fund investments fund investment readily determinable fair value ii nav investment fund calculated manner consistent measurement principles investment company accounting including measurement underlying investments fair value firm’s investments funds calculate nav primarily consist investments firmsponsored private equity credit real estate hedge funds firm coinvests thirdparty investors private equity funds primarily invest broad range industries worldwide variety situations including leveraged buyouts recapitalizations growth investments distressed investments credit funds generally invest loans fixed income instruments focused providing private highyield capital mid largesized leveraged management buyout transactions recapitalizations financings refinancings acquisitions restructurings private equity firms private family companies corporate issuers real estate funds invest globally primarily real estate companies loan portfolios debt recapitalizations property private equity credit real estate funds primarily closedend funds firm’s investments eligible redemption distributions received funds underlying assets liquidated firm also invests hedge funds primarily multidisciplinary hedge funds employ fundamental bottomup investment approach across various asset classes strategies including longshort equity credit convertibles risk arbitrage special situations capital structure arbitrage investments hedge funds generally redeemable quarterly basis 91 days’ notice subject maximum redemption level 25 firm’s initial investments quarterend however investments also include interests underlying assets illiquid nature proceeds redemptions distributed underlying assets liquidated many funds described “covered funds” defined volcker rule us doddfrank wall street reform consumer protection act doddfrank act conformance period ends july 2015 subject possible extensions 2017 firm continues manage existing funds taking account transition periods volcker rule firm currently redeeming certain interests hedge funds comply volcker rule since march 2012 firm redeemed approximately 221 billion interests hedge funds including approximately 115 billion 2013 106 billion 2012 certain firm’s covered funds order compliant volcker rule prescribed compliance date extent underlying investments particular funds sold firm may required sell investments funds occurs firm could receive value investments less carrying value could limited secondary market investments firm may unable sell orderly transactions tables present fair value firm’s investments unfunded commitments funds calculate nav goldman sachs group inc subsidiaries notes consolidated financial statements note 7 derivatives hedging activities note 7 derivatives hedging activities derivative activities derivatives instruments derive value underlying asset prices indices reference rates inputs combination factors derivatives may traded exchange exchangetraded may privately negotiated contracts usually referred overthecounter otc derivatives certain firm’s otc derivatives cleared settled central clearing counterparties otccleared others bilateral contracts two counterparties bilateral otc marketmaking market maker firm enters derivative transactions provide liquidity clients facilitate transfer hedging risks capacity firm typically acts principal consequently required commit capital provide execution market maker essential maintain inventory financial instruments sufficient meet expected client market demands risk management firm also enters derivatives actively manage risk exposures arise marketmaking investing lending activities derivative cash instruments firm’s holdings exposures hedged many cases either portfolio riskspecific basis opposed instrumentbyinstrument basis offsetting impact economic hedging reflected business segment related revenues addition firm may enter derivatives designated hedges us gaap derivatives used manage interest rate exposure certain fixedrate unsecured longterm shortterm borrowings deposits manage foreign currency exposure net investment certain nonus operations manage exposure variability cash flows associated forecasted sales certain energy commodities one firm’s consolidated investments firm enters various types derivatives including  futures forwards contracts commit counterparties purchase sell financial instruments commodities currencies future  swaps contracts require counterparties exchange cash flows currency interest payment streams amounts exchanged based specific terms contract reference specified rates financial instruments commodities currencies indices  options contracts option purchaser right obligation purchase sell option writer financial instruments commodities currencies within defined time period specified price derivatives reported netbycounterparty basis ie net payable receivable derivative assets liabilities given counterparty legal right setoff exists enforceable netting agreement counterparty netting derivatives accounted fair value net cash collateral received posted enforceable credit support agreements collateral netting derivative assets liabilities included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” respectively substantially gains losses derivatives designated hedges asc 815 included “market making” “other principal transactions” table presents fair value derivatives netbycounterparty basis goldman sachs group inc subsidiaries notes consolidated financial statements table presents fair value notional amount derivative contracts major product type gross basis gross fair values exclude effects counterparty netting collateral therefore representative firm’s exposure table also presents amounts counterparty netting cash collateral offset consolidated statements financial condition well cash securities collateral posted received enforceable credit support agreements meet criteria netting us gaap firm received posted collateral credit support agreements yet determined agreements enforceable related collateral netted table notional amounts represent sum gross long short derivative contracts provide indication volume firm’s derivative activity represent anticipated losses 1 pursuant rule changes clearing organization effective december 31 2013 transactions clearing organization longer considered settled day change resulted increase gross interest rate derivative assets liabilities 25176 billion 23507 billion respectively december 2013 corresponding increase counterparty netting cash collateral impact consolidated statements financial condition impact reflecting transactions clearing organization settled december 2012 resulted reduction gross interest rate derivative assets liabilities 31540 billion 29869 billion respectively 2 includes derivative assets derivative liabilities 2318 billion 2346 billion respectively december 2013 derivative assets derivative liabilities 2462 billion 2573 billion respectively december 2012 subject enforceable netting agreement subject netting agreement firm yet determined enforceable goldman sachs group inc subsidiaries notes consolidated financial statements valuation techniques derivatives firm’s level 2 level 3 derivatives valued using derivative pricing models eg discounted cash flow models correlation models incorporate option pricing methodologies monte carlo simulations price transparency derivatives generally characterized product type interest rate general prices inputs used value interest rate derivatives transparent even longdated contracts interest rate swaps options denominated currencies leading industrialized nations characterized high trading volumes tight bidoffer spreads interest rate derivatives reference indices inflation index shape yield curve eg 10year swap rate vs 2year swap rate complex prices inputs generally observable credit price transparency credit default swaps including single names baskets credits varies market underlying reference entity obligation credit default swaps reference indices large corporates major sovereigns generally exhibit price transparency credit default swaps underliers price transparency varies based credit rating cost borrowing underlying reference obligations availability underlying reference obligations delivery upon default issuer credit default swaps reference loans assetbacked securities emerging market debt instruments tend less price transparency reference corporate bonds addition complex credit derivatives sensitive correlation two underlying reference obligations generally less price transparency currency prices currency derivatives based exchange rates leading industrialized nations including longer tenors generally transparent primary difference price transparency developed emerging market currency derivatives emerging markets tend observable contracts shorter tenors commodity derivatives include transactions referenced energy eg oil natural gas metals eg precious base soft commodities eg agricultural price transparency varies based underlying commodity delivery location tenor product quality eg diesel fuel compared unleaded gasoline general price transparency commodity derivatives greater contracts shorter tenors contracts closely aligned major andor benchmark commodity indices equity price transparency equity derivatives varies market underlier options indices common stock corporates included major equity indices exhibit price transparency equity derivatives generally observable market prices except contracts long tenors reference prices differ significantly current market prices complex equity derivatives sensitive correlation two individual stocks generally less price transparency liquidity essential observability product types transaction volumes decline previously transparent prices inputs may become unobservable conversely even highly structured products may times trading volumes large enough provide observability prices inputs see note 5 overview firm’s fair value measurement policies level 1 derivatives level 1 derivatives include shortterm contracts future delivery securities underlying security level 1 instrument exchangetraded derivatives actively traded valued quoted market price level 2 derivatives level 2 derivatives include otc derivatives significant valuation inputs corroborated market evidence exchangetraded derivatives actively traded andor valued using models calibrate marketclearing levels otc derivatives evaluating significance valuation input firm considers among factors portfolio’s net risk exposure input goldman sachs group inc subsidiaries notes consolidated financial statements selection particular model value derivative depends contractual terms specific risks inherent instrument well availability pricing information market derivatives trade liquid markets model selection involve significant management judgment outputs models calibrated marketclearing levels valuation models require variety inputs contractual terms market prices yield curves discount rates including derived interest rates collateral received posted specified credit support agreements collateralized derivatives credit curves measures volatility prepayment rates loss severity rates correlations inputs significant inputs valuations level 2 derivatives verified market transactions broker dealer quotations alternative pricing sources reasonable levels price transparency consideration given nature quotations eg indicative firm relationship recent market activity prices provided alternative pricing sources level 3 derivatives level 3 derivatives valued using models utilize observable level 1 andor level 2 inputs well unobservable level 3 inputs  majority firm’s interest rate currency derivatives classified within level 3 significant unobservable inputs include correlations certain currencies interest rates eg correlation euro inflation euro interest rates specific interest rate volatilities  level 3 credit derivatives significant unobservable inputs include illiquid credit spreads upfront credit points unique specific reference obligations reference entities recovery rates certain correlations required value credit mortgage derivatives eg likelihood default underlying reference obligation relative one another  level 3 equity derivatives significant unobservable inputs generally include equity volatility inputs options longdated andor strike prices differ significantly current market prices addition valuation certain structured trades requires use level 3 correlation inputs correlation price performance two individual stocks correlation price performance basket stocks another asset class commodities  level 3 commodity derivatives significant unobservable inputs include volatilities options strike prices differ significantly current market prices spreads certain products product quality physical location commodity aligned benchmark indices subsequent initial valuation level 3 derivative firm updates level 1 level 2 inputs reflect observable market changes resulting gains losses recorded level 3 level 3 inputs changed corroborated evidence similar market transactions thirdparty pricing services andor broker dealer quotations empirical market data circumstances firm cannot verify model value reference market transactions possible different valuation model could produce materially different estimate fair value see information significant unobservable inputs used valuation level 3 derivatives valuation adjustments valuation adjustments integral determining fair value derivative portfolios used adjust midmarket valuations produced derivative pricing models appropriate exit price valuation adjustments incorporate bidoffer spreads cost liquidity credit valuation adjustments funding valuation adjustments account credit funding risk inherent uncollateralized portion derivative portfolios firm also makes funding valuation adjustments collateralized derivatives terms agreement permit firm deliver repledge collateral received marketbased inputs generally used calibrating valuation adjustments marketclearing levels addition derivatives include significant unobservable inputs firm makes model exit price adjustments account valuation uncertainty present transaction goldman sachs group inc subsidiaries notes consolidated financial statements significant unobservable inputs tables present ranges significant unobservable inputs used value firm’s level 3 derivatives well averages medians inputs ranges represent significant unobservable inputs used valuation type derivative averages represent arithmetic average inputs weighted relative fair value notional respective financial instruments average greater median indicates majority inputs average ranges averages medians inputs representative appropriate inputs use calculating fair value one derivative example highest correlation presented tables interest rate derivatives appropriate valuing specific interest rate derivative may appropriate valuing interest rate derivative accordingly ranges inputs presented represent uncertainty possible ranges fair value measurements firm’s level 3 derivatives 1 fair value one instrument may determined using multiple valuation techniques example option pricing models discounted cash flows models typically used together determine fair value therefore level 3 balance encompasses techniques 2 range unobservable inputs correlation across derivative product types ie crossasset correlation 42 78 average 25 median 30 december 2013 3 difference average median credit spreads input indicates majority inputs fall lower end range goldman sachs group inc subsidiaries notes consolidated financial statements 1 fair value one instrument may determined using multiple valuation techniques example option pricing models discounted cash flows models typically used together determine fair value therefore level 3 balance encompasses techniques 2 range unobservable inputs correlation across derivative product types ie crossasset correlation 51 66 average 30 median 35 december 2012 3 difference average median credit spreads input indicates majority inputs fall lower end range goldman sachs group inc subsidiaries notes consolidated financial statements range significant unobservable inputs following provides information ranges significant unobservable inputs used value firm’s level 3 derivative instruments  correlation ranges correlation cover variety underliers within one market eg equity index equity single stock names across markets eg correlation commodity price foreign exchange rate well across regions generally crossasset correlation inputs used value complex instruments lower correlation inputs assets within derivative product type  volatility ranges volatility cover numerous underliers across variety markets maturities strike prices example volatility equity indices generally lower volatility single stocks  credit spreads upfront credit points recovery rates ranges credit spreads upfront credit points recovery rates cover variety underliers index single names regions sectors maturities credit qualities highyield investmentgrade broad range population gives rise width ranges significant unobservable inputs  commodity prices spreads ranges commodity prices spreads cover variability products maturities locations well peak offpeak prices sensitivity fair value measurement changes significant unobservable inputs following provides description directional sensitivity firm’s level 3 fair value measurements changes significant unobservable inputs isolation due distinctive nature firm’s level 3 derivatives interrelationship inputs necessarily uniform within product type  correlation general contracts holder benefits convergence underlying asset index prices eg interest rates credit spreads foreign exchange rates inflation rates equity prices increase correlation results higher fair value measurement  volatility general purchased options increase volatility results higher fair value measurement  credit spreads upfront credit points recovery rates general fair value purchased credit protection increases credit spreads upfront credit points increase recovery rates decrease credit spreads upfront credit points recovery rates strongly related distinctive risk factors underlying reference obligations include reference entityspecific factors leverage volatility industry marketbased risk factors borrowing costs liquidity underlying reference obligation macroeconomic conditions  commodity prices spreads general contracts holder receiving commodity increase spread price difference benchmark index due differences quality delivery location price results higher fair value measurement goldman sachs group inc subsidiaries notes consolidated financial statements fair value derivatives level tables present fair value derivatives gross basis level major product type well impact netting gross fair values exclude effects counterparty netting collateral netting therefore representative firm’s exposure counterparty netting reflected level extent receivable payable balances netted within level netting receivable payable balances across levels counterparty netting reflected “crosslevel netting” cash collateral netting reflected “cash collateral” goldman sachs group inc subsidiaries notes consolidated financial statements goldman sachs group inc subsidiaries notes consolidated financial statements level 3 rollforward derivative transferred level 3 reporting period entire gain loss period included level 3 transfers levels reported beginning reporting period occur tables negative amounts transfers level 3 positive amounts transfers level 3 represent net transfers derivative liabilities gains losses level 3 derivatives considered context following  derivative level 1 andor level 2 inputs classified level 3 entirety least one significant level 3 input  one significant level 3 input entire gain loss adjusting observable inputs ie level 1 level 2 inputs classified level 3  gains losses reported level 3 resulting changes level 1 level 2 inputs frequently offset gains losses attributable level 1 level 2 derivatives andor level 1 level 2 level 3 cash instruments result gainslosses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources tables present changes fair value derivatives categorized level 3 end year 1 aggregate amounts include losses approximately 129 billion 324 million reported “market making” “other principal transactions” respectively net unrealized loss level 3 derivatives 137 billion 2013 principally resulted changes level 2 inputs primarily attributable losses certain credit derivatives principally due impact tighter credit spreads losses certain currency derivatives primarily due changes foreign exchange rates transfers level 3 derivatives 2013 primarily reflected transfers credit derivative assets level 2 principally due reduced transparency upfront credit points correlation inputs used value derivatives transfers level 3 derivatives 2013 primarily reflected transfers certain credit derivatives level 2 principally due unobservable credit spread correlation inputs longer significant valuation derivatives unobservable inputs significant net risk certain portfolios goldman sachs group inc subsidiaries notes consolidated financial statements 1 aggregate amounts include losses approximately 903 million 251 million reported “market making” “other principal transactions” respectively net unrealized loss level 3 derivatives 123 billion 2012 principally resulted changes level 2 inputs primarily attributable impact tighter credit spreads changes foreign exchange rates increases global equity prices certain derivatives partially offset impact decline volatility certain commodity derivatives transfers level 3 derivatives 2012 primarily reflected transfers level 2 certain credit derivative assets principally due unobservable inputs becoming significant valuation derivatives transfers level 2 credit derivative assets principally due reduced transparency correlation inputs used value derivatives transfers level 3 derivatives 2012 primarily reflected transfers level 2 certain credit derivative assets principally due unobservable inputs longer significant valuation derivatives transfers level 2 certain currency derivative assets principally due unobservable correlation inputs longer significant valuation derivatives transfers level 2 certain commodity derivative liabilities principally due increased transparency volatility inputs used value derivatives impact credit spreads derivatives ongoing basis firm realizes gains losses relating changes credit risk unwind derivative contracts changes credit mitigants net gainloss including hedges attributable impact changes credit exposure credit spreads counterparty firm’s derivatives 66 million 2013 735 million 2012 573 million 2011 bifurcated embedded derivatives table presents fair value notional amount derivatives bifurcated related borrowings derivatives recorded fair value primarily consist interest rate equity commodity products included “unsecured shortterm borrowings” “unsecured longterm borrowings” related borrowings see note 8 information goldman sachs group inc subsidiaries notes consolidated financial statements otc derivatives tables present fair values otc derivative assets liabilities tenor product type tenor based expected duration mortgagerelated credit derivatives generally remaining contractual maturity derivatives counterparty netting reflected tables follows  counterparty netting within product type tenor category included within product type tenor category  counterparty netting across product types within tenor category reflected “netting across product types”  counterparty netting across tenor categories reflected “cross maturity netting” 1 represents netting cash collateral received posted counterparty basis enforceable credit support agreements goldman sachs group inc subsidiaries notes consolidated financial statements 1 represents netting cash collateral received posted counterparty basis enforceable credit support agreements goldman sachs group inc subsidiaries notes consolidated financial statements derivatives creditrelated contingent features certain firm’s derivatives transacted bilateral agreements counterparties may require firm post collateral terminate transactions based changes firm’s credit ratings firm assesses impact bilateral agreements determining collateral termination payments would occur assuming downgrade rating agencies downgrade one rating agency depending agency’s relative ratings firm time downgrade may impact comparable impact downgrade rating agencies table presents aggregate fair value net derivative liabilities agreements excluding application collateral posted reduce liabilities related aggregate fair value assets posted collateral additional collateral termination payments could called reporting date counterparties event onenotch twonotch downgrade firm’s credit ratings credit derivatives firm enters broad array credit derivatives locations around world facilitate client transactions manage credit risk associated marketmaking investing lending activities credit derivatives actively managed based firm’s net risk position credit derivatives individually negotiated contracts various settlement payment conventions credit events include failure pay bankruptcy acceleration indebtedness restructuring repudiation dissolution reference entity credit default swaps singlename credit default swaps protect buyer loss principal one bonds loans mortgages reference obligations event issuer reference entity reference obligations suffers credit event buyer protection pays initial periodic premium seller receives protection period contract credit event defined contract seller protection makes payments buyer protection however credit event occurs seller protection required make payment buyer protection calculated accordance terms contract credit indices baskets tranches credit derivatives may reference basket singlename credit default swaps broadbased index credit event occurs one underlying reference obligations protection seller pays protection buyer payment typically prorata portion transaction’s total notional amount based underlying defaulted reference obligation certain transactions credit risk basket index separated various portions tranches different levels subordination junior tranches cover initial defaults losses exceed notional amount junior tranches excess loss covered next senior tranche capital structure total return swaps total return swap transfers risks relating economic performance reference obligation protection buyer protection seller typically protection buyer receives protection seller floating rate interest protection reduction fair value reference obligation return protection seller receives cash flows associated reference obligation plus increase fair value reference obligation credit options credit option writer assumes obligation purchase sell reference obligation specified price credit spread option purchaser buys right assume obligation sell reference obligation purchase option writer payments credit options depend either particular credit spread price reference obligation goldman sachs group inc subsidiaries notes consolidated financial statements firm economically hedges exposure written credit derivatives primarily entering offsetting purchased credit derivatives identical underlyings substantially firm’s purchased credit derivative transactions financial institutions subject stringent collateral thresholds addition upon occurrence specified trigger event firm may take possession reference obligations underlying particular written credit derivative consequently may upon liquidation reference obligations recover amounts underlying reference obligations event default december 2013 written purchased credit derivatives total gross notional amounts 143 trillion 152 trillion respectively total net notional purchased protection 8155 billion december 2012 written purchased credit derivatives total gross notional amounts 176 trillion 186 trillion respectively total net notional purchased protection 9833 billion table presents certain information credit derivatives table  fair values exclude effects netting receivable balances payable balances enforceable netting agreements netting cash received posted enforceable credit support agreements therefore representative firm’s credit exposure  tenor based expected duration mortgagerelated credit derivatives remaining contractual maturity credit derivatives  credit spread underlying together tenor contract indicators paymentperformance risk firm less likely pay otherwise required perform credit spread tenor lower 1 offsetting purchased credit derivatives represent notional amount purchased credit derivatives economically hedge written credit derivatives identical underlyings 2 purchased protection represents notional amount purchased credit derivatives included “offsetting purchased credit derivatives” goldman sachs group inc subsidiaries notes consolidated financial statements hedge accounting firm applies hedge accounting certain interest rate swaps used manage interest rate exposure certain fixedrate unsecured longterm shortterm borrowings certain fixedrate certificates deposit ii certain foreign currency forward contracts foreign currencydenominated debt used manage foreign currency exposures firm’s net investment certain nonus operations iii certain commoditiesrelated swap forward contracts used manage exposure variability cash flows associated forecasted sales certain energy commodities one firm’s consolidated investments qualify hedge accounting derivative hedge must highly effective reducing risk exposure hedged additionally firm must formally document hedging relationship inception test hedging relationship least quarterly basis ensure derivative hedge continues highly effective life hedging relationship fair value hedges firm designates certain interest rate swaps fair value hedges interest rate swaps hedge changes fair value attributable designated benchmark interest rate eg london interbank offered rate libor ois effectively converting substantial portion fixedrate obligations floatingrate obligations firm applies statistical method utilizes regression analysis assessing effectiveness fair value hedging relationships achieving offsetting changes fair values hedging instrument risk hedged ie interest rate risk interest rate swap considered highly effective offsetting changes fair value attributable changes hedged risk regression analysis results coefficient determination 80 greater slope 80 125 qualifying fair value hedges gains losses derivatives included “interest expense” change fair value hedged item attributable risk hedged reported adjustment carrying value subsequently amortized interest expense remaining life gains losses resulting hedge ineffectiveness included “interest expense” derivative longer designated hedge remaining difference carrying value par value hedged item amortized interest expense remaining life hedged item using effective interest method see note 23 information interest income interest expense table presents gainslosses interest rate derivatives accounted hedges related hedged borrowings bank deposits hedge ineffectiveness derivatives primarily consists amortization prepaid credit spreads resulting passage time goldman sachs group inc subsidiaries notes consolidated financial statements net investment hedges firm seeks reduce impact fluctuations foreign exchange rates net investment certain nonus operations use foreign currency forward contracts foreign currencydenominated debt foreign currency forward contracts designated hedges effectiveness hedge assessed based overall changes fair value forward contracts ie based changes forward rates foreign currencydenominated debt designated hedge effectiveness hedge assessed based changes spot rates qualifying net investment hedges gains losses hedging instruments extent effective included “currency translation” within consolidated statements comprehensive income table presents gainslosses net investment hedging gainloss related ineffectiveness material 2013 2012 2011 loss reclassified earnings accumulated comprehensive income material 2013 2012 186 million 2011 december 2013 december 2012 firm designated 197 billion 277 billion respectively foreign currencydenominated debt included “unsecured longterm borrowings” “unsecured shortterm borrowings” hedges net investments nonus subsidiaries cash flow hedges beginning third quarter 2013 firm designated certain commoditiesrelated swap forward contracts cash flow hedges swap forward contracts hedge firm’s exposure variability cash flows associated forecasted sales certain energy commodities one firm’s consolidated investments firm applies statistical method utilizes regression analysis assessing hedge effectiveness cash flow hedge considered highly effective offsetting changes forecasted cash flows attributable hedged risk regression analysis results coefficient determination 80 greater slope 80 125 qualifying cash flow hedges gains losses derivatives extent effective included “cash flow hedges” within consolidated statements comprehensive income gains losses resulting hedge ineffectiveness included “other principal transactions” consolidated statements earnings effective portion gains taxes recognized cash flow hedges 14 million 2013 gainloss related hedge ineffectiveness material 2013 gainslosses excluded assessment hedge effectiveness reclassified earnings accumulated comprehensive income 2013 amounts recorded “cash flow hedges” reclassified “other principal transactions” periods corresponding gain loss sale hedged energy commodities also recorded “other principal transactions” firm expects reclassify 5 million gains net taxes related cash flow hedges “cash flow hedges” earnings within next twelve months length time firm hedging exposure variability future cash flows forecasted transactions approximately two years goldman sachs group inc subsidiaries notes consolidated financial statements note 8 fair value option note 8 fair value option financial assets financial liabilities fair value addition cash derivative instruments included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” firm accounts certain financial assets financial liabilities fair value primarily fair value option primary reasons electing fair value option  reflect economic events earnings timely basis  mitigate volatility earnings using different measurement attributes eg transfers financial instruments owned accounted financings recorded fair value whereas related secured financing would recorded accrual basis absent electing fair value option  address simplification costbenefit considerations eg accounting hybrid financial instruments fair value entirety versus bifurcation embedded derivatives hedge accounting debt hosts hybrid financial instruments contain bifurcatable embedded derivatives require settlement physical delivery nonfinancial assets eg physical commodities firm elects bifurcate embedded derivative associated debt derivative accounted fair value host contract accounted amortized cost adjusted effective portion fair value hedges firm elect bifurcate entire hybrid financial instrument accounted fair value fair value option financial assets financial liabilities accounted fair value fair value option include  repurchase agreements substantially resale agreements  securities borrowed loaned within fixed income currency commodities client execution  substantially secured financings including transfers assets accounted financings rather sales  certain unsecured shortterm borrowings consisting promissory notes commercial paper certain hybrid financial instruments  certain unsecured longterm borrowings including certain prepaid commodity transactions certain hybrid financial instruments  certain insurance contract assets liabilities certain guarantees  certain receivables customers counterparties including transfers assets accounted secured loans rather purchases certain margin loans  certain time deposits issued firm’s bank subsidiaries deposits stated maturity eligible fair value option election including structured certificates deposit hybrid financial instruments  certain subordinated liabilities issued consolidated vies financial assets financial liabilities fair value generally valued based discounted cash flow techniques incorporate inputs reasonable levels price transparency generally classified level 2 inputs observable valuation adjustments may made liquidity counterparty firm’s credit quality goldman sachs group inc subsidiaries notes consolidated financial statements see information significant inputs used value financial assets financial liabilities fair value including ranges significant unobservable inputs used value level 3 instruments within categories ranges represent significant unobservable inputs used valuation type financial assets financial liabilities fair value ranges weighted averages inputs representative appropriate inputs use calculating fair value one instrument example highest yield presented resale repurchase agreements appropriate valuing specific agreement category may appropriate valuing agreements category accordingly ranges inputs presented represent uncertainty possible ranges fair value measurements firm’s level 3 financial assets financial liabilities resale repurchase agreements securities borrowed loaned significant inputs valuation resale repurchase agreements securities borrowed loaned funding spreads amount timing expected future cash flows interest rates ranges significant unobservable inputs used value level 3 resale repurchase agreements follows december 2013  yield 13 39 weighted average 14  duration 02 27 years weighted average 25 years december 2012  yield 17 54 weighted average 19  duration 04 45 years weighted average 41 years generally increases yield duration isolation would result lower fair value measurement due distinctive nature firm’s level 3 resale repurchase agreements interrelationship inputs necessarily uniform across agreements see note 9 information collateralized agreements secured financings significant inputs valuation secured financings fair value amount timing expected future cash flows interest rates funding spreads fair value collateral delivered firm determined using amount timing expected future cash flows market prices market yields recovery assumptions frequency additional collateral calls ranges significant unobservable inputs used value level 3 secured financings follows december 2013  funding spreads 40 bps 250 bps weighted average 162 bps  yield 09 143 weighted average 50  duration 08 161 years weighted average 37 years december 2012  yield 03 200 weighted average 42  duration 03 108 years weighted average 24 years generally increases funding spreads yield duration isolation would result lower fair value measurement due distinctive nature firm’s level 3 secured financings interrelationship inputs necessarily uniform across financings see note 9 information collateralized financings goldman sachs group inc subsidiaries notes consolidated financial statements unsecured shortterm longterm borrowings significant inputs valuation unsecured shortterm longterm borrowings fair value amount timing expected future cash flows interest rates credit spreads firm well commodity prices case prepaid commodity transactions inputs used value embedded derivative component hybrid financial instruments consistent inputs used value firm’s derivative instruments see note 7 information derivatives see notes 15 16 information unsecured shortterm longterm borrowings respectively certain firm’s unsecured shortterm longterm instruments included level 3 substantially hybrid financial instruments significant unobservable inputs used value hybrid financial instruments primarily relate embedded derivative component borrowings inputs incorporated firm’s derivative disclosures related unobservable inputs note 7 insurance contracts 2013 firm sold majority stake americas reinsurance business april 2013 european insurance business december 2013 see note 3 information sales prior selling businesses firm elected fair value option certain insurance contracts could settled cash qualified fair value option recognized financial instruments contracts valued using market transactions market evidence possible including marketbased inputs models calibration marketclearing transactions alternative pricing sources reasonable levels price transparency significant inputs interest rates inflation rates volatilities funding spreads yield duration incorporated policy lapse projected mortality assumptions unobservable inputs valuation model significant fair value measurement instrument classified level 3 december 2012 assets liabilities related european insurance business included “receivables customers counterparties” “other liabilities accrued expenses” respectively assets liabilities related americas reinsurance business classified held sale december 2012 included “other assets” “other liabilities accrued expenses” respectively ranges significant unobservable inputs used value level 3 insurance contracts december 2012 follows  funding spreads 39 bps 61 bps weighted average 49 bps  yield 44 151 weighted average 62  duration 53 88 years weighted average 76 years generally increases funding spreads yield duration isolation would result lower fair value measurement due distinctive nature firm’s level 3 insurance contracts interrelationship inputs necessarily uniform across contracts goldman sachs group inc subsidiaries notes consolidated financial statements receivables customers counterparties receivables customers counterparties fair value excluding insurance contracts primarily comprised transfers assets accounted secured loans rather purchases significant inputs valuation receivables commodity prices interest rates amount timing expected future cash flows funding spreads december 2012 level 3 secured loans primarily related firm’s european insurance business majority stake sold december 2013 see note 3 information sale ranges significant unobservable inputs used value level 3 secured loans follows december 2013  funding spreads 40 bps 477 bps weighted average 142 bps december 2012  funding spreads 85 bps 99 bps weighted average 99 bps generally increase funding spreads would result lower fair value measurement receivables customers counterparties accounted fair value accounted amortized cost net estimated uncollectible amounts generally approximates fair value receivables primarily comprised customer margin loans collateral posted connection certain derivative transactions items carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 7 8 items included firm’s fair value hierarchy substantially would classified level 2 december 2013 receivables customers counterparties accounted fair value also includes loans held investment primarily comprised collateralized loans private wealth management clients corporate loans december 2013 december 2012 carrying value loans 1490 billion 650 billion respectively generally approximated fair value december 2013 loans carried fair value included fair value hierarchy 616 billion 875 billion would classified level 2 level 3 respectively december 2012 loans carried fair value included fair value hierarchy 241 billion 406 billion would classified level 2 level 3 respectively deposits significant inputs valuation time deposits interest rates amount timing future cash flows inputs used value embedded derivative component hybrid financial instruments consistent inputs used value firm’s derivative instruments see note 7 information derivatives see note 14 information deposits firm’s deposits included level 3 hybrid financial instruments significant unobservable inputs used value hybrid financial instruments primarily relate embedded derivative component deposits inputs incorporated firm’s derivative disclosures related unobservable inputs note 7 goldman sachs group inc subsidiaries notes consolidated financial statements fair value financial assets financial liabilities level tables present level within fair value hierarchy financial assets financial liabilities accounted fair value primarily fair value option 1 includes securities segregated regulatory purposes accounted fair value fair value option consists securities borrowed resale agreements table includes 1950 billion level 1 securities segregated regulatory purposes accounted fair value us gaap consisting us treasury securities money market instruments goldman sachs group inc subsidiaries notes consolidated financial statements 1 includes securities segregated regulatory purposes accounted fair value fair value option consists securities borrowed resale agreements table includes 2155 billion level 1 securities segregated regulatory purposes accounted fair value us gaap consisting us treasury securities money market instruments 2 consists assets classified held sale related firm’s americas reinsurance business primarily consisting securities accounted availableforsale insurance separate account assets accounted fair value us gaap 3 consists insurance contracts derivatives classified held sale related firm’s americas reinsurance business see “insurance contracts” note 7 information valuation techniques inputs related insurance contracts derivatives respectively 4 includes 692 million liabilities classified held sale related firm’s americas reinsurance business accounted fair value fair value option transfers levels fair value hierarchy transfers levels fair value hierarchy reported beginning reporting period occur transfers financial assets financial liabilities level 1 level 2 2013 2012 tables present information transfers level 2 level 3 level 3 rollforward financial asset financial liability transferred level 3 reporting year entire gain loss year included level 3 tables present changes fair value financial assets financial liabilities accounted fair value categorized level 3 end year level 3 financial assets liabilities frequently economically hedged cash instruments derivatives accordingly gains losses reported level 3 partially offset gains losses attributable level 1 2 3 cash instruments derivatives result gains losses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources goldman sachs group inc subsidiaries notes consolidated financial statements 1 aggregate amounts include gains approximately 14 million 1 million 4 million reported “market making” “other principal transactions” “interest income” respectively 1 aggregate amounts include losses approximately 184 million 88 million 8 million reported “market making” “other principal transactions” “interest expense” respectively net unrealized loss level 3 financial liabilities 276 million 2013 primarily reflected losses certain hybrid financial instruments included unsecured shortterm borrowings principally due increase global equity prices sales liabilities accrued expenses 2013 primarily reflected sale majority stake firm’s european insurance business transfers level 3 financial assets 2013 primarily reflected transfers certain resale agreements level 2 principally due increased price transparency result market transactions similar instruments transfers level 3 financial liabilities 2013 primarily reflected transfers certain hybrid financial instruments included unsecured shortterm longterm borrowings level 2 principally due decreased transparency certain correlation volatility inputs used value instruments transfers level 3 financial liabilities 2013 primarily reflected transfers certain hybrid financial instruments included unsecured shortterm longterm borrowings level 2 principally due increased transparency certain correlation volatility inputs used value instruments transfers subordinated liabilities included liabilities accrued expenses level 2 principally due increased price transparency result market transactions related underlying investments goldman sachs group inc subsidiaries notes consolidated financial statements 1 aggregate amounts include gainslosses approximately 119 million 3 million 10 million reported “market making” “other principal transactions” “interest income” respectively 1 aggregate amounts include losses approximately 137 billion 113 million 15 million reported “market making” “other principal transactions” “interest expense” respectively net unrealized loss level 3 financial liabilities 139 billion 2012 primarily reflected impact tighter funding spreads changes foreign exchange rates certain insurance liabilities increase global equity prices tighter credit spreads certain hybrid financial instruments transfers level 3 financial assets 2012 reflected transfers level 3 assets classified held sale related firm’s reinsurance business previously included level 3 “financial instruments owned fair value” transfers level 3 financial assets 2012 reflected transfers level 2 certain insurance receivables primarily due increased transparency mortality inputs used value receivables transfers level 3 financial liabilities 2012 primarily reflected transfers level 2 certain hybrid financial instruments principally due decreased transparency certain correlation volatility inputs used value instruments transfers level 3 financial liabilities 2012 primarily reflected transfers level 2 certain hybrid financial instruments principally due increased transparency certain correlation volatility inputs used value instruments unobservable inputs longer significant valuation instruments goldman sachs group inc subsidiaries notes consolidated financial statements gains losses financial assets financial liabilities accounted fair value fair value option table presents gains losses recognized result firm electing apply fair value option certain financial assets financial liabilities gains losses included “market making” “other principal transactions” table also includes gains losses embedded derivative component hybrid financial instruments included unsecured shortterm borrowings unsecured longterm borrowings deposits gains losses would recognized us gaap even firm elected account entire hybrid financial instrument fair value amounts table exclude contractual interest included “interest income” “interest expense” instruments hybrid financial instruments see note 23 information interest income interest expense 1 primarily consists gainslosses certain insurance contracts certain transfers accounted receivables rather purchases 2 includes gainslosses embedded derivative component hybrid financial instruments 46 million 2013 814 million 2012 201 billion 2011 3 includes gainslosses embedded derivative component hybrid financial instruments 902 million 2013 887 million 2012 180 billion 2011 4 primarily consists gainslosses certain insurance contracts subordinated liabilities issued consolidated vies 5 primarily consists gainslosses deposits resale repurchase agreements securities borrowed loaned assets excluding gains losses instruments accounted fair value option described “market making” “other principal transactions” primarily represent gains losses “financial instruments owned fair value” “financial instruments sold yet purchased fair value” loans lending commitments table presents difference aggregate fair value aggregate contractual principal amount loans longterm receivables fair value option elected 1 aggregate contractual principal amount loans exceeds related fair value primarily firm regularly purchases loans distressed loans values significantly contractual principal amounts december 2013 december 2012 fair value unfunded lending commitments fair value option elected liability 122 billion 199 billion respectively related total contractual amount lending commitments 5154 billion 5929 billion respectively see note 18 information lending commitments goldman sachs group inc subsidiaries notes consolidated financial statements longterm debt instruments aggregate contractual principal amount longterm secured financings fair value option elected exceeded related fair value 154 million 115 million december 2013 december 2012 respectively aggregate contractual principal amount unsecured longterm borrowings fair value option elected exceeded related fair value 92 million december 2013 whereas fair value exceeded related aggregate contractual principal amount 379 million december 2012 amounts include principal nonprincipalprotected longterm borrowings impact credit spreads loans lending commitments estimated net gainloss attributable changes instrumentspecific credit spreads loans lending commitments fair value option elected 269 billion 2013 307 billion 2012 805 million 2011 changes fair value loans lending commitments primarily attributable changes instrumentspecific credit spreads substantially firm’s performing loans lending commitments floatingrate impact credit spreads borrowings table presents net gainslosses attributable impact changes firm’s credit spreads borrowings fair value option elected firm calculates fair value borrowings discounting future cash flows rate incorporates firm’s credit spreads note 9 collateralized agreements financings note 9 collateralized agreements financings collateralized agreements securities purchased agreements resell resale agreements securities borrowed collateralized financings securities sold agreements repurchase agreements securities loaned secured financings firm enters transactions order among things facilitate client activities invest excess cash acquire securities cover short positions finance certain firm activities collateralized agreements financings presented netbycounterparty basis legal right setoff exists interest collateralized agreements collateralized financings recognized life transaction included “interest income” “interest expense” respectively see note 23 information interest income interest expense table presents carrying value resale repurchase agreements securities borrowed loaned transactions 1 substantially resale agreements repurchase agreements carried fair value fair value option see note 8 information valuation techniques significant inputs used determine fair value 2 december 2013 december 2012 6038 billion 3840 billion securities borrowed 973 million 156 billion securities loaned fair value respectively goldman sachs group inc subsidiaries notes consolidated financial statements resale repurchase agreements resale agreement transaction firm purchases financial instruments seller typically exchange cash simultaneously enters agreement resell substantially financial instruments seller stated price plus accrued interest future date repurchase agreement transaction firm sells financial instruments buyer typically exchange cash simultaneously enters agreement repurchase substantially financial instruments buyer stated price plus accrued interest future date financial instruments purchased sold resale repurchase agreements typically include us government federal agency investmentgrade sovereign obligations firm receives financial instruments purchased resale agreements makes delivery financial instruments sold repurchase agreements monitors market value financial instruments daily basis delivers obtains additional collateral due changes market value financial instruments appropriate resale agreements firm typically requires delivery collateral fair value approximately equal carrying value relevant assets statements consolidated financial condition even though repurchase resale agreements involve legal transfer ownership financial instruments accounted financing arrangements require financial instruments repurchased resold maturity agreement however “repos maturity” accounted sales repo maturity transaction firm transfers security agreement repurchase security maturity date repurchase agreement matches maturity date underlying security therefore firm effectively longer repurchase obligation relinquished control underlying security accordingly accounts transaction sale firm repos maturity outstanding december 2013 december 2012 securities borrowed loaned transactions securities borrowed transaction firm borrows securities counterparty exchange cash securities firm returns securities counterparty returns cash securities interest generally paid periodically life transaction securities loaned transaction firm lends securities counterparty typically exchange cash securities counterparty returns securities firm returns cash securities posted collateral interest generally paid periodically life transaction firm receives securities borrowed makes delivery securities loaned monitors market value securities daily basis delivers obtains additional collateral due changes market value securities appropriate securities borrowed transactions firm typically requires collateral fair value approximately equal carrying value securities borrowed transaction securities borrowed loaned within fixed income currency commodities client execution recorded fair value fair value option see note 8 information securities borrowed loaned accounted fair value securities borrowed loaned within securities services recorded based amount cash collateral advanced received plus accrued interest arrangements generally terminated demand exhibit little sensitivity changes interest rates therefore carrying value arrangements approximates fair value arrangements carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 7 8 arrangements included firm’s fair value hierarchy would classified level 2 december 2013 december 2012 goldman sachs group inc subsidiaries notes consolidated financial statements offsetting arrangements tables present gross net resale repurchase agreements securities borrowed loaned transactions related amount netting counterparty enforceable netting agreements ie counterparty netting included consolidated statements financial condition substantially gross carrying values arrangements subject enforceable netting agreements tables also present amounts offset consolidated statements financial condition including counterparty netting meet criteria netting us gaap fair value cash securities collateral received posted subject enforceable credit support agreements firm received posted collateral credit support agreements yet determined agreements enforceable related collateral netted table 1 december 2013 december 2012 firm 967 billion 441 billion respectively securities received resale agreements 277 billion 453 billion respectively securities borrowed transactions segregated satisfy certain regulatory requirements securities included “cash securities segregated regulatory purposes” 2 december 2012 firm classified 148 million resale agreements 115 million repurchase agreements related firm’s americas reinsurance business held sale see note 3 information sale goldman sachs group inc subsidiaries notes consolidated financial statements secured financings addition repurchase agreements securities lending transactions firm funds certain assets use secured financings pledges financial instruments assets collateral transactions secured financings consist  liabilities consolidated vies  transfers assets accounted financings rather sales primarily collateralized central bank financings pledged commodities bank loans mortgage whole loans  structured financing arrangements secured financings include arrangements nonrecourse december 2013 december 2012 nonrecourse secured financings 154 billion 176 billion respectively firm elected apply fair value option substantially secured financings use fair value eliminates noneconomic volatility earnings would arise using different measurement attributes see note 8 information secured financings accounted fair value secured financings recorded fair value recorded based amount cash received plus accrued interest generally approximates fair value financings carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 7 8 financings included firm’s fair value hierarchy would primarily classified level 2 level 3 december 2013 december 2012 respectively table presents information secured financings table  shortterm secured financings include financings maturing within one year financial statement date financings redeemable within one year financial statement date option holder  longterm secured financings repayable prior maturity option firm reflected contractual maturity dates  longterm secured financings redeemable prior maturity option holders reflected dates options become exercisable  weighted average interest rates exclude secured financings fair value include effect hedging activities see note 7 information hedging activities 1 includes 154 billion 868 billion related transfers financial assets accounted financings rather sales december 2013 december 2012 respectively financings collateralized financial assets included “financial instruments owned fair value” 158 billion 892 billion december 2013 december 2012 respectively 2 includes 1475 billion 1724 billion secured financings collateralized financial instruments owned fair value december 2013 december 2012 respectively includes 950 billion 1353 billion secured financings collateralized financial instruments received collateral repledged december 2013 december 2012 respectively goldman sachs group inc subsidiaries notes consolidated financial statements table presents secured financings maturity collateral received pledged firm receives cash securities eg us government federal agency sovereign corporate obligations well equities convertible debentures collateral primarily connection resale agreements securities borrowed derivative transactions customer margin loans firm obtains cash securities collateral upfront contingent basis derivative instruments collateralized agreements reduce credit exposure individual counterparties many cases firm permitted deliver repledge financial instruments received collateral entering repurchase agreements securities lending agreements primarily connection secured client financing activities firm also permitted deliver repledge financial instruments connection secured financings collateralizing derivative transactions meeting firm customer settlement requirements firm also pledges certain financial instruments owned fair value connection repurchase agreements securities lending agreements secured financings assets primarily real estate cash connection secured financings counterparties may right deliver repledge table presents financial instruments fair value received collateral available delivered repledged delivered repledged firm table presents information assets pledged goldman sachs group inc subsidiaries notes consolidated financial statements note 10 securitization activities note 10 securitization activities firm securitizes residential commercial mortgages corporate bonds loans types financial assets selling assets securitization vehicles eg trusts corporate entities limited liability companies resecuritization firm acts underwriter beneficial interests sold investors firm’s residential mortgage securitizations substantially connection government agency securitizations beneficial interests issued securitization entities debt equity securities give investors rights receive portions specified cash inflows securitization vehicle include senior subordinated interests principal interest andor cash inflows proceeds sale beneficial interests used pay transferor financial assets sold securitization vehicle purchase securities serve collateral firm accounts securitization sale relinquished control transferred assets prior securitization firm accounts assets pending transfer fair value therefore typically recognize significant gains losses upon transfer assets net revenues underwriting activities recognized connection sales underlying beneficial interests investors transfers assets accounted sales assets remain “financial instruments owned fair value” transfer accounted collateralized financing related interest expense recognized life transaction see notes 9 23 information collateralized financings interest expense respectively firm generally receives cash exchange transferred assets may also continuing involvement transferred assets including ownership beneficial interests securitized financial assets primarily form senior subordinated securities firm may also purchase senior subordinated securities issued securitization vehicles typically vies connection secondary marketmaking activities primary risks included beneficial interests firm’s continuing involvement securitization vehicles performance underlying collateral position firm’s investment capital structure securitization vehicle market yield security interests accounted fair value included “financial instruments owned fair value” generally classified level 2 fair value hierarchy see notes 5 8 information fair value measurements table presents amount financial assets securitized cash flows received retained interests securitization entities firm continuing involvement goldman sachs group inc subsidiaries notes consolidated financial statements tables present firm’s continuing involvement nonconsolidated securitization entities firm sold assets well total outstanding principal amount transferred assets firm continuing involvement tables  outstanding principal amount presented purpose providing information size securitization entities firm continuing involvement representative firm’s risk loss  retained purchased interests firm’s risk loss limited fair value interests  purchased interests represent senior subordinated interests purchased connection secondary marketmaking activities securitization entities firm also holds retained interests 1 outstanding principal amount includes 418 million 835 million december 2013 december 2012 respectively related securitization entities firm’s continuing involvement retained servicing variable interest addition outstanding principal fair value retained interests tables relate following types securitizations vintage described  outstanding principal amount fair value retained interests us government agencyissued collateralized mortgage obligations december 2013 primarily relate securitizations 2013 2012 december 2012 primarily relate securitizations 2012 2011  outstanding principal amount fair value retained interests residential mortgagebacked obligations december 2013 december 2012 primarily relate prime alta securitizations 2007 2006  outstanding principal amount fair value retained interests commercial mortgagebacked obligations december 2013 primarily relate securitizations 2013 december 2012 outstanding principal amount primarily relates securitizations 2012 2007 fair value retained interests primarily relates securitizations 2012  outstanding principal amount fair value retained interests cdos clos december 2013 primarily relate cdo clo securitizations 2007 december 2012 primarily relate securitizations 2007 2006 goldman sachs group inc subsidiaries notes consolidated financial statements addition interests table firm continuing involvement form derivative transactions guarantees certain nonconsolidated vies carrying value derivatives guarantees net asset 26 million 45 million december 2013 december 2012 respectively notional amounts derivatives guarantees included maximum exposure loss nonconsolidated vie tables note 11 tables give effect offsetting benefit financial instruments held mitigate risks inherent retained interests changes fair value based adverse variation assumptions generally cannot extrapolated relationship change assumptions change fair value usually linear addition impact change particular assumption tables calculated independently changes assumption practice simultaneous changes assumptions might magnify counteract sensitivities disclosed tables present weighted average key economic assumptions used measuring fair value retained interests sensitivity fair value immediate adverse changes 10 20 assumptions tables constant prepayment rate included positions key assumption determination fair value discount rate retained interests relate us government agencyissued collateralized mortgage obligations include credit loss expected credit loss assumptions reflected discount rate remainder retained interests 1 due nature current fair value certain retained interests weighted average assumptions constant prepayment discount rates related sensitivity adverse changes meaningful december 2013 december 2012 firm’s maximum exposure adverse changes value interests carrying value 86 million 51 million december 2013 december 2012 respectively goldman sachs group inc subsidiaries notes consolidated financial statements note 11 variable interest entities note 11 variable interest entities vies generally finance purchase assets issuing debt equity securities either collateralized indexed assets held vie debt equity securities issued vie may include tranches varying levels subordination firm’s involvement vies includes securitization financial assets described note 10 investments loans types vies described see note 10 additional information securitization activities including definition beneficial interests see note 3 firm’s consolidation policies including definition vie firm principally involved vies following business activities mortgagebacked vies corporate cdo clo vies firm sells residential commercial mortgage loans securities mortgagebacked vies corporate bonds loans corporate cdo clo vies may retain beneficial interests assets sold vies firm purchases sells beneficial interests issued mortgagebacked corporate cdo clo vies connection marketmaking activities addition firm may enter derivatives certain vies primarily interest rate swaps typically variable interests firm generally enters derivatives counterparties mitigate risk derivatives vies certain mortgagebacked corporate cdo clo vies usually referred synthetic cdos creditlinked note vies synthetically create exposure beneficial interests issue entering credit derivatives rather purchasing underlying assets credit derivatives may reference single asset index portfoliobasket assets indices see note 7 information credit derivatives vies use funds sale beneficial interests premiums received credit derivative counterparties purchase securities serve collateralize beneficial interest holders andor credit derivative counterparty vies may enter derivatives primarily interest rate swaps typically variable interests firm may counterparty derivatives vies generally enters derivatives counterparties mitigate risk real estate creditrelated investing vies firm purchases equity debt securities issued makes loans vies hold real estate performing nonperforming debt distressed loans equity securities firm typically sell assets enter derivatives vies assetbacked vies firm structures vies issue notes clients purchases sells beneficial interests issued assetbacked vies connection marketmaking activities addition firm may enter derivatives certain assetbacked vies primarily total return swaps collateral assets held vies firm pays vie return due note holders receives return collateral assets owned vie firm generally removed total return swap counterparty firm generally enters derivatives counterparties mitigate risk derivatives vies firm typically sell assets assetbacked vies structures powerrelated vies firm purchases debt equity securities issued may provide commitments vies hold powerrelated assets firm typically sell assets enter derivatives vies investment fund vies firm makes equity investments entitled receive fees certain investment fund vies manages firm typically sell assets enter derivatives vies principalprotected note vies firm structures vies issue principalprotected notes clients vies portfolios assets principally exposure hedge funds substantially principal protection notes issued vies provided asset portfolio rebalancing required terms notes firm enters total return swaps vies firm pays vie return due principalprotected note holders receives return assets owned vie firm may enter derivatives counterparties mitigate risk derivatives enters vies firm also obtains funding vies goldman sachs group inc subsidiaries notes consolidated financial statements vie consolidation analysis variable interest vie investment eg debt equity securities interest eg derivatives loans lending commitments vie absorb portions vie’s expected losses andor receive portions vie’s expected residual returns firm’s variable interests vies include senior subordinated debt residential commercial mortgagebacked assetbacked securitization entities cdos clos loans lending commitments limited general partnership interests preferred common equity derivatives may include foreign currency equity andor credit risk guarantees certain fees firm receives investment funds certain interest rate foreign currency credit derivatives firm enters vies variable interests create rather absorb risk enterprise controlling financial interest vie known primary beneficiary consolidates vie firm determines whether primary beneficiary vie performing analysis principally considers  variable interest holder power direct activities vie significantly impact vie’s economic performance  variable interest holder obligation absorb losses right receive benefits vie could potentially significant vie  vie’s purpose design including risks vie designed create pass variable interest holders  vie’s capital structure  terms vie variable interest holders parties involved vie  relatedparty relationships firm reassesses initial evaluation whether entity vie certain reconsideration events occur firm reassesses determination whether primary beneficiary vie ongoing basis based current facts circumstances nonconsolidated vies firm’s exposure obligations vies generally limited interests entities certain instances firm provides guarantees including derivative guarantees vies holders variable interests vies tables present information nonconsolidated vies firm holds variable interests nonconsolidated vies aggregated based principal business activity nature firm’s variable interests take different forms described rows maximum exposure loss tables  maximum exposure loss excludes benefit offsetting financial instruments held mitigate risks associated variable interests  retained purchased interests loans investments maximum exposure loss carrying value interests  commitments guarantees derivatives maximum exposure loss notional amount represent anticipated losses also reduced unrealized losses already recorded result maximum exposure loss exceeds liabilities recorded commitments guarantees derivatives provided vies carrying values firm’s variable interests nonconsolidated vies included consolidated statement financial condition follows  substantially assets held firm related mortgagebacked corporate cdo clo assetbacked investment fund vies included “financial instruments owned fair value” substantially liabilities held firm related corporate cdo clo assetbacked vies included “financial instruments sold yet purchased fair value”  assets held firm related real estate creditrelated investing vies primarily included “financial instruments owned fair value” “receivables customers counterparties” liabilities substantially included “financial instruments sold yet purchased fair value”  assets held firm related powerrelated vies primarily included “financial instruments owned fair value” “other assets” goldman sachs group inc subsidiaries notes consolidated financial statements 1 aggregate amounts include 201 billion 325 billion december 2013 december 2012 respectively related guarantees derivative transactions vies firm transferred assets 2 assets vie maximum exposure loss include 455 billion 900 million respectively december 2013 357 billion 172 billion respectively december 2012 related cdos backed mortgage obligations goldman sachs group inc subsidiaries notes consolidated financial statements consolidated vies tables present carrying amount classification assets liabilities consolidated vies excluding benefit offsetting financial instruments held mitigate risks associated firm’s variable interests consolidated vies aggregated based principal business activity assets liabilities presented net intercompany eliminations majority assets principalprotected notes vies intercompany eliminated consolidation substantially assets consolidated vies used settle obligations vie tables exclude vies firm holds majority voting interest vie meets definition business ii vie’s assets used purposes settlement obligations liabilities real estate creditrelated investing vies cdos mortgagebacked assetbacked vies recourse general credit firm goldman sachs group inc subsidiaries notes consolidated financial statements note 12 assets note 12 assets generally less liquid nonfinancial assets table presents assets type 1 see note 24 information income taxes 2 excludes investments accounted fair value fair value option firm would otherwise apply equity method accounting 607 billion 554 billion december 2013 december 2012 respectively included “financial instruments owned fair value” firm generally elected fair value option investments acquired fair value option became available assets held sale fourth quarter 2012 firm classified americas reinsurance business within institutional client services segment held sale december 2012 assets related business 1692 billion table 1677 billion assets included “miscellaneous receivables other” primarily availableforsale securities separate account assets 149 million included “goodwill identifiable intangible assets” liabilities related business 1462 billion december 2012 included “other liabilities accrued expenses” firm completed sale majority stake americas reinsurance business april 2013 see note 3 information property leasehold improvements equipment property leasehold improvements equipment table presented net accumulated depreciation amortization 904 billion 905 billion december 2013 december 2012 respectively property leasehold improvements equipment included 602 billion 620 billion december 2013 december 2012 respectively related property leasehold improvements equipment firm uses connection operations remainder held investment entities including vies consolidated firm substantially property equipment depreciated straightline basis useful life asset leasehold improvements amortized straightline basis useful life improvement term lease whichever shorter certain costs software developed obtained internal use capitalized amortized straightline basis useful life software impairments firm tests property leasehold improvements equipment identifiable intangible assets impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable extent carrying value asset exceeds projected undiscounted cash flows expected result use eventual disposal asset group firm determines asset impaired records impairment loss equal difference estimated fair value carrying value asset group addition firm recognize impairment loss prior sale asset carrying value asset exceeds estimated fair value primarily result decline market conditions certain firm’s consolidated investments operate 2013 2012 firm determined certain assets impaired recorded impairment losses 216 million 160 million related property leasehold improvements equipment 56 million related identifiable intangible assets 2013 404 million 253 million related property leasehold improvements equipment 151 million related identifiable intangible assets 2012 impairment losses substantially included “depreciation amortization” within firm’s investing lending segment represented excess carrying values assets estimated fair values primarily level 3 measurements using combination discounted cash flow analyses relative value analyses including estimated cash flows expected result use eventual disposition assets goldman sachs group inc subsidiaries notes consolidated financial statements note 13 goodwill identifiable intangible assets note 13 goodwill identifiable intangible assets tables present carrying values goodwill identifiable intangible assets included “other assets” 1 decrease december 2012 december 2013 related sale firm’s television broadcast royalties first quarter 2013 2 decrease december 2012 december 2013 primarily related sale majority stake firm’s americas reinsurance business april 2013 see note 3 information sale goodwill cost acquired companies excess fair value net assets including identifiable intangible assets acquisition date goodwill assessed annually fourth quarter impairment frequently events occur circumstances change indicate impairment may exist first qualitative factors assessed determine whether likely fair value reporting unit less carrying amount results qualitative assessment conclusive quantitative test would performed quantitative goodwill impairment test consists two steps  first step compares estimated fair value reporting unit estimated net book value including goodwill identifiable intangible assets reporting unit’s fair value exceeds estimated net book value goodwill impaired  estimated fair value reporting unit less estimated net book value second step goodwill impairment test performed measure amount impairment loss impairment loss equal excess carrying amount goodwill fair value firm performed quantitative goodwill impairment test fourth quarter 2012 quantitative goodwill test determined goodwill impaired performing quantitative test 2012 firm estimated fair value reporting unit compared respective reporting unit’s net book value estimated carrying value reporting units valued using relative value residual income valuation techniques firm believes market participants would use techniques value firm’s reporting units net book value reporting unit reflected allocation total shareholders’ equity represented estimated amount shareholders’ equity required support activities reporting unit guidelines issued basel committee banking supervision basel committee december 2010 performing 2012 quantitative goodwill test firm determined goodwill impaired estimated fair value firm’s reporting units substantially firm’s goodwill held significantly exceeded estimated carrying values goldman sachs group inc subsidiaries notes consolidated financial statements fourth quarter 2013 firm assessed goodwill impairment multiple factors assessed respect firm’s reporting units determine whether likely fair value reporting units less carrying amount qualitative assessment considered changes since 2012 quantitative goodwill test accordance asc 350 firm considered following factors 2013 qualitative assessment performed fourth quarter evaluating whether likely fair value reporting unit less carrying amount  macroeconomic conditions since 2012 quantitative goodwill test performed firm’s general operating environment improved credit spreads tightened global equity prices increased significantly levels volatility generally lower industrywide equity underwriting activity improved  industry market considerations since 2012 quantitative goodwill test performed industrywide metrics trended positively many industry participants including firm experienced increases stock price pricetobook multiples pricetoearnings multiples addition clarity obtained number regulations early process determining impact regulations rules highly complex full impact known market practices fully developed however firm expect compliance significant negative impact reporting unit results  cost factors although certain expenses increased significant negative changes firm’s overall cost structure since 2012 quantitative goodwill test performed  overall financial performance 2013 firm’s net earnings pretax margin diluted earnings per share return average common shareholders’ equity book value per common share increased compared 2012  entityspecific events entityspecific events since 2012 quantitative goodwill test performed would significant negative impact valuation firm’s reporting units  events affecting reporting units events since 2012 quantitative goodwill test performed would significant negative impact valuation firm’s reporting units  sustained changes stock price since 2012 quantitative goodwill test performed firm’s stock price increased significantly addition stock price exceeded book value per common share throughout 2013 firm also considered factors qualitative assessment including changes book value reporting units estimated excess fair values compared carrying values reporting units 2012 quantitative goodwill test projected earnings cost equity firm considered factors aggregate part qualitative assessment result 2013 qualitative assessment firm determined likely fair value reporting units exceeded respective carrying amount therefore firm determined goodwill impaired quantitative goodwill impairment test required goldman sachs group inc subsidiaries notes consolidated financial statements identifiable intangible assets table presents gross carrying amount accumulated amortization net carrying amount identifiable intangible assets weighted average remaining lives 1 primarily includes commoditiesrelated customer contracts relationships permits access rights 2 assets sold first quarter 2013 total proceeds received approximated carrying value 3 assets related firm’s americas reinsurance business majority stake sold april 2013 see note 3 information sale 4 primarily includes firm’s exchangetraded fund lead market maker rights substantially firm’s identifiable intangible assets considered finite lives amortized estimated lives based economic usage certain commoditiesrelated intangibles substantially amortization expense identifiable intangible assets included “depreciation amortization” tables present amortization expense identifiable intangible assets 2013 2012 2011 estimated future amortization expense 2018 identifiable intangible assets december 2013 see note 12 information impairment testing impairments firm’s identifiable intangible assets goldman sachs group inc subsidiaries notes consolidated financial statements note 14 deposits note 14 deposits table presents deposits held us nonus offices substantially interestbearing substantially us deposits held goldman sachs bank usa gs bank usa december 2013 december 2012 substantially nonus deposits held goldman sachs international bank gsib december 2013 held goldman sachs bank europe plc gs bank europe gsib december 2012 january 18 2013 gs bank europe surrendered banking license central bank ireland transferring deposits gsib subsequently changed name goldman sachs ireland finance plc table presents maturities time deposits held us nonus offices 1 includes 726 billion 510 billion december 2013 december 2012 respectively time deposits accounted fair value fair value option see note 8 information deposits accounted fair value 2 includes 42 million greater 100000 31 million matures within three months 4 million matures within three six months 4 million matures within six twelve months 3 million matures twelve months 3 substantially greater 100000 december 2013 december 2012 savings demand deposits represent deposits stated maturity 4602 billion 4651 billion respectively recorded based amount cash received plus accrued interest approximates fair value addition firm designates certain derivatives fair value hedges substantially time deposits elected fair value option accordingly 1753 billion 1852 billion december 2013 december 2012 respectively time deposits effectively converted fixedrate obligations floatingrate obligations recorded amounts generally approximate fair value savings demand deposits time deposits carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 7 8 deposits included firm’s fair value hierarchy would classified level 2 goldman sachs group inc subsidiaries notes consolidated financial statements note 15 shortterm borrowings note 15 shortterm borrowings shortterm borrowings comprised following see note 9 information secured financings unsecured shortterm borrowings include portion unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holder firm accounts promissory notes commercial paper certain hybrid financial instruments fair value fair value option see note 8 information unsecured shortterm borrowings accounted fair value carrying value unsecured shortterm borrowings recorded fair value generally approximates fair value due shortterm nature obligations unsecured shortterm borrowings carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 7 8 borrowings included firm’s fair value hierarchy substantially would classified level 2 december 2013 december 2012 table presents unsecured shortterm borrowings 1 includes 2420 billion 2465 billion december 2013 december 2012 respectively issued group inc 2 weighted average interest rates borrowings include effect hedging activities exclude financial instruments accounted fair value fair value option see note 7 information hedging activities note 16 longterm borrowings note 16 longterm borrowings longterm borrowings comprised following see note 9 information secured financings table presents unsecured longterm borrowings extending 2061 consisting principally senior borrowings 1 interest rates us dollardenominated debt ranged 135 1004 weighted average rate 519 020 1004 weighted average rate 548 december 2013 december 2012 respectively interest rates nonus dollardenominated debt ranged 033 1300 weighted average rate 429 010 1485 weighted average rate 466 december 2013 december 2012 respectively 2 floating interest rates generally based libor ois equitylinked indexed instruments included floatingrate obligations goldman sachs group inc subsidiaries notes consolidated financial statements table presents unsecured longterm borrowings maturity date reflects following  unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holders excluded table included unsecured shortterm borrowings  unsecured longterm borrowings repayable prior maturity option firm reflected contractual maturity dates  unsecured longterm borrowings redeemable prior maturity option holders reflected dates options become exercisable 1 includes 748 billion adjustments carrying value certain unsecured longterm borrowings resulting application hedge accounting year maturity follows 301 million 2015 775 million 2016 999 million 2017 970 million 2018 443 billion 2019 thereafter firm designates certain derivatives fair value hedges effectively convert substantial portion fixedrate unsecured longterm borrowings accounted fair value floatingrate obligations accordingly excluding cumulative impact changes firm’s credit spreads carrying value unsecured longterm borrowings approximated fair value december 2013 december 2012 see note 7 information hedging activities unsecured longterm borrowings firm elect fair value option cumulative impact due changes firm’s credit spreads would increase approximately 3 1 carrying value total unsecured longterm borrowings december 2013 december 2012 respectively borrowings accounted fair value fair value option fair value accordance us gaap fair value included firm’s fair value hierarchy notes 6 7 8 borrowings included firm’s fair value hierarchy substantially would classified level 2 december 2013 december 2012 table presents unsecured longterm borrowings giving effect hedging activities converted substantial portion fixedrate obligations floatingrate obligations 1 weighted average interest rates aggregate amounts 273 523 related fixedrate obligations 204 related floatingrate obligations 247 526 related fixedrate obligations 198 related floatingrate obligations december 2013 december 2012 respectively rates exclude financial instruments accounted fair value fair value option goldman sachs group inc subsidiaries notes consolidated financial statements subordinated borrowings unsecured longterm borrowings include subordinated debt junior subordinated debt junior subordinated debt junior right payment subordinated borrowings junior senior borrowings december 2013 december 2012 subordinated debt maturities ranging 2015 2038 table presents subordinated borrowings 1 weighted average interest rates giving effect fair value hedges used convert fixedrate obligations floatingrate obligations see note 7 information hedging activities see information interest rates junior subordinated debt 2 par amount carrying amount subordinated debt issued group inc 1394 billion 1641 billion respectively december 2013 1385 billion 1680 billion respectively december 2012 junior subordinated debt junior subordinated debt held 2012 trusts 2012 vesey street investment trust murray street investment trust together 2012 trusts issued aggregate 225 billion senior guaranteed trust securities third parties proceeds offering used fund purchases 175 billion junior subordinated debt securities issued group inc pay interest semiannually fixed annual rate 4647 mature march 9 2017 500 million junior subordinated debt securities issued group inc pay interest semiannually fixed annual rate 4404 mature september 1 2016 2012 trusts purchased junior subordinated debt goldman sachs capital ii goldman sachs capital iii apex trusts apex trusts used proceeds sales purchase shares group inc’s perpetual noncumulative preferred stock series e series e preferred stock perpetual noncumulative preferred stock series f series f preferred stock see note 19 information series e series f preferred stock 2012 trusts required pay distributions senior guaranteed trust securities amounts dates scheduled receive interest junior subordinated debt hold required redeem respective senior guaranteed trust securities upon maturity earlier redemption junior subordinated debt hold firm right defer payments junior subordinated debt subject limitations deferral period firm permitted among things pay dividends make certain repurchases common preferred stock however group inc fully unconditionally guarantees payment distribution redemption amounts due senior basis senior guaranteed trust securities issued 2012 trusts 2012 trusts unable make scheduled distributions holders senior guaranteed trust securities guarantee group inc would obligated make payments 225 billion junior subordinated debt held 2012 trusts benefit investors classified junior subordinated debt apex trusts 2012 trusts delaware statutory trusts sponsored firm whollyowned finance subsidiaries firm regulatory legal purposes consolidated accounting purposes firm covenanted favor holders group inc’s 6345 junior subordinated debentures due february 15 2034 subject certain exceptions firm redeem purchase capital securities issued apex trusts shares group inc’s series e series f preferred stock prior specified dates 2022 price exceeds maximum amount determined reference net cash proceeds firm received sale qualifying securities goldman sachs group inc subsidiaries notes consolidated financial statements junior subordinated debt issued connection trust preferred securities group inc issued 284 billion junior subordinated debentures 2004 goldman sachs capital trust delaware statutory trust issued 275 billion guaranteed preferred beneficial interests third parties 85 million common beneficial interests group inc used proceeds issuances purchase junior subordinated debentures group inc trust whollyowned finance subsidiary firm regulatory legal purposes consolidated accounting purposes firm pays interest semiannually debentures annual rate 6345 debentures mature february 15 2034 coupon rate payment dates applicable beneficial interests interest rate payment dates debentures firm right time defer payment interest debentures therefore cause payment trust’s preferred beneficial interests deferred case ten consecutive semiannual periods deferral period firm permitted among things pay dividends make certain repurchases common stock trust permitted pay distributions common beneficial interests held group inc unless dividends payable preferred beneficial interests paid full note 17 liabilities accrued expenses note 17 liabilities accrued expenses table presents liabilities accrued expenses type 1 represents liabilities future benefits unpaid claims carried fair value fair value option related firm’s european insurance business majority stake sold december 2013 see note 3 information 2 primarily relates consolidated investment funds 3 see note 24 information income taxes 4 includes 1462 billion liabilities classified held sale december 2012 related firm’s americas reinsurance business majority stake sold april 2013 see note 12 information goldman sachs group inc subsidiaries notes consolidated financial statements note 18 commitments contingencies guarantees note 18 commitments contingencies guarantees commitments table presents firm’s commitments 1 consists commitments letters credit issued various banks firm provides counterparties lieu securities cash satisfy various collateral margin deposit requirements commitments extend credit firm’s commitments extend credit agreements lend fixed termination dates depend satisfaction contractual conditions borrowing commitments presented net amounts syndicated third parties total commitment amount necessarily reflect actual future cash flows firm may syndicate substantial additional portions commitments addition commitments expire unused reduced cancelled counterparty’s request firm generally accounts commitments extend credit fair value losses generally recorded net fees “other principal transactions” december 2013 december 2012 approximately 3566 billion 1609 billion respectively firm’s lending commitments held investment accounted accrual basis carrying value estimated fair value lending commitments liabilities 132 million 102 billion respectively december 2013 63 million 523 million respectively december 2012 lending commitments accounted fair value fair value option fair value accordance us gaap fair value included firm’s fair value hierarchy notes 6 7 8 commitments included firm’s fair value hierarchy would primarily classified level 3 december 2013 december 2012 commercial lending firm’s commercial lending commitments extended investmentgrade noninvestmentgrade corporate borrowers commitments investmentgrade corporate borrowers principally used operating liquidity general corporate purposes firm also extends lending commitments connection contingent acquisition financing types corporate lending well commercial real estate financing commitments extended contingent acquisition financing often intended shortterm nature borrowers often seek replace funding sources goldman sachs group inc subsidiaries notes consolidated financial statements sumitomo mitsui financial group inc smfg provides firm credit loss protection certain approved loan commitments primarily investmentgrade commercial lending commitments notional amount loan commitments 2924 billion 3241 billion december 2013 december 2012 respectively credit loss protection loan commitments provided smfg generally limited 95 first loss firm realizes commitments maximum approximately 950 million addition subject satisfaction certain conditions upon firm’s request smfg provide protection 70 additional losses commitments maximum 113 billion 870 million 300 million protection provided december 2013 december 2012 respectively firm also uses financial instruments mitigate credit risks related certain commitments covered smfg instruments primarily include credit default swaps reference similar underlying instrument entity credit default swaps reference market index warehouse financing firm provides financing clients warehouse financial assets arrangements secured warehoused assets primarily consisting corporate loans commercial mortgage loans contingent forward starting resale securities borrowing agreementsforward starting repurchase secured lending agreements firm enters resale securities borrowing agreements repurchase secured lending agreements settle future date generally within three business days firm also enters commitments provide contingent financing clients counterparties resale agreements firm’s funding commitments depends satisfaction contractual conditions resale agreement commitments expire unused investment commitments firm’s investment commitments consist commitments invest private equity real estate assets directly funds firm raises manages commitments include 659 million 872 million december 2013 december 2012 respectively related real estate private investments 646 billion 647 billion december 2013 december 2012 respectively related corporate private investments amounts 548 billion 621 billion december 2013 december 2012 respectively relate commitments invest funds managed firm commitments called would funded market value date investment leases firm contractual obligations longterm noncancelable lease agreements principally office space expiring various dates 2069 certain agreements subject periodic escalation provisions increases real estate taxes charges table presents future minimum rental payments net minimum sublease rentals rent charged operating expense 324 million 2013 374 million 2012 475 million 2011 operating leases include office space held excess current requirements rent expense relating space held growth included “occupancy” firm records liability based fair value remaining lease rentals reduced potential existing sublease rentals leases firm ceased using space management concluded firm derive future economic benefits costs terminate lease end term recognized measured fair value termination contingencies legal proceedings see note 27 information legal proceedings including certain mortgagerelated matters certain mortgagerelated contingencies multiple areas focus regulators governmental agencies others within mortgage market may impact originators issuers servicers investors remains significant uncertainty surrounding nature extent potential exposure participants market goldman sachs group inc subsidiaries notes consolidated financial statements  representations warranties firm significant originator residential mortgage loans firm purchase loans originated others generally received loanlevel representations type described originators period 2005 2008 firm sold approximately 10 billion loans governmentsponsored enterprises approximately 11 billion loans third parties addition firm transferred loans trusts mortgage securitization vehicles december 2013 december 2012 outstanding balance loans transferred trusts mortgage securitization vehicles period 2005 2008 approximately 29 billion 35 billion respectively amounts reflect paydowns cumulative losses approximately 96 billion 22 billion cumulative losses december 2013 approximately 90 billion 20 billion cumulative losses december 2012 small number goldman sachsissued securitizations outstanding principal balance 463 million total paydowns cumulative losses 160 billion 534 million cumulative losses december 2013 outstanding principal balance 540 million total paydowns cumulative losses 152 billion 508 million cumulative losses december 2012 structured credit protection obtained monoline insurers connection sales loans securitizations firm provided loan level representations type described andor assigned loan level representations party firm purchased loans loan level representations made connection sale securitization mortgage loans varied among transactions generally detailed representations applicable loan portfolio addressed matters relating property borrower note representations generally included limited following certain attributes borrower’s financial status ii loantovalue ratios owner occupancy status certain characteristics property iii lien position iv fact loan originated compliance law v completeness loan documentation firm received repurchase claims residential mortgage loans based alleged breaches representations governmentsponsored enterprises third parties trusts mortgage securitization vehicles significant years ended december 2013 december 2012 firm repurchased loans unpaid principal balance less 10 million loss related repurchase loans material 2013 2012 firm received communication counsel purporting represent certain institutional investors portions goldman sachsissued securitizations 2003 2007 securitizations total original notional face amount approximately 150 billion offering enter “settlement dialogue” respect alleged breaches representations made goldman sachs connection offerings ultimately firm’s exposure claims repurchase residential mortgage loans based alleged breaches representations depend number factors including following extent claims actually made within statute limitations taking consideration agreements toll statute limitations firm entered trustees representing trusts ii extent underlying breaches representations give rise valid claims repurchase iii case loans originated others extent firm could held liable firm’s ability pursue collect claims parties made representations firm iv macroeconomic factors including developments residential real estate market v legal regulatory developments see note 27 information agreements firm entered toll statute limitations based upon large number defaults residential mortgages including sold securitized firm potential increasing claims repurchases however firm position make meaningful estimate exposure time goldman sachs group inc subsidiaries notes consolidated financial statements  foreclosure mortgage loan servicing practices procedures firm received number requests information regulators agencies including state attorneys general banking regulators part industrywide focus practices lenders servicers connection foreclosure proceedings aspects mortgage loan servicing practices procedures requests sought information foreclosure servicing protocols activities litton residential mortgage servicing subsidiary sold firm ocwen financial corporation ocwen third quarter 2011 firm cooperating requests inquiries may result imposition fines regulatory action connection sale litton firm provided customary representations warranties indemnities breaches representations warranties ocwen indemnities subject various limitations capped approximately 50 million firm yet received claims indemnities firm also agreed provide specific indemnities ocwen related claims made third parties respect servicing activities period litton owned firm excess related reserves accrued matters litton time sale indemnities capped approximately 125 million firm recorded reserve portion potential losses believes probable reasonably estimated december 2013 claims indemnities payments made connection claims material firm agreed provide indemnities ocwen subject cap primarily relate potential liabilities constituting fines civil monetary penalties could imposed settlements certain terms us states’ attorneys general consent orders certain terms federal reserve office thrift supervision office comptroller currency fdic new york state department financial services case relating litton’s foreclosure servicing practices owned firm entered settlement board governors federal reserve system federal reserve board relating foreclosure servicing matters described litton sale agreement firm also retained liabilities associated claims related litton’s failure maintain lenderplaced mortgage insurance obligations repurchase certain loans governmentsponsored enterprises subpoenas one litton’s regulators fines civil penalties imposed federal reserve new york state department financial services connection certain compliance matters management unable develop estimate maximum potential amount future payments indemnities firm received claims indemnities immaterial amount respect governmentsponsored enterprises however management believe based currently available information payments indemnities material adverse effect firm’s financial condition september 1 2011 group inc gs bank usa entered consent order federal reserve board relating servicing residential mortgage loans terms order substantially similar many respects identical orders entered federal reserve board large us financial institutions order set forth various allegations improper conduct servicing litton requires group inc gs bank usa cease desist conduct required group inc gs bank usa boards directors take various affirmative steps order required group inc gs bank usa engage thirdparty consultant conduct review certain foreclosure actions proceedings occurred pending january 1 2009 december 31 2010 ii adoption policies procedures related management third parties used outsource residential mortgage servicing loss mitigation foreclosure iii “validation report” independent thirdparty consultant regarding compliance order first year iv submission quarterly progress reports compliance order boards directors committees thereof group inc gs bank usa goldman sachs group inc subsidiaries notes consolidated financial statements february 2013 group inc gs bank usa entered settlement federal reserve board relating servicing residential mortgage loans foreclosure processing settlement amends order described provides termination independent foreclosure review order calls group inc gs bank usa collectively make cash payments settlement fund distribution eligible borrowers ii provide assistance foreclosure prevention loss mitigation january 2015 provisions order remain effect guarantees firm enters various derivatives meet definition guarantee us gaap including written equity commodity put options written currency contracts interest rate caps floors swaptions disclosures derivatives required may cash settled firm basis conclude probable counterparties held underlying instruments inception contract firm concluded conditions met certain large internationally active commercial investment bank counterparties central clearing counterparties certain counterparties accordingly firm included contracts table firm capacity agency lender indemnifies securities lending customers losses incurred event borrowers return securities collateral held insufficient cover market value securities borrowed ordinary course business firm provides financial guarantees obligations third parties eg standby letters credit guarantees enable clients complete transactions fundrelated guarantees represent obligations make payments beneficiaries guaranteed party fails fulfill obligation contractual arrangement beneficiary table presents certain information derivatives meet definition guarantee certain guarantees maximum payout table based notional amount contract therefore represent anticipated losses see note 7 information credit derivatives meet definition guarantee included derivatives accounted fair value carrying value considered best indication paymentperformance risk individual contracts however carrying values exclude effect legal right setoff may exist enforceable netting agreement effect netting collateral posted enforceable credit support agreements 1 derivatives risk managed together derivatives meet definition guarantee therefore amounts reflect firm’s overall risk related derivative activities december 2012 carrying value net liability notional amount related derivative guarantees 858 billion 66315 billion respectively 2 collateral held lenders connection securities lending indemnifications 2714 billion december 2013 contractual nature arrangements requires firm obtain collateral market value exceeds value securities lent borrower minimal performance risk associated guarantees december 2012 maximum payout collateral held related securities lending indemnifications 2712 billion 2789 billion respectively 3 financial guarantees excludes certain commitments issue standby letters credit included “commitments extend credit” see table “commitments” summary firm’s commitments december 2012 carrying value net liability maximum payout related financial guarantees 152 million 348 billion respectively goldman sachs group inc subsidiaries notes consolidated financial statements guarantees securities issued trusts firm established trusts including goldman sachs capital apex trusts 2012 trusts entities limited purpose issuing securities third parties lending proceeds firm entering contractual arrangements firm third parties related purpose firm consolidate entities see note 16 information transactions involving goldman sachs capital apex trusts 2012 trusts firm effectively provides full unconditional guarantee securities issued entities timely payment firm amounts due entities guarantee borrowing preferred stock related contractual arrangements sufficient cover payments due securities issued entities management believes unlikely circumstances occur nonperformance part paying agents service providers would make necessary firm make payments related entities required terms guarantee borrowing preferred stock related contractual arrangements connection certain expenses incurred entities indemnities guarantees service providers ordinary course business firm indemnifies guarantees certain service providers clearing custody agents trustees administrators specified potential losses connection acting agent providing services firm affiliates firm may also liable clients losses caused acts omissions thirdparty service providers including subcustodians thirdparty brokers addition firm member payment clearing settlement networks well securities exchanges around world may require firm meet obligations networks exchanges event member defaults connection prime brokerage clearing businesses firm agrees clear settle behalf clients transactions entered brokerage firms firm’s obligations respect transactions secured assets client’s account well proceeds received transactions cleared settled firm behalf client connection joint venture investments firm may issue loan guarantees may liable event fraud misappropriation environmental liabilities certain matters involving borrower firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements material liabilities related guarantees indemnifications recognized consolidated statements financial condition december 2013 december 2012 representations warranties indemnifications firm provides representations warranties counterparties connection variety commercial transactions occasionally indemnifies potential losses caused breach representations warranties firm may also provide indemnifications protecting changes adverse application certain us tax laws connection ordinarycourse transactions securities issuances borrowings derivatives addition firm may provide indemnifications counterparties protect event additional taxes owed payments withheld due either change adverse application certain nonus tax laws indemnifications generally standard contractual terms entered ordinary course business generally stated notional amounts included indemnifications contingencies triggering obligation indemnify expected occur firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements material liabilities related arrangements recognized consolidated statements financial condition december 2013 december 2012 goldman sachs group inc subsidiaries notes consolidated financial statements guarantees subsidiaries group inc fully unconditionally guarantees securities issued gs finance corp whollyowned finance subsidiary firm group inc guaranteed payment obligations goldman sachs co gsco gs bank usa goldman sachs execution clearing lp gsec subject certain exceptions november 2008 firm contributed subsidiaries gs bank usa group inc agreed guarantee reimbursement certain losses including creditrelated losses relating assets held contributed entities connection guarantee group inc also agreed pledge gs bank usa certain collateral including interests subsidiaries illiquid assets addition group inc guarantees many obligations consolidated subsidiaries transactionbytransaction basis negotiated counterparties group inc unable develop estimate maximum payout subsidiary guarantees however guaranteed obligations also obligations consolidated subsidiaries group inc’s liabilities guarantor separately disclosed note 19 shareholders’ equity note 19 shareholders’ equity common equity dividends declared per common share 205 2013 177 2012 140 2011 january 15 2014 group inc declared dividend 055 per common share paid march 28 2014 common shareholders record february 28 2014 firm’s share repurchase program intended help maintain appropriate level common equity repurchase program effected primarily regular openmarket purchases amounts timing determined primarily firm’s current projected capital positions ie comparisons firm’s desired level composition capital actual level composition capital may also influenced general market conditions prevailing price trading volumes firm’s common stock repurchase firm’s common stock requires approval federal reserve board 2013 2012 2011 firm repurchased 393 million 420 million 470 million shares common stock average cost per share 15711 11031 12833 total cost 617 billion 464 billion 604 billion respectively share repurchase program addition pursuant terms certain sharebased compensation plans employees may remit shares firm may cancel restricted stock units rsus satisfy minimum statutory employee tax withholding requirements plans 2013 2012 2011 employees remitted 161211 shares 33477 shares 75517 shares total value 25 million 3 million 12 million firm cancelled 40 million 127 million 120 million rsus total value 599 million 144 billion 191 billion respectively october 1 2013 berkshire hathaway inc certain subsidiaries collectively berkshire hathaway exercised full warrant purchase shares firm’s common stock warrant amended march 2013 required net share settlement firm delivered 131 million shares common stock berkshire hathaway october 4 2013 number shares delivered represented value difference average closing price firm’s common stock 10 trading days preceding october 1 2013 exercise price 11500 multiplied number shares common stock 435 million covered warrant goldman sachs group inc subsidiaries notes consolidated financial statements preferred equity table presents perpetual preferred stock issued outstanding december 2013 share noncumulative series preferred stock series b preferred stock series c preferred stock series preferred stock issued outstanding par value 001 liquidation preference 25000 represented 1000 depositary shares redeemable firm’s option redemption price equal 25000 plus declared unpaid dividends share noncumulative series e series f preferred stock issued outstanding par value 001 liquidation preference 100000 redeemable option firm time subject certain covenant restrictions governing firm’s ability redeem purchase preferred stock without issuing common stock instruments equitylike characteristics redemption price equal 100000 plus declared unpaid dividends see note 16 information replacement capital covenants applicable series e series f preferred stock share noncumulative series preferred stock issued outstanding par value 001 liquidation preference 25000 represented 1000 depositary shares redeemable firm’s option beginning november 10 2017 redemption price equal 25000 plus accrued unpaid dividends april 25 2013 group inc issued 40000 shares perpetual 550 fixedtofloating rate noncumulative preferred stock series j par value 001 per share series j preferred stock total 46000 shares series j preferred stock authorized issuance share series j preferred stock issued outstanding liquidation preference 25000 represented 1000 depositary shares redeemable firm’s option beginning may 10 2023 redemption price equal 25000 plus accrued unpaid dividends redemption preferred stock firm requires approval federal reserve board series preferred stock pari passu preference firm’s common stock liquidation dividends series preferred stock declared payable quarterly arrears firm’s ability declare pay dividends purchase redeem otherwise acquire common stock subject certain restrictions event firm fails pay set aside full dividends preferred stock latest completed dividend period goldman sachs group inc subsidiaries notes consolidated financial statements tables present preferred dividends declared preferred stock 1 excludes preferred dividends related redemption firm’s series g preferred stock accumulated comprehensive incomeloss tables present accumulated comprehensive incomeloss net tax type 1 december 2012 substantially consisted net unrealized gains securities held firm’s americas reinsurance business majority stake sold april 2013 see note 12 information sale goldman sachs group inc subsidiaries notes consolidated financial statements note 20 regulation capital adequacy note 20 regulation capital adequacy federal reserve board primary regulator group inc bank holding company bank holding company act 1956 bhc act financial holding company amendments bhc act effected us grammleachbliley act 1999 bank holding company firm subject consolidated riskbased regulatory capital requirements computed accordance federal reserve board’s riskbased capital regulations december 2013 based basel capital accord basel committee also reflected federal reserve board’s revised market risk regulatory capital requirements became effective january 1 2013 capital requirements expressed capital ratios compare measures capital riskweighted assets rwas capital regulations also include requirements respect leverage firm’s capital levels also subject qualitative judgments regulators components capital risk weightings factors beginning january 1 2014 federal reserve board implemented revised consolidated regulatory capital leverage requirements discussed firm’s us bank depository institution subsidiary gs bank usa subject similar capital leverage regulations federal reserve board’s capital adequacy requirements regulatory framework prompt corrective action firm gs bank usa must meet specific capital requirements firm’s gs bank usa’s capital levels well gs bank usa’s prompt corrective action classification also subject qualitative judgments regulators components capital risk weightings factors many firm’s subsidiaries including gsco firm’s brokerdealer subsidiaries subject separate regulation capital requirements described group inc december 2013 federal reserve board regulations required bank holding companies maintain minimum tier 1 capital ratio 4 minimum total capital ratio 8 required minimum tier 1 capital ratio total capital ratio order meet quantitative requirements “wellcapitalized” bank holding company federal reserve board guidelines 6 10 respectively bank holding companies may expected maintain ratios well minimum levels depending particular condition risk profile growth plans december 2013 minimum tier 1 leverage ratio 3 bank holding companies received highest supervisory rating federal reserve board guidelines implemented federal reserve board’s riskbased capital measure market risk beginning january 1 2014 bank holding companies became subject minimum tier 1 leverage ratio 4 tier 1 leverage ratio defined tier 1 capital divided average adjusted total assets includes adjustments goodwill identifiable intangible assets carrying value certain equity investments nonconsolidated entities subject deduction tier 1 capital rwas federal reserve board’s riskbased capital requirements calculated based measures credit risk market risk credit risk requirements onbalancesheet assets generally based balance sheet value offbalancesheet exposures including otc derivatives commitments guarantees credit equivalent amount calculated based notional amount trade extent applicable positive net exposure assets exposures assigned risk weight depending among things whether counterparty sovereign bank qualifying securities firm entity collateral held depending nature collateral december 2012 rwas market risk determined reference firm’s valueatrisk var model supplemented standardized measurement method used determine rwas specific risk certain positions federal reserve board’s revised market risk regulatory capital requirements became effective january 1 2013 rwas market risk determined using var stressed var incremental risk comprehensive risk standardized measurement method specific risk goldman sachs group inc subsidiaries notes consolidated financial statements table presents information regarding group inc’s regulatory capital ratios tier 1 leverage ratio basel implemented federal reserve board information december 2013 reflects revised market risk regulatory capital requirements changes resulted increased regulatory capital requirements market risk information december 2012 prior implementation revised market risk regulatory capital requirements revised capital framework us federal bank regulatory agencies approved revised riskbased capital leverage ratio regulations establishing new comprehensive capital framework us banking organizations revised capital framework regulations largely based basel committee’s december 2010 final capital framework strengthening international capital standards basel iii also implement certain provisions doddfrank act revised capital framework group inc “advanced approach” banking organization aspects rules relevant firm advanced approach banking organization definition capital ratios revised capital framework introduced changes definition regulatory capital subject transitional provisions became effective across firm’s regulatory capital leverage ratios january 1 2014 changes include introduction new capital measure called common equity tier 1 cet1 related regulatory capital ratio cet1 rwas cet1 ratio addition definition tier 1 capital narrowed include cet1 instruments perpetual noncumulative preferred stock meet certain criteria certain aspects revised requirements phase time include increases minimum capital ratio requirements introduction new capital buffers certain deductions regulatory capital investments nonconsolidated financial institutions addition junior subordinated debt issued trusts phased regulatory capital minimum cet1 ratio 40 january 1 2014 increase 45 january 1 2015 minimum tier 1 capital ratio increased 40 55 january 1 2014 increase 60 beginning january 1 2015 minimum total capital ratio remains unchanged 80 minimum ratios supplemented new capital conservation buffer phases beginning january 1 2016 increments 0625 per year reaches 25 january 1 2019 revised capital framework also introduces new countercyclical capital buffer imposed event national supervisors deem necessary order counteract excessive credit growth riskweighted assets february 2014 federal reserve board informed us completed satisfactory “parallel run” required advanced approach banking organizations revised capital framework therefore changes rwas take effect beginning second quarter 2014 accordingly calculation rwas future quarters based following methodologies  first quarter 2014 basel riskbased capital framework adjusted certain items related existing capital deductions phasein new capital deductions basel adjusted  remaining quarters 2014 higher rwas computed basel iii advanced approach basel adjusted calculation  beginning first quarter 2015 higher rwas computed basel iii advanced standardized approach goldman sachs group inc subsidiaries notes consolidated financial statements primary difference standardized approach basel iii advanced approach standardized approach utilizes prescribed riskweightings contemplate use internal models compute exposure credit risk derivatives securities financing transactions whereas basel iii advanced approach permits use models subject supervisory approval addition rwas standardized approach depend largely type counterparty eg whether counterparty sovereign bank brokerdealer entity rather assessments counterparty’s creditworthiness furthermore standardized approach include capital requirement operational risk rwas market risk standardized basel iii advanced approaches based federal reserve board’s revised market risk regulatory capital requirements described regulatory leverage ratios revised capital framework increased minimum tier 1 leverage ratio applicable firm 3 4 effective january 1 2014 addition revised capital framework introduce new tier 1 supplementary leverage ratio supplementary leverage ratio advanced approach banking organizations compares tier 1 capital defined revised capital framework measure leverage exposure defined sum firm’s assets less certain cet1 deductions plus certain offbalancesheet exposures effective january 1 2018 minimum supplementary leverage ratio requirement 3 however disclosure required beginning first quarter 2015 definition leverage exposure measure set revised capital framework measure andor minimum requirement applicable may amended regulatory authorities prior january 2018 effective date global systemically important banking institutions gsibs basel committee updated methodology assessing global systemic importance banking institutions determining range additional cet1 maintained deemed gsibs required amount additional cet1 institutions initially range 1 25 could higher future banking institution increases systemic footprint eg increasing total assets november 2013 financial stability board established direction leaders group 20 indicated firm based 2012 financial data would required hold additional 15 cet1 gsib final determination amount additional cet1 firm required hold initially based firm’s 2013 financial data manner timing us banking regulators’ implementation basel committee’s methodology basel committee indicated gsibs required meet capital surcharges phasedin basis beginning 2016 2019 bank subsidiaries gs bank usa fdicinsured new york statechartered bank member federal reserve system supervised regulated federal reserve board fdic new york state department financial services consumer financial protection bureau subject minimum capital requirements described calculated manner similar applicable bank holding companies purposes assessing adequacy capital gs bank usa computes riskbased capital ratios accordance regulatory capital requirements applicable state member banks december 2013 based basel also reflected revised market risk regulatory capital requirements implemented federal reserve board beginning january 1 2014 federal reserve board implemented revised capital framework discussed goldman sachs group inc subsidiaries notes consolidated financial statements regulatory framework prompt corrective action applicable gs bank usa order meet quantitative requirements “wellcapitalized” depository institution gs bank usa required maintain tier 1 capital ratio least 6 total capital ratio least 10 tier 1 leverage ratio least 5 gs bank usa agreed federal reserve board maintain minimum capital ratios excess “wellcapitalized” levels accordingly period time gs bank usa expected maintain tier 1 capital ratio least 8 total capital ratio least 11 tier 1 leverage ratio least 6 noted table gs bank usa compliance minimum capital requirements december 2013 december 2012 table presents information regarding gs bank usa’s regulatory capital ratios basel implemented federal reserve board information december 2013 reflects revised market risk regulatory capital requirements became effective january 1 2013 changes resulted increased regulatory capital requirements market risk information december 2012 prior implementation revised market risk regulatory capital requirements revised capital framework described also applicable gs bank usa advanced approach banking organization framework gs bank usa also informed federal reserve board completed satisfactory parallel run required advanced approach banking organizations revised capital framework therefore changes calculations rwas take effect beginning second quarter 2014 revised capital framework january 1 2014 gs bank usa became subject new minimum cet1 ratio requirement 4 increasing 45 2015 addition revised capital framework changes standards “wellcapitalized” status prompt corrective action regulations beginning january 1 2015 among things introducing cet1 ratio requirement 65 increasing tier 1 capital ratio requirement 6 8 addition commencing january 1 2018 advanced approach banking organizations must supplementary leverage ratio 3 greater basel committee published final guidelines calculating incremental capital requirements domestic systemically important banking institutions dsibs guidelines complementary framework outlined gsibs impact guidelines regulatory capital requirements gs bank usa depend implemented banking regulators united states deposits gs bank usa insured fdic extent provided law federal reserve board requires depository institutions maintain cash reserves federal reserve bank amount deposited firm’s depository institution held federal reserve bank approximately 5039 billion 5867 billion december 2013 december 2012 respectively exceeded required reserve amounts 5029 billion 5859 billion december 2013 december 2012 respectively transactions gs bank usa subsidiaries group inc subsidiaries affiliates generally subsidiaries gs bank usa regulated federal reserve board regulations generally limit types amounts transactions including credit extensions gs bank usa may take place generally require transactions market terms better gs bank usa firm’s principal nonus bank subsidiary gsib whollyowned credit institution regulated prudential regulation authority pra financial conduct authority fca subject minimum capital requirements december 2013 december 2012 gsib compliance regulatory capital requirements goldman sachs group inc subsidiaries notes consolidated financial statements brokerdealer subsidiaries firm’s us regulated brokerdealer subsidiaries include gsco gsec gsco gsec registered us brokerdealers futures commission merchants subject regulatory capital requirements including imposed sec us commodity futures trading commission cftc chicago mercantile exchange financial industry regulatory authority inc finra national futures association rule 15c31 sec rule 117 cftc specify uniform minimum net capital requirements defined registrants also effectively require significant part registrants’ assets kept relatively liquid form gsco gsec elected compute minimum capital requirements accordance “alternative net capital requirement” permitted rule 15c31 december 2013 december 2012 gsco regulatory net capital defined rule 15c31 1581 billion 1412 billion respectively exceeded amount required 1376 billion 1242 billion respectively december 2013 december 2012 gsec regulatory net capital defined rule 15c31 138 billion 202 billion respectively exceeded amount required 121 billion 192 billion respectively addition alternative minimum net capital requirements gsco also required hold tentative net capital excess 1 billion net capital excess 500 million accordance market credit risk standards appendix e rule 15c31 gsco also required notify sec event tentative net capital less 5 billion december 2013 december 2012 gsco tentative net capital net capital excess minimum notification requirements nonus regulated subsidiaries firm’s principal nonus regulated subsidiaries include goldman sachs international gsi goldman sachs japan co ltd gsjcl gsi firm’s regulated uk brokerdealer regulated pra fca gsjcl firm’s japanese brokerdealer regulated japan’s financial services agency certain nonus subsidiaries firm also subject capital adequacy requirements promulgated authorities countries operate december 2013 december 2012 subsidiaries compliance local capital adequacy requirements basel committee’s guidelines calculating incremental capital requirements dsibs may also impact certain firm’s nonus regulated subsidiaries including gsi however impact guidelines depend implemented local jurisdictions restrictions payments regulatory requirements referred restrict group inc’s ability withdraw capital regulated subsidiaries december 2013 december 2012 group inc required maintain approximately 3120 billion 3101 billion respectively minimum equity capital regulated subsidiaries minimum equity capital requirement includes certain restrictions imposed federal state laws payment dividends group inc regulated subsidiaries addition limitations payment dividends imposed federal state laws federal reserve board fdic new york state department financial services authority prohibit limit payment dividends banking organizations supervise including gs bank usa relevant regulator’s opinion payment dividend would constitute unsafe unsound practice light financial condition banking organization goldman sachs group inc subsidiaries notes consolidated financial statements note 21 earnings per common share note 21 earnings per common share basic earnings per common share eps calculated dividing net earnings applicable common shareholders weighted average number common shares outstanding common shares outstanding includes common stock rsus future service required condition delivery underlying common stock diluted eps includes determinants basic eps addition reflects dilutive effect common stock deliverable stock warrants options rsus future service required condition delivery underlying common stock table presents computations basic diluted eps table unvested sharebased payment awards nonforfeitable rights dividends dividend equivalents treated separate class securities calculating eps impact applying methodology reduction basic eps 005 2013 007 2012 2011 diluted eps computations table include antidilutive rsus common shares underlying antidilutive stock options warrants 60 million 2013 524 million 2012 92 million 2011 note 22 transactions affiliated funds note 22 transactions affiliated funds firm formed numerous nonconsolidated investment funds thirdparty investors firm generally acts investment manager funds entitled receive management fees certain cases advisory fees incentive fees funds additionally firm invests alongside thirdparty investors certain funds tables present fees earned affiliated funds fees receivable affiliated funds aggregate carrying value firm’s interests affiliated funds december 2013 december 2012 firm outstanding guarantees funds 147 million outstanding loans guarantees funds 582 million respectively amount december 2013 primarily relates guarantee firm voluntarily provided connection financing agreement thirdparty lender executed one firm’s real estate funds covered volcker rule amount guarantee could increased maximum 300 million amount december 2012 collateralized certain fund assets primarily related certain real estate funds firm voluntarily provided financial support alleviate liquidity constraints financial crisis enable fund certain investment opportunities december 2013 december 2012 firm outstanding commitments extend credit guarantees funds goldman sachs group inc subsidiaries notes consolidated financial statements volcker rule restrict firm providing financial support covered funds defined rule expiration transition period july 2015 subject possible extensions july 2017 general matter ordinary course business firm expect provide additional voluntary financial support covered funds may choose respect funds subject volcker rule however event support provided amount support expected material addition ordinary course business firm may also engage activities affiliated funds including among others securities lending trade execution market making custody acquisition bridge financing see note 18 firm’s investment commitments related funds note 23 interest income interest expense note 23 interest income interest expense interest income recorded accrual basis based contractual interest rates table presents firm’s sources interest income interest expense 1 includes rebates paid interest income securities borrowed 2 includes interest income customer debit balances interestearning assets 3 includes interest unsecured borrowings secured financings 4 includes rebates received interestbearing liabilities interest expense customer credit balances goldman sachs group inc subsidiaries notes consolidated financial statements note 24 income taxes note 24 income taxes provision income taxes income taxes provided using asset liability method deferred tax assets liabilities recognized temporary differences financial reporting tax bases assets liabilities firm reports interest expense related income tax matters “provision taxes” income tax penalties “other expenses” tables present components provisionbenefit taxes reconciliation us federal statutory income tax rate firm’s effective income tax rate 1 includes impact permanently reinvested earnings deferred income taxes deferred income taxes reflect net tax effects temporary differences financial reporting tax bases assets liabilities temporary differences result taxable deductible amounts future years measured using tax rates laws effect differences expected reverse valuation allowances established reduce deferred tax assets amount likely realized primarily relate ability utilize losses various tax jurisdictions tax assets liabilities presented component “other assets” “other liabilities accrued expenses” respectively table presents significant components deferred tax assets liabilities excluding impact netting within tax jurisdictions goldman sachs group inc subsidiaries notes consolidated financial statements firm recorded deferred tax assets 232 million 222 million december 2013 december 2012 respectively connection us federal state local foreign net operating loss carryforwards firm also recorded valuation allowance 45 million 60 million december 2013 december 2012 respectively related net operating loss carryforwards december 2013 us federal foreign net operating loss carryforwards 38 million 854 million respectively utilized us federal net operating loss carryforward begin expire 2014 foreign net operating loss carryforwards carried forward indefinitely state local net operating loss carryforwards 781 million begin expire 2014 carryforwards expire material impact firm’s results operations firm foreign tax credit carryforwards related net deferred income tax assets december 2013 december 2012 firm capital loss carryforwards related net deferred income tax assets december 2013 december 2012 valuation allowance increased 15 million 103 million 2013 2012 respectively increase 2013 primarily due increase deferred tax assets firm expect realize benefit increase 2012 primarily due acquisition deferred tax assets considered likely unrealizable firm permanently reinvests eligible earnings certain foreign subsidiaries accordingly accrue us income taxes would arise earnings repatriated december 2013 december 2012 policy resulted unrecognized net deferred tax liability 406 billion 375 billion respectively attributable reinvested earnings 2254 billion 2169 billion respectively unrecognized tax benefits firm recognizes tax positions financial statements likely position sustained examination relevant taxing authority based technical merits position meets standard measured largest amount benefit likely realized settlement liability established differences positions taken tax return amounts recognized financial statements december 2013 december 2012 accrued liability interest expense related income tax matters income tax penalties 410 million 374 million respectively firm recognized 53 million 2013 95 million 2012 21 million 2011 interest income tax penalties reasonably possible unrecognized tax benefits could change significantly twelve months subsequent december 2013 due potential audit settlements however time possible estimate potential change goldman sachs group inc subsidiaries notes consolidated financial statements table presents changes liability unrecognized tax benefits liability included “other liabilities accrued expenses” see note 17 information 1 included “other assets” see note 12 2 recognized net tax benefit would reduce firm’s effective income tax rate regulatory tax examinations firm subject examination us internal revenue service irs taxing authorities jurisdictions firm significant business operations united kingdom japan hong kong korea various states new york tax years examination vary jurisdiction firm expect completion audits material impact firm’s financial condition may material operating results particular period depending part operating results period table presents earliest tax years remain subject examination major jurisdiction us federal irs examinations fiscal 2008 calendar 2010 began 2011 irs examinations fiscal 2005 2007 finalized third quarter 2013 field work examinations 2008 2010 completed examinations administratively finalized examinations 2011 2012 began 2013 new york state city examinations fiscal 2004 2006 began 2008 examinations fiscal 2007 2010 began 2013 years subsequent years table remain open examination taxing authorities firm believes liability unrecognized tax benefits established adequate relation potential additional assessments january 2013 firm accepted compliance assurance process program irs program allows firm work irs identify resolve potential us federal tax issues filing tax returns 2013 tax year first year examined program firm accepted program 2014 tax year goldman sachs group inc subsidiaries notes consolidated financial statements note 25 business segments note 25 business segments firm reports activities following four business segments investment banking institutional client services investing lending investment management basis presentation reporting segments certain firm’s business lines aggregated similar economic characteristics similar following areas nature services provide ii methods distribution iii types clients serve iv regulatory environments operate cost drivers firm taken whole compensation headcount levels business activity broadly similar firm’s business segments compensation benefits expenses firm’s segments reflect among factors overall performance firm well performance individual businesses consequently pretax margins one segment firm’s business may significantly affected performance firm’s business segments firm allocates assets including allocations excess liquidity cash secured client financing assets revenues expenses among four business segments due integrated nature segments estimates judgments made allocating certain assets revenues expenses allocation process based manner management currently views performance segments transactions segments based specific criteria approximate thirdparty rates total operating expenses include corporate items allocated individual business segments segment information presented table prepared according following methodologies  revenues expenses directly associated segment included determining pretax earnings  net revenues firm’s segments include allocations interest income interest expense specific securities commodities positions relation cash generated funding requirements underlying positions net interest included segment net revenues consistent way management assesses segment performance  overhead expenses directly allocable specific segments allocated ratably based direct segment expenses management believes following information provides reasonable representation segment’s contribution consolidated pretax earnings total assets goldman sachs group inc subsidiaries notes consolidated financial statements 1 includes 37 million 2013 121 million 2012 115 million 2011 realized gains availableforsale securities held firm’s americas reinsurance business majority stake sold april 2013 goldman sachs group inc subsidiaries notes consolidated financial statements total operating expenses table include following expenses allocated firm’s segments  charitable contributions 155 million 2013 169 million 2012 103 million 2011  real estaterelated exit costs 19 million 2013 17 million 2012 14 million 2011 real estaterelated exit costs included “depreciation amortization” “occupancy” consolidated statements earnings tables present amounts net interest income interest expense included net revenues amounts depreciation amortization expense included pretax earnings 1 includes real estaterelated exit costs 7 million 2013 10 million 2012 allocated firm’s segments geographic information due highly integrated nature international financial markets firm manages businesses based profitability enterprise whole methodology allocating profitability geographic regions dependent estimates management judgment significant portion firm’s activities require crossborder coordination order facilitate needs firm’s clients geographic results generally allocated follows  investment banking location client investment banking team  institutional client services fixed income currency commodities client execution equities excluding securities services location marketmaking desk securities services location primary market underlying security  investing lending investing location investment lending location client  investment management location sales team goldman sachs group inc subsidiaries notes consolidated financial statements table presents total net revenues pretax earnings net earnings firm geographic region allocated based methodology referred well percentage total net revenues pretax earnings net earnings excluding corporate geographic region 1 net revenues asia 2011 primarily reflect lower net revenues investing lending principally due losses public equities reflecting significant decline equity markets asia 2011 2 consists charitable contributions 155 million 2013 169 million 2012 103 million 2011 real estaterelated exit costs 19 million 2013 17 million 2012 14 million 2011 goldman sachs group inc subsidiaries notes consolidated financial statements note 26 credit concentrations note 26 credit concentrations credit concentrations may arise market making client facilitation investing underwriting lending collateralized transactions may impacted changes economic industry political factors firm seeks mitigate credit risk actively monitoring exposures obtaining collateral counterparties deemed appropriate firm’s activities expose many different industries counterparties firm routinely executes high volume transactions asset managers investment funds commercial banks brokers dealers clearing houses exchanges results significant credit concentrations ordinary course business firm may also subject concentration credit risk particular counterparty borrower issuer including sovereign issuers particular clearing house exchange table presents credit concentrations cash instruments held firm 1 substantially included “financial instruments owned fair value” “cash securities segregated regulatory purposes” december 2013 december 2012 firm credit exposure counterparty exceeded 2 total assets reduce credit exposures firm may enter agreements counterparties permit firm offset receivables payables counterparties andor enable firm obtain collateral upfront contingent basis collateral obtained firm related derivative assets principally cash held firm thirdparty custodian collateral obtained firm related resale agreements securities borrowed transactions primarily us government federal agency obligations nonus government agency obligations see note 9 information collateralized agreements financings table presents us government federal agency obligations nonus government agency obligations collateralize resale agreements securities borrowed transactions including “cash securities segregated regulatory purposes” firm’s primary credit exposure transactions counterparty transaction firm would exposed collateral issuer event counterparty default 1 principally consists securities issued governments germany france united kingdom goldman sachs group inc subsidiaries notes consolidated financial statements note 27 legal proceedings note 27 legal proceedings firm involved number judicial regulatory arbitration proceedings including described concerning matters arising connection conduct firm’s businesses many proceedings early stages many cases seek indeterminate amount damages asc 450 event “reasonably possible” “the chance future event events occurring remote less likely” event “remote” “the chance future event events occurring slight” thus references upper end range reasonably possible loss cases firm able estimate range reasonably possible loss mean upper end range loss cases firm believes risk loss slight respect matters described management able estimate range reasonably possible loss actual potential plaintiffs claimed amount money damages ii firm threatened sued purchasers underwriting indemnified party firm believes pay judgment iii purchasers demanding firm repurchase securities management estimated upper end range reasonably possible loss equal case amount money damages claimed b case ii amount securities firm sold underwritings c case iii price purchasers paid securities less estimated value december 2013 relevant securities cases ii iii taking account factors believed relevant particular matter matters type date hereof firm estimated upper end range reasonably possible aggregate loss matters described management able estimate range reasonably possible aggregate loss approximately 36 billion excess aggregate reserves matters management generally unable estimate range reasonably possible loss matters included estimate including actual potential plaintiffs claimed amount money damages unless management otherwise determine appropriate amount ii matters early stages action filed libyan investment authority discussed iii uncertainty likelihood class certified ultimate size class iv uncertainty outcome pending appeals motions v significant factual issues resolved andor vi novel legal issues presented example firm’s potential liability respect future mortgagerelated “putback” claims future claims arising ongoing investigations members residential mortgagebacked securities working group us financial fraud enforcement task force rmbs working group may ultimately result significant increase firm’s liabilities mortgagerelated matters included management’s estimate reasonably possible loss however management believe based currently available information outcomes matters material adverse effect firm’s financial condition though outcomes could material firm’s operating results particular period depending part upon operating results period see note 18 information mortgagerelated contingencies goldman sachs group inc subsidiaries notes consolidated financial statements mortgagerelated matters beginning april 2010 number purported securities law class actions filed us district court southern district new york challenging adequacy group inc’s public disclosure among things firm’s activities cdo market firm’s conflict interest management sec investigation led gsco entering consent agreement sec settling claims made gsco sec connection abacus 2007ac1 cdo offering abacus 2007ac1 transaction pursuant gsco paid 550 million disgorgement civil penalties consolidated amended complaint filed july 25 2011 names defendants group inc certain officers employees group inc affiliates generally alleges violations sections 10b 20a exchange act seeks unspecified damages june 21 2012 district court dismissed claims based group inc’s disclosing received “wells” notice staff sec related abacus 2007ac1 transaction permitted plaintiffs’ claims proceed february 1 2013 putative shareholder derivative action filed us district court southern district new york group inc certain officers directors connection mortgagerelated activities 2006 2007 including three cdo offerings derivative complaint based similar allegations issue consolidated class action discussed purported shareholder derivative actions previously dismissed includes allegations breach fiduciary duty challenges accuracy adequacy group inc’s disclosure seeks among things declaratory relief unspecified compensatory punitive damages restitution individual defendants certain corporate governance reforms may 20 2013 defendants moved dismiss action june 2012 board received demand shareholder board investigate take action relating firm’s mortgagerelated activities stock sales certain directors executives firm february 15 2013 shareholder filed putative shareholder derivative action new york supreme court new york county group inc certain current former directors employees based activities stock sales derivative complaint includes allegations breach fiduciary duty unjust enrichment abuse control gross mismanagement corporate waste seeks among things unspecified monetary damages disgorgement profits certain corporate governance disclosure reforms may 28 2013 group inc informed shareholder board completed investigation determined refuse demand june 20 2013 shareholder made books records demand requesting materials relating board’s determination parties agreed stay proceedings putative derivative action pending resolution books records demand addition board received books records demands several shareholders materials relating among subjects firm’s mortgage servicing foreclosure activities participation federal programs providing assistance financial institutions homeowners loan sales fannie mae freddie mac mortgagerelated activities conflicts management goldman sachs group inc subsidiaries notes consolidated financial statements gsco goldman sachs mortgage company gsmc gs mortgage securities corp gsmsc three current former goldman sachs employees defendants putative class action commenced december 11 2008 us district court southern district new york brought behalf purchasers various mortgage passthrough certificates assetbacked certificates issued various securitization trusts established firm underwritten gsco 2007 complaint generally alleges registration statement prospectus supplements certificates violated federal securities laws seeks unspecified compensatory damages rescission rescissionary damages decision dated september 6 2012 us court appeals second circuit affirmed district court’s dismissal plaintiff’s claims respect 10 17 offerings included plaintiff’s original complaint vacated dismissal remanded case district court instructions reinstate plaintiff’s claims respect seven offerings october 31 2012 plaintiff served fourth amended complaint relating seven offerings plus seven additional offerings additional offerings june 3 2010 another investor unsuccessfully sought intervene action filed separate putative class action asserting substantively similar allegations relating one additional offerings district court twice granted defendants’ motions dismiss separate action times leave replead separate plaintiff filed amended complaint moved amend complaint add claims respect two additional offerings defendants moved dismiss opposed amendment securitization trusts issued gsco underwrote approximately 11 billion principal amount certificates purchasers fourteen offerings issue complaints september 30 2010 putative class action filed us district court southern district new york gsco group inc two former gsco employees behalf investors 823 million notes issued 2006 2007 two synthetic cdos hudson mezzanine 20061 20062 amended complaint asserts federal securities law common law claims seeks unspecified compensatory punitive damages defendants’ motion dismiss granted plaintiff’s claim market manipulation denied remainder plaintiff’s claims decision dated march 21 2012 may 21 2012 defendants counterclaimed breach contract fraud decision dated january 22 2014 court granted plaintiff’s motion class certification february 6 2014 defendants petitioned leave appeal class certification order various alleged purchasers counterparties providers credit enhancement involved transactions relating mortgage passthrough certificates cdos mortgagerelated products including aozora bank ltd basis yield alpha fund master charles schwab corporation cifg assurance north america inc cmfg life insurance company related parties deutsche zentralgenossenschaftbank fdic receiver guaranty bank federal home loan banks chicago seattle fhfa conservator fannie mae freddie mac hsh nordbank ikb deutsche industriebank ag joel sher chapter 11 trustee behalf tmst inc tmst fka thornburg mortgage inc certain tmst affiliates john hancock related parties massachusetts mutual life insurance company moneygram payment systems inc national australia bank national credit union administration conservator liquidating agent several failed credit unions phoenix light sf limited related parties royal park investments sanv union central life insurance company ameritas life insurance corp acacia life insurance company watertown savings bank commerzbank filed complaints summonses notice state federal court initiated arbitration proceedings firm affiliates generally alleging offering documents securities purchased contained untrue statements material fact material omissions generally seeking rescission andor damages certain complaints allege fraud seek punitive damages certain complaints also name firms defendants goldman sachs group inc subsidiaries notes consolidated financial statements number entities including john hancock related parties norges bank investment management selective insurance company texas county district retirement system threatened assert claims various types firm connection sale mortgagerelated securities firm entered agreements number entities toll relevant statute limitations date hereof aggregate amount mortgagerelated securities sold plaintiffs active threatened cases described preceding two paragraphs plaintiffs seeking rescission securities approximately 179 billion reflect adjustment subsequent paydowns distributions residual value securities statutory interest adjustments may claimed amount include potential claims purchasers mortgagerelated offerings described claims dismissed firm entered agreements deutsche bank national trust company us bank national association toll relevant statute limitations respect claims repurchase residential mortgage loans based alleged breaches representations related 114 billion original notional face amount securitizations issued trusts act trustees group inc litton ocwen arrow corporate member holdings llc former subsidiary group inc defendants putative class action pending since january 23 2013 us district court southern district new york generally challenging procurement manner scope “forceplaced” hazard insurance arranged litton homeowners failed arrange insurance required mortgages complaint asserts claims breach contract breach fiduciary duty misappropriation conversion unjust enrichment violation florida unfair practices law seeks unspecified compensatory punitive damages well declaratory injunctive relief second amended complaint filed november 19 2013 added additional plaintiff rico claims january 21 2014 group inc moved sever claims certain defendants february 25 2013 group inc added defendant amended complaint putative class action originally filed april 6 2012 us district court southern district new york litton ocwen loan servicing llc ocwen servicing amended complaint generally alleges litton ocwen servicing systematically breached agreements violated various federal state consumer protection laws failing modify mortgage loans homeowners participating federal home affordable modification program names group inc based prior ownership litton plaintiffs seek unspecified compensatory statutory punitive damages well declaratory injunctive relief april 29 2013 group inc moved dismiss firm also received continues receive requests information andor subpoenas federal state local regulators law enforcement authorities including members rmbs working group relating mortgagerelated securitization process subprime mortgages cdos synthetic mortgagerelated products particular transactions involving products servicing foreclosure activities cooperating regulators authorities including cases agreeing tolling relevant statute limitations see also “regulatory investigations reviews related litigation” firm expects subject additional putative shareholder derivative actions purported class actions rescission “put back” claims litigation additional investor shareholder demands additional regulatory investigations actions respect mortgagerelated offerings loan sales cdos servicing foreclosure activities see note 18 information regarding mortgagerelated contingencies described note 27 goldman sachs group inc subsidiaries notes consolidated financial statements private equitysponsored acquisitions litigation group inc among numerous private equity firms named defendants federal antitrust action filed us district court district massachusetts december 2007 amended complaint generally alleges defendants colluded limit competition bidding private equitysponsored acquisitions public companies thereby resulting lower prevailing bids extension less consideration shareholders companies violation section 1 us sherman antitrust act common law complaint seeks among things treble damages unspecified amount march 13 2013 court granted part denied part defendants’ motions summary judgment rejecting plaintiffs’ theory overarching collusion permitting plaintiffs’ claims proceed based narrower theories october 21 2013 plaintiffs moved class certification rali passthrough certificates litigation gsco among numerous underwriters named defendants putative securities class action initially filed september 2008 new york supreme court subsequently removed us district court southern district new york underwriters plaintiffs allege offering documents connection various offerings mortgagebacked passthrough certificates violated disclosure requirements federal securities laws addition underwriters defendants include residential capital llc rescap residential accredit loans inc rali residential funding corporation rfc residential funding securities corporation rfsc certain officers directors january 3 2013 district court certified class connection one offering underwritten gsco includes initial purchasers bought securities directly underwriters agents later ten trading days offering date april 30 2013 district court granted part plaintiffs’ request reinstate number previously dismissed claims relating additional nine offerings underwritten gsco may 10 2013 plaintiffs filed amended complaint incorporating nine additional offerings december 27 2013 court granted plaintiffs’ motion class certification nine additional offerings denied plaintiffs’ motion expand time period scope covered previous class definition january 10 2014 defendants petitioned leave appeal december 27 2013 class certification order gsco underwrote approximately 557 billion principal amount securities purchasers offerings included amended complaint may 14 2012 rescap rali rfc filed chapter 11 bankruptcy us bankruptcy court southern district new york june 28 2013 district court entered final order judgment approving settlement plaintiffs rescap rali rfc rfsc officers directors named defendants action mf global securities litigation gsco among numerous underwriters named defendants class action complaints filed us district court southern district new york commencing november 18 2011 complaints generally allege offering materials two offerings mf global holdings ltd convertible notes aggregating approximately 575 million principal amount february 2011 july 2011 among things failed describe adequately nature scope risks mf global’s exposure european sovereign debt violation disclosure requirements federal securities laws november 12 2013 court denied defendants’ motions dismiss amended complaint gsco underwrote aggregate principal amount approximately 214 million notes october 31 2011 mf global holdings ltd filed chapter 11 bankruptcy us bankruptcy court manhattan new york gsco also received inquiries various governmental regulatory bodies selfregulatory organizations concerning certain transactions mf global prior bankruptcy filing goldman sachs cooperating inquiries employmentrelated matters september 15 2010 putative class action filed us district southern district new york three female former employees alleging group inc gsco systematically discriminated female employees respect compensation promotion assignments mentoring performance evaluations complaint alleges class consisting female employees employed specified levels group inc gsco since july 2002 asserts claims federal new york city discrimination laws complaint seeks class action status injunctive relief unspecified amounts compensatory punitive damages july 17 2012 district court issued decision granting part group inc’s gsco’s motion strike certain goldman sachs group inc subsidiaries notes consolidated financial statements plaintiffs’ class allegations ground plaintiffs lacked standing pursue certain equitable remedies denying group inc’s gsco’s motion strike plaintiffs’ class allegations entirety premature march 21 2013 us court appeals second circuit held arbitration compelled one named plaintiffs managing director party arbitration agreement firm investment management services group inc certain affiliates parties various civil litigation arbitration proceedings disputes clients relating losses allegedly sustained result firm’s investment management services claims generally seek among things restitution compensatory damages cases punitive damages goldman sachs asset management international gsami defendant action filed july 9 2012 high court justice london certain entities representing vervoer dutch pension fund alleging gsami negligent performing duties investment manager connection allocation plaintiffs’ funds among asset managers accordance asset allocations provided plaintiffs gsami breached contractual common law duties plaintiffs specifically plaintiffs allege gsami caused assets invested unsuitable products extended period thereby causing losses caused underexposed period time certain investments performed well thereby resulting foregone potential gains plaintiffs seeking monetary damages 209 million financial advisory services group inc certain affiliates time parties various civil litigation arbitration proceedings disputes clients third parties relating firm’s financial advisory activities claims generally seek among things compensatory damages cases punitive damages certain cases allege firm appropriately disclose deal conflicts interest credit derivatives antitrust matters european commission announced april 2011 initiating proceedings investigate numerous financial services companies including group inc connection supply data related credit default swaps connection profit sharing fee arrangements clearing credit default swaps including potential anticompetitive practices july 1 2013 european commission issued financial services companies statement objections alleging colluded limit competition trading exchangetraded unfunded credit derivatives exchange trading credit default swaps generally setting process determining fines remedies group inc’s current understanding proceedings related profit sharing fee arrangements clearing credit default swaps suspended indefinitely firm received civil investigative demands us department justice doj information similar matters goldman sachs cooperating investigations reviews gsco group inc among numerous defendants putative antitrust class actions relating credit derivatives filed beginning may 2013 consolidated us district court southern district new york complaints generally allege defendants violated federal antitrust laws conspiring forestall development alternatives overthecounter trading credit derivatives maintain inflated bidask spreads credit derivatives trading complaints seek declaratory injunctive relief well treble damages unspecified amount january 31 2014 plaintiffs filed consolidated amended complaint libyarelated litigation gsi defendant action filed january 21 2014 high court justice london libyan investment authority relating nine derivative transactions plaintiff gsi seeking among things rescission transactions unspecified equitable compensation damages exceeding 1 billion european commission pricefixing matter july 5 2011 european commission issued statement objections group inc raising allegations industrywide conspiracy fix prices power cables including italian cable company certain goldman sachsaffiliated investment funds held ownership interests 2005 2009 statement objections proposes hold group inc jointly severally liable fine levied cable company concept parental liability eu competition law municipal securities matters gsco along cases financial services firms named respondent number finra arbitrations filed municipalities municipalowned entities stateowned agencies instrumentalities nonprofit entities based gsco’s role underwriter claimants’ issuances aggregate 24 billion auction rate securities 2003 2007 brokerdealer respect auctions securities claimants generally allege gsco failed disclose practice placing cover bids auctions failed inform claimant deterioration auction rate market beginning fall 2007 result claimant forced engage series expensive goldman sachs group inc subsidiaries notes consolidated financial statements refinancing conversion transactions failure auction market february 2008 certain claimants also allege gsco advised enter interest rate swaps connection auction rate securities issuances causing incur additional losses claims include breach fiduciary duty fraudulent concealment negligent misrepresentation breach contract violations exchange act state securities laws breach duties rules municipal securities rulemaking board nasd one claimant also filed complaint gsco federal court asserting claims finra arbitration gsco filed complaints motions federal court seeking enjoin certain arbitrations pursuant exclusive forum selection clauses transaction documents denied one case granted others case appealed commoditiesrelated litigation group inc subsidiaries gs power holdings llc metro international trade services llc among defendants number putative class actions filed beginning august 1 2013 consolidated us district court southern district new york complaints generally allege violation federal antitrust laws federal state laws connection management aluminum storage facilities complaints seek declaratory injunctive equitable relief well unspecified monetary damages including treble damages currenciesrelated litigation gsco group inc among defendants named several putative antitrust class actions relating trading foreign exchange markets filed since december 2013 us district court southern district new york complaints generally allege defendants violated federal antitrust laws connection alleged conspiracy manipulate foreign currency exchange markets seek declaratory injunctive relief well treble damages unspecified amount regulatory investigations reviews related litigation group inc certain affiliates subject number investigations reviews cases received subpoenas requests documents information various governmental regulatory bodies selfregulatory organizations litigation relating various matters relating firm’s businesses operations including  2008 financial crisis  public offering process  firm’s investment management financial advisory services  conflicts interest  research practices including research independence interactions research analysts firm personnel including investment banking personnel well third parties  transactions involving municipal securities including wallcross procedures conflict interest disclosure respect state municipal clients trading structuring municipal derivative instruments connection municipal offerings political contribution rules underwriting build america bonds municipal advisory services possible impact credit default swap transactions municipal issuers  sales trading clearance corporate government securities currencies commodities financial products related activities including compliance sec’s short sale rule algorithmic quantitative trading futures trading options trading transaction reporting technology systems controls securities lending practices trading clearance credit derivative instruments commodities activities metals storage private placement practices allocations trading fixedincome securities trading activities communications connection establishment benchmark rates compliance us foreign corrupt practices act  insider trading potential misuse material nonpublic information regarding private company governmental developments effectiveness firm’s insider trading controls information barriers goldman sachs cooperating regulatory investigations reviews goldman sachs group inc subsidiaries notes consolidated financial statements note 28 employee benefit plans note 28 employee benefit plans firm sponsors various pension plans certain postretirement benefit plans primarily healthcare life insurance firm also provides certain benefits former inactive employees prior retirement defined benefit pension plans postretirement plans employees certain nonus subsidiaries participate various defined benefit pension plans generally provide benefits based years credited service percentage employee’s eligible compensation firm maintains defined benefit pension plan certain uk employees april 2008 uk defined benefit plan closed new participants continues accrue benefits existing participants plans material impact firm’s consolidated results operations firm also maintains defined benefit pension plan substantially us employees hired prior november 1 2003 november 2004 plan closed new participants frozen existing participants would accrue additional benefits addition firm maintains unfunded postretirement benefit plans provide medical life insurance eligible retirees dependents covered programs plans material impact firm’s consolidated results operations firm recognizes funded status defined benefit pension postretirement plans measured difference fair value plan assets benefit obligation consolidated statements financial condition december 2013 “other assets” “other liabilities accrued expenses” included 179 million related overfunded pension plans 482 million respectively related plans december 2012 “other assets” “other liabilities accrued expenses” included 225 million related overfunded pension plans 645 million respectively related plans defined contribution plans firm contributes employersponsored us nonus defined contribution plans firm’s contribution plans 219 million 2013 221 million 2012 225 million 2011 note 29 employee incentive plans note 29 employee incentive plans cost employee services received exchange sharebased award generally measured based grantdate fair value award sharebased awards require future service ie vested awards including awards granted retirementeligible employees expensed immediately sharebased awards require future service amortized relevant service period expected forfeitures included determining sharebased employee compensation expense firm pays cash dividend equivalents outstanding rsus dividend equivalents paid rsus generally charged retained earnings dividend equivalents paid rsus expected forfeited included compensation expense firm accounts tax benefit related dividend equivalents paid rsus increase additional paidin capital firm generally issues new shares common stock upon delivery sharebased awards certain cases primarily related conflicted employment outlined applicable award agreements firm may cash settle sharebased compensation awards accounted equity instruments awards whose terms allow cash settlement additional paidin capital adjusted extent difference value award time cash settlement grantdate value award stock incentive plan firm sponsors stock incentive plan goldman sachs amended restated stock incentive plan 2013 sip provides grants incentive stock options nonqualified stock options stock appreciation rights dividend equivalent rights restricted stock rsus sharebased awards may subject performance conditions may 23 2013 shareholders approved 2013 sip 2013 sip replaces goldman sachs amended restated stock incentive plan sip previously effect applies awards granted date approval goldman sachs group inc subsidiaries notes consolidated financial statements total number shares common stock may delivered pursuant awards granted 2013 sip cannot exceed 60 million shares subject adjustment certain changes corporate structure permitted 2013 sip 2013 sip terminate date annual meeting shareholders occurs 2016 december 2013 593 million shares available grant 2013 sip restricted stock units firm grants rsus employees 2013 sip valued based closing price underlying shares date grant taking account liquidity discount applicable postvesting transfer restrictions rsus generally vest underlying shares common stock deliver outlined applicable rsu agreements employee rsu agreements generally provide vesting accelerated certain circumstances retirement death disability conflicted employment delivery underlying shares common stock conditioned grantees satisfying certain vesting requirements outlined award agreements table presents activity related rsus 1 weighted average grantdate fair value rsus granted 2013 2012 2011 12259 8472 14121 respectively fair value rsus granted 2013 2012 2011 includes liquidity discount 137 217 127 respectively reflect postvesting transfer restrictions 4 years 2 aggregate fair value awards vested 2013 2012 2011 226 billion 157 billion 240 billion respectively 3 includes rsus cash settled 4 includes restricted stock subject future service requirements december 2013 december 2012 4768 276317 shares respectively 271549 shares restricted stock vested 2013 first quarter 2014 firm granted employees 138 million yearend rsus 42 million rsus require future service condition delivery awards subject additional conditions outlined award agreements generally shares underlying awards net required withholding tax deliver threeyear period subject postvesting transfer restrictions january 2019 grants included table stock options stock options generally vest outlined applicable stock option agreement options granted since 2010 general options expire tenth anniversary grant date although may subject earlier termination cancellation certain circumstances accordance terms applicable stock option agreement sip effect time grant goldman sachs group inc subsidiaries notes consolidated financial statements table presents activity related stock options total intrinsic value options exercised 2013 2012 2011 26 million 151 million 143 million respectively table presents options outstanding december 2013 475 million total unrecognized compensation cost related nonvested sharebased compensation arrangements cost expected recognized weighted average period 154 years table presents sharebased compensation related excess tax benefitprovision 1 represents net tax benefitprovision recognized additional paidin capital stock options exercised delivery common stock underlying sharebased awards goldman sachs group inc subsidiaries notes consolidated financial statements note 30 parent company note 30 parent company supplemental disclosures cash payments thirdparty interest net capitalized interest 278 billion 511 billion 383 billion 2013 2012 2011 respectively cash payments income taxes net refunds 321 billion 159 billion 139 billion 2013 2012 2011 respectively noncash activity 2011 103 million common stock issued connection acquisition gs australia 1 primarily includes overnight loans proceeds used satisfy shortterm obligations group inc 2 includes 583 billion 491 billion fair value 2013 2012 respectively 3 includes 867 billion 819 billion fair value 2013 2012 respectively 4 unsecured longterm borrowings subsidiaries maturity date 213 million 2015 136 million 2016 150 million 2017 71 million 2018 102 billion 2019thereafter goldman sachs group inc subsidiaries supplemental financial information quarterly results unaudited following represents firm’s unaudited quarterly results 2013 2012 quarterly results prepared accordance us gaap reflect adjustments opinion management necessary fair statement results adjustments normal recurring nature 1 timing magnitude changes firm’s discretionary compensation accruals significant effect results given quarter goldman sachs group inc subsidiaries supplemental financial information common stock price range table presents high low sales prices per share firm’s common stock february 14 2014 11661 holders record firm’s common stock february 14 2014 last reported sales price firm’s common stock new york stock exchange 16372 per share common stock performance following graph compares performance investment firm’s common stock december 26 2008 last trading day firm’s 2009 fiscal year december 31 2013 sp 500 index sp 500 financials index graph assumes 100 invested december 26 2008 firm’s common stock sp 500 index sp 500 financials index dividends reinvested date payment without payment commissions performance shown graph represents past performance considered indication future performance table shows cumulative total returns dollars firm’s common stock sp 500 index sp 500 financials index goldman sachs’ last five fiscal year ends assuming 100 invested december 26 2008 firm’s common stock sp 500 index sp 500 financials index dividends reinvested date payment without payment commissions performance shown table represents past performance considered indication future performance goldman sachs group inc subsidiaries supplemental financial information selected financial data 1 book value per common share based common shares outstanding including rsus granted employees future service requirements 4674 million 4805 million 5163 million 5469 million 5427 million december 2013 december 2012 december 2011 december 2010 december 2009 respectively goldman sachs group inc subsidiaries supplemental financial information statistical disclosures distribution assets liabilities shareholders’ equity table presents summary consolidated average balances interest rates goldman sachs group inc subsidiaries supplemental financial information 1 consists cash financial instruments including equity securities convertible debentures 2 derivative instruments commodities included noninterestearning assets noninterestbearing liabilities 3 primarily consists cash securities segregated regulatory purposes certain receivables customers counterparties 4 interest rates include effects interest rate swaps accounted hedges 5 primarily consists certain payables customers counterparties 6 assets liabilities interest attributed us nonus based location legal entity assets liabilities held goldman sachs group inc subsidiaries supplemental financial information changes net interest income volume rate analysis table presents analysis effect net interest income volume rate changes analysis changes due volumerate variance allocated volume goldman sachs group inc subsidiaries supplemental financial information availableforsale securities portfolio table presents fair value availableforsale securities december 2012 assets related firm’s reinsurance business firm sold majority stake april 2013 see note 3 information sale table presents fair value amortized cost weighted average yields availableforsale securities contractual maturity december 2012 yields calculated weighted average basis goldman sachs group inc subsidiaries supplemental financial information deposits table presents summary firm’s interestbearing deposits 1 amounts available withdrawal upon short notice generally within seven days ratios table presents selected financial ratios 1 based net earnings applicable common shareholders divided average monthly common shareholders’ equity 2 based net earnings divided average monthly total shareholders’ equity 3 dividends declared per common share percentage diluted earnings per common share shortterm borrowed funds table presents summary firm’s securities loaned securities sold agreements repurchase shortterm borrowings generally mature within one year financial statement date include borrowings redeemable option holder within one year financial statement date 1 includes shortterm secured financings 1729 billion 2305 billion 2919 billion december 2013 december 2012 december 2011 respectively 2 weighted average interest rates borrowings include effect hedging activities goldman sachs group inc subsidiaries supplemental financial information crossborder outstandings crossborder outstandings based federal financial institutions examination council’s ffiec regulatory guidelines reporting crossborder information represent amounts firm may able obtain foreign country due countryspecific events including unfavorable economic political conditions economic social instability changes government policies credit exposure represents potential loss due default deterioration credit quality counterparty issuer securities instruments firm holds measured based potential loss event nonpayment counterparty credit exposure reduced effect risk mitigants netting agreements counterparties permit firm offset receivables payables counterparties obtaining collateral counterparties tables include effects risk mitigants represent firm’s credit exposure tables present crossborder outstandings commitments country crossborder outstandings exceed 075 consolidated assets accordance ffiec guidelines crossborder outstandings tables include cash receivables securities purchased agreements resell securities borrowed cash financial instruments exclude derivative instruments securities purchased agreements resell securities borrowed presented gross without reduction related securities collateral held based domicile counterparty margin loans included receivables presented based amount collateral advanced counterparty commitments table primarily consist commitments extend credit forward starting resale securities borrowing agreements 1 primarily comprised secured lending transactions clearing house secured collateral 2 primarily comprised interests receivables funds domiciled ireland whose underlying investments primarily located outside ireland secured lending transactions goldman sachs group inc subsidiaries supplemental financial information 1 primarily comprised secured lending transactions clearing house secured collateral 2 primarily comprised interests receivables funds domiciled ireland whose underlying investments primarily located outside ireland secured lending transactions 3 primarily comprised secured lending transactions primarily secured german government obligations goldman sachs group inc subsidiaries item 9item 8 financial statements supplementary data index management’s report internal control financial reporting management goldman sachs group inc together consolidated subsidiaries firm responsible establishing maintaining adequate internal control financial reporting firm’s internal control financial reporting process designed supervision firm’s principal executive principal financial officers provide reasonable assurance regarding reliability financial reporting preparation firm’s financial statements external reporting purposes accordance us generally accepted accounting principles december 31 2014 management conducted assessment firm’s internal control financial reporting based framework established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso based assessment management determined firm’s internal control financial reporting december 31 2014 effective internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance us generally accepted accounting principles receipts expenditures made accordance authorizations management directors firm provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition firm’s assets could material effect financial statements firm’s internal control financial reporting december 31 2014 audited pricewaterhousecoopers llp independent registered public accounting firm stated report appearing page 117 expresses unqualified opinion effectiveness firm’s internal control financial reporting december 31 2014 report independent registered public accounting firm board directors shareholders goldman sachs group inc opinion consolidated financial statements listed accompanying index present fairly material respects financial position goldman sachs group inc subsidiaries company december 31 2014 2013 results operations cash flows three years period ended december 31 2014 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2014 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing page 116 responsibility express opinions financial statements company’s internal control financial reporting based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp new york new york february 20 2015 goldman sachs group inc subsidiaries consolidated statements earnings accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements comprehensive income accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements financial condition accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements changes shareholders’ equity accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements cash flows supplemental disclosures cash payments interest net capitalized interest 643 billion 569 billion 925 billion 2014 2013 2012 respectively cash payments income taxes net refunds 305 billion 407 billion 188 billion 2014 2013 2012 respectively noncash activities 2014 firm exchanged 158 billion trust preferred securities common beneficial interests senior guaranteed trust securities held firm 187 billion firm’s junior subordinated debt held issuing trusts following exchange junior subordinated debt extinguished 2014 firm sold certain consolidated investments provided seller financing resulted noncash increase loans receivable 115 million 2012 firm assumed 77 million debt connection business acquisitions accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries notes consolidated financial statements note 1 description business goldman sachs group inc group inc delaware corporation together consolidated subsidiaries collectively firm leading global investment banking securities investment management firm provides wide range financial services substantial diversified client base includes corporations financial institutions governments highnetworth individuals founded 1869 firm headquartered new york maintains offices major financial centers around world firm reports activities following four business segments investment banking firm provides broad range investment banking services diverse group corporations financial institutions investment funds governments services include strategic advisory assignments respect mergers acquisitions divestitures corporate defense activities restructurings spinoffs risk management debt equity underwriting public offerings private placements including local crossborder transactions well derivative transactions directly related activities institutional client services firm facilitates client transactions makes markets fixed income equity currency commodity products primarily institutional clients corporations financial institutions investment funds governments firm also makes markets clears client transactions major stock options futures exchanges worldwide provides financing securities lending prime brokerage services institutional clients investing lending firm invests originates loans provide financing clients investments loans typically longerterm nature firm makes investments consolidated directly indirectly funds firm manages debt securities loans public private equity securities real estate entities investment management firm provides investment management services offers investment products primarily separately managed accounts commingled vehicles mutual funds private investment funds across major asset classes diverse set institutional individual clients firm also offers wealth advisory services including portfolio management financial counseling brokerage transaction services highnetworth individuals families note 2 basis presentation consolidated financial statements prepared accordance accounting principles generally accepted united states us gaap include accounts group inc entities firm controlling financial interest intercompany transactions balances eliminated references 2014 2013 2012 refer firm’s years ended dates context requires december 31 2014 december 31 2013 december 31 2012 respectively reference future year refers year ending december 31 year certain reclassifications made previously reported amounts conform current presentation goldman sachs group inc subsidiaries notes consolidated financial statements note 3 significant accounting policies firm’s significant accounting policies include measure fair value assets liabilities accounting goodwill identifiable intangible assets consolidate entity see notes 5 8 policies fair value measurements note 13 policies goodwill identifiable intangible assets note 12 policies consolidation accounting significant accounting policies either discussed included following footnotes consolidation firm consolidates entities firm controlling financial interest firm determines whether controlling financial interest entity first evaluating whether entity voting interest entity variable interest entity vie voting interest entities voting interest entities total equity investment risk sufficient enable entity finance activities independently ii equity holders power direct activities entity significantly impact economic performance obligation absorb losses entity right receive residual returns entity usual condition controlling financial interest voting interest entity ownership majority voting interest firm majority voting interest voting interest entity consolidated variable interest entities vie entity lacks one characteristics voting interest entity firm controlling financial interest vie firm variable interest interests provide power direct activities vie significantly impact vie’s economic performance ii obligation absorb losses vie right receive benefits vie could potentially significant vie see note 12 information vies equitymethod investments firm controlling financial interest entity exert significant influence entity’s operating financial policies investment accounted either equity method accounting ii fair value electing fair value option available us gaap significant influence generally exists firm owns 20 50 entity’s common stock insubstance common stock general firm accounts investments acquired fair value option became available fair value certain cases firm applies equity method accounting new investments strategic nature closely related firm’s principal business activities firm significant degree involvement cash flows operations investee costbenefit considerations less significant see note 13 information equitymethod investments goldman sachs group inc subsidiaries notes consolidated financial statements investment funds firm formed numerous investment funds thirdparty investors funds typically organized limited partnerships limited liability companies firm acts general partner manager generally firm hold majority economic interests funds usually voting interest entities generally consolidated thirdparty investors typically rights terminate funds remove firm general partner manager investments funds included “financial instruments owned fair value” see notes 6 18 22 information investments funds use estimates preparation consolidated financial statements requires management make certain estimates assumptions important relate fair value measurements accounting goodwill identifiable intangible assets provisions losses may arise litigation regulatory proceedings tax audits estimates assumptions based best available information actual results could materially different revenue recognition financial assets financial liabilities fair value financial instruments owned fair value financial instruments sold yet purchased fair value recorded fair value either fair value option accordance us gaap addition firm elected account certain financial assets financial liabilities fair value electing fair value option fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date financial assets marked bid prices financial liabilities marked offer prices fair value measurements include transaction costs fair value gains losses generally included “market making” positions institutional client services “other principal transactions” positions investing lending see notes 5 8 information fair value measurements investment banking fees financial advisory assignments underwriting revenues recognized earnings services related underlying transaction completed terms assignment expenses associated transactions deferred related revenue recognized assignment otherwise concluded expenses associated financial advisory assignments recorded noncompensation expenses net client reimbursements underwriting revenues presented net related expenses investment management firm earns management fees incentive fees investment management services management fees mutual funds calculated percentage daily net asset value received monthly management fees hedge funds separately managed accounts calculated percentage monthend net asset value generally received quarterly management fees private equity funds calculated percentage monthly invested capital commitments received quarterly semiannually annually depending fund management fees recognized period related service provided incentive fees calculated percentage fund’s separately managed account’s return excess return specified benchmark performance target incentive fees generally based investment performance 12month period life fund fees based performance 12month period subject adjustment prior end measurement period fees based investment performance life fund future investment underperformance may require fees previously distributed firm returned fund incentive fees recognized material contingencies resolved management incentive fee revenues included “investment management” revenues firm makes payments brokers advisors related placement firm’s investment funds payments computed based either percentage management fee investment fund’s net asset value firm principal arrangement costs recorded gross basis included “brokerage clearing exchange distribution fees” firm agent arrangement costs recorded net basis “investment management” revenues goldman sachs group inc subsidiaries notes consolidated financial statements commissions fees firm earns “commissions fees” executing clearing client transactions stock options futures markets well overthecounter otc transactions commissions fees recognized day trade executed transfers assets transfers assets accounted sales firm relinquished control assets transferred transfers assets accounted sales related gains losses recognized net revenues assets liabilities arise firm’s continuing involvement transferred assets measured fair value transfers assets accounted sales assets remain “financial instruments owned fair value” transfer accounted collateralized financing related interest expense recognized life transaction see note 10 information transfers assets accounted collateralized financings note 11 information transfers assets accounted sales cash equivalents firm defines cash equivalents highly liquid overnight deposits held ordinary course business december 2014 december 2013 “cash equivalents” included 579 billion 414 billion respectively cash due banks 5181 billion 5699 billion respectively interestbearing deposits banks receivables customers counterparties receivables customers counterparties generally relate collateralized transactions receivables primarily comprised customer margin loans certain transfers assets accounted secured loans rather purchases fair value collateral posted connection certain derivative transactions certain firm’s receivables customers counterparties accounted fair value fair value option changes fair value generally included “market making” revenues see note 8 information receivables customers counterparties accounted fair value fair value option receivables customers counterparties accounted fair value accounted amortized cost net estimated uncollectible amounts generally approximates fair value items carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 8 items included firm’s fair value hierarchy substantially would classified level 2 december 2014 december 2013 interest receivables customers counterparties recognized life transaction included “interest income” receivables payables brokers dealers clearing organizations receivables payables brokers dealers clearing organizations accounted cost plus accrued interest generally approximates fair value receivables payables carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 8 receivables payables included firm’s fair value hierarchy substantially would classified level 2 december 2014 december 2013 payables customers counterparties payables customers counterparties primarily consist customer credit balances related firm’s prime brokerage activities payables customers counterparties accounted cost plus accrued interest generally approximates fair value payables carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 8 payables included firm’s fair value hierarchy substantially would classified level 2 december 2014 december 2013 interest payables customers counterparties recognized life transaction included “interest expense” goldman sachs group inc subsidiaries notes consolidated financial statements offsetting assets liabilities reduce credit exposures derivatives securities financing transactions firm may enter master netting agreements similar arrangements collectively netting agreements counterparties permit offset receivables payables counterparties netting agreement contract counterparty permits net settlement multiple transactions counterparty including upon exercise termination rights nondefaulting party upon exercise termination rights transactions governed netting agreement terminated net settlement amount calculated addition firm receives posts cash securities collateral respect derivatives securities financing transactions subject terms related credit support agreements similar arrangements collectively credit support agreements enforceable credit support agreement grants nondefaulting party exercising termination rights right liquidate collateral apply proceeds amounts owed order assess enforceability firm’s right setoff netting credit support agreements firm evaluates various factors including applicable bankruptcy laws local statutes regulatory provisions jurisdiction parties agreement derivatives reported netbycounterparty basis ie net payable receivable derivative assets liabilities given counterparty consolidated statements financial condition legal right setoff exists enforceable netting agreement resale repurchase agreements securities borrowed loaned transactions term currency presented netbycounterparty basis consolidated statements financial condition transactions meet certain settlement criteria subject netting agreements consolidated statements financial condition derivatives reported net cash collateral received posted enforceable credit support agreements transacted enforceable netting agreement consolidated statements financial condition resale repurchase agreements securities borrowed loaned reported net related cash securities received posted collateral see note 10 information collateral received pledged including rights deliver repledge collateral see notes 7 10 information offsetting foreign currency translation assets liabilities denominated nonus currencies translated rates exchange prevailing date consolidated statements financial condition revenues expenses translated average rates exchange period foreign currency remeasurement gains losses transactions nonfunctional currencies recognized earnings gains losses translation financial statements nonus operation functional currency us dollar included net hedges taxes consolidated statements comprehensive income recent accounting developments investment companies asc 946 june 2013 fasb issued asu 201308 “financial services investment companies topic 946 amendments scope measurement disclosure requirements” asu 201308 clarifies approach used determining whether entity investment company provides new measurement disclosure requirements asu 201308 effective interim annual reporting periods fiscal years began december 15 2013 adoption asu 201308 january 1 2014 affect firm’s financial condition results operations cash flows inclusion fed funds effective swap rate overnight index swap rate benchmark interest rate hedge accounting purposes asc 815 july 2013 fasb issued asu 201310 “derivatives hedging topic 815 inclusion fed funds effective swap rate overnight index swap rate benchmark interest rate hedge accounting purposes” asu 201310 permits use fed funds effective swap rate ois us benchmark interest rate hedge accounting purposes asu also removes restriction using different benchmark rates similar hedges asu 201310 effective qualifying new redesignated hedging relationships entered july 17 2013 adoption materially affect firm’s financial condition results operations cash flows goldman sachs group inc subsidiaries notes consolidated financial statements reporting discontinued operations disclosures disposals components entity april 2014 fasb issued asu 201408 “presentation financial statements topic 205 property plant equipment topic 360 reporting discontinued operations disclosures disposals components entity” asu 201408 limits discontinued operations reporting disposals components entity represent strategic shifts major effect entity’s operations financial results asu requires expanded disclosures discontinued operations disposals individually significant components entity qualify discontinued operations reporting asu effective disposals components classified held sale occur within annual periods beginning december 15 2014 interim periods within years early adoption permitted firm early adopted asu 201408 2014 adoption materially affect firm’s financial condition results operations cash flows revenue contracts customers asc 606 may 2014 fasb issued asu 201409 “revenue contracts customers topic 606” asu 201409 provides comprehensive guidance recognition revenue customers arising transfer goods services asu also provides guidance accounting certain contract costs requires new disclosures asu 201409 effective annual reporting periods beginning december 15 2016 including interim periods within reporting period early adoption permitted firm still evaluating effect asu financial condition results operations cash flows measuring financial assets financial liabilities consolidated collateralized financing entity asc 810 august 2014 fasb issued asu 201413 “consolidation topic 810 measuring financial assets financial liabilities consolidated collateralized financing entity cfe” asu 201413 provides alternative reflect changes fair value financial assets financial liabilities cfe measuring either fair value assets liabilities whichever observable asu 201413 provides new disclosure requirements electing approach effective interim annual periods beginning december 15 2015 early adoption permitted adoption asu 201413 materially affect firm’s financial condition results operations cash flows repurchasetomaturity transactions repurchase financings disclosures asc 860 june 2014 fasb issued asu 201411 “transfers servicing topic 860 repurchasetomaturity transactions repurchase financings disclosures” asu 201411 changes accounting repurchase resaletomaturity agreements requiring agreements recognized financing arrangements requires transfer financial asset repurchase agreement entered contemporaneously accounted separately asu 201411 also requires additional disclosures certain transferred financial assets accounted sales certain securities financing transactions accounting changes additional disclosures certain transferred financial assets accounted sales effective first interim annual reporting periods beginning december 15 2014 additional disclosures securities financing transactions required annual reporting periods beginning december 15 2014 interim reporting periods beginning march 15 2015 adoption accounting changes asu 201411 january 1 2015 materially affect firm’s financial condition results operations cash flows amendments consolidation analysis asc 810 february 2015 fasb issued asu 201502 “consolidation topic 810 amendments consolidation analysis” asu 201502 eliminates deferral requirements asu 200917 “consolidations topic 810 improvements financial reporting enterprises involved variable interest entities” certain interests investment funds provides scope exception topic 810 certain investments money market funds asu also makes several modifications consolidation guidance vies general partners’ investments limited partnerships well modifications evaluation whether limited partnerships vies voting interest entities asu 201502 effective interim annual reporting periods beginning december 15 2015 early adoption permitted adoption asu 201502 expected materially affect firm’s financial condition results operations cash flows goldman sachs group inc subsidiaries notes consolidated financial statements note 4 financial instruments owned fair value financial instruments sold yet purchased fair value financial instruments owned fair value financial instruments sold yet purchased fair value accounted fair value either fair value option accordance us gaap see note 8 information financial assets financial liabilities accounted fair value primarily fair value option table presents firm’s financial instruments owned fair value including pledged collateral financial instruments sold yet purchased fair value 1 includes 441 billion 375 billion loans backed commercial real estate december 2014 december 2013 respectively 2 includes 643 billion 417 billion loans backed residential real estate december 2014 december 2013 respectively 3 includes 618 million 681 million loans backed consumer loans assets december 2014 december 2013 respectively 4 primarily relates fair value unfunded lending commitments fair value option elected goldman sachs group inc subsidiaries notes consolidated financial statements gains losses market making principal transactions table presents “market making” revenues major product type well “other principal transactions” revenues gainslosses primarily related firm’s financial instruments owned fair value financial instruments sold yet purchased fair value including derivative nonderivative financial instruments gainslosses exclude related interest income interest expense see note 23 information interest income interest expense gainslosses table representative manner firm manages business activities many firm’s marketmaking client facilitation strategies utilize financial instruments across various product types accordingly gains losses one product type frequently offset gains losses product types example firm’s longerterm derivatives across product types sensitive changes interest rates may economically hedged interest rate swaps similarly significant portion firm’s cash instruments derivatives across product types exposure foreign currencies may economically hedged foreign currency contracts 1 principal transactions included firm’s investing lending segment see note 25 net revenues including net interest income product type investing lending well amount net interest income included investing lending “other” category note 25 relates firm’s consolidated investments primarily includes commodities real estaterelated net revenues 2 includes gain 289 million 270 million recorded extinguishment third quarter related extinguishment certain firm’s junior subordinated debt see note 16 information 3 includes gain 211 million sale majority stake firm’s european insurance business 4 includes gain 494 million sale firm’s hedge fund administration business note 5 fair value measurements fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date financial assets marked bid prices financial liabilities marked offer prices fair value measurements include transaction costs firm measures certain financial assets financial liabilities portfolio ie based net exposure market andor credit risks best evidence fair value quoted price active market quoted prices active markets available fair value determined reference prices similar instruments quoted prices recent transactions less active markets internally developed models primarily use marketbased independently sourced parameters inputs including limited interest rates volatilities equity debt prices foreign exchange rates commodity prices credit spreads funding spreads ie spread difference interest rate borrower could finance given financial instrument relative benchmark interest rate us gaap threelevel fair value hierarchy disclosure fair value measurements fair value hierarchy prioritizes inputs valuation techniques used measure fair value giving highest priority level 1 inputs lowest priority level 3 inputs financial instrument’s level fair value hierarchy based lowest level input significant fair value measurement goldman sachs group inc subsidiaries notes consolidated financial statements fair value hierarchy follows level 1 inputs unadjusted quoted prices active markets firm access measurement date identical unrestricted assets liabilities level 2 inputs valuation techniques observable either directly indirectly level 3 one inputs valuation techniques significant unobservable fair values substantially firm’s financial assets financial liabilities based observable prices inputs classified levels 1 2 fair value hierarchy certain level 2 level 3 financial assets financial liabilities may require appropriate valuation adjustments market participant would require arrive fair value factors counterparty firm’s credit quality funding risk transfer restrictions liquidity bidoffer spreads valuation adjustments generally based market evidence see notes 6 8 information fair value measurements cash instruments derivatives financial assets financial liabilities accounted fair value primarily fair value option including information unrealized gains losses related level 3 financial assets financial liabilities transfers level 3 respectively table presents financial assets financial liabilities accounted fair value fair value option accordance us gaap table counterparty cash collateral netting represents impact derivatives netting across levels fair value hierarchy netting among positions classified level included level 1 includes approximately 834 billion 890 billion december 2014 december 2013 respectively carried fair value amounts generally approximate fair value table presents summary total level 3 financial assets see notes 6 8 information level 3 financial assets level 3 financial assets december 2014 increased compared december 2013 reflecting increase cash instruments see note 6 information changes level 3 cash instruments goldman sachs group inc subsidiaries notes consolidated financial statements note 6 cash instruments cash instruments include us government federal agency obligations nonus government agency obligations bank loans bridge loans corporate debt securities equities convertible debentures nonderivative financial instruments owned financial instruments sold yet purchased see types cash instruments included level fair value hierarchy valuation techniques significant inputs used determine fair values see note 5 overview firm’s fair value measurement policies level 1 cash instruments level 1 cash instruments include us government obligations nonus government obligations actively traded listed equities certain government agency obligations money market instruments valued using quoted prices identical unrestricted instruments active markets firm defines active markets equity instruments based average daily trading volume absolute terms relative market capitalization instrument firm defines active markets debt instruments based average daily trading volume number days trading activity level 2 cash instruments level 2 cash instruments include commercial paper certificates deposit time deposits government agency obligations certain nonus government obligations corporate debt securities commodities certain mortgagebacked loans securities certain bank loans bridge loans restricted less liquid listed equities state municipal obligations certain lending commitments valuations level 2 cash instruments verified quoted prices recent trading activity identical similar instruments broker dealer quotations alternative pricing sources reasonable levels price transparency consideration given nature quotations eg indicative firm relationship recent market activity prices provided alternative pricing sources valuation adjustments typically made level 2 cash instruments cash instrument subject transfer restrictions andor ii premiums liquidity discounts market participant would require arrive fair value valuation adjustments generally based market evidence level 3 cash instruments level 3 cash instruments one significant valuation inputs observable absent evidence contrary level 3 cash instruments initially valued transaction price considered best initial estimate fair value subsequently firm uses methodologies determine fair value vary based type instrument valuation inputs assumptions changed corroborated substantive observable evidence including values realized sales financial assets goldman sachs group inc subsidiaries notes consolidated financial statements valuation techniques significant inputs table presents valuation techniques nature significant inputs valuation techniques significant inputs generally used determine fair values type level 3 cash instrument goldman sachs group inc subsidiaries notes consolidated financial statements significant unobservable inputs tables present ranges significant unobservable inputs used value firm’s level 3 cash instruments ranges represent significant unobservable inputs used valuation type cash instrument weighted averages tables calculated weighting input relative fair value respective financial instruments ranges weighted averages inputs representative appropriate inputs use calculating fair value one cash instrument example highest multiple presented tables private equity investments appropriate valuing specific private equity investment may appropriate valuing private equity investment accordingly ranges inputs presented represent uncertainty possible ranges fair value measurements firm’s level 3 cash instruments 1 fair value one instrument may determined using multiple valuation techniques example market comparables discounted cash flows may used together determine fair value therefore level 3 balance encompasses techniques goldman sachs group inc subsidiaries notes consolidated financial statements 1 fair value one instrument may determined using multiple valuation techniques example market comparables discounted cash flows may used together determine fair value therefore level 3 balance encompasses techniques increases yield discount rate capitalization rate duration cumulative loss rate used valuation firm’s level 3 cash instruments would result lower fair value measurement increases recovery rate basis multiples longterm growth rate compound annual growth rate would result higher fair value measurement due distinctive nature firm’s level 3 cash instruments interrelationship inputs necessarily uniform within product type goldman sachs group inc subsidiaries notes consolidated financial statements fair value cash instruments level tables present level within fair value hierarchy cash instrument assets liabilities fair value cash instrument assets liabilities included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” respectively 1 includes collateralized debt obligations cdos collateralized loan obligations clos backed real estate corporate obligations 234 million level 2 134 billion level 3 2 includes 1493 billion private equity investments 117 billion investments real estate entities 562 million convertible debentures goldman sachs group inc subsidiaries notes consolidated financial statements 1 includes cdos clos backed real estate corporate obligations 746 million level 2 203 billion level 3 2 includes 1282 billion private equity investments 137 billion investments real estate entities 491 million convertible debentures transfers levels fair value hierarchy transfers levels fair value hierarchy reported beginning reporting period occur 2014 transfers level 2 level 1 cash instruments 60 million including 47 million public equity securities 13 million us government federal agency obligations due decreased market activity instruments transfers level 1 level 2 cash instruments 92 million reflecting transfers public equity securities due increased market activity instruments 2013 transfers level 2 level 1 cash instruments 1 million reflecting transfers public equity securities due decreased market activity instruments transfers level 1 level 2 cash instruments 79 million reflecting transfers public equity securities primarily due increased market activity instruments see level 3 rollforward information transfers level 2 level 3 goldman sachs group inc subsidiaries notes consolidated financial statements level 3 rollforward cash instrument asset liability transferred level 3 reporting period entire gain loss period included level 3 level 3 cash instruments frequently economically hedged level 1 level 2 cash instruments andor level 1 level 2 level 3 derivatives accordingly gains losses reported level 3 partially offset gains losses attributable level 1 level 2 cash instruments andor level 1 level 2 level 3 derivatives result gains losses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources tables present changes fair value cash instrument assets liabilities categorized level 3 end year purchases tables include originations secondary market purchases 1 aggregate amounts include gains approximately 247 million 298 billion 875 million reported “market making” “other principal transactions” “interest income” respectively net unrealized gain level 3 cash instruments 269 billion reflecting 269 billion gain cash instrument assets 1 million loss cash instrument liabilities 2014 primarily reflected gains private equity investments principally driven companyspecific events strong corporate performance transfers level 3 2014 primarily reflected transfers certain private equity investments corporate debt securities level 2 principally due reduced price transparency result lack market evidence including fewer market transactions instruments transfers level 3 2014 primarily reflected transfers certain private equity investments bank loan bridge loans corporate debt securities level 2 principally due increased price transparency result market evidence including market transactions instruments goldman sachs group inc subsidiaries notes consolidated financial statements 1 aggregate amounts include gains approximately 109 billion 269 billion 723 million reported “market making” “other principal transactions” “interest income” respectively net unrealized gain level 3 cash instruments 303 billion reflecting 297 billion cash instrument assets 64 million cash instrument liabilities 2013 primarily consisted gains private equity investments principally driven strong corporate performance bank loans bridge loans primarily due tighter credit spreads favorable companyspecific events corporate debt securities primarily due tighter credit spreads transfers level 3 2013 primarily reflected transfers certain bank loans bridge loans private equity investments level 2 principally due lack market transactions instruments transfers level 3 2013 primarily reflected transfers certain private equity investments level 2 principally due increased transparency market prices result market transactions instruments goldman sachs group inc subsidiaries notes consolidated financial statements investments funds calculated using net asset value per share cash instruments fair value include investments funds calculated based net asset value per share nav investment fund firm uses nav measure fair value fund investments fund investment readily determinable fair value ii nav investment fund calculated manner consistent measurement principles investment company accounting including measurement underlying investments fair value firm’s investments funds calculated using nav primarily consist investments firmsponsored private equity credit real estate hedge funds firm coinvests thirdparty investors private equity funds primarily invest broad range industries worldwide variety situations including leveraged buyouts recapitalizations growth investments distressed investments credit funds generally invest loans fixed income instruments focused providing private highyield capital mid largesized leveraged management buyout transactions recapitalizations financings refinancings acquisitions restructurings private equity firms private family companies corporate issuers real estate funds invest globally primarily real estate companies loan portfolios debt recapitalizations property private equity credit real estate funds primarily closedend funds firm’s investments generally eligible redemption distributions received funds underlying assets liquidated distributed firm also invests hedge funds primarily multidisciplinary hedge funds employ fundamental bottomup investment approach across various asset classes strategies including longshort equity credit convertibles risk arbitrage special situations capital structure arbitrage december 2014 firm’s investments hedge funds primarily include interests underlying assets illiquid nature proceeds redemptions received underlying assets liquidated distributed many funds described “covered funds” defined volcker rule us doddfrank wall street reform consumer protection act doddfrank act board governors federal reserve system federal reserve board extended conformance period july 2016 investments relationships covered funds place prior december 31 2013 indicated intends extend conformance period july 2017 firm continues manage existing funds taking account extension outlined since march 2012 firm redeemed 297 billion interests hedge funds including 762 million 2014 115 billion 2013 order compliant volcker rule firm required reduce interests funds table prescribed compliance date tables present fair value firm’s investments unfunded commitments funds calculated using nav 1 decreases december 2013 december 2014 primarily reflect cash inkind distributions received related cancellations firm’s commitments certain credit funds goldman sachs group inc subsidiaries notes consolidated financial statements note 7 derivatives hedging activities derivative activities derivatives instruments derive value underlying asset prices indices reference rates inputs combination factors derivatives may traded exchange exchangetraded may privately negotiated contracts usually referred otc derivatives certain firm’s otc derivatives cleared settled central clearing counterparties otccleared others bilateral contracts two counterparties bilateral otc marketmaking market maker firm enters derivative transactions provide liquidity clients facilitate transfer hedging risks capacity firm typically acts principal consequently required commit capital provide execution market maker essential maintain inventory financial instruments sufficient meet expected client market demands risk management firm also enters derivatives actively manage risk exposures arise marketmaking investing lending activities derivative cash instruments firm’s holdings exposures hedged many cases either portfolio riskspecific basis opposed instrumentbyinstrument basis offsetting impact economic hedging reflected business segment related revenues addition firm may enter derivatives designated hedges us gaap derivatives used manage interest rate exposure certain fixedrate unsecured longterm shortterm borrowings deposits manage foreign currency exposure net investment certain nonus operations manage exposure variability cash flows associated forecasted sales certain energy commodities one firm’s consolidated investments firm enters various types derivatives including  futures forwards contracts commit counterparties purchase sell financial instruments commodities currencies future  swaps contracts require counterparties exchange cash flows currency interest payment streams amounts exchanged based specific terms contract reference specified rates financial instruments commodities currencies indices  options contracts option purchaser right obligation purchase sell option writer financial instruments commodities currencies within defined time period specified price derivatives reported netbycounterparty basis ie net payable receivable derivative assets liabilities given counterparty legal right setoff exists enforceable netting agreement counterparty netting derivatives accounted fair value net cash collateral received posted enforceable credit support agreements cash collateral netting derivative assets liabilities included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” respectively substantially gains losses derivatives designated hedges asc 815 included “market making” “other principal transactions” tables present fair value derivatives netbycounterparty basis goldman sachs group inc subsidiaries notes consolidated financial statements table presents fair value notional amount derivative contracts major product type gross basis gross fair values exclude effects counterparty netting collateral therefore representative firm’s exposure table also presents amounts counterparty cash collateral netting consolidated statements financial condition well cash securities collateral posted received enforceable credit support agreements meet criteria netting us gaap firm received posted collateral credit support agreements yet determined agreements enforceable related collateral netted table notional amounts represent sum gross long short derivative contracts provide indication volume firm’s derivative activity represent anticipated losses 1 includes derivative assets derivative liabilities 2593 billion 2619 billion respectively december 2014 derivative assets derivative liabilities 2318 billion 2346 billion respectively december 2013 subject enforceable netting agreement subject netting agreement firm yet determined enforceable goldman sachs group inc subsidiaries notes consolidated financial statements valuation techniques derivatives firm’s level 2 level 3 derivatives valued using derivative pricing models eg discounted cash flow models correlation models incorporate option pricing methodologies monte carlo simulations price transparency derivatives generally characterized product type  interest rate general key inputs used value interest rate derivatives transparent even longdated contracts interest rate swaps options denominated currencies leading industrialized nations characterized high trading volumes tight bidoffer spreads interest rate derivatives reference indices inflation index shape yield curve eg 10year swap rate vs 2year swap rate complex key inputs generally observable  credit price transparency credit default swaps including single names baskets credits varies market underlying reference entity obligation credit default swaps reference indices large corporates major sovereigns generally exhibit price transparency credit default swaps underliers price transparency varies based credit rating cost borrowing underlying reference obligations availability underlying reference obligations delivery upon default issuer credit default swaps reference loans assetbacked securities emerging market debt instruments tend less price transparency reference corporate bonds addition complex credit derivatives sensitive correlation two underlying reference obligations generally less price transparency  currency prices currency derivatives based exchange rates leading industrialized nations including longer tenors generally transparent primary difference price transparency developed emerging market currency derivatives emerging markets tend observable contracts shorter tenors  commodity derivatives include transactions referenced energy eg oil natural gas metals eg precious base soft commodities eg agricultural price transparency varies based underlying commodity delivery location tenor product quality eg diesel fuel compared unleaded gasoline general price transparency commodity derivatives greater contracts shorter tenors contracts closely aligned major andor benchmark commodity indices  equity price transparency equity derivatives varies market underlier options indices common stock corporates included major equity indices exhibit price transparency equity derivatives generally observable market prices except contracts long tenors reference prices differ significantly current market prices complex equity derivatives sensitive correlation two individual stocks generally less price transparency liquidity essential observability product types transaction volumes decline previously transparent prices inputs may become unobservable conversely even highly structured products may times trading volumes large enough provide observability prices inputs see note 5 overview firm’s fair value measurement policies level 1 derivatives level 1 derivatives include shortterm contracts future delivery securities underlying security level 1 instrument exchangetraded derivatives actively traded valued quoted market price level 2 derivatives level 2 derivatives include otc derivatives significant valuation inputs corroborated market evidence exchangetraded derivatives actively traded andor valued using models calibrate marketclearing levels otc derivatives evaluating significance valuation input firm considers among factors portfolio’s net risk exposure input goldman sachs group inc subsidiaries notes consolidated financial statements selection particular model value derivative depends contractual terms specific risks inherent instrument well availability pricing information market derivatives trade liquid markets model selection involve significant management judgment outputs models calibrated marketclearing levels valuation models require variety inputs contractual terms market prices yield curves discount rates including derived interest rates collateral received posted specified credit support agreements collateralized derivatives credit curves measures volatility prepayment rates loss severity rates correlations inputs significant inputs valuations level 2 derivatives verified market transactions broker dealer quotations alternative pricing sources reasonable levels price transparency consideration given nature quotations eg indicative firm relationship recent market activity prices provided alternative pricing sources level 3 derivatives level 3 derivatives valued using models utilize observable level 1 andor level 2 inputs well unobservable level 3 inputs  majority firm’s interest rate currency derivatives classified within level 3 significant unobservable inputs include correlations certain currencies interest rates eg correlation euro inflation euro interest rates specific interest rate volatilities  level 3 credit derivatives significant unobservable inputs include illiquid credit spreads upfront credit points unique specific reference obligations reference entities recovery rates certain correlations required value credit mortgage derivatives eg likelihood default underlying reference obligation relative one another  level 3 equity derivatives significant unobservable inputs generally include equity volatility inputs options longdated andor strike prices differ significantly current market prices addition valuation certain structured trades requires use level 3 correlation inputs correlation price performance two individual stocks correlation price performance basket stocks another asset class commodities  level 3 commodity derivatives significant unobservable inputs include volatilities options strike prices differ significantly current market prices spreads certain products product quality physical location commodity aligned benchmark indices subsequent initial valuation level 3 derivative firm updates level 1 level 2 inputs reflect observable market changes resulting gains losses recorded level 3 level 3 inputs changed corroborated evidence similar market transactions thirdparty pricing services andor broker dealer quotations empirical market data circumstances firm cannot verify model value reference market transactions possible different valuation model could produce materially different estimate fair value see information significant unobservable inputs used valuation level 3 derivatives valuation adjustments valuation adjustments integral determining fair value derivative portfolios used adjust midmarket valuations produced derivative pricing models appropriate exit price valuation adjustments incorporate bidoffer spreads cost liquidity credit valuation adjustments funding valuation adjustments account credit funding risk inherent uncollateralized portion derivative portfolios firm also makes funding valuation adjustments collateralized derivatives terms agreement permit firm deliver repledge collateral received marketbased inputs generally used calibrating valuation adjustments marketclearing levels addition derivatives include significant unobservable inputs firm makes model exit price adjustments account valuation uncertainty present transaction goldman sachs group inc subsidiaries notes consolidated financial statements significant unobservable inputs tables present ranges significant unobservable inputs used value firm’s level 3 derivatives well averages medians inputs ranges represent significant unobservable inputs used valuation type derivative averages represent arithmetic average inputs weighted relative fair value notional respective financial instruments average greater median indicates majority inputs average ranges averages medians inputs representative appropriate inputs use calculating fair value one derivative example highest correlation presented tables interest rate derivatives appropriate valuing specific interest rate derivative may appropriate valuing interest rate derivative accordingly ranges inputs presented represent uncertainty possible ranges fair value measurements firm’s level 3 derivatives 1 range unobservable inputs correlation across derivative product types ie crossasset correlation 34 80 average 33 median 35 december 2014 2 fair value one instrument may determined using multiple valuation techniques example option pricing models discounted cash flows models typically used together determine fair value therefore level 3 balance encompasses techniques 3 difference average median spread inputs indicates majority inputs fall lower end range goldman sachs group inc subsidiaries notes consolidated financial statements 1 range unobservable inputs correlation across derivative product types ie crossasset correlation 42 78 average 25 median 30 december 2013 2 fair value one instrument may determined using multiple valuation techniques example option pricing models discounted cash flows models typically used together determine fair value therefore level 3 balance encompasses techniques 3 difference average median credit spread inputs indicates majority inputs fall lower end range goldman sachs group inc subsidiaries notes consolidated financial statements range significant unobservable inputs following provides information ranges significant unobservable inputs used value firm’s level 3 derivative instruments  correlation ranges correlation cover variety underliers within one market eg equity index equity single stock names across markets eg correlation interest rate foreign exchange rate well across regions generally crossasset correlation inputs used value complex instruments lower correlation inputs assets within derivative product type  volatility ranges volatility cover numerous underliers across variety markets maturities strike prices example volatility equity indices generally lower volatility single stocks  credit spreads upfront credit points recovery rates ranges credit spreads upfront credit points recovery rates cover variety underliers index single names regions sectors maturities credit qualities highyield investmentgrade broad range population gives rise width ranges significant unobservable inputs  commodity prices spreads ranges commodity prices spreads cover variability products maturities locations sensitivity fair value measurement changes significant unobservable inputs following provides description directional sensitivity firm’s level 3 fair value measurements changes significant unobservable inputs isolation due distinctive nature firm’s level 3 derivatives interrelationship inputs necessarily uniform within product type  correlation general contracts holder benefits convergence underlying asset index prices eg interest rates credit spreads foreign exchange rates inflation rates equity prices increase correlation results higher fair value measurement  volatility general purchased options increase volatility results higher fair value measurement  credit spreads upfront credit points recovery rates general fair value purchased credit protection increases credit spreads upfront credit points increase recovery rates decrease credit spreads upfront credit points recovery rates strongly related distinctive risk factors underlying reference obligations include reference entityspecific factors leverage volatility industry marketbased risk factors borrowing costs liquidity underlying reference obligation macroeconomic conditions  commodity prices spreads general contracts holder receiving commodity increase spread price difference benchmark index due differences quality delivery location price results higher fair value measurement goldman sachs group inc subsidiaries notes consolidated financial statements fair value derivatives level tables present fair value derivatives gross basis level major product type well impact netting gross fair values exclude effects counterparty netting collateral netting therefore representative firm’s exposure counterparty netting reflected level extent receivable payable balances netted within level included “counterparty cash collateral netting” counterparty netting across levels netting reflected “crosslevel netting” goldman sachs group inc subsidiaries notes consolidated financial statements level 3 rollforward derivative transferred level 3 reporting period entire gain loss period included level 3 transfers levels reported beginning reporting period occur tables negative amounts transfers level 3 positive amounts transfers level 3 represent net transfers derivative liabilities gains losses level 3 derivatives considered context following  derivative level 1 andor level 2 inputs classified level 3 entirety least one significant level 3 input  one significant level 3 input entire gain loss adjusting observable inputs ie level 1 level 2 inputs classified level 3  gains losses reported level 3 resulting changes level 1 level 2 inputs frequently offset gains losses attributable level 1 level 2 derivatives andor level 1 level 2 level 3 cash instruments result gainslosses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources tables present changes fair value derivatives categorized level 3 end year 1 aggregate amounts include losses approximately 276 million 30 million reported “market making” “other principal transactions” respectively net unrealized loss level 3 derivatives 183 million 2014 primarily attributable impact decrease commodity prices certain commodity derivatives decrease equity prices certain equity derivatives impact changes foreign exchange rates certain currency derivatives largely offset impact tighter credit spreads decrease interest rates certain credit derivatives transfers level 3 derivatives 2014 primarily reflected transfers certain credit derivative liabilities level 2 principally due unobservable credit spread inputs becoming significant valuation derivatives transfers certain equity derivative liabilities level 2 primarily due reduced transparency volatility inputs used value derivatives transfers level 3 derivatives 2014 primarily reflected transfers certain equity derivative liabilities level 2 principally due unobservable correlation inputs longer significant valuation derivatives transfers certain credit derivative assets level 2 principally due unobservable credit spread inputs longer significant net risk certain portfolios goldman sachs group inc subsidiaries notes consolidated financial statements 1 aggregate amounts include losses approximately 129 billion 324 million reported “market making” “other principal transactions” respectively net unrealized loss level 3 derivatives 137 billion 2013 principally resulted changes level 2 inputs primarily attributable losses certain credit derivatives principally due impact tighter credit spreads losses certain currency derivatives primarily due changes foreign exchange rates transfers level 3 derivatives 2013 primarily reflected transfers credit derivative assets level 2 principally due reduced transparency upfront credit points correlation inputs used value derivatives transfers level 3 derivatives 2013 primarily reflected transfers certain credit derivatives level 2 principally due unobservable credit spread correlation inputs longer significant valuation derivatives unobservable inputs significant net risk certain portfolios impact credit spreads derivatives ongoing basis firm realizes gains losses relating changes credit risk unwind derivative contracts changes credit mitigants net gainloss including hedges attributable impact changes credit exposure credit spreads counterparty firm’s derivatives 135 million 2014 66 million 2013 735 million 2012 bifurcated embedded derivatives table presents fair value notional amount derivatives bifurcated related borrowings derivatives recorded fair value primarily consist interest rate equity commodity products included “unsecured shortterm borrowings” “unsecured longterm borrowings” related borrowings see note 8 information goldman sachs group inc subsidiaries notes consolidated financial statements otc derivatives tables present fair values otc derivative assets liabilities tenor major product type tenor based expected duration mortgagerelated credit derivatives generally remaining contractual maturity derivatives counterparty netting within product type tenor category included within product type tenor category counterparty netting across product types within tenor category included “counterparty cash collateral netting” counterparty netting across tenor categories netting reflected “crosstenor netting” goldman sachs group inc subsidiaries notes consolidated financial statements derivatives creditrelated contingent features certain firm’s derivatives transacted bilateral agreements counterparties may require firm post collateral terminate transactions based changes firm’s credit ratings firm assesses impact bilateral agreements determining collateral termination payments would occur assuming downgrade rating agencies downgrade one rating agency depending agency’s relative ratings firm time downgrade may impact comparable impact downgrade rating agencies table presents aggregate fair value net derivative liabilities agreements excluding application collateral posted reduce liabilities related aggregate fair value assets posted collateral additional collateral termination payments could called reporting date counterparties event onenotch twonotch downgrade firm’s credit ratings credit derivatives firm enters broad array credit derivatives locations around world facilitate client transactions manage credit risk associated marketmaking investing lending activities credit derivatives actively managed based firm’s net risk position credit derivatives individually negotiated contracts various settlement payment conventions credit events include failure pay bankruptcy acceleration indebtedness restructuring repudiation dissolution reference entity credit default swaps singlename credit default swaps protect buyer loss principal one bonds loans mortgages reference obligations event issuer reference entity reference obligations suffers credit event buyer protection pays initial periodic premium seller receives protection period contract credit event defined contract seller protection makes payments buyer protection however credit event occurs seller protection required make payment buyer protection calculated accordance terms contract credit indices baskets tranches credit derivatives may reference basket singlename credit default swaps broadbased index credit event occurs one underlying reference obligations protection seller pays protection buyer payment typically prorata portion transaction’s total notional amount based underlying defaulted reference obligation certain transactions credit risk basket index separated various portions tranches different levels subordination junior tranches cover initial defaults losses exceed notional amount junior tranches excess loss covered next senior tranche capital structure total return swaps total return swap transfers risks relating economic performance reference obligation protection buyer protection seller typically protection buyer receives protection seller floating rate interest protection reduction fair value reference obligation return protection seller receives cash flows associated reference obligation plus increase fair value reference obligation goldman sachs group inc subsidiaries notes consolidated financial statements credit options credit option writer assumes obligation purchase sell reference obligation specified price credit spread option purchaser buys right assume obligation sell reference obligation purchase option writer payments credit options depend either particular credit spread price reference obligation firm economically hedges exposure written credit derivatives primarily entering offsetting purchased credit derivatives identical underliers substantially firm’s purchased credit derivative transactions financial institutions subject stringent collateral thresholds addition upon occurrence specified trigger event firm may take possession reference obligations underlying particular written credit derivative consequently may upon liquidation reference obligations recover amounts underlying reference obligations event default december 2014 written purchased credit derivatives total gross notional amounts 122 trillion 128 trillion respectively total net notional purchased protection 5935 billion december 2013 written purchased credit derivatives total gross notional amounts 143 trillion 152 trillion respectively total net notional purchased protection 8155 billion substantially firm’s written purchased credit derivatives form credit default swaps table presents certain information credit derivatives table  fair values exclude effects netting receivable balances payable balances enforceable netting agreements netting cash received posted enforceable credit support agreements therefore representative firm’s credit exposure  tenor based expected duration mortgagerelated credit derivatives remaining contractual maturity credit derivatives  credit spread underlier together tenor contract indicators paymentperformance risk firm less likely pay otherwise required perform credit spread tenor lower 1 offsetting purchased credit derivatives represent notional amount purchased credit derivatives economically hedge written credit derivatives identical underliers 2 purchased protection represents notional amount purchased credit derivatives included “offsetting purchased credit derivatives” goldman sachs group inc subsidiaries notes consolidated financial statements hedge accounting firm applies hedge accounting certain interest rate swaps used manage interest rate exposure certain fixedrate unsecured longterm shortterm borrowings certain fixedrate certificates deposit ii certain foreign currency forward contracts foreign currencydenominated debt used manage foreign currency exposures firm’s net investment certain nonus operations iii certain commoditiesrelated swap forward contracts used manage exposure variability cash flows associated forecasted sales certain energy commodities one firm’s consolidated investments qualify hedge accounting derivative hedge must highly effective reducing risk exposure hedged additionally firm must formally document hedging relationship inception test hedging relationship least quarterly basis ensure derivative hedge continues highly effective life hedging relationship fair value hedges firm designates certain interest rate swaps fair value hedges interest rate swaps hedge changes fair value attributable designated benchmark interest rate eg london interbank offered rate libor ois effectively converting substantial portion fixedrate obligations floatingrate obligations firm applies statistical method utilizes regression analysis assessing effectiveness fair value hedging relationships achieving offsetting changes fair values hedging instrument risk hedged ie interest rate risk interest rate swap considered highly effective offsetting changes fair value attributable changes hedged risk regression analysis results coefficient determination 80 greater slope 80 125 qualifying fair value hedges gains losses derivatives included “interest expense” change fair value hedged item attributable risk hedged reported adjustment carrying value subsequently amortized interest expense remaining life gains losses resulting hedge ineffectiveness included “interest expense” derivative longer designated hedge remaining difference carrying value par value hedged item amortized interest expense remaining life hedged item using effective interest method see note 23 information interest income interest expense table presents gainslosses interest rate derivatives accounted hedges related hedged borrowings bank deposits hedge ineffectiveness derivatives primarily consists amortization prepaid credit spreads resulting passage time goldman sachs group inc subsidiaries notes consolidated financial statements net investment hedges firm seeks reduce impact fluctuations foreign exchange rates net investment certain nonus operations use foreign currency forward contracts foreign currencydenominated debt foreign currency forward contracts designated hedges effectiveness hedge assessed based overall changes fair value forward contracts ie based changes forward rates foreign currencydenominated debt designated hedge effectiveness hedge assessed based changes spot rates qualifying net investment hedges gains losses hedging instruments extent effective included “currency translation” within consolidated statements comprehensive income table presents gainslosses net investment hedging gainloss related ineffectiveness gainloss reclassified earnings accumulated comprehensive incomeloss material 2014 2013 2012 december 2014 december 2013 firm designated 136 billion 197 billion respectively foreign currencydenominated debt included “unsecured longterm borrowings” “unsecured shortterm borrowings” hedges net investments nonus subsidiaries cash flow hedges beginning 2013 firm designated certain commoditiesrelated swap forward contracts cash flow hedges swap forward contracts hedged firm’s exposure variability cash flows associated forecasted sales certain energy commodities one firm’s consolidated investments fourth quarter 2014 firm dedesignated swaps forward contracts cash flow hedges became probable hedged forecasted sales would occur prior dedesignation firm applied statistical method utilized regression analysis assessing hedge effectiveness cash flow hedge considered highly effective offsetting changes forecasted cash flows attributable hedged risk regression analysis resulted coefficient determination 80 greater slope 80 125 qualifying cash flow hedges gains losses derivatives extent effective included “cash flow hedges” within consolidated statements comprehensive income gains losses reclassified “other principal transactions” within consolidated statements earnings became probable hedged forecasted sales would occur gains losses resulting hedge ineffectiveness included “other principal transactions” effective portion gains recognized cash flow hedges gains reclassified earnings accumulated comprehensive income gains related hedge ineffectiveness material 2014 2013 gainslosses excluded assessment hedge effectiveness 2014 2013 goldman sachs group inc subsidiaries notes consolidated financial statements note 8 fair value option financial assets financial liabilities fair value addition cash derivative instruments included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” firm accounts certain financial assets financial liabilities fair value primarily fair value option primary reasons electing fair value option  reflect economic events earnings timely basis  mitigate volatility earnings using different measurement attributes eg transfers financial instruments owned accounted financings recorded fair value whereas related secured financing would recorded accrual basis absent electing fair value option  address simplification costbenefit considerations eg accounting hybrid financial instruments fair value entirety versus bifurcation embedded derivatives hedge accounting debt hosts hybrid financial instruments contain bifurcatable embedded derivatives require settlement physical delivery nonfinancial assets eg physical commodities firm elects bifurcate embedded derivative associated debt derivative accounted fair value host contract accounted amortized cost adjusted effective portion fair value hedges firm elect bifurcate entire hybrid financial instrument accounted fair value fair value option financial assets financial liabilities accounted fair value fair value option include  repurchase agreements substantially resale agreements  securities borrowed loaned within fixed income currency commodities client execution  substantially secured financings including transfers assets accounted financings rather sales  certain unsecured shortterm borrowings consisting promissory notes commercial paper certain hybrid financial instruments  certain unsecured longterm borrowings including certain prepaid commodity transactions certain hybrid financial instruments  certain receivables customers counterparties including transfers assets accounted secured loans rather purchases certain margin loans  certain time deposits issued firm’s bank subsidiaries deposits stated maturity eligible fair value option election including structured certificates deposit hybrid financial instruments  certain subordinated liabilities issued consolidated vies financial assets financial liabilities fair value generally valued based discounted cash flow techniques incorporate inputs reasonable levels price transparency generally classified level 2 inputs observable valuation adjustments may made liquidity counterparty firm’s credit quality goldman sachs group inc subsidiaries notes consolidated financial statements see information significant inputs used value financial assets financial liabilities fair value including ranges significant unobservable inputs used value level 3 instruments within categories ranges represent significant unobservable inputs used valuation type financial assets financial liabilities fair value ranges weighted averages inputs representative appropriate inputs use calculating fair value one instrument example highest yield presented resale repurchase agreements appropriate valuing specific agreement category may appropriate valuing agreements category accordingly ranges inputs presented represent uncertainty possible ranges fair value measurements firm’s level 3 financial assets financial liabilities resale repurchase agreements securities borrowed loaned significant inputs valuation resale repurchase agreements securities borrowed loaned funding spreads amount timing expected future cash flows interest rates december 2014 december 2013 level 3 securities borrowed securities loaned december 2014 firm’s level 3 resale repurchase agreements material range significant unobservable inputs used value level 3 resale repurchase agreements december 2013 13 39 weighted average 14 yield 02 years 27 years weighted average 25 years duration generally increases yield duration isolation would result lower fair value measurement due distinctive nature firm’s level 3 resale repurchase agreements interrelationship inputs necessarily uniform across agreements see note 10 information collateralized agreements financings secured financings significant inputs valuation secured financings fair value amount timing expected future cash flows interest rates funding spreads fair value collateral delivered firm determined using amount timing expected future cash flows market prices market yields recovery assumptions frequency additional collateral calls ranges significant unobservable inputs used value level 3 secured financings follows december 2014  funding spreads 210 bps 325 bps weighted average 278 bps  yield 11 100 weighted average 31  duration 07 38 years weighted average 26 years december 2013  funding spreads 40 bps 250 bps weighted average 162 bps  yield 09 143 weighted average 50  duration 08 161 years weighted average 37 years generally increases funding spreads yield duration isolation would result lower fair value measurement due distinctive nature firm’s level 3 secured financings interrelationship inputs necessarily uniform across financings see note 10 information collateralized agreements financings goldman sachs group inc subsidiaries notes consolidated financial statements unsecured shortterm longterm borrowings significant inputs valuation unsecured shortterm longterm borrowings fair value amount timing expected future cash flows interest rates credit spreads firm well commodity prices case prepaid commodity transactions inputs used value embedded derivative component hybrid financial instruments consistent inputs used value firm’s derivative instruments see note 7 information derivatives see notes 15 16 information unsecured shortterm longterm borrowings respectively certain firm’s unsecured shortterm longterm instruments included level 3 substantially hybrid financial instruments significant unobservable inputs used value hybrid financial instruments primarily relate embedded derivative component borrowings inputs incorporated firm’s derivative disclosures related unobservable inputs note 7 receivables customers counterparties receivables customers counterparties fair value primarily comprised transfers assets accounted secured loans rather purchases significant inputs valuation receivables commodity prices interest rates amount timing expected future cash flows funding spreads december 2014 firm’s level 3 receivables customers counterparties material range significant unobservable inputs used value level 3 secured loans december 2013 40 bps 477 bps weighted average 142 bps funding spreads generally increase funding spreads would result lower fair value measurement deposits significant inputs valuation time deposits interest rates amount timing future cash flows inputs used value embedded derivative component hybrid financial instruments consistent inputs used value firm’s derivative instruments see note 7 information derivatives see note 14 information deposits firm’s deposits included level 3 hybrid financial instruments significant unobservable inputs used value hybrid financial instruments primarily relate embedded derivative component deposits inputs incorporated firm’s derivative disclosures related unobservable inputs note 7 goldman sachs group inc subsidiaries notes consolidated financial statements fair value financial assets financial liabilities level tables present level within fair value hierarchy financial assets financial liabilities accounted fair value primarily fair value option 1 includes securities segregated regulatory purposes accounted fair value fair value option consists securities borrowed resale agreements addition level 1 consists securities segregated regulatory purposes accounted fair value us gaap consisting us treasury securities money market instruments transfers levels fair value hierarchy transfers levels fair value hierarchy reported beginning reporting period occur transfers financial assets financial liabilities level 1 level 2 2014 2013 tables present information transfers level 2 level 3 level 3 rollforward financial asset financial liability transferred level 3 reporting year entire gain loss year included level 3 goldman sachs group inc subsidiaries notes consolidated financial statements tables present changes fair value financial assets financial liabilities accounted fair value categorized level 3 end year level 3 financial assets liabilities frequently economically hedged cash instruments derivatives accordingly gains losses reported level 3 partially offset gains losses attributable level 1 2 3 cash instruments derivatives result gains losses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources 1 included “market making” 1 aggregate amounts include gainslosses approximately 150 million 833 million 33 million reported “market making” “other principal transactions” “interest expense” respectively net unrealized loss level 3 financial assets liabilities 621 million reflecting 2 million gains financial assets 623 million losses financial liabilities 2014 primarily reflected losses certain subordinated liabilities included liabilities accrued expenses principally due changes market value related underlying investments certain hybrid financial instruments included unsecured shortterm borrowings principally due increase global equity prices transfers level 3 financial assets 2014 primarily reflected transfers certain secured loans included receivables customers counterparties level 2 principally due unobservable inputs significant net risk portfolio transfers level 3 financial liabilities 2014 primarily reflected transfers certain hybrid financial instruments included unsecured longterm shortterm borrowings level 2 principally due unobservable inputs significant valuation instruments transfers level 3 unsecured longterm borrowings level 3 unsecured shortterm borrowings neared maturity transfers level 3 financial liabilities 2014 primarily reflected transfers certain hybrid financial instruments included unsecured longterm shortterm borrowings level 2 principally due increased transparency certain correlation volatility inputs used value instruments transfers certain hybrid financial instruments included unsecured shortterm borrowings level 2 principally due certain unobservable inputs significant valuation hybrid financial instruments transfers level 3 unsecured shortterm borrowings level 3 unsecured longterm borrowings neared maturity goldman sachs group inc subsidiaries notes consolidated financial statements 1 aggregate amounts include gains approximately 14 million 1 million 4 million reported “market making” “other principal transactions” “interest income” respectively 1 aggregate amounts include losses approximately 184 million 88 million 8 million reported “market making” “other principal transactions” “interest expense” respectively net unrealized loss level 3 financial assets liabilities 262 million reflecting 14 million gains financial assets 276 million losses financial liabilities 2013 primarily reflected losses certain hybrid financial instruments included unsecured shortterm borrowings principally due increase global equity prices sales liabilities accrued expenses 2013 primarily reflected sale majority stake firm’s european insurance business transfers level 3 financial assets 2013 primarily reflected transfers certain resale agreements level 2 principally due increased price transparency result market transactions similar instruments transfers level 3 financial liabilities 2013 primarily reflected transfers certain hybrid financial instruments included unsecured shortterm longterm borrowings level 2 principally due decreased transparency certain correlation volatility inputs used value instruments transfers level 3 financial liabilities 2013 primarily reflected transfers certain hybrid financial instruments included unsecured shortterm longterm borrowings level 2 principally due increased transparency certain correlation volatility inputs used value instruments transfers subordinated liabilities included liabilities accrued expenses level 2 principally due increased price transparency result market transactions related underlying investments goldman sachs group inc subsidiaries notes consolidated financial statements gains losses financial assets financial liabilities accounted fair value fair value option table presents gains losses recognized result firm electing apply fair value option certain financial assets financial liabilities gains losses included “market making” “other principal transactions” table also includes gains losses embedded derivative component hybrid financial instruments included unsecured shortterm borrowings unsecured longterm borrowings deposits gains losses would recognized us gaap even firm elected account entire hybrid financial instrument fair value amounts table exclude contractual interest included “interest income” “interest expense” instruments hybrid financial instruments see note 23 information interest income interest expense 1 includes losses embedded derivative component hybrid financial instruments 122 billion 2014 104 billion 2013 814 million 2012 respectively 2 includes gainslosses embedded derivative component hybrid financial instruments 697 million 2014 902 million 2013 887 million 2012 respectively 3 includes gainslosses certain subordinated liabilities issued consolidated vies gainslosses 2013 2012 also includes gains certain insurance contracts 4 primarily consists gainslosses securities purchased agreements resell securities borrowed receivables customers counterparties deposits secured financings excluding gains losses instruments accounted fair value option described “market making” “other principal transactions” primarily represent gains losses “financial instruments owned fair value” “financial instruments sold yet purchased fair value” loans lending commitments table presents difference aggregate fair value aggregate contractual principal amount loans longterm receivables fair value option elected 1 aggregate contractual principal amount loans exceeds related fair value primarily firm regularly purchases loans distressed loans values significantly contractual principal amounts december 2014 december 2013 fair value unfunded lending commitments fair value option elected liability 402 million 122 billion respectively related total contractual amount lending commitments 2619 billion 5154 billion respectively see note 18 information lending commitments goldman sachs group inc subsidiaries notes consolidated financial statements longterm debt instruments aggregate contractual principal amount longterm secured financings fair value option elected exceeded related fair value 203 million 154 million december 2014 december 2013 respectively aggregate contractual principal amount unsecured longterm borrowings fair value option elected exceeded related fair value 163 million 92 million december 2014 december 2013 respectively amounts include principal nonprincipalprotected longterm borrowings impact credit spreads loans lending commitments estimated net gain attributable changes instrumentspecific credit spreads loans lending commitments fair value option elected 183 billion 2014 269 billion 2013 307 billion 2012 respectively changes fair value loans lending commitments primarily attributable changes instrumentspecific credit spreads substantially firm’s performing loans lending commitments floatingrate impact credit spreads borrowings table presents net gainslosses attributable impact changes firm’s credit spreads borrowings fair value option elected firm calculates fair value borrowings discounting future cash flows rate incorporates firm’s credit spreads note 9 loans receivable loans receivable comprised loans held investment accounted amortized cost net allowance loan losses interest loans recognized life loan recorded accrual basis table presents details loans receivable december 2014 december 2013 fair value “loans receivable” 2890 billion 1491 billion respectively december 2014 loans carried fair value included fair value hierarchy 1375 billion 1515 billion would classified level 2 level 3 respectively december 2013 loans carried fair value included fair value hierarchy 616 billion 875 billion would classified level 2 level 3 respectively firm also extends lending commitments held investment accounted accrual basis december 2014 december 2013 lending commitments 6622 billion 3566 billion respectively substantially extended corporate borrowers carrying value estimated fair value lending commitments liabilities 199 million 186 billion respectively december 2014 132 million 102 billion respectively december 2013 commitments included firm’s fair value hierarchy would primarily classified level 3 december 2014 december 2013 goldman sachs group inc subsidiaries notes consolidated financial statements description captions table  corporate loans corporate loans include term loans revolving lines credit letter credit facilities bridge loans principally used operating liquidity general corporate purposes connection acquisitions corporate loans may secured unsecured depending loan purpose risk profile borrower factors majority loans maturities one year five years carry floating interest rate  loans private wealth management clients loans firm’s private wealth management clients include loans used clients finance private asset purchases employ leverage strategic investments real financial assets bridge cash flow timing gaps provide liquidity needs loans primarily secured securities assets majority loans demand shortterm loans carry floating interest rate  loans backed commercial real estate loans backed commercial real estate include loans collateralized hotels retail stores multifamily housing complexes commercial industrial properties majority loans maturities one year five years carry floating interest rate  loans primarily include loans secured consumer loans residential real estate assets majority loans maturities one year five years carry floating interest rate credit quality firm’s risk assessment process includes evaluating credit quality loans receivable firm performs credit reviews include initial ongoing analyses borrowers credit review independent analysis capacity willingness borrower meet financial obligations resulting internal credit rating determination internal credit ratings also incorporates assumptions respect nature outlook borrower’s industry economic environment firm also assigns regulatory risk rating loans based definitions provided us federal bank regulatory agencies december 2014 december 2013 loans receivable primarily extended noninvestmentgrade borrowers lending commitments held investment accounted accrual basis primarily extended investmentgrade borrowers substantially loans lending commitments align us federal bank regulatory agencies’ definition pass loans lending commitments meet definition pass performing andor demonstrate adverse characteristics likely result credit loss impaired loans nonaccrual status loan determined impaired probable firm able collect principal interest due contractual terms loan time loans placed nonaccrual status accrued uncollected interest reversed interest income interest subsequently collected recognized cash basis extent loan balance deemed collectible otherwise cash received used reduce outstanding loan balance december 2014 december 2013 impaired loans receivable nonaccrual status material allowance losses loans lending commitments firm’s allowance loan losses comprised two components specific loan level reserves collective portfolio level reserve specific loan level reserves determined loans exhibit credit quality weakness therefore individually evaluated impairment portfolio level reserves determined remaining loans deemed impaired aggregating groups loans similar risk characteristics estimating probable loss inherent portfolio december 2014 december 2013 substantially firm’s loans receivable evaluated impairment portfolio level goldman sachs group inc subsidiaries notes consolidated financial statements allowance loan losses determined using various inputs including industry default loss data current macroeconomic indicators borrower’s capacity meet financial obligations borrower’s country risk loan seniority collateral type management’s estimate loan losses entails judgment loan collectability based available information reporting dates uncertainties inherent judgments management uses best information available determine estimate future adjustments allowance may necessary based among things changes economic environment variances actual results original assumptions used loans charged allowance loan losses deemed uncollectible firm also records allowance losses lending commitments held investment accounted accrual basis allowance determined using methodology allowance loan losses also taking consideration probability drawdowns funding included “other liabilities accrued expenses” consolidated statements financial condition december 2014 december 2013 substantially lending commitments evaluated impairment portfolio level tables present changes allowance loan losses allowance losses lending commitments years ended december 2014 december 2013 provision losses loans lending commitments included “other principal transactions” consolidated statements earnings december 2014 december 2013 substantially allowance loan losses allowance losses lending commitments related corporate loans corporate lending commitments substantially allowances determined portfolio level note 10 collateralized agreements financings collateralized agreements securities purchased agreements resell resale agreements securities borrowed collateralized financings securities sold agreements repurchase agreements securities loaned secured financings firm enters transactions order among things facilitate client activities invest excess cash acquire securities cover short positions finance certain firm activities collateralized agreements financings presented netbycounterparty basis legal right setoff exists interest collateralized agreements collateralized financings recognized life transaction included “interest income” “interest expense” respectively see note 23 information interest income interest expense table presents carrying value resale repurchase agreements securities borrowed loaned transactions 1 substantially resale agreements repurchase agreements carried fair value fair value option see note 8 information valuation techniques significant inputs used determine fair value 2 december 2014 december 2013 6677 billion 6038 billion securities borrowed 765 million 973 million securities loaned fair value respectively goldman sachs group inc subsidiaries notes consolidated financial statements resale repurchase agreements resale agreement transaction firm purchases financial instruments seller typically exchange cash simultaneously enters agreement resell substantially financial instruments seller stated price plus accrued interest future date repurchase agreement transaction firm sells financial instruments buyer typically exchange cash simultaneously enters agreement repurchase substantially financial instruments buyer stated price plus accrued interest future date financial instruments purchased sold resale repurchase agreements typically include us government federal agency investmentgrade sovereign obligations firm receives financial instruments purchased resale agreements makes delivery financial instruments sold repurchase agreements monitors market value financial instruments daily basis delivers obtains additional collateral due changes market value financial instruments appropriate resale agreements firm typically requires collateral fair value approximately equal carrying value relevant assets consolidated statements financial condition even though repurchase resale agreements involve legal transfer ownership financial instruments accounted financing arrangements require financial instruments repurchased resold maturity agreement however “repostomaturity” accounted sales repotomaturity transaction firm transfers security agreement repurchase security maturity date repurchase agreement matches maturity date underlying security therefore firm effectively longer repurchase obligation relinquished control underlying security accordingly accounts transaction sale see note 3 information changes accounting repostomaturity became effective january 2015 firm repostomaturity outstanding december 2014 december 2013 securities borrowed loaned transactions securities borrowed transaction firm borrows securities counterparty exchange cash securities firm returns securities counterparty returns cash securities interest generally paid periodically life transaction securities loaned transaction firm lends securities counterparty exchange cash securities counterparty returns securities firm returns cash securities posted collateral interest generally paid periodically life transaction firm receives securities borrowed makes delivery securities loaned monitors market value securities daily basis delivers obtains additional collateral due changes market value securities appropriate securities borrowed transactions firm typically requires collateral fair value approximately equal carrying value securities borrowed transaction securities borrowed loaned within fixed income currency commodities client execution recorded fair value fair value option see note 8 information securities borrowed loaned accounted fair value securities borrowed loaned within securities services recorded based amount cash collateral advanced received plus accrued interest arrangements generally terminated demand exhibit little sensitivity changes interest rates therefore carrying value arrangements approximates fair value arrangements carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 8 arrangements included firm’s fair value hierarchy would classified level 2 december 2014 december 2013 goldman sachs group inc subsidiaries notes consolidated financial statements offsetting arrangements tables present gross net resale repurchase agreements securities borrowed loaned transactions related amount netting counterparty enforceable netting agreements ie counterparty netting included consolidated statements financial condition substantially gross carrying values arrangements subject enforceable netting agreements tables also present amounts offset consolidated statements financial condition including counterparty netting meet criteria netting us gaap fair value cash securities collateral received posted subject enforceable credit support agreements firm received posted collateral credit support agreements yet determined agreements enforceable related collateral netted tables 1 december 2014 december 2013 firm 604 billion 967 billion respectively securities received resale agreements 708 billion 277 billion respectively securities borrowed transactions segregated satisfy certain regulatory requirements securities included “cash securities segregated regulatory purposes” secured financings addition repurchase agreements securities lending transactions firm funds certain assets use secured financings pledges financial instruments assets collateral transactions secured financings consist  liabilities consolidated vies  transfers assets accounted financings rather sales primarily collateralized central bank financings pledged commodities bank loans mortgage whole loans  structured financing arrangements secured financings include arrangements nonrecourse december 2014 december 2013 nonrecourse secured financings 194 billion 154 billion respectively firm elected apply fair value option substantially secured financings use fair value eliminates noneconomic volatility earnings would arise using different measurement attributes see note 8 information secured financings accounted fair value secured financings recorded fair value recorded based amount cash received plus accrued interest generally approximates fair value financings carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 8 financings included firm’s fair value hierarchy would primarily classified level 2 december 2014 december 2013 goldman sachs group inc subsidiaries notes consolidated financial statements tables present information secured financings 1 includes 974 million 154 billion related transfers financial assets accounted financings rather sales december 2014 december 2013 respectively financings collateralized financial assets included “financial instruments owned fair value” 995 million 158 billion december 2014 december 2013 respectively 2 includes 1024 billion 1475 billion secured financings collateralized financial instruments owned fair value december 2014 december 2013 respectively includes 1170 billion 950 billion secured financings collateralized financial instruments received collateral repledged december 2014 december 2013 respectively tables  shortterm secured financings include financings maturing within one year financial statement date financings redeemable within one year financial statement date option holder  longterm secured financings repayable prior maturity option firm reflected contractual maturity dates  longterm secured financings redeemable prior maturity option holders reflected dates options become exercisable  weighted average interest rates exclude secured financings fair value include effect hedging activities see note 7 information hedging activities table presents secured financings maturity goldman sachs group inc subsidiaries notes consolidated financial statements collateral received pledged firm receives cash securities eg us government federal agency sovereign corporate obligations well equities convertible debentures collateral primarily connection resale agreements securities borrowed derivative transactions customer margin loans firm obtains cash securities collateral upfront contingent basis derivative instruments collateralized agreements reduce credit exposure individual counterparties many cases firm permitted deliver repledge financial instruments received collateral entering repurchase agreements securities lending agreements primarily connection secured client financing activities firm also permitted deliver repledge financial instruments connection secured financings collateralizing derivative transactions meeting firm customer settlement requirements firm also pledges certain financial instruments owned fair value connection repurchase agreements securities lending agreements secured financings assets primarily real estate cash connection secured financings counterparties may right deliver repledge table presents financial instruments fair value received collateral available delivered repledged delivered repledged firm 1 december 2014 december 2013 amounts exclude 604 billion 967 billion respectively securities received resale agreements 708 billion 277 billion respectively securities borrowed transactions contractually right delivered repledged segregated satisfy certain regulatory requirements table presents information assets pledged note 11 securitization activities firm securitizes residential commercial mortgages corporate bonds loans types financial assets selling assets securitization vehicles eg trusts corporate entities limited liability companies resecuritization firm acts underwriter beneficial interests sold investors firm’s residential mortgage securitizations substantially connection government agency securitizations beneficial interests issued securitization entities debt equity securities give investors rights receive portions specified cash inflows securitization vehicle include senior subordinated interests principal interest andor cash inflows proceeds sale beneficial interests used pay transferor financial assets sold securitization vehicle purchase securities serve collateral firm accounts securitization sale relinquished control transferred assets prior securitization firm accounts assets pending transfer fair value therefore typically recognize significant gains losses upon transfer assets net revenues underwriting activities recognized connection sales underlying beneficial interests investors transfers assets accounted sales assets remain “financial instruments owned fair value” transfer accounted collateralized financing related interest expense recognized life transaction see notes 10 23 information collateralized financings interest expense respectively goldman sachs group inc subsidiaries notes consolidated financial statements firm generally receives cash exchange transferred assets may also continuing involvement transferred assets including ownership beneficial interests securitized financial assets primarily form senior subordinated securities firm may also purchase senior subordinated securities issued securitization vehicles typically vies connection secondary marketmaking activities primary risks included beneficial interests firm’s continuing involvement securitization vehicles performance underlying collateral position firm’s investment capital structure securitization vehicle market yield security interests accounted fair value included “financial instruments owned fair value” substantially classified level 2 fair value hierarchy see notes 5 8 information fair value measurements table presents amount financial assets securitized cash flows received retained interests securitization entities firm continuing involvement tables present firm’s continuing involvement nonconsolidated securitization entities firm sold assets well total outstanding principal amount transferred assets firm continuing involvement tables  outstanding principal amount presented purpose providing information size securitization entities firm continuing involvement representative firm’s risk loss  retained purchased interests firm’s risk loss limited fair value interests  purchased interests represent senior subordinated interests purchased connection secondary marketmaking activities securitization entities firm also holds retained interests 1 outstanding principal amount includes 418 million related securitization entities firm’s continuing involvement retained servicing variable interest goldman sachs group inc subsidiaries notes consolidated financial statements addition outstanding principal fair value retained interests tables relate following types securitizations vintage described  outstanding principal amount fair value retained interests us government agencyissued collateralized mortgage obligations december 2014 primarily relate securitizations 2014 2013 december 2013 primarily relate securitizations 2013 2012  outstanding principal amount fair value retained interests residential mortgagebacked obligations december 2014 primarily relate resecuritizations 2014 prime alta securitizations 2007 december 2013 primarily relate prime alta securitizations 2007 2006  outstanding principal amount fair value retained interests commercial mortgagebacked obligations december 2014 primarily relate securitizations 2014 december 2013 primarily relate securitizations 2013  outstanding principal amount fair value retained interests cdos clos december 2014 primarily relate securitizations 2014 2007 december 2013 primarily relate securitizations 2007 addition interests tables firm continuing involvement form derivative transactions certain nonconsolidated vies carrying value derivatives net asset 115 million 26 million december 2014 december 2013 respectively notional amounts derivatives included maximum exposure loss nonconsolidated vie tables note 12 tables present weighted average key economic assumptions used measuring fair value retained interests sensitivity fair value immediate adverse changes 10 20 assumptions 1 due nature current fair value certain retained interests weighted average assumptions constant prepayment discount rates related sensitivity adverse changes meaningful december 2014 december 2013 firm’s maximum exposure adverse changes value interests carrying value 59 million 86 million december 2014 december 2013 respectively tables  amounts reflect benefit financial instruments held mitigate risks inherent retained interests  changes fair value based adverse variation assumptions generally cannot extrapolated relationship change assumptions change fair value usually linear  impact change particular assumption calculated independently changes assumption practice simultaneous changes assumptions might magnify counteract sensitivities disclosed  constant prepayment rate included positions key assumption determination fair value  discount rate retained interests relate us government agencyissued collateralized mortgage obligations include credit loss  expected credit loss assumptions reflected discount rate remainder retained interests goldman sachs group inc subsidiaries notes consolidated financial statements note 12 variable interest entities vies generally finance purchase assets issuing debt equity securities either collateralized indexed assets held vie debt equity securities issued vie may include tranches varying levels subordination firm’s involvement vies includes securitization financial assets described note 11 investments loans types vies described see note 11 additional information securitization activities including definition beneficial interests see note 3 firm’s consolidation policies including definition vie firm principally involved vies following business activities mortgagebacked vies corporate cdo clo vies firm sells residential commercial mortgage loans securities mortgagebacked vies corporate bonds loans corporate cdo clo vies may retain beneficial interests assets sold vies firm purchases sells beneficial interests issued mortgagebacked corporate cdo clo vies connection marketmaking activities addition firm may enter derivatives certain vies primarily interest rate swaps typically variable interests firm generally enters derivatives counterparties mitigate risk derivatives vies certain mortgagebacked corporate cdo clo vies usually referred synthetic cdos creditlinked note vies synthetically create exposure beneficial interests issue entering credit derivatives rather purchasing underlying assets credit derivatives may reference single asset index portfoliobasket assets indices see note 7 information credit derivatives vies use funds sale beneficial interests premiums received credit derivative counterparties purchase securities serve collateralize beneficial interest holders andor credit derivative counterparty vies may enter derivatives primarily interest rate swaps typically variable interests firm may counterparty derivatives vies generally enters derivatives counterparties mitigate risk real estate creditrelated investing vies firm purchases equity debt securities issued makes loans vies hold real estate performing nonperforming debt distressed loans equity securities firm typically sell assets enter derivatives vies assetbacked vies firm structures vies issue notes clients purchases sells beneficial interests issued assetbacked vies connection marketmaking activities addition firm may enter derivatives certain assetbacked vies primarily total return swaps collateral assets held vies firm pays vie return due note holders receives return collateral assets owned vie firm generally removed total return swap counterparty firm generally enters derivatives counterparties mitigate risk derivatives vies firm typically sell assets assetbacked vies structures principalprotected note vies firm structures vies issue principalprotected notes clients vies portfolios assets principally exposure hedge funds substantially principal protection notes issued vies provided asset portfolio rebalancing required terms notes firm enters total return swaps vies firm pays vie return due principalprotected note holders receives return assets owned vie firm may enter derivatives counterparties mitigate risk derivatives enters vies firm also obtains funding vies primarily includes nonconsolidated powerrelated investment fund vies firm purchases debt equity securities issued vies hold powerrelated assets may provide commitments vies firm also makes equity investments certain investment fund vies manages entitled receive fees vies firm typically sell assets enter derivatives vies goldman sachs group inc subsidiaries notes consolidated financial statements vie consolidation analysis variable interest vie investment eg debt equity securities interest eg derivatives loans lending commitments vie absorb portions vie’s expected losses andor receive portions vie’s expected residual returns firm’s variable interests vies include senior subordinated debt residential commercial mortgagebacked assetbacked securitization entities cdos clos loans lending commitments limited general partnership interests preferred common equity derivatives may include foreign currency equity andor credit risk guarantees certain fees firm receives investment funds certain interest rate foreign currency credit derivatives firm enters vies variable interests create rather absorb risk enterprise controlling financial interest vie known primary beneficiary consolidates vie firm determines whether primary beneficiary vie performing analysis principally considers  variable interest holder power direct activities vie significantly impact vie’s economic performance  variable interest holder obligation absorb losses right receive benefits vie could potentially significant vie  vie’s purpose design including risks vie designed create pass variable interest holders  vie’s capital structure  terms vie variable interest holders parties involved vie  relatedparty relationships firm reassesses initial evaluation whether entity vie certain reconsideration events occur firm reassesses determination whether primary beneficiary vie ongoing basis based current facts circumstances nonconsolidated vies firm’s exposure obligations vies generally limited interests entities certain instances firm provides guarantees including derivative guarantees vies holders variable interests vies tables present information nonconsolidated vies firm holds variable interests nonconsolidated vies aggregated based principal business activity nature firm’s variable interests take different forms described rows maximum exposure loss tables  maximum exposure loss excludes benefit offsetting financial instruments held mitigate risks associated variable interests  retained purchased interests loans investments maximum exposure loss carrying value interests  commitments guarantees derivatives maximum exposure loss notional amount represent anticipated losses also reduced unrealized losses already recorded result maximum exposure loss exceeds liabilities recorded commitments guarantees derivatives provided vies carrying values firm’s variable interests nonconsolidated vies included consolidated statement financial condition follows  substantially assets held firm related mortgagebacked corporate cdo clo assetbacked vies included “financial instruments owned fair value” substantially liabilities held firm related corporate cdo clo assetbacked vies included “financial instruments sold yet purchased fair value”  substantially assets held firm related real estate creditrelated investing vies included “financial instruments owned fair value” “loans receivable” “other assets” substantially liabilities held firm related real estate creditrelated investing vies included “financial instruments sold yet purchased fair value” “other liabilities accrued expenses”  substantially assets held firm related vies included “financial instruments owned fair value” goldman sachs group inc subsidiaries notes consolidated financial statements 1 aggregate amounts include 164 billion 201 billion december 2014 december 2013 respectively related derivative transactions vies firm transferred assets 2 assets vie maximum exposure loss include 357 billion 662 million respectively december 2014 455 billion 900 million respectively december 2013 related cdos backed mortgage obligations goldman sachs group inc subsidiaries notes consolidated financial statements consolidated vies tables present carrying amount classification assets liabilities consolidated vies excluding benefit offsetting financial instruments held mitigate risks associated firm’s variable interests consolidated vies aggregated based principal business activity assets liabilities presented net intercompany eliminations majority assets principalprotected notes vies intercompany eliminated consolidation substantially assets consolidated vies used settle obligations vie tables exclude vies firm holds majority voting interest vie meets definition business ii vie’s assets used purposes settlement obligations liabilities real estate creditrelated investing vies cdos mortgagebacked assetbacked vies recourse general credit firm goldman sachs group inc subsidiaries notes consolidated financial statements note 13 assets generally less liquid nonfinancial assets table presents assets type 1 excludes investments accounted fair value fair value option firm would otherwise apply equity method accounting 662 billion 607 billion december 2014 december 2013 respectively included “financial instruments owned fair value” firm generally elected fair value option investments acquired fair value option became available 2 includes 461 million related investments qualified affordable housing projects december 2014 property leasehold improvements equipment property leasehold improvements equipment table presented net accumulated depreciation amortization 898 billion 904 billion december 2014 december 2013 respectively property leasehold improvements equipment included 581 billion 602 billion december 2014 december 2013 respectively related property leasehold improvements equipment firm uses connection operations remainder held investment entities including vies consolidated firm substantially property equipment depreciated straightline basis useful life asset leasehold improvements amortized straightline basis useful life improvement term lease whichever shorter certain costs software developed obtained internal use capitalized amortized straightline basis useful life software goodwill identifiable intangible assets tables present carrying values goodwill identifiable intangible assets 1 decrease december 2013 december 2014 goodwill identifiable intangible assets reflects sale two consolidated investments decrease goodwill also reflects impairment 22 million connection sale metro international trade services llc metro see “ impairments” information impairment 2 increase december 2013 december 2014 primarily related acquisition commoditiesrelated intangible assets 3 decrease december 2013 december 2014 reflects impairment related firm’s exchangetraded fund lead market maker lmm rights goldman sachs group inc subsidiaries notes consolidated financial statements goodwill cost acquired companies excess fair value net assets including identifiable intangible assets acquisition date goodwill assessed annually fourth quarter impairment frequently events occur circumstances change indicate impairment may exist assessing goodwill impairment first qualitative factors assessed determine whether likely fair value reporting unit less carrying amount results qualitative assessment conclusive quantitative test would performed quantitative goodwill impairment test consists two steps  first step compares estimated fair value reporting unit estimated net book value including goodwill identifiable intangible assets reporting unit’s fair value exceeds estimated net book value goodwill impaired  estimated fair value reporting unit less estimated net book value second step goodwill impairment test performed measure amount impairment equal excess carrying amount goodwill fair value firm performed quantitative goodwill impairment test fourth quarter 2012 quantitative goodwill test performing test firm estimated fair value reporting unit compared respective reporting unit’s net book value estimated carrying value reporting units valued using relative value residual income valuation techniques firm believes market participants would use techniques value firm’s reporting units net book value reporting unit reflected allocation total shareholders’ equity represented estimated amount shareholders’ equity required support activities reporting unit guidelines issued basel committee banking supervision basel committee december 2010 performing 2012 quantitative goodwill test firm determined goodwill impaired estimated fair value firm’s reporting units substantially firm’s goodwill held significantly exceeded estimated carrying values fourth quarter 2014 firm assessed goodwill impairment multiple factors assessed respect firm’s reporting units determine whether likely fair value reporting units less carrying amount qualitative assessment also considered changes since 2012 quantitative goodwill test accordance asc 350 firm considered following factors 2014 qualitative assessment performed fourth quarter evaluating whether likely fair value reporting unit less carrying amount  macroeconomic conditions since 2012 quantitative goodwill test performed firm’s general operating environment improved credit spreads tightened global equity prices increased significantly industrywide mergers acquisitions activity industrywide debt equity underwriting activity improved  industry market considerations since 2012 quantitative goodwill test performed industrywide metrics trended positively publiclytraded industry participants including firm experienced increases stock price pricetobook multiples pricetoearnings multiples addition clarity obtained number regulations reforms adopted proposed regulators many rules highly complex full impact known rules implemented market practices develop final regulations however firm expect compliance significant negative impact reporting unit results  cost factors although certain expenses increased significant negative changes firm’s overall cost structure since 2012 quantitative goodwill test performed  overall financial performance 2014 firm’s net earnings pretax margin diluted earnings per common share return average common shareholders’ equity book value per common share increased compared 2012 goldman sachs group inc subsidiaries notes consolidated financial statements  entityspecific events entityspecific events since 2012 quantitative goodwill test performed would significant negative impact valuation firm’s reporting units  events affecting reporting units events since 2012 quantitative goodwill test performed would significant negative impact valuation firm’s reporting units  sustained changes stock price since 2012 quantitative goodwill test performed firm’s stock price increased significantly addition stock price exceeded book value per common share throughout 2013 2014 firm also considered factors qualitative assessment including changes book value reporting units estimated excess fair values compared carrying values reporting units 2012 quantitative goodwill test projected earnings cost equity firm considered factors aggregate part qualitative assessment result 2014 qualitative assessment firm determined likely fair value reporting units exceeded respective carrying amount therefore firm determined goodwill impaired quantitative goodwill impairment test required identifiable intangible assets table presents gross carrying amount accumulated amortization net carrying amount identifiable intangible assets weighted average remaining useful lives 1 includes commoditiesrelated transportation rights customer contracts relationships permits 2 decrease december 2013 december 2014 primarily due sale firm’s new york stock exchange designated market maker rights august 2014 substantially firm’s identifiable intangible assets considered finite useful lives amortized estimated useful lives using straightline method based economic usage certain commoditiesrelated intangibles tables present amortization 2014 2013 2012 estimated future amortization 2019 identifiable intangible assets goldman sachs group inc subsidiaries notes consolidated financial statements impairments firm tests property leasehold improvements equipment identifiable intangible assets impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable extent carrying value asset exceeds projected undiscounted cash flows expected result use eventual disposal asset group firm determines asset impaired records impairment equal difference estimated fair value carrying value asset group addition firm recognize impairment prior sale asset carrying value asset exceeds estimated fair value 2014 2013 primarily result deterioration market operating conditions related certain firm’s consolidated investments firm’s lmm rights firm determined certain assets impaired recorded impairments 360 million 216 million respectively  2014 impairments consisted 268 million related property leasehold improvements equipment substantially attributable consolidated investment latin america 70 million related identifiable intangible assets primarily attributable firm’s lmm rights 22 million related goodwill result sale metro impairments related property leasehold improvements equipment goodwill included firm’s investing lending segment impairments related identifiable intangible assets principally included firm’s institutional client services segment  2013 impairments consisted 160 million related property leasehold improvements equipment 56 million related identifiable intangible assets primarily attributable consolidated investment latin america substantially impairments included firm’s investing lending segment impairments 2014 2013 included “depreciation amortization” represented excess carrying values assets estimated fair values substantially calculated using level 3 measurements fair values calculated using combination discounted cash flow analyses relative value analyses including estimated cash flows expected result use eventual disposition assets goldman sachs group inc subsidiaries notes consolidated financial statements note 14 deposits table presents deposits held us nonus offices substantially interestbearing substantially us deposits held goldman sachs bank usa gs bank usa substantially nonus deposits held goldman sachs international bank gsib table presents maturities time deposits held us nonus offices 1 includes 157 billion greater 100000 198 million matures within three months 937 million matures within three six months 170 million matures within six twelve months 266 million matures twelve months 2 includes 651 billion greater 100000 3 includes 1352 billion time deposits accounted fair value fair value option see note 8 information deposits accounted fair value december 2014 december 2013 deposits include 4929 billion 4602 billion respectively savings demand deposits stated maturity recorded based amount cash received plus accrued interest approximates fair value addition firm designates certain derivatives fair value hedges convert substantially time deposits accounted fair value fixedrate obligations floatingrate obligations accordingly carrying value time deposits approximated fair value december 2014 december 2013 savings demand deposits time deposits carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 8 deposits included firm’s fair value hierarchy would classified level 2 december 2014 december 2013 note 15 shortterm borrowings table presents details firm’s shortterm borrowings see note 10 information secured financings unsecured shortterm borrowings include portion unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holder firm accounts promissory notes commercial paper certain hybrid financial instruments fair value fair value option see note 8 information unsecured shortterm borrowings accounted fair value carrying value unsecured shortterm borrowings recorded fair value generally approximates fair value due shortterm nature obligations unsecured shortterm borrowings carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 8 borrowings included firm’s fair value hierarchy substantially would classified level 2 december 2014 december 2013 table presents details firm’s unsecured shortterm borrowings 1 includes 2382 billion 2420 billion december 2014 december 2013 respectively issued group inc 2 weighted average interest rates borrowings include effect hedging activities exclude financial instruments accounted fair value fair value option see note 7 information hedging activities goldman sachs group inc subsidiaries notes consolidated financial statements note 16 longterm borrowings table presents details firm’s longterm borrowings see note 10 information secured financings tables present unsecured longterm borrowings extending 2061 consisting principally senior borrowings 1 interest rates us dollardenominated debt ranged 155 1004 weighted average rate 508 135 1004 weighted average rate 519 december 2014 december 2013 respectively interest rates nonus dollardenominated debt ranged 002 1300 weighted average rate 406 033 1300 weighted average rate 429 december 2014 december 2013 respectively 2 floating interest rates generally based libor ois equitylinked indexed instruments included floatingrate obligations table presents unsecured longterm borrowings maturity date 1 includes 954 billion adjustments carrying value certain unsecured longterm borrowings resulting application hedge accounting year maturity follows 485 million 2016 738 million 2017 816 million 2018 459 million 2019 704 billion 2020 thereafter table  unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holders excluded table included unsecured shortterm borrowings  unsecured longterm borrowings repayable prior maturity option firm reflected contractual maturity dates  unsecured longterm borrowings redeemable prior maturity option holders reflected dates options become exercisable firm designates certain derivatives fair value hedges convert substantial portion fixedrate unsecured longterm borrowings accounted fair value floatingrate obligations accordingly excluding cumulative impact changes firm’s credit spreads carrying value unsecured longterm borrowings approximated fair value december 2014 december 2013 see note 7 information hedging activities unsecured longterm borrowings firm elect fair value option cumulative impact due changes firm’s credit spreads would increase 2 3 carrying value total unsecured longterm borrowings december 2014 december 2013 respectively borrowings accounted fair value fair value option fair value accordance us gaap fair value included firm’s fair value hierarchy notes 6 8 borrowings included firm’s fair value hierarchy substantially would classified level 2 december 2014 december 2013 goldman sachs group inc subsidiaries notes consolidated financial statements tables present unsecured longterm borrowings giving effect hedging activities converted substantial portion fixedrate obligations floatingrate obligations 1 weighted average interest rates aggregate amounts 268 509 related fixedrate obligations 201 related floatingrate obligations 273 523 related fixedrate obligations 204 related floatingrate obligations december 2014 december 2013 respectively rates exclude financial instruments accounted fair value fair value option subordinated borrowings unsecured longterm borrowings include subordinated debt junior subordinated debt junior subordinated debt junior right payment subordinated borrowings junior senior borrowings december 2014 december 2013 subordinated debt maturities ranging 2017 2038 2015 2038 respectively tables present subordinated borrowings 1 weighted average interest rates giving effect fair value hedges used convert fixedrate obligations floatingrate obligations see note 7 information hedging activities see information interest rates junior subordinated debt 2 par amount carrying amount subordinated debt issued group inc 1368 billion 1667 billion respectively december 2014 1394 billion 1641 billion respectively december 2013 junior subordinated debt junior subordinated debt held 2012 trusts 2012 vesey street investment trust murray street investment trust together 2012 trusts issued aggregate 225 billion senior guaranteed trust securities third parties proceeds offering used purchase 175 billion junior subordinated debt issued group inc pays interest semiannually fixed annual rate 4647 matures march 9 2017 500 million junior subordinated debt issued group inc pays interest semiannually fixed annual rate 4404 matures september 1 2016 2014 firm exchanged 175 million senior guaranteed trust securities held firm 175 million junior subordinated debt held murray street investment trust following exchange senior guaranteed trust securities junior subordinated debt extinguished 2012 trusts purchased junior subordinated debt goldman sachs capital ii goldman sachs capital iii apex trusts apex trusts used proceeds sales purchase shares group inc’s perpetual noncumulative preferred stock series e series e preferred stock perpetual noncumulative preferred stock series f series f preferred stock see note 19 information series e series f preferred stock 2012 trusts required pay distributions senior guaranteed trust securities amounts dates scheduled receive interest junior subordinated debt hold required redeem respective senior guaranteed trust securities upon maturity earlier redemption junior subordinated debt hold firm right defer payments junior subordinated debt subject limitations deferral period firm permitted among things pay dividends make certain repurchases common preferred stock however group inc fully unconditionally guarantees payment distribution redemption amounts due senior basis senior guaranteed trust securities issued 2012 trusts 2012 trusts unable make scheduled distributions holders senior guaranteed trust securities guarantee group inc would obligated make payments 208 billion junior subordinated debt held 2012 trusts benefit investors included “unsecured longterm borrowings” consolidated statements financial condition classified subordinated borrowings goldman sachs group inc subsidiaries notes consolidated financial statements apex trusts 2012 trusts delaware statutory trusts sponsored firm whollyowned finance subsidiaries firm regulatory legal purposes consolidated accounting purposes firm covenanted favor holders group inc’s 6345 junior subordinated debt due february 15 2034 subject certain exceptions firm redeem purchase capital securities issued apex trusts shares group inc’s series e series f preferred stock prior specified dates 2022 price exceeds maximum amount determined reference net cash proceeds firm received sale qualifying securities junior subordinated debt issued connection trust preferred securities group inc issued 284 billion junior subordinated debt 2004 goldman sachs capital trust delaware statutory trust issued 275 billion guaranteed preferred beneficial interests trust preferred securities third parties 85 million common beneficial interests group inc used proceeds issuances purchase junior subordinated debt group inc second quarter 2014 firm purchased 122 billion par amount trust preferred securities delivered securities along 376 million common beneficial interests trust third quarter 2014 exchange corresponding par amount junior subordinated debt following exchange trust preferred securities common beneficial interests junior subordinated debt extinguished firm recognized gain 289 million 270 million recorded extinguishment third quarter 2014 included “market making” consolidated statements earnings subsequent exchange second half 2014 firm purchased 214 million par amount trust preferred securities delivered securities along 66 million common beneficial interests trust february 2015 exchange corresponding par amount junior subordinated debt trust whollyowned finance subsidiary firm regulatory legal purposes consolidated accounting purposes firm pays interest semiannually junior subordinated debt annual rate 6345 debt matures february 15 2034 coupon rate payment dates applicable beneficial interests interest rate payment dates junior subordinated debt firm right time defer payment interest junior subordinated debt therefore cause payment trust’s preferred beneficial interests deferred case ten consecutive semiannual periods deferral period firm permitted among things pay dividends make certain repurchases common stock trust permitted pay distributions common beneficial interests held group inc unless dividends payable preferred beneficial interests paid full note 17 liabilities accrued expenses table presents liabilities accrued expenses type 1 primarily relates consolidated investment funds goldman sachs group inc subsidiaries notes consolidated financial statements note 18 commitments contingencies guarantees commitments table presents firm’s commitments extend credit firm’s commitments extend credit agreements lend fixed termination dates depend satisfaction contractual conditions borrowing commitments presented net amounts syndicated third parties total commitment amount necessarily reflect actual future cash flows firm may syndicate substantial additional portions commitments addition commitments expire unused reduced cancelled counterparty’s request december 2014 december 2013 6622 billion 3566 billion respectively firm’s lending commitments held investment accounted accrual basis see note 9 information commitments firm accounts remaining commitments extend credit fair value losses generally recorded net fees “other principal transactions” commercial lending firm’s commercial lending commitments extended investmentgrade noninvestmentgrade corporate borrowers commitments investmentgrade corporate borrowers principally used operating liquidity general corporate purposes firm also extends lending commitments connection contingent acquisition financing types corporate lending well commercial real estate financing commitments extended contingent acquisition financing often intended shortterm nature borrowers often seek replace funding sources goldman sachs group inc subsidiaries notes consolidated financial statements sumitomo mitsui financial group inc smfg provides firm credit loss protection certain approved loan commitments primarily investmentgrade commercial lending commitments notional amount loan commitments 2751 billion 2924 billion december 2014 december 2013 respectively credit loss protection loan commitments provided smfg generally limited 95 first loss firm realizes commitments maximum approximately 950 million addition subject satisfaction certain conditions upon firm’s request smfg provide protection 70 additional losses commitments maximum 113 billion 768 million 870 million protection provided december 2014 december 2013 respectively firm also uses financial instruments mitigate credit risks related certain commitments covered smfg instruments primarily include credit default swaps reference similar underlying instrument entity credit default swaps reference market index warehouse financing firm provides financing clients warehouse financial assets arrangements secured warehoused assets primarily consisting corporate loans commercial mortgage loans contingent forward starting resale securities borrowing agreementsforward starting repurchase secured lending agreements firm enters resale securities borrowing agreements repurchase secured lending agreements settle future date generally within three business days firm also enters commitments provide contingent financing clients counterparties resale agreements firm’s funding commitments depends satisfaction contractual conditions resale agreement commitments expire unused letters credit firm commitments letters credit issued various banks firm provides counterparties lieu securities cash satisfy various collateral margin deposit requirements investment commitments firm’s investment commitments 516 billion 712 billion december 2014 december 2013 respectively include commitments invest private equity real estate assets directly funds firm raises manages amounts 287 billion 548 billion december 2014 december 2013 respectively relate commitments invest funds managed firm commitments called would funded market value date investment leases firm contractual obligations longterm noncancelable lease agreements principally office space expiring various dates 2069 certain agreements subject periodic escalation provisions increases real estate taxes charges table presents future minimum rental payments net minimum sublease rentals rent charged operating expense 309 million 2014 324 million 2013 374 million 2012 operating leases include office space held excess current requirements rent expense relating space held growth included “occupancy” firm records liability based fair value remaining lease rentals reduced potential existing sublease rentals leases firm ceased using space management concluded firm derive future economic benefits costs terminate lease end term recognized measured fair value termination goldman sachs group inc subsidiaries notes consolidated financial statements contingencies legal proceedings see note 27 information legal proceedings including certain mortgagerelated matters agreements firm entered toll statute limitations certain mortgagerelated contingencies multiple areas focus regulators governmental agencies others within mortgage market may impact originators issuers servicers investors remains significant uncertainty surrounding nature extent potential exposure participants market  representations warranties firm significant originator residential mortgage loans firm purchase loans originated others generally received loanlevel representations type described originators period 2005 2008 firm sold approximately 10 billion loans governmentsponsored enterprises approximately 11 billion loans third parties addition firm transferred loans trusts mortgage securitization vehicles december 2014 december 2013 outstanding balance loans transferred trusts mortgage securitization vehicles period 2005 2008 approximately 25 billion 29 billion respectively amounts reflect paydowns cumulative losses approximately 100 billion 23 billion cumulative losses december 2014 approximately 96 billion 22 billion cumulative losses december 2013 small number goldman sachsissued securitizations outstanding principal balance 401 million total paydowns cumulative losses 166 billion 550 million cumulative losses december 2014 outstanding principal balance 463 million total paydowns cumulative losses 160 billion 534 million cumulative losses december 2013 structured credit protection obtained monoline insurers connection sales loans securitizations firm provided loan level representations type described andor assigned loan level representations party firm purchased loans loan level representations made connection sale securitization mortgage loans varied among transactions generally detailed representations applicable loan portfolio addressed matters relating property borrower note representations generally included limited following certain attributes borrower’s financial status ii loantovalue ratios owner occupancy status certain characteristics property iii lien position iv fact loan originated compliance law v completeness loan documentation firm received repurchase claims residential mortgage loans based alleged breaches representations governmentsponsored enterprises third parties trusts mortgage securitization vehicles significant years ended december 2014 december 2013 firm repurchased loans unpaid principal balance less 10 million related losses material firm received communication counsel purporting represent certain institutional investors portions goldman sachsissued securitizations 2003 2007 securitizations total original notional face amount approximately 150 billion offering enter “settlement dialogue” respect alleged breaches representations made goldman sachs connection offerings ultimately firm’s exposure claims repurchase residential mortgage loans based alleged breaches representations depend number factors including following extent claims actually made within statute limitations taking consideration agreements toll statute limitations firm entered trustees representing trusts ii extent underlying breaches representations give rise valid claims repurchase iii case loans originated others extent firm could held liable firm’s ability pursue collect claims parties made representations firm iv macroeconomic factors including developments residential real estate market v legal regulatory developments based upon large number defaults residential mortgages including sold securitized firm potential increasing claims repurchases however firm position make meaningful estimate exposure time goldman sachs group inc subsidiaries notes consolidated financial statements  foreclosure mortgage loan servicing practices procedures firm received number requests information regulators agencies including state attorneys general banking regulators part industrywide focus practices lenders servicers connection foreclosure proceedings aspects mortgage loan servicing practices procedures requests sought information foreclosure servicing protocols activities litton loan servicing lp litton residential mortgage servicing subsidiary sold firm ocwen financial corporation ocwen third quarter 2011 firm cooperating requests inquiries may result imposition fines regulatory action connection sale litton firm provided customary representations warranties indemnities breaches representations warranties ocwen indemnities subject various limitations capped approximately 50 million firm yet received claims indemnities firm also agreed provide specific indemnities ocwen related claims made third parties respect servicing activities period litton owned firm excess related reserves accrued matters litton time sale indemnities capped approximately 125 million firm recorded reserve portion potential losses believes probable reasonably estimated december 2014 claims received payments made connection claims material firm agreed provide indemnities ocwen subject cap primarily relate potential liabilities constituting fines civil monetary penalties could imposed settlements us states’ attorneys general consent orders us federal bank regulatory agencies new york state department financial services case relating litton’s foreclosure servicing practices owned firm entered settlement federal reserve board relating foreclosure servicing matters litton sale agreement firm also retained liabilities associated claims related litton’s failure maintain lenderplaced mortgage insurance obligations repurchase certain loans governmentsponsored enterprises subpoenas one litton’s regulators fines civil penalties imposed federal reserve board new york state department financial services connection certain compliance matters management believe based currently available information payments indemnities material adverse effect firm’s financial condition contingencies connection sale metro firm provided customary representations warranties indemnities breaches representations warranties buyer firm agreed provide indemnities buyer primarily relate potential liabilities legal regulatory proceedings arising conduct metro’s business owned firm goldman sachs group inc subsidiaries notes consolidated financial statements guarantees derivative guarantees firm enters various derivatives meet definition guarantee us gaap including written equity commodity put options written currency contracts interest rate caps floors swaptions derivatives risk managed together derivatives meet definition guarantee therefore amounts tables reflect firm’s overall risk related derivative activities disclosures derivatives required may cash settled firm basis conclude probable counterparties held underlying instruments inception contract firm concluded conditions met certain large internationally active commercial investment bank counterparties central clearing counterparties certain counterparties accordingly firm included contracts tables derivatives accounted fair value therefore carrying value considered best indication paymentperformance risk individual contracts however carrying values tables exclude effect counterparty cash collateral netting securities lending indemnifications firm capacity agency lender indemnifies securities lending customers losses incurred event borrowers return securities collateral held insufficient cover market value securities borrowed collateral held lenders connection securities lending indemnifications 2849 billion 2714 billion december 2014 december 2013 respectively contractual nature arrangements requires firm obtain collateral market value exceeds value securities lent borrower minimal performance risk associated guarantees financial guarantees ordinary course business firm provides financial guarantees obligations third parties eg standby letters credit guarantees enable clients complete transactions fundrelated guarantees represent obligations make payments beneficiaries guaranteed party fails fulfill obligation contractual arrangement beneficiary tables present information certain derivatives meet definition guarantee securities lending indemnifications certain guarantees maximum payout tables based notional amount contract therefore represent anticipated losses see note 7 information credit derivatives meet definition guarantee included tables also exclude certain commitments issue standby letters credit included “commitments extend credit” see table “commitments” summary firm’s commitments goldman sachs group inc subsidiaries notes consolidated financial statements guarantees securities issued trusts firm established trusts including goldman sachs capital apex trusts 2012 trusts entities limited purpose issuing securities third parties lending proceeds firm entering contractual arrangements firm third parties related purpose firm consolidate entities see note 16 information transactions involving goldman sachs capital apex trusts 2012 trusts firm effectively provides full unconditional guarantee securities issued entities timely payment firm amounts due entities guarantee borrowing preferred stock related contractual arrangements sufficient cover payments due securities issued entities management believes unlikely circumstances occur nonperformance part paying agents service providers would make necessary firm make payments related entities required terms guarantee borrowing preferred stock related contractual arrangements connection certain expenses incurred entities indemnities guarantees service providers ordinary course business firm indemnifies guarantees certain service providers clearing custody agents trustees administrators specified potential losses connection acting agent providing services firm affiliates firm may also liable clients parties losses arising custodial role caused acts omissions thirdparty service providers including subcustodians thirdparty brokers certain cases firm right seek indemnification thirdparty service providers certain relevant losses incurred firm addition firm member payment clearing settlement networks well securities exchanges around world may require firm meet obligations networks exchanges event member defaults loss scenarios connection prime brokerage clearing businesses firm agrees clear settle behalf clients transactions entered brokerage firms firm’s obligations respect transactions secured assets client’s account well proceeds received transactions cleared settled firm behalf client connection joint venture investments firm may issue loan guarantees may liable event fraud misappropriation environmental liabilities certain matters involving borrower firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements material liabilities related guarantees indemnifications recognized consolidated statements financial condition december 2014 december 2013 representations warranties indemnifications firm provides representations warranties counterparties connection variety commercial transactions occasionally indemnifies potential losses caused breach representations warranties firm may also provide indemnifications protecting changes adverse application certain us tax laws connection ordinarycourse transactions securities issuances borrowings derivatives addition firm may provide indemnifications counterparties protect event additional taxes owed payments withheld due either change adverse application certain nonus tax laws indemnifications generally standard contractual terms entered ordinary course business generally stated notional amounts included indemnifications contingencies triggering obligation indemnify expected occur firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements material liabilities related arrangements recognized consolidated statements financial condition december 2014 december 2013 goldman sachs group inc subsidiaries notes consolidated financial statements guarantees subsidiaries group inc fully unconditionally guarantees securities issued gs finance corp whollyowned finance subsidiary firm group inc guaranteed payment obligations goldman sachs co gsco gs bank usa goldman sachs execution clearing lp gsec subject certain exceptions november 2008 firm contributed subsidiaries gs bank usa group inc agreed guarantee reimbursement certain losses including creditrelated losses relating assets held contributed entities connection guarantee group inc also agreed pledge gs bank usa certain collateral including interests subsidiaries illiquid assets addition group inc guarantees many obligations consolidated subsidiaries transactionbytransaction basis negotiated counterparties group inc unable develop estimate maximum payout subsidiary guarantees however guaranteed obligations also obligations consolidated subsidiaries group inc’s liabilities guarantor separately disclosed note 19 shareholders’ equity common equity dividends declared per common share 225 2014 205 2013 177 2012 january 15 2015 group inc declared dividend 060 per common share paid march 30 2015 common shareholders record march 2 2015 firm’s share repurchase program intended help maintain appropriate level common equity share repurchase program effected primarily regular openmarket purchases may include repurchase plans designed comply rule 10b51 amounts timing determined primarily firm’s current projected capital position may also influenced general market conditions prevailing price trading volumes firm’s common stock prior repurchasing common stock firm must receive confirmation federal reserve board object capital actions table presents amount common stock repurchased firm share repurchase program 2014 2013 2012 pursuant terms certain sharebased compensation plans employees may remit shares firm may cancel restricted stock units rsus stock options satisfy minimum statutory employee tax withholding requirements exercise price stock options plans 2014 2013 2012 employees remitted 174489 shares 161211 shares 33477 shares total value 31 million 25 million 3 million firm cancelled 58 million 40 million 127 million rsus total value 974 million 599 million 144 billion plans firm also cancelled 156 million stock options total value 265 billion 2014 goldman sachs group inc subsidiaries notes consolidated financial statements preferred equity tables present details perpetual preferred stock issued outstanding december 2014 1 april 2014 group inc issued 28000 shares series k perpetual 6375 fixedtofloating rate noncumulative preferred stock series k preferred stock 52000 shares series l perpetual 570 fixedtofloating rate noncumulative preferred stock series l preferred stock tables  share noncumulative series b series c series preferred stock issued outstanding redeemable firm’s option  share noncumulative series e series f preferred stock issued outstanding redeemable firm’s option subject certain covenant restrictions governing firm’s ability redeem purchase preferred stock without issuing common stock instruments equitylike characteristics see note 16 information replacement capital covenants applicable series e series f preferred stock  share noncumulative series preferred stock issued outstanding redeemable firm’s option beginning november 10 2017  share noncumulative series j preferred stock issued outstanding redeemable firm’s option beginning may 10 2023  share noncumulative series k preferred stock issued outstanding redeemable firm’s option beginning may 10 2024  share noncumulative series l preferred stock issued outstanding redeemable firm’s option beginning may 10 2019  shares preferred stock par value 001 per share applicable share preferred stock represented specified number depositary shares prior redeeming preferred stock firm must receive confirmation federal reserve board object capital actions series preferred stock pari passu preference firm’s common stock liquidation dividends series preferred stock excluding series l preferred stock declared payable quarterly arrears dividends series l preferred stock declared payable semiannually arrears issuance date excluding may 10 2019 quarterly thereafter firm’s ability declare pay dividends purchase redeem otherwise acquire common stock subject certain restrictions event firm fails pay set aside full dividends preferred stock latest completed dividend period table presents dividend rates firm’s perpetual preferred stock december 2014 goldman sachs group inc subsidiaries notes consolidated financial statements tables present preferred dividends declared firm’s preferred stock january 7 2015 group inc declared dividends 23958 38750 25556 37188 34375 39844 per share series preferred stock series b preferred stock series c preferred stock series preferred stock series preferred stock series j preferred stock series k preferred stock respectively paid february 10 2015 preferred shareholders record january 26 2015 addition firm declared dividends 101111 per share series e preferred stock series f preferred stock paid march 2 2015 preferred shareholders record february 15 2015 accumulated comprehensive loss tables present accumulated comprehensive loss net tax type goldman sachs group inc subsidiaries notes consolidated financial statements note 20 regulation capital adequacy federal reserve board primary regulator group inc bank holding company bank holding company act 1956 bhc act financial holding company amendments bhc act bank holding company firm subject consolidated riskbased regulatory capital requirements computed accordance applicable riskbased capital regulations federal reserve board capital requirements expressed capital ratios compare measures regulatory capital riskweighted assets rwas firm’s capital levels subject qualitative judgments regulators components capital risk weightings factors addition firm subject requirements respect leverage furthermore certain firm’s subsidiaries subject separate regulations capital requirements described applicable capital framework december 2013 firm subject riskbased capital regulations federal reserve board based basel capital accord basel committee banking supervision basel committee incorporated revised market risk regulatory capital requirements together prior capital rules january 1 2014 firm became subject federal reserve board’s revised riskbased capital leverage regulations subject certain transitional provisions revised capital framework regulations largely based basel committee’s final capital framework strengthening international capital standards basel iii also implement certain provisions doddfrank act revised capital framework firm “advanced approach” banking organization firm notified first quarter 2014 completed “parallel run” satisfaction federal reserve board required revised capital framework additional changes firm’s capital requirements became effective april 1 2014 beginning january 1 2014 regulatory capital calculated based revised capital framework beginning april 1 2014 changes calculation regulatory capital rwas calculated using prior capital rules adjusted certain items related capital deductions previous definition regulatory capital phasein new capital deductions hybrid capital rules ii advanced approach market risk rules set revised capital framework together basel iii advanced rules lower ratios calculated hybrid capital rules calculated basel iii advanced rules binding regulatory capital requirements firm ratios calculated basel iii advanced rules lower calculated hybrid capital rules therefore binding ratios firm december 2014 result changes applicable capital framework 2014 firm’s capital ratios december 2014 december 2013 calculated different basis accordingly comparable goldman sachs group inc subsidiaries notes consolidated financial statements effective january 1 2015 regulatory capital continues calculated revised capital framework rwas required calculated basel iii advanced rules well standardized approach market risk rules set revised capital framework together standardized capital rules lower ratios calculated basel iii advanced rules calculated standardized capital rules binding regulatory capital requirements firm basel iii advanced rules hybrid capital rules standardized capital rules discussed detail regulatory capital ratios revised capital framework changed definition regulatory capital include new capital measure called common equity tier 1 cet1 related regulatory capital ratio cet1 rwas cet1 ratio changed definition tier 1 capital revised capital framework also increased level certain minimum riskbased capital leverage ratios applicable firm table presents minimum ratios applicable firm december 2014 january 2015 failure comply capital requirements could result restrictions imposed firm’s regulators 1 order meet quantitative requirements “wellcapitalized” federal reserve board’s capital regulations firm must meet higher required minimum total capital ratio 100 2 tier 1 leverage ratio defined tier 1 capital divided average adjusted total assets includes adjustments goodwill identifiable intangible assets certain investments nonconsolidated financial institutions certain aspects revised capital framework’s requirements phase time transitional provisions include increases minimum capital ratio requirements introduction new capital buffers certain deductions regulatory capital investments nonconsolidated financial institutions addition junior subordinated debt issued trusts phased regulatory capital minimum cet1 tier 1 total capital ratios applicable firm increase transitional provisions phase new capital buffers introduced definition riskweighted assets december 2014 rwas calculated basel iii advanced rules hybrid capital rules basel iii advanced rules hybrid capital rules certain amounts required deducted cet1 transitional provisions either deducted tier 1 capital risk weighted primary difference basel iii advanced rules hybrid capital rules latter utilizes prescribed riskweightings credit rwas contemplate use internal models compute exposure credit risk derivatives securities financing transactions whereas basel iii advanced rules permit use models subject supervisory approval addition rwas hybrid capital rules depend largely type counterparty eg whether counterparty sovereign bank brokerdealer entity rather internal assessments counterparty’s creditworthiness furthermore hybrid capital rules include capital requirement operational risk december 2013 firm calculated rwas prior capital rules goldman sachs group inc subsidiaries notes consolidated financial statements credit risk credit rwas calculated based upon measures exposure risk weighted exposure amount generally based following  onbalancesheet assets carrying value  offbalancesheet exposures including commitments guarantees credit equivalent exposure amount calculated based notional amount exposure multiplied credit conversion factor counterparty credit risk component total credit risk includes credit exposure arising derivatives securities financing transactions eligible margin loans  basel iii advanced rules firm uses internal models methodology measurement exposure derivatives securities financing transactions eligible margin loans revised capital framework requires bank holding company obtain prior written agreement regulators using internal models methodology  hybrid prior capital rules exposure amount derivatives based combination positive net exposure percentage notional amount trade includes effect counterparty netting collateral applicable securities financing transactions eligible margin loans based carrying value exposures assigned risk weight computed follows  basel iii advanced rules firm given permission supervisors compute risk weights certain exposures accordance advanced internal ratingsbased approach utilizes internal assessments counterparty’s creditworthiness key inputs risk weight calculation probability default loss given default effective maturity rwas securitization equity exposures calculated using specific required formula approaches  hybrid prior capital rules standard risk weight assigned depending among things whether counterparty sovereign bank qualifying securities firm entity collateral held risk weight may depend nature collateral standardized capital rules utilize prescribed riskweightings credit rwas contemplate use internal models compute exposure credit risk derivatives securities financing transactions exposure measure securities financing transactions calculated reflect adjustments potential price volatility size depends factors type maturity security whether denominated currency side financing transaction addition rwas standardized capital rules depend largely type counterparty eg whether counterparty sovereign bank brokerdealer entity rather internal assessments counterparty’s creditworthiness market risk rwas market risk determined using measures valueatrisk var stressed var incremental risk comprehensive risk based internal models standardized measurement method specific risk market risk regulatory capital rules require bank holding company obtain prior written agreement regulators using internal model calculate riskbased capital requirement  var potential loss value inventory positions well certain financial assets financial liabilities due adverse market movements defined time horizon specified confidence level risk management purposes regulatory capital calculations firm uses single var model captures risks including related interest rates equity prices currency rates commodity prices however var used regulatory capital requirements regulatory var differs risk management var due different time horizons confidence levels 10day 99 regulatory var vs oneday 95 risk management var well differences scope positions var calculated addition daily trading net revenues used determine risk management var exceptions ie comparing daily trading net revenues var measure calculated prior business day include intraday activity whereas federal reserve board’s regulatory capital regulations require intraday activity excluded daily trading net revenues calculating regulatory var exceptions intraday activity includes bidoffer net revenues likely positive regulations firm’s positional losses observed single day exceeded 99 oneday regulatory var three occasions 2014 change var multiplier used calculate market rwas goldman sachs group inc subsidiaries notes consolidated financial statements  stressed var potential loss value inventory positions period significant market stress  incremental risk potential loss value nonsecuritized inventory positions due default credit migration issuers financial instruments oneyear time horizon  comprehensive risk potential loss value due price risk defaults within firm’s credit correlation positions standardized measurement method used determine rwas specific risk certain positions applying supervisory defined riskweighting factors positions applicable netting performed rwas market risk standardized capital rules calculated manner generally consistent rwas calculated basel iii advanced rules operational risk basel iii advanced rules include capital requirement operational risk firm given permission supervisors compute operational rwas accordance “advanced measurement approach” revised capital framework operational rwas therefore calculated based internal riskbased operational risk quantification model meets requirements “advanced measurement approach” standardized capital rules include capital requirement operational risk consolidated regulatory capital ratios december 2014 capital ratios rwas firm required calculate ratios basel iii advanced rules hybrid capital rules december 2014 cases subject transitional provisions ratios calculated basel iii advanced rules presented table lower calculated hybrid capital rules therefore binding ratios firm december 2014 effective january 1 2015 firm required calculate ratios basel iii advanced rules standardized capital rules firm’s ratios calculated standardized capital rules december 2014 also presented table although ratios binding january 2015 1 tier 2 capital standardized capital rules approximately 300 million higher due allowance losses loans lending commitments table  deduction goodwill identifiable intangible assets net deferred tax liabilities represents goodwill 365 billion identifiable intangible assets 103 million 20 515 million net associated deferred tax liabilities 961 million remaining 80 deduction identifiable intangible assets phased ratably per year 2015 2018 identifiable intangible assets deducted transitional period risk weighted  deduction investments nonconsolidated financial institutions represents amount firm’s investments capital nonconsolidated financial institutions exceed certain prescribed thresholds december 2014 20 deduction reflected calculated based transitional thresholds remaining 80 phased ratably per year 2015 2018 balance deducted transitional period risk weighted goldman sachs group inc subsidiaries notes consolidated financial statements  adjustments within cet1 tier 1 capital primarily include accumulated comprehensive loss credit valuation adjustments derivative liabilities overfunded portion firm’s defined benefit pension plan obligation net associated deferred tax liabilities disallowed deferred tax assets required credit riskbased deductions december 2014 20 deductions related credit valuation adjustments derivative liabilities overfunded portion firm’s defined benefit pension plan obligation net associated deferred tax liabilities disallowed deferred tax assets required credit riskbased deductions included adjustments within cet1 80 deductions included adjustments within tier 1 capital deductions included adjustments within tier 1 capital phased cet1 ratably per year 2015 2018 adjustments within tier 1 capital also include deduction investments preferred equity nonconsolidated financial institutions  junior subordinated debt issued trusts reflected tier 1 capital 50 tier 2 capital 50 reduced amount trust preferred securities purchased firm junior subordinated debt issued trusts fully phased tier 1 capital 2016 also tier 2 capital 2022 see note 16 additional information firm’s junior subordinated debt issued trusts trust preferred securities purchased firm  qualifying subordinated debt represents subordinated debt issued group inc original term maturity five years greater outstanding amount subordinated debt qualifying tier 2 capital reduced discounted upon reaching remaining maturity five years see note 16 additional information firm’s subordinated debt table presents changes cet1 tier 1 capital tier 2 capital period december 31 2013 december 31 2014 1 includes 366 billion related transition revised capital framework january 1 2014 well 479 million related firm’s application basel iii advanced rules april 1 2014 2 includes 219 million related transition revised capital framework january 1 2014 well 224 million related firm’s application basel iii advanced rules april 1 2014 3 includes 2 million related transition revised capital framework january 1 2014 well 195 million related firm’s application basel iii advanced rules april 1 2014 goldman sachs group inc subsidiaries notes consolidated financial statements change cet1 related transition revised capital framework principally related change treatment equity investments certain nonconsolidated entities prior capital rules investments treated deductions however transition revised capital framework portion investments exceed certain prescribed thresholds treated deductions cet1 remainder risk weighted table presents components rwas basel iii advanced rules standardized capital rules december 2014 1 represents resale repurchase agreements securities borrowed loaned transactions 2 includes receivables assets cash equivalents table presents changes rwas basel iii advanced rules period december 31 2013 december 31 2014 reflects transition revised capital framework prior capital rules january 1 2014 1 includes 2667 billion rwa changes related transition revised capital framework january 1 2014 4243 billion changes calculation credit rwas basel iii advanced rules related firm’s application basel iii advanced rules april 1 2014 credit rwas december 2014 increased 5970 billion compared december 2013 primarily due increased risk weightings related counterparty credit risk derivative exposures inclusion rwas equity investments certain nonconsolidated entities resulting transition revised capital framework market rwas december 2014 decreased 2010 billion compared december 2013 primarily due decrease stressed var reflecting reduced fixed income equities exposures operational rwas december 2014 increased 9749 billion compared december 2013 substantially due transition revised capital framework goldman sachs group inc subsidiaries notes consolidated financial statements december 2013 capital ratios rwas table presents information firm’s regulatory ratios december 2013 prior capital rules table  junior subordinated debt issued trusts reflected tier 1 capital 75 tier 2 capital 25 see note 16 additional information firm’s junior subordinated debt issued trusts  deduction goodwill identifiable intangible assets includes goodwill 371 billion identifiable intangible assets 671 million  adjustments within tier 1 capital primarily include disallowed deferred tax assets overfunded portion firm’s defined benefit pension plan obligation net associated deferred tax liabilities  qualifying subordinated debt represents subordinated debt issued group inc original term maturity five years greater outstanding amount subordinated debt qualifying tier 2 capital reduced discounted upon reaching remaining maturity five years see note 16 additional information firm’s subordinated debt table presents changes tier 1 capital tier 2 capital period ended december 2013 prior capital rules table presents components rwas december 2013 prior capital rules 1 represents resale repurchase agreements securities borrowed loaned transactions 2 includes receivables assets cash equivalents goldman sachs group inc subsidiaries notes consolidated financial statements table presents changes rwas period ended december 31 2013 prior capital rules credit rwas december 2013 decreased 1928 billion compared december 2012 primarily due decrease securities financing exposure market rwas december 2013 increased 5258 billion compared december 2012 reflecting impact revised market risk regulatory capital requirements became effective january 1 2013 partially offset among things decrease specific risk due decrease inventory bank subsidiaries regulatory capital ratios gs bank usa fdicinsured new york statechartered bank member federal reserve system supervised regulated federal reserve board fdic new york state department financial services consumer financial protection bureau subject minimum capital requirements described calculated manner similar applicable bank holding companies purposes assessing adequacy capital gs bank usa computes capital ratios accordance regulatory capital requirements applicable state member banks requirements based revised capital framework described changes definition regulatory capital ratios effective january 1 2014 gs bank usa notified first quarter 2014 completed “parallel run” satisfaction federal reserve board required revised capital framework additional changes gs bank usa’s capital requirements including changes rwas became effective april 1 2014 gs bank usa advanced approach banking organization revised capital framework revised capital framework january 1 2014 gs bank usa became subject new minimum cet1 ratio requirement 40 january 2015 minimum cet1 ratio gs bank usa increased 40 45 regulatory framework prompt corrective action applicable gs bank usa december 2014 order meet quantitative requirements “wellcapitalized” depository institution gs bank usa required maintain tier 1 capital ratio least 60 total capital ratio least 100 tier 1 leverage ratio least 50 january 1 2015 revised capital framework changed standards “wellcapitalized” status prompt corrective action regulations among things introducing cet1 ratio requirement 65 increasing tier 1 capital ratio requirement 60 80 total capital ratio tier 1 leverage ratio requirements remain 100 50 respectively goldman sachs group inc subsidiaries notes consolidated financial statements noted tables gs bank usa compliance minimum capital requirements december 2014 december 2013 gs bank usa’s capital levels prompt corrective action classification also subject qualitative judgments regulators components capital risk weightings factors failure comply capital requirements could result restrictions imposed gs bank usa’s regulators similar firm gs bank usa required calculate ratios basel iii advanced rules hybrid capital rules december 2014 cases subject transitional provisions ratios calculated hybrid capital rules presented table lower calculated basel iii advanced rules therefore binding ratios gs bank usa december 2014 result changes applicable capital framework 2014 gs bank usa’s capital ratios december 2014 december 2013 calculated different basis accordingly comparable effective january 1 2015 gs bank usa required calculate ratios basel iii advanced rules standardized capital rules gs bank usa’s ratios calculated standardized capital rules december 2014 also presented table although ratios binding january 2015 table presents information december 2013 regarding gs bank usa’s regulatory ratios prior capital rules firm’s principal nonus bank subsidiary gsib whollyowned credit institution regulated prudential regulation authority pra financial conduct authority fca subject minimum capital requirements december 2014 december 2013 gsib compliance regulatory capital requirements goldman sachs group inc subsidiaries notes consolidated financial statements deposits gs bank usa insured fdic extent provided law federal reserve board requires gs bank usa maintain cash reserves federal reserve bank new york amount deposited gs bank usa held federal reserve bank new york 3868 billion 5039 billion december 2014 december 2013 respectively exceeded required reserve amounts 3857 billion 5029 billion december 2014 december 2013 respectively brokerdealer subsidiaries us regulated brokerdealer subsidiaries firm’s us regulated brokerdealer subsidiaries include gsco gsec gsco gsec registered us brokerdealers futures commission merchants subject regulatory capital requirements including imposed sec us commodity futures trading commission cftc chicago mercantile exchange financial industry regulatory authority inc finra national futures association rule 15c31 sec rule 117 cftc specify uniform minimum net capital requirements defined registrants also effectively require significant part registrants’ assets kept relatively liquid form gsco gsec elected compute minimum capital requirements accordance “alternative net capital requirement” permitted rule 15c31 december 2014 december 2013 gsco regulatory net capital defined rule 15c31 1483 billion 1581 billion respectively exceeded amount required 1246 billion 1376 billion respectively december 2014 december 2013 gsec regulatory net capital defined rule 15c31 167 billion 138 billion respectively exceeded amount required 153 billion 121 billion respectively addition alternative minimum net capital requirements gsco also required hold tentative net capital excess 1 billion net capital excess 500 million accordance market credit risk standards appendix e rule 15c31 gsco also required notify sec event tentative net capital less 5 billion december 2014 december 2013 gsco tentative net capital net capital excess minimum notification requirements nonus regulated brokerdealer subsidiaries firm’s principal nonus regulated brokerdealer subsidiaries include goldman sachs international gsi goldman sachs japan co ltd gsjcl gsi firm’s regulated uk brokerdealer regulated pra fca gsjcl firm’s japanese brokerdealer regulated japan’s financial services agency certain nonus subsidiaries firm also subject capital adequacy requirements promulgated authorities countries operate december 2014 december 2013 subsidiaries compliance local capital adequacy requirements restrictions payments group inc’s ability withdraw capital regulated subsidiaries limited minimum equity capital requirements applicable subsidiaries well provisions applicable law regulations limit ability subsidiaries declare pay dividends without prior regulatory approval even relevant subsidiary would satisfy equity capital requirements applicable giving effect dividend december 2014 december 2013 group inc required maintain 3362 billion 3120 billion respectively minimum equity capital regulated subsidiaries order satisfy regulatory requirements subsidiaries addition statutory limitations payment dividends federal reserve board fdic new york state department financial services authority prohibit limit payment dividends banking organizations supervise including gs bank usa relevant regulator’s opinion payment dividend would constitute unsafe unsound practice light financial condition banking organization similar restrictions imposed regulators jurisdictions outside us goldman sachs group inc subsidiaries notes consolidated financial statements note 21 earnings per common share basic earnings per common share eps calculated dividing net earnings applicable common shareholders weighted average number common shares outstanding common shares outstanding includes common stock rsus future service required condition delivery underlying common stock diluted eps includes determinants basic eps addition reflects dilutive effect common stock deliverable stock warrants options rsus future service required condition delivery underlying common stock table presents computations basic diluted eps table unvested sharebased awards nonforfeitable rights dividends dividend equivalents treated separate class securities calculating eps impact applying methodology reduction basic eps 005 2014 2013 007 2012 diluted eps computations table include antidilutive rsus common shares underlying antidilutive stock options warrants 60 million 2014 2013 524 million 2012 note 22 transactions affiliated funds firm formed numerous nonconsolidated investment funds thirdparty investors firm generally acts investment manager funds entitled receive management fees certain cases advisory fees incentive fees funds additionally firm invests alongside thirdparty investors certain funds tables present fees earned affiliated funds fees receivable affiliated funds aggregate carrying value firm’s interests affiliated funds 1 decrease december 2013 december 2014 primarily reflects cash inkind distributions received firm december 2014 december 2013 firm outstanding guarantees behalf funds 304 million 147 million respectively amounts december 2014 december 2013 primarily relate guarantee firm voluntarily provided connection financing agreement thirdparty lender executed one firm’s real estate funds covered volcker rule december 2014 december 2013 firm outstanding loans commitments extend credit affiliated funds volcker rule restrict firm providing financial support covered funds defined rule expiration transition period general matter ordinary course business firm expect provide additional voluntary financial support covered funds may choose respect funds subject volcker rule however event support provided amount expected material addition ordinary course business firm may also engage activities affiliated funds including among others securities lending trade execution market making custody acquisition bridge financing see note 18 firm’s investment commitments related funds goldman sachs group inc subsidiaries notes consolidated financial statements note 23 interest income interest expense interest recorded life instrument accrual basis based contractual interest rates table presents firm’s sources interest income interest expense 1 includes rebates paid interest income securities borrowed 2 includes interest income customer debit balances interestearning assets 3 includes interest unsecured borrowings secured financings 4 includes rebates received interestbearing liabilities interest expense customer credit balances note 24 income taxes provision income taxes income taxes provided using asset liability method deferred tax assets liabilities recognized temporary differences financial reporting tax bases assets liabilities firm reports interest expense related income tax matters “provision taxes” income tax penalties “other expenses” tables present components provisionbenefit taxes reconciliation us federal statutory income tax rate firm’s effective income tax rate 1 includes impact permanently reinvested earnings goldman sachs group inc subsidiaries notes consolidated financial statements deferred income taxes deferred income taxes reflect net tax effects temporary differences financial reporting tax bases assets liabilities temporary differences result taxable deductible amounts future years measured using tax rates laws effect differences expected reverse valuation allowances established reduce deferred tax assets amount likely realized primarily relate ability utilize losses various tax jurisdictions tax assets liabilities presented component “other assets” “other liabilities accrued expenses” respectively table presents significant components deferred tax assets liabilities excluding impact netting within tax jurisdictions firm recorded deferred tax assets 336 million 232 million december 2014 december 2013 respectively connection us federal state local foreign net operating loss carryforwards firm also recorded valuation allowance 26 million 45 million december 2014 december 2013 respectively related net operating loss carryforwards december 2014 us federal foreign net operating loss carryforwards 108 million 12 billion respectively utilized us federal net operating loss carryforward begin expire 2015 foreign net operating loss carryforwards carried forward indefinitely state local net operating loss carryforwards 790 million begin expire 2015 carryforwards expire material impact firm’s results operations firm foreign tax credit carryforwards related net deferred income tax assets december 2014 december 2013 firm capital loss carryforwards related net deferred income tax assets december 2014 december 2013 valuation allowance decreased 119 million 2014 increased 15 million 2013 decrease 2014 primarily due decrease deferred tax assets firm expect realize benefit increase 2013 primarily due increase deferred tax assets firm expect realize benefit firm permanently reinvests eligible earnings certain foreign subsidiaries accordingly accrue us income taxes would arise earnings repatriated december 2014 december 2013 policy resulted unrecognized net deferred tax liability 466 billion 406 billion respectively attributable reinvested earnings 2488 billion 2254 billion respectively goldman sachs group inc subsidiaries notes consolidated financial statements unrecognized tax benefits firm recognizes tax positions financial statements likely position sustained examination relevant taxing authority based technical merits position meets standard measured largest amount benefit likely realized settlement liability established differences positions taken tax return amounts recognized financial statements december 2014 december 2013 accrued liability interest expense related income tax matters income tax penalties 101 million 410 million respectively firm recognized interest expense income tax penalties 45 million 53 million 95 million 2014 2013 2012 respectively reasonably possible unrecognized tax benefits could change significantly twelve months subsequent december 2014 due potential audit settlements however time possible estimate potential change table presents changes liability unrecognized tax benefits liability included “other liabilities accrued expenses” see note 17 information 1 included “other assets” see note 13 2 recognized net tax benefit would reduce firm’s effective income tax rate regulatory tax examinations firm subject examination us internal revenue service irs taxing authorities jurisdictions firm significant business operations united kingdom japan hong kong korea various states new york tax years examination vary jurisdiction firm expect completion audits material impact firm’s financial condition may material operating results particular period depending part operating results period table presents earliest tax years remain subject examination major jurisdiction us federal examinations fiscal 2008 calendar 2010 finalized settlement subject review joint committee taxation examinations 2011 2012 began 2013 new york state city examinations fiscal 2004 2006 finalized 2014 examinations fiscal 2007 2010 began 2013 united kingdom examinations fiscal 2008 2011 finalized 2014 years including subsequent years table remain open examination taxing authorities firm believes liability unrecognized tax benefits established adequate relation potential additional assessments january 2013 firm accepted compliance assurance process program irs program allows firm work irs identify resolve potential us federal tax issues filing tax returns 2013 tax year first year examined program remains subject postfiling review firm also accepted program 2014 2015 tax years goldman sachs group inc subsidiaries notes consolidated financial statements note 25 business segments firm reports activities following four business segments investment banking institutional client services investing lending investment management basis presentation reporting segments certain firm’s business lines aggregated similar economic characteristics similar following areas nature services provide ii methods distribution iii types clients serve iv regulatory environments operate cost drivers firm taken whole compensation headcount levels business activity broadly similar firm’s business segments compensation benefits expenses firm’s segments reflect among factors overall performance firm well performance individual businesses consequently pretax margins one segment firm’s business may significantly affected performance firm’s business segments firm allocates assets including allocations global core liquid assets cash secured client financing assets revenues expenses among four business segments due integrated nature segments estimates judgments made allocating certain assets revenues expenses allocation process based manner management currently views performance segments transactions segments based specific criteria approximate thirdparty rates total operating expenses include charitable contributions allocated individual business segments management believes information table provides reasonable representation segment’s contribution consolidated pretax earnings total assets 1 includes 37 million 2013 121 million 2012 realized gains availableforsale securities 2 includes charitable contributions allocated firm’s segments 137 million 2014 155 million 2013 169 million 2012 operating expenses related real estaterelated exit costs previously allocated firm’s segments allocated allocation reflects change manner management views performance firm’s segments reclassifications made previously reported segment amounts conform current presentation goldman sachs group inc subsidiaries notes consolidated financial statements segment information presented table prepared according following methodologies  revenues expenses directly associated segment included determining pretax earnings  net revenues firm’s segments include allocations interest income interest expense specific securities commodities positions relation cash generated funding requirements underlying positions net interest included segment net revenues consistent way management assesses segment performance  overhead expenses directly allocable specific segments allocated ratably based direct segment expenses tables present amounts net interest income interest expense included net revenues amounts depreciation amortization expense included pretax earnings 1 depreciation amortization related real estaterelated exit costs previously allocated firm’s segments allocated allocation reflects change manner management views performance firm’s segments reclassifications made previously reported segment amounts conform current presentation geographic information due highly integrated nature international financial markets firm manages businesses based profitability enterprise whole methodology allocating profitability geographic regions dependent estimates management judgment significant portion firm’s activities require crossborder coordination order facilitate needs firm’s clients geographic results generally allocated follows  investment banking location client investment banking team  institutional client services fixed income currency commodities client execution equities excluding securities services location marketmaking desk securities services location primary market underlying security  investing lending investing location investment lending location client  investment management location sales team table presents total net revenues pretax earnings net earnings firm geographic region allocated based methodology referred well percentage total net revenues pretax earnings net earnings excluding corporate geographic region table asia includes australia new zealand 1 includes charitable contributions allocated firm’s geographic regions operating expenses related real estaterelated exit costs previously allocated firm’s geographic regions allocated allocation reflects change manner management views performance geographic regions reclassifications made previously reported geographic region amounts conform current presentation goldman sachs group inc subsidiaries notes consolidated financial statements note 26 credit concentrations credit concentrations may arise market making client facilitation investing underwriting lending collateralized transactions may impacted changes economic industry political factors firm seeks mitigate credit risk actively monitoring exposures obtaining collateral counterparties deemed appropriate firm’s activities expose many different industries counterparties firm routinely executes high volume transactions asset managers investment funds commercial banks brokers dealers clearing houses exchanges results significant credit concentrations ordinary course business firm may also subject concentration credit risk particular counterparty borrower issuer including sovereign issuers particular clearing house exchange table presents credit concentrations cash instruments held firm 1 included “financial instruments owned fair value” “cash securities segregated regulatory purposes” december 2014 december 2013 firm credit exposure counterparty exceeded 2 total assets reduce credit exposures firm may enter agreements counterparties permit firm offset receivables payables counterparties andor enable firm obtain collateral upfront contingent basis collateral obtained firm related derivative assets principally cash held firm thirdparty custodian collateral obtained firm related resale agreements securities borrowed transactions primarily us government federal agency obligations nonus government agency obligations see note 10 information collateralized agreements financings table presents us government federal agency obligations nonus government agency obligations collateralize resale agreements securities borrowed transactions including “cash securities segregated regulatory purposes” firm’s primary credit exposure transactions counterparty transaction firm would exposed collateral issuer event counterparty default 1 principally consists securities issued governments france united kingdom japan germany goldman sachs group inc subsidiaries notes consolidated financial statements note 27 legal proceedings firm involved number judicial regulatory arbitration proceedings including described concerning matters arising connection conduct firm’s businesses many proceedings early stages many cases seek indeterminate amount damages asc 450 event “reasonably possible” “the chance future event events occurring remote less likely” event “remote” “the chance future event events occurring slight” thus references upper end range reasonably possible loss cases firm able estimate range reasonably possible loss mean upper end range loss cases firm believes risk loss slight respect matters described management able estimate range reasonably possible loss actual potential plaintiffs claimed amount money damages ii firm threatened sued purchasers underwriting indemnified party firm believes pay judgment iii purchasers demanding firm repurchase securities management estimated upper end range reasonably possible loss equal case amount money damages claimed b case ii difference initial sales price securities firm sold underwriting estimated lowest subsequent price securities c case iii price purchasers paid securities less estimated value december 2014 relevant securities cases ii iii taking account factors believed relevant particular matter matters type date hereof firm estimated upper end range reasonably possible aggregate loss matters described management able estimate range reasonably possible aggregate loss approximately 30 billion excess aggregate reserves matters management generally unable estimate range reasonably possible loss matters included estimate including actual potential plaintiffs claimed amount money damages except instances management otherwise determine appropriate amount ii matters early stages iii matters relate regulatory investigations reviews except instances management otherwise determine appropriate amount iv uncertainty likelihood class certified ultimate size class v uncertainty outcome pending appeals motions vi significant factual issues resolved andor vii novel legal issues presented example firm’s potential liabilities respect future mortgagerelated “putback” claims future claims arising ongoing investigations members residential mortgagebacked securities working group us financial fraud enforcement task force rmbs working group action filed libyan investment authority discussed may ultimately result significant increase firm’s liabilities included management’s estimate reasonably possible loss another example firm’s potential liabilities respect investigations reviews discussed “regulatory investigations reviews related litigation” also generally included management’s estimate reasonably possible loss however management believe based currently available information outcomes matters material adverse effect firm’s financial condition though outcomes could material firm’s operating results particular period depending part upon operating results period see note 18 information mortgagerelated contingencies goldman sachs group inc subsidiaries notes consolidated financial statements mortgagerelated matters beginning april 2010 number purported securities law class actions filed us district court southern district new york challenging adequacy group inc’s public disclosure among things firm’s activities cdo market firm’s conflict interest management sec investigation led gsco entering consent agreement sec settling claims made gsco sec connection abacus 2007ac1 cdo offering abacus 2007ac1 transaction pursuant gsco paid 550 million disgorgement civil penalties consolidated amended complaint filed july 25 2011 names defendants group inc certain officers employees group inc affiliates generally alleges violations sections 10b 20a exchange act seeks unspecified damages june 21 2012 district court dismissed claims based group inc’s disclosing received “wells” notice staff sec related abacus 2007ac1 transaction permitted plaintiffs’ claims proceed june 2012 board directors group inc board received demand shareholder board investigate take action relating firm’s mortgagerelated activities stock sales certain directors executives firm february 15 2013 shareholder filed putative shareholder derivative action new york supreme court new york county group inc certain current former directors employees based activities stock sales derivative complaint includes allegations breach fiduciary duty unjust enrichment abuse control gross mismanagement corporate waste seeks among things unspecified monetary damages disgorgement profits certain corporate governance disclosure reforms may 28 2013 group inc informed shareholder board completed investigation determined refuse demand june 20 2013 shareholder made books records demand requesting materials relating board’s determination parties agreed stay proceedings putative derivative action pending resolution books records demand addition board received books records demands several shareholders materials relating among subjects firm’s mortgage servicing foreclosure activities participation federal programs providing assistance financial institutions homeowners loan sales fannie mae freddie mac mortgagerelated activities conflicts management gsco goldman sachs mortgage company gs mortgage securities corp three current former goldman sachs employees defendants putative class action commenced december 11 2008 us district court southern district new york brought behalf purchasers various mortgage passthrough certificates assetbacked certificates issued various securitization trusts established firm underwritten gsco 2007 complaint generally alleges registration statement prospectus supplements certificates violated federal securities laws seeks unspecified compensatory damages rescission rescissionary damages decision dated september 6 2012 us court appeals second circuit affirmed district court’s dismissal plaintiff’s claims respect 10 17 offerings included plaintiff’s original complaint vacated dismissal remanded case district court instructions reinstate plaintiff’s claims respect seven offerings october 31 2012 plaintiff served amended complaint relating seven offerings plus seven additional offerings additional offerings july 10 2014 court granted defendants’ motion dismiss additional offerings june 3 2010 another investor filed separate putative class action asserting substantively similar allegations relating one additional offerings thereafter moved amend amended complaint add claims respect two additional offerings march 27 2014 district court largely denied defendants’ motion dismiss original offering denied separate plaintiff’s motion add two additional offerings amendment securitization trusts issued gsco underwrote approximately 11 billion principal amount certificates purchasers offerings issue complaints goldman sachs group inc subsidiaries notes consolidated financial statements september 30 2010 class action filed us district court southern district new york gsco group inc two former gsco employees behalf investors 823 million notes issued 2006 2007 two synthetic cdos hudson mezzanine 20061 20062 amended complaint asserts federal securities law common law claims seeks unspecified compensatory punitive damages defendants’ motion dismiss granted plaintiff’s claim market manipulation denied remainder plaintiff’s claims decision dated march 21 2012 may 21 2012 defendants counterclaimed breach contract fraud june 27 2014 appellate court denied defendants’ petition leave appeal district court’s january 22 2014 order granting class certification january 30 2015 defendants moved summary judgment various alleged purchasers counterparties providers credit enhancement involved transactions relating mortgage passthrough certificates cdos mortgagerelated products including aozora bank ltd basis yield alpha fund master charles schwab corporation cifg assurance north america inc cmfg life insurance company related parties deutsche zentralgenossenschaftbank fdic receiver guaranty bank federal home loan banks chicago seattle ikb deutsche industriebank ag john hancock related parties massachusetts mutual life insurance company national australia bank national credit union administration conservator liquidating agent several failed credit unions phoenix light sf limited related parties royal park investments sanv union central life insurance company ameritas life insurance corp acacia life insurance company watertown savings bank commerzbank texas county district retirement system commonwealth virginia behalf virginia retirement system filed complaints summonses notice state federal court initiated arbitration proceedings firm affiliates generally alleging offering documents securities purchased contained untrue statements material fact material omissions generally seeking rescission andor damages certain complaints allege fraud seek punitive damages certain complaints also name firms defendants number entities including john hancock related parties norges bank investment management selective insurance company state illinois behalf illinois state retirement systems threatened assert claims various types firm connection sale mortgagerelated securities firm entered agreements number entities toll relevant statute limitations date hereof aggregate amount mortgagerelated securities sold plaintiffs active threatened cases described preceding two paragraphs plaintiffs seeking rescission securities approximately 66 billion reflect adjustment subsequent paydowns distributions residual value securities statutory interest adjustments may claimed amount include potential claims purchasers mortgagerelated offerings described claims dismissed firm entered agreements deutsche bank national trust company us bank national association toll relevant statute limitations respect claims repurchase residential mortgage loans based alleged breaches representations related 114 billion original notional face amount securitizations issued trusts act trustees group inc litton ocwen arrow corporate member holdings llc former subsidiary group inc defendants putative class action pending since january 23 2013 us district court southern district new york generally challenging procurement manner scope “forceplaced” hazard insurance arranged litton homeowners failed arrange insurance required mortgages complaint asserts claims breach contract breach fiduciary duty misappropriation conversion unjust enrichment violation florida unfair practices law seeks unspecified compensatory punitive damages well declaratory injunctive relief amended complaint filed november 19 2013 added additional plaintiff rico claims september 29 2014 court denied without prejudice leave renew later date group inc’s motion sever claims certain defendants goldman sachs group inc subsidiaries notes consolidated financial statements firm also received continues receive requests information andor subpoenas part inquiries investigations us department justice members rmbs working group federal state local regulators law enforcement authorities relating mortgagerelated securitization process subprime mortgages cdos synthetic mortgagerelated products sales communications particular transactions involving products servicing foreclosure activities may subject firm actions including litigation penalties fines december 2014 part rmbs working group investigation firm received letter us attorney eastern district california stating connection potentially bringing civil action preliminarily concluded firm violated federal law connection underwriting securitization sale residential mortgagebacked securities offering firm opportunity respond firm cooperating regulators authorities including cases agreeing tolling relevant statute limitations see also “regulatory investigations reviews related litigation” firm expects subject additional putative shareholder derivative actions purported class actions rescission “put back” claims litigation additional investor shareholder demands additional regulatory investigations actions respect mortgagerelated offerings loan sales cdos servicing foreclosure activities see note 18 information regarding mortgagerelated contingencies described note 27 private equitysponsored acquisitions litigation group inc among numerous private equity firms named defendants federal antitrust action filed us district court district massachusetts december 2007 amended complaint generally alleges defendants colluded limit competition bidding private equitysponsored acquisitions public companies thereby resulting lower prevailing bids extension less consideration shareholders companies violation section 1 us sherman antitrust act common law complaint seeks among things treble damages unspecified amount june 2014 group inc plaintiffs agreed settlement court preliminarily approved september 29 2014 group inc together affiliates paid full amount proposed contribution settlement rali passthrough certificates litigation gsco among numerous underwriters named defendants securities class action initially filed september 2008 new york supreme court subsequently removed us district court southern district new york underwriters plaintiffs allege offering documents connection various offerings mortgagebacked passthrough certificates violated disclosure requirements federal securities laws addition underwriters defendants include residential capital llc rescap residential accredit loans inc rali residential funding corporation rfc residential funding securities corporation rfsc certain officers directors january 3 2013 district court certified class connection one offering underwritten gsco includes initial purchasers bought securities directly underwriters agents later ten trading days offering date april 30 2013 district court granted part plaintiffs’ request reinstate number previously dismissed claims relating additional nine offerings underwritten gsco may 10 2013 plaintiffs filed amended complaint incorporating nine additional offerings december 27 2013 court granted plaintiffs’ motion class certification nine additional offerings denied plaintiffs’ motion expand time period scope covered previous class definition october 17 2014 plaintiffs defendants moved summary judgment february 11 2015 gsco underwriter defendants agreed settlement plaintiffs subject court approval firm reserved full amount proposed contribution settlement gsco underwrote approximately 557 billion principal amount securities purchasers offerings included amended complaint may 14 2012 rescap rali rfc filed chapter 11 bankruptcy us bankruptcy court southern district new york june 28 2013 district court entered final order judgment approving settlement plaintiffs rescap rali rfc rfsc officers directors named defendants action goldman sachs group inc subsidiaries notes consolidated financial statements mf global securities litigation gsco among numerous underwriters named defendants class action complaints individual action filed us district court southern district new york commencing november 18 2011 complaints generally allege offering materials two offerings mf global holdings ltd mf global convertible notes aggregating approximately 575 million principal amount february 2011 july 2011 among things failed describe adequately nature scope risks mf global’s exposure european sovereign debt violation disclosure requirements federal securities laws december 12 2014 court preliminarily approved settlement resolving class action january 5 2015 court entered order effectuating settlement claims gsco individual action gsco paid full amount contribution settlements gsco also received inquiries various governmental regulatory bodies selfregulatory organizations concerning certain transactions mf global prior bankruptcy filing goldman sachs cooperating inquiries gt advanced technologies securities litigation gsco among underwriters named defendants several putative securities class actions filed october 2014 us district court district new hampshire addition underwriters defendants include certain directors officers gt advanced technologies inc gt advanced technologies underwriters complaints generally allege misstatements omissions connection december 2013 offerings gt advanced technologies approximately 86 million common stock 214 million principal amount convertible senior notes assert claims federal securities laws seek compensatory damages unspecified amount rescission gsco underwrote 3479769 shares common stock 75 million principal amount notes aggregate offering price approximately 105 million october 6 2014 gt advanced technologies filed chapter 11 bankruptcy fireeye securities litigation gsco among underwriters named defendants several putative securities class actions filed beginning june 2014 california superior court county santa clara addition underwriters defendants include fireeye inc fireeye certain directors officers complaints generally allege misstatements omissions connection offering materials march 2014 offering approximately 115 billion fireeye common stock assert claims federal securities laws seek compensatory damages unspecified amount rescission gsco underwrote 2100000 shares total offering price approximately 172 million millennial media securities litigation gsco among underwriters named defendants putative securities class action filed september 30 2014 us district court southern district new york addition underwriters defendants include millennial media inc millennial media certain directors officers shareholders underwriters complaint generally alleges misstatements omissions connection millennial media’s 152 million march 2012 initial public offering october 2012 offering approximately 163 million millennial media’s common stock asserts claims federal securities laws seeks compensatory damages unspecified amount rescission gsco underwrote 3519000 3450000 shares common stock march october 2012 offerings respectively aggregate offering price approximately 95 million zynga securities litigation gsco among underwriters named defendants putative securities class action filed august 1 2012 california superior court county san francisco addition underwriters defendants included zynga inc zynga certain directors officers consolidated amended complaint filed april 29 2013 generally alleged offering materials march 2012 516 million secondary offering zynga common stock certain zynga’s shareholders violated disclosure requirements federal securities laws sought compensatory damages unspecified amount rescission february 11 2015 court dismissed action goldman sachs group inc subsidiaries notes consolidated financial statements cobalt international energy securities litigation cobalt international energy inc cobalt certain officers directors including employees affiliates group inc served directors cobalt shareholders cobalt including certain funds affiliated group inc affiliates shareholders including group inc underwriters including gsco certain offerings cobalt’s securities defendants putative securities class action filed november 30 2014 us district court southern district texas complaint asserts claims federal securities laws seeks compensatory rescissory damages unspecified amounts alleges material misstatements omissions concerning cobalt connection 167 billion february 2012 offering cobalt common stock 138 billion december 2012 offering cobalt’s convertible notes 100 billion january 2013 offering cobalt’s common stock 133 billion may 2013 offering cobalt’s common stock 130 billion may 2014 offering cobalt’s convertible notes complaint alleges group inc gsco affiliated funds liable controlling persons respect five offerings complaint also seeks damages gsco connection acting underwriter 14430000 shares common stock representing aggregate offering price approximately 465 million 690 million principal amount convertible notes approximately 508 million principal amount convertible notes february 2012 december 2012 may 2014 offerings respectively aggregate offering price approximately 166 billion ii group inc affiliated funds connection sales 40042868 shares common stock aggregate gross proceeds approximately 106 billion february 2012 january 2013 may 2013 common stock offerings employmentrelated matters september 15 2010 putative class action filed us district court southern district new york three female former employees alleging group inc gsco systematically discriminated female employees respect compensation promotion assignments mentoring performance evaluations complaint alleges class consisting female employees employed specified levels specified areas group inc gsco since july 2002 asserts claims federal new york city discrimination laws complaint seeks class action status injunctive relief unspecified amounts compensatory punitive damages july 17 2012 district court issued decision granting part group inc’s gsco’s motion strike certain plaintiffs’ class allegations ground plaintiffs lacked standing pursue certain equitable remedies denying group inc’s gsco’s motion strike plaintiffs’ class allegations entirety premature march 21 2013 us court appeals second circuit held arbitration compelled one named plaintiffs managing director party arbitration agreement firm may 19 2014 plaintiffs moved class certification investment management services group inc certain affiliates parties various civil litigation arbitration proceedings disputes clients relating losses allegedly sustained result firm’s investment management services claims generally seek among things restitution compensatory damages cases punitive damages financial advisory services group inc certain affiliates time parties various civil litigation arbitration proceedings disputes clients third parties relating firm’s financial advisory activities claims generally seek among things compensatory damages cases punitive damages certain cases allege firm appropriately disclose deal conflicts interest goldman sachs group inc subsidiaries notes consolidated financial statements credit derivatives antitrust matters european commission announced april 2011 initiating proceedings investigate numerous financial services companies including group inc connection supply data related credit default swaps connection profit sharing fee arrangements clearing credit default swaps including potential anticompetitive practices july 1 2013 european commission issued financial services companies statement objections alleging colluded limit competition trading exchangetraded unfunded credit derivatives exchange trading credit default swaps generally setting process determining fines remedies group inc’s current understanding proceedings related profit sharing fee arrangements clearing credit default swaps suspended indefinitely firm received civil investigative demands us department justice information similar matters goldman sachs cooperating investigations reviews gsco group inc among numerous defendants putative antitrust class actions relating credit derivatives filed beginning may 2013 consolidated us district court southern district new york complaints generally allege defendants violated federal antitrust laws conspiring forestall development alternatives otc trading credit derivatives maintain inflated bidask spreads credit derivatives trading complaints seek declaratory injunctive relief well treble damages unspecified amount september 4 2014 court granted part denied part defendants’ motion dismiss permitting claim alleging antitrust conspiracy proceed confining period fall 2008 libyarelated litigation gsi defendant action filed january 21 2014 high court justice london libyan investment authority relating nine derivative transactions plaintiff gsi seeking among things rescission transactions unspecified equitable compensation damages exceeding 1 billion august 4 2014 gsi withdrew april 10 2014 motion summary judgment december 4 2014 libyan investment authority filed amended statement claim municipal securities matters gsco along cases financial services firms named respondent number finra arbitrations filed municipalities municipalowned entities stateowned agencies instrumentalities nonprofit entities based gsco’s role underwriter claimants’ issuances aggregate approximately 20 billion auction rate securities 2003 2007 brokerdealer respect auctions securities claimants generally allege gsco failed disclose practice placing cover bids auctions andor failed inform claimant deterioration auction rate market beginning fall 2007 result claimant forced engage series expensive refinancing conversion transactions failure auction market february 2008 certain claimants also allege gsco advised enter interest rate swaps connection auction rate securities issuances causing incur additional losses claims include breach fiduciary duty fraudulent concealment negligent misrepresentation breach contract violations exchange act state securities laws breach duties rules municipal securities rulemaking board nasd one claimant also filed complaint gsco federal court asserting claims finra arbitration gsco filed complaints motions federal court seeking enjoin certain arbitrations effectuate exclusive forum selection clauses transaction documents one case district court denied injunction reversed appellate court us supreme court denied claimant’s petition certiorari seeking review appellate court’s decision cases district court granted injunctions affirmed appellate court gsco also filed motions finra panels dismiss arbitrations one granted goldman sachs group inc subsidiaries notes consolidated financial statements commoditiesrelated litigation group inc subsidiary gs power holdings llc gs power well metro previously consolidated subsidiary group inc sold fourth quarter 2014 among defendants number putative class actions filed beginning august 1 2013 consolidated us district court southern district new york complaints generally allege violation federal antitrust laws federal state laws connection management aluminum storage facilities complaints seek declaratory injunctive equitable relief well unspecified monetary damages including treble damages august 29 2014 court granted goldman sachs defendants’ motion dismiss certain plaintiffs appealed september 24 2014 remaining plaintiffs filed proposed amended complaints october 9 10 2014 group inc gs power metro gsi among defendants named putative class actions filed beginning may 23 2014 us district court southern district new york based similar alleged violations federal antitrust laws connection management zinc storage facilities gsi among defendants named putative class actions relating trading platinum palladium filed beginning november 25 2014 us district court southern district new york complaints generally allege defendants violated federal antitrust laws commodity exchange act connection alleged conspiracy manipulate benchmark physical platinum palladium prices seek declaratory injunctive relief well treble damages unspecified amount isdafixrelated litigation gsco among defendants named several putative class actions relating trading interest rate derivatives filed beginning september 2014 us district court southern district new york complaints generally allege defendants violated federal antitrust laws commodity exchange act connection alleged conspiracy manipulate isdafix benchmark seek declaratory injunctive relief well treble damages unspecified amount december 12 2014 defendants moved dismiss consolidated amended complaint february 12 2015 plaintiffs filed second amended consolidated complaint currenciesrelated litigation gsco group inc among defendants named several putative antitrust class actions relating trading foreign exchange markets filed beginning december 2013 us district court southern district new york complaints generally allege defendants violated federal antitrust laws connection alleged conspiracy manipulate foreign currency exchange markets seek declaratory injunctive relief well treble damages unspecified amount february 13 2014 cases consolidated one action february 28 2014 group inc named separate putative class action behalf nonus plaintiffs containing substantially similar allegations consolidated coordinated proceedings pretrial purposes complaint amended april 30 2014 january 28 2015 court denied defendants’ motion dismiss consolidated action granted defendants’ motion dismiss amended complaint behalf nonus plaintiffs regulatory investigations reviews related litigation group inc certain affiliates subject number investigations reviews cases received subpoenas requests documents information various governmental regulatory bodies selfregulatory organizations litigation relating various matters relating firm’s businesses operations including  2008 financial crisis  public offering process  firm’s investment management financial advisory services  conflicts interest  research practices including research independence interactions research analysts firm personnel including investment banking personnel well third parties goldman sachs group inc subsidiaries notes consolidated financial statements  transactions involving municipal securities including wallcross procedures conflict interest disclosure respect state municipal clients trading structuring municipal derivative instruments connection municipal offerings political contribution rules underwriting build america bonds municipal advisory services possible impact credit default swap transactions municipal issuers  sales trading clearance corporate government securities currencies commodities financial products related sales communications activities including compliance sec’s short sale rule algorithmic highfrequency quantitative trading firm’s us alternative trading system futures trading options trading transaction reporting technology systems controls securities lending practices trading clearance credit derivative instruments commodities activities metals storage private placement practices allocations trading securities trading activities communications connection establishment benchmark rates currency rates isdafix benchmark rates  compliance us foreign corrupt practices act including respect firm’s hiring practices  firm’s system risk management controls  insider trading potential misuse dissemination material nonpublic information regarding corporate governmental developments effectiveness firm’s insider trading controls information barriers goldman sachs cooperating regulatory investigations reviews note 28 employee benefit plans firm sponsors various pension plans certain postretirement benefit plans primarily healthcare life insurance firm also provides certain benefits former inactive employees prior retirement defined benefit pension plans postretirement plans employees certain nonus subsidiaries participate various defined benefit pension plans generally provide benefits based years credited service percentage employee’s eligible compensation firm maintains defined benefit pension plan certain uk employees april 2008 uk defined benefit plan closed new participants allows existing participants continue accrue benefits 2014 firm notified plan participants intends close uk defined benefit plan future benefit accruals march 31 2016 nonus plans material impact firm’s consolidated results operations firm also maintains defined benefit pension plan substantially us employees hired prior november 1 2003 november 2004 plan closed new participants frozen existing participants would accrue additional benefits addition firm maintains unfunded postretirement benefit plans provide medical life insurance eligible retirees dependents covered programs plans material impact firm’s consolidated results operations firm recognizes funded status defined benefit pension postretirement plans measured difference fair value plan assets benefit obligation consolidated statements financial condition december 2014 “other assets” “other liabilities accrued expenses” included 273 million related overfunded pension plans 739 million respectively related plans december 2013 “other assets” “other liabilities accrued expenses” included 179 million related overfunded pension plans 482 million respectively related plans defined contribution plans firm contributes employersponsored us nonus defined contribution plans firm’s contribution plans 223 million 2014 219 million 2013 221 million 2012 goldman sachs group inc subsidiaries notes consolidated financial statements note 29 employee incentive plans cost employee services received exchange sharebased award generally measured based grantdate fair value award sharebased awards require future service ie vested awards including awards granted retirementeligible employees expensed immediately sharebased awards require future service amortized relevant service period expected forfeitures included determining sharebased employee compensation expense firm pays cash dividend equivalents outstanding rsus dividend equivalents paid rsus generally charged retained earnings dividend equivalents paid rsus expected forfeited included compensation expense firm accounts tax benefit related dividend equivalents paid rsus increase additional paidin capital firm generally issues new shares common stock upon delivery sharebased awards certain cases primarily related conflicted employment outlined applicable award agreements firm may cash settle sharebased compensation awards accounted equity instruments awards whose terms allow cash settlement additional paidin capital adjusted extent difference value award time cash settlement grantdate value award stock incentive plan firm sponsors stock incentive plan goldman sachs amended restated stock incentive plan 2013 sip provides grants rsus restricted stock dividend equivalent rights incentive stock options nonqualified stock options stock appreciation rights sharebased awards may subject performance conditions may 23 2013 shareholders approved 2013 sip 2013 sip replaces goldman sachs amended restated stock incentive plan sip previously effect applies awards granted date approval total number shares common stock may delivered pursuant awards granted 2013 sip cannot exceed 60 million shares subject adjustment certain changes corporate structure permitted 2013 sip 2013 sip scheduled terminate date annual meeting shareholders occurs 2016 december 2014 457 million shares available grant 2013 sip restricted stock units firm grants rsus employees 2013 sip valued based closing price underlying shares date grant taking account liquidity discount applicable postvesting transfer restrictions rsus generally vest underlying shares common stock deliver outlined applicable rsu agreements employee rsu agreements generally provide vesting accelerated certain circumstances retirement death disability conflicted employment delivery underlying shares common stock conditioned grantees satisfying certain vesting requirements outlined award agreements table presents activity related rsus 1 weighted average grantdate fair value rsus granted 2014 2013 2012 15140 12259 8472 respectively fair value rsus granted 2014 2013 2012 includes liquidity discount 138 137 217 respectively reflect postvesting transfer restrictions 4 years 2 aggregate fair value awards vested 2014 2013 2012 239 billion 226 billion 157 billion respectively 3 includes rsus cash settled 4 includes restricted stock subject future service requirements december 2014 december 2013 20651 4768 shares respectively first quarter 2015 firm granted employees 140 million yearend rsus 36 million rsus require future service condition delivery awards subject additional conditions outlined award agreements generally shares underlying awards net required withholding tax deliver threeyear period subject postvesting transfer restrictions january 2020 grants included table goldman sachs group inc subsidiaries notes consolidated financial statements stock options stock options generally vest outlined applicable stock option agreement options granted since 2010 general options expire tenth anniversary grant date although may subject earlier termination cancellation certain circumstances accordance terms applicable stock option agreement sip effect time grant table presents activity related stock options total intrinsic value options exercised 2014 2013 2012 203 billion 26 million 151 million respectively table presents options outstanding december 2014 468 million total unrecognized compensation cost related nonvested sharebased compensation arrangements cost expected recognized weighted average period 153 years table presents sharebased compensation related excess tax benefitprovision 1 represents net tax benefitprovision recognized additional paidin capital stock options exercised delivery common stock underlying sharebased awards goldman sachs group inc subsidiaries notes consolidated financial statements note 30 parent company supplemental disclosures cash payments thirdparty interest net capitalized interest 431 billion 278 billion 511 billion 2014 2013 2012 respectively cash payments income taxes net refunds 235 billion 321 billion 159 billion 2014 2013 2012 respectively noncash activity 2014 firm exchanged 158 billion trust preferred securities common beneficial interests senior guaranteed trust securities held firm 187 billion firm’s junior subordinated debt held issuing trusts following exchange junior subordinated debt extinguished 1 primarily includes overnight loans proceeds used satisfy shortterm obligations group inc 2 includes 588 billion 583 billion fair value 2014 2013 respectively 3 includes 1166 billion 867 billion fair value 2014 2013 respectively 4 unsecured longterm borrowings subsidiaries maturity date 186 million 2016 338 million 2017 159 million 2018 44 million 2019 889 million 2020thereafter goldman sachs group inc subsidiaries supplemental financial information quarterly results unaudited following represents firm’s unaudited quarterly results 2014 2013 quarterly results prepared accordance us gaap reflect adjustments opinion management necessary fair statement results adjustments normal recurring nature 1 timing magnitude changes firm’s discretionary compensation accruals significant effect results given quarter goldman sachs group inc subsidiaries supplemental financial information common stock price range table presents high low sales prices per share firm’s common stock february 6 2015 10230 holders record firm’s common stock february 6 2015 last reported sales price firm’s common stock new york stock exchange 18343 per share common stock performance following graph table compare performance investment firm’s common stock december 31 2009 last trading day firm’s 2010 fiscal year december 31 2014 sp 500 index sp 500 financials index graph table assume 100 invested december 31 2009 firm’s common stock sp 500 index sp 500 financials index dividends reinvested date payment without payment commissions performance shown represents past performance considered indication future performance goldman sachs group inc subsidiaries supplemental financial information selected financial data 1 book value per common share based common shares outstanding including rsus granted employees future service requirements 4515 million 4674 million 4805 million 5163 million 5469 million december 2014 december 2013 december 2012 december 2011 december 2010 respectively goldman sachs group inc subsidiaries supplemental financial information statistical disclosures distribution assets liabilities shareholders’ equity table presents summary consolidated average balances interest rates assets liabilities interest classified us nonusbased location legal entity assets liabilities held 1 derivative instruments commodities included noninterestearning assets noninterestbearing liabilities 2 primarily consists certain receivables customers counterparties cash securities segregated regulatory purposes 3 interest rates include effects interest rate swaps accounted hedges 4 substantially consists certain payables customers counterparties goldman sachs group inc subsidiaries supplemental financial information changes net interest income volume rate analysis table presents analysis effect net interest income volume rate changes analysis changes due volumerate variance allocated volume goldman sachs group inc subsidiaries supplemental financial information deposits tables present summary firm’s interestbearing deposits 1 amounts available withdrawal upon short notice generally within seven days shortterm borrowed funds tables present summary firm’s securities loaned securities sold agreements repurchase shortterm borrowings generally mature within one year financial statement date include borrowings redeemable option holder within one year financial statement date 1 includes shortterm secured financings 1556 billion 1729 billion 2305 billion december 2014 december 2013 december 2012 respectively 2 weighted average interest rates borrowings include effect hedging activities goldman sachs group inc subsidiaries supplemental financial information crossborder outstandings crossborder outstandings based federal financial institutions examination council’s ffiec guidelines reporting crossborder information represent amounts firm may able obtain foreign country due countryspecific events including unfavorable economic political conditions economic social instability changes government policies credit exposure represents potential loss due default deterioration credit quality counterparty issuer securities instruments firm holds measured based potential loss event nonpayment counterparty credit exposure reduced effect risk mitigants netting agreements counterparties permit firm offset receivables payables counterparties obtaining collateral counterparties tables include effects risk mitigants represent firm’s credit exposure tables present crossborder outstandings commitments country crossborder outstandings exceed 075 consolidated assets accordance ffiec guidelines include cash receivables securities purchased agreements resell securities borrowed cash financial instruments exclude derivative instruments securities purchased agreements resell securities borrowed presented gross without reduction related securities collateral held margin loans included receivables presented based amount collateral advanced counterparty substantially commitments table consist commitments extend credit forward starting resale securities borrowing agreements 1 primarily comprised secured lending transactions clearing house 2 primarily comprised interests receivables funds domiciled ireland whose underlying investments primarily located outside ireland secured lending transactions goldman sachs group inc subsidiaries item 9item 8 financial statements supplementary data management’s report internal control financial reporting management goldman sachs group inc together consolidated subsidiaries firm responsible establishing maintaining adequate internal control financial reporting firm’s internal control financial reporting process designed supervision firm’s principal executive principal financial officers provide reasonable assurance regarding reliability financial reporting preparation firm’s financial statements external reporting purposes accordance us generally accepted accounting principles december 31 2018 management conducted assessment firm’s internal control financial reporting based framework established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso based assessment management determined firm’s internal control financial reporting december 31 2018 effective internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance us generally accepted accounting principles receipts expenditures made accordance authorizations management directors firm provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition firm’s assets could material effect financial statements firm’s internal control financial reporting december 31 2018 audited pricewaterhousecoopers llp independent registered public accounting firm stated report appearing page 103 expresses unqualified opinion effectiveness firm’s internal control financial reporting december 31 2018 report independent registered public accounting firm board directors shareholders goldman sachs group inc opinions financial statements internal control financial reporting audited accompanying consolidated statements financial condition goldman sachs group inc subsidiaries company december 31 2018 2017 related consolidated statements earnings comprehensive income changes shareholders’ equity cash flows three years period ended december 31 2018 including related notes collectively referred “consolidated financial statements” also audited company’s internal control financial reporting december 31 2018 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion consolidated financial statements referred present fairly material respects financial position company december 31 2018 2017 results operations cash flows three years period ended december 31 2018 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2018 based criteria established internal control integrated framework 2013 issued coso basis opinions company’s management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing page 102 responsibility express opinions company’s consolidated financial statements company’s internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits consolidated financial statements included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp new york new york february 25 2019 served company’s auditor since 1922 goldman sachs group inc subsidiaries consolidated statements earnings consolidated statements comprehensive income accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements financial condition accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements changes shareholders’ equity accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements cash flows supplemental disclosures cash payments interest net capitalized interest 1672 billion 2018 1117 billion 2017 714 billion 2016 cash payments income taxes net refunds 127 billion 2018 142 billion 2017 106 billion 2016 cash flows related common stock repurchased includes common stock repurchased prior period settlement occurred current period excludes common stock repurchased current period settlement occurred following period noncash activities 2018 • firm received 773 million loans receivable 109 million heldtomaturity securities connection securitization financial instruments owned held sale loans included customer receivables • firm exchanged 35 million trust preferred securities common beneficial interests 35 million certain firm’s junior subordinated debt noncash activities 2017 • firm received 465 million loans receivable 107 million heldtomaturity securities connection securitization financial instruments owned held sale loans included customer receivables • firm exchanged 237 million trust preferred securities common beneficial interests 248 million firm’s junior subordinated debt noncash activities 2016 • firm received 389 million loans receivable 112 million heldtomaturity securities connection securitization financial instruments owned • impact adoption asu 201502 net reduction total assets total liabilities approximately 200 million see note 3 information • firm sold assets 181 billion liabilities 697 million previously classified held sale exchange 111 billion financial instruments • firm exchanged 104 billion apex 131 billion series e series f preferred stock see note 19 information • firm exchanged 127 million senior guaranteed trust securities 124 million firm’s junior subordinated debt accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries notes consolidated financial statements note 1 description business goldman sachs group inc group inc parent company delaware corporation together consolidated subsidiaries collectively firm leading global investment banking securities investment management firm provides wide range financial services substantial diversified client base includes corporations financial institutions governments individuals founded 1869 firm headquartered new york maintains offices major financial centers around world firm reports activities following four business segments investment banking firm provides broad range investment banking services diverse group corporations financial institutions investment funds governments services include strategic advisory assignments respect mergers acquisitions divestitures corporate defense activities restructurings spinoffs risk management debt equity underwriting public offerings private placements including local crossborder transactions acquisition financing well derivative transactions directly related activities institutional client services firm facilitates client transactions makes markets fixed income equity currency commodity products primarily institutional clients corporations financial institutions investment funds governments firm also makes markets clears client transactions major stock options futures exchanges worldwide provides financing securities lending prime brokerage services institutional clients investing lending firm invests originates loans provide financing clients investments loans typically longerterm nature firm makes investments consolidated including merchant banking business special situations group debt securities loans public private equity securities infrastructure real estate entities investments made indirectly funds firm manages firm also makes unsecured loans digital platform marcus goldman sachs secured loans digital platform goldman sachs private bank select investment management firm provides investment management services offers investment products primarily separately managed accounts commingled vehicles mutual funds private investment funds across major asset classes diverse set institutional individual clients firm also offers wealth advisory services provided firm’s subsidiary ayco company lp including portfolio management financial planning counseling brokerage transaction services highnetworth individuals families note 2 basis presentation consolidated financial statements prepared accordance accounting principles generally accepted united states us gaap include accounts group inc entities firm controlling financial interest intercompany transactions balances eliminated references 2018 2017 2016 refer firm’s years ended dates context requires december 31 2018 december 31 2017 december 31 2016 respectively reference future year refers year ending december 31 year certain reclassifications made previously reported amounts conform current presentation goldman sachs group inc subsidiaries notes consolidated financial statements note 3 significant accounting policies firm’s significant accounting policies include measure fair value assets liabilities accounting goodwill identifiable intangible assets consolidate entity see notes 5 8 policies fair value measurements note 13 policies goodwill identifiable intangible assets note 12 policies consolidation accounting significant accounting policies either described included following footnotes consolidation firm consolidates entities firm controlling financial interest firm determines whether controlling financial interest entity first evaluating whether entity voting interest entity variable interest entity vie voting interest entities voting interest entities total equity investment risk sufficient enable entity finance activities independently ii equity holders power direct activities entity significantly impact economic performance obligation absorb losses entity right receive residual returns entity usual condition controlling financial interest voting interest entity ownership majority voting interest firm controlling majority voting interest voting interest entity consolidated variable interest entities vie entity lacks one characteristics voting interest entity firm controlling financial interest vie firm variable interest interests provide power direct activities vie significantly impact vie’s economic performance ii obligation absorb losses vie right receive benefits vie could potentially significant vie see note 12 information vies equitymethod investments firm controlling financial interest entity exert significant influence entity’s operating financial policies investment accounted either equity method accounting ii fair value electing fair value option available us gaap significant influence generally exists firm owns 20 50 entity’s common stock insubstance common stock general firm accounts investments acquired fair value option became available fair value certain cases firm applies equity method accounting new investments strategic nature closely related firm’s principal business activities firm significant degree involvement cash flows operations investee costbenefit considerations less significant see note 13 information equitymethod investments goldman sachs group inc subsidiaries notes consolidated financial statements investment funds firm formed numerous investment funds thirdparty investors funds typically organized limited partnerships limited liability companies firm acts general partner manager generally firm hold majority economic interests funds usually voting interest entities generally consolidated thirdparty investors typically rights terminate funds remove firm general partner manager investments funds generally measured net asset value nav included financial instruments owned see notes 6 18 22 information investments funds use estimates preparation consolidated financial statements requires management make certain estimates assumptions important relate fair value measurements accounting goodwill identifiable intangible assets allowance credit losses loans receivable lending commitments held investment provisions losses may arise litigation regulatory proceedings including governmental investigations provisions losses may arise tax audits estimates assumptions based best available information actual results could materially different revenue recognition financial assets financial liabilities fair value financial instruments owned financial instruments sold yet purchased recorded fair value either fair value option accordance us gaap addition firm elected account certain financial assets financial liabilities fair value electing fair value option fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date financial assets marked bid prices financial liabilities marked offer prices fair value measurements include transaction costs fair value gains losses generally included market making positions institutional client services principal transactions positions investing lending see notes 5 8 information fair value measurements revenue contracts clients beginning january 2018 firm accounts revenue earned contracts clients services investment banking investment management execution clearing contracts clients asu 201409 “revenue contracts customers topic 606” revenues services recognized performance obligations related underlying transaction completed see “recent accounting developments revenue contracts customers asc 606” information firm’s net revenues contracts clients subject asu represent approximately 50 firm’s total net revenues 2018 includes approximately 80 firm’s investment banking revenues substantially investment management revenues commissions fees 2018 see note 25 information firm’s net revenues business segment investment banking advisory fees financial advisory assignments recognized revenues services related underlying transaction completed terms assignment beginning january 2018 nonrefundable deposits milestone payments connection financial advisory assignments recognized revenues upon completion underlying transaction assignment otherwise concluded prior january 2018 nonrefundable deposits milestone payments recognized revenues accordance terms contract beginning january 2018 certain expenses associated financial advisory assignments recognized incurred client reimbursements expenses included financial advisory revenues prior january 2018 expenses deferred related revenue recognized assignment otherwise concluded presented net client reimbursements underwriting fees underwriting assignments recognized revenues upon completion underlying transaction based terms assignment certain expenses associated underwriting assignments deferred related revenue recognized assignment otherwise concluded beginning january 2018 expenses presented operating expenses prior january 2018 expenses presented net within underwriting revenues goldman sachs group inc subsidiaries notes consolidated financial statements investment management firm earns management fees incentive fees investment management services included investment management revenues firm makes payments brokers advisors related placement firm’s investment funds distribution fees included brokerage clearing exchange distribution fees management fees management fees mutual funds calculated percentage daily net asset value received monthly management fees hedge funds separately managed accounts calculated percentage monthend net asset value generally received quarterly management fees private equity funds calculated percentage monthly invested capital committed capital received quarterly semiannually annually depending fund management fees recognized time period investment management services provided distribution fees paid firm calculated based either percentage management fee investment fund’s net asset value committed capital beginning january 2018 firm presents fees brokerage clearing exchange distribution fees prior january 2018 firm considered agent arrangement fees presented net basis investment management revenues incentive fees incentive fees calculated percentage fund’s separately managed account’s return excess return specified benchmark performance target incentive fees generally based investment performance twelvemonth period life fund fees based performance twelvemonth period subject adjustment prior end measurement period fees based investment performance life fund future investment underperformance may require fees previously distributed firm returned fund beginning january 2018 incentive fees earned fund separately managed account recognized probable significant reversal fees occur generally fees longer subject fluctuations market value investments held fund separately managed account therefore incentive fees recognized period may relate performance obligations satisfied previous periods prior january 2018 incentive fees recognized material contingencies resolved commissions fees firm earns commissions fees executing clearing client transactions stock options futures markets well overthecounter otc transactions commissions fees recognized day trade executed firm also provides thirdparty research services clients connection certain softdollar arrangements beginning january 2018 thirdparty research costs incurred firm connection softdollar arrangements presented net within commissions fees prior january 2018 costs presented brokerage clearing exchange distribution fees remaining performance obligations remaining performance obligations services firm committed perform future connection contracts clients firm’s remaining performance obligations generally related financial advisory assignments certain investment management activities revenues associated remaining performance obligations relating financial advisory assignments cannot determined outcome transaction firm’s investment management activities fees calculated based net asset value fund separately managed account future revenues associated remaining performance obligations cannot determined fees subject fluctuations market value investments held fund separately managed account firm able determine future revenues associated management fees calculated based committed capital december 2018 substantially firm’s future net revenues associated remaining performance obligations recognized 2024 annual revenues associated performance obligations average less 250 million 2024 transfers financial assets transfers financial assets accounted sales firm relinquished control assets transferred transfers financial assets accounted sales gains losses recognized net revenues assets liabilities arise firm’s continuing involvement transferred financial assets initially recognized fair value transfers financial assets accounted sales assets generally included financial instruments owned transfer accounted collateralized financing related interest expense recognized life transaction see note 10 information transfers financial assets accounted collateralized financings note 11 information transfers financial assets accounted sales goldman sachs group inc subsidiaries notes consolidated financial statements cash equivalents firm defines cash equivalents highly liquid overnight deposits held ordinary course business cash equivalents included cash due banks 1066 billion december 2018 1079 billion december 2017 cash equivalents also included interestbearing deposits banks 11989 billion december 2018 9926 billion december 2017 firm segregates cash regulatory purposes related client activity cash equivalents segregated regulatory purposes 2314 billion december 2018 1844 billion december 2017 addition firm segregates securities regulatory purposes related client activity see note 10 information segregated securities customer receivables customer receivables included receivables customers counterparties 5381 billion december 2018 6011 billion december 2017 receivables brokers dealers clearing organizations 2550 billion december 2018 2468 billion december 2017 receivables primarily consist customer margin loans receivables resulting unsettled transactions collateral posted connection certain derivative transactions certain transfers assets accounted secured loans rather purchases fair value substantially receivables accounted amortized cost net estimated uncollectible amounts certain firm’s customer receivables accounted fair value fair value option changes fair value generally included market making revenues see note 8 information customer receivables accounted fair value fair value option addition firm’s customer receivables included 383 billion december 2018 463 billion december 2017 loans held sale accounted lower cost fair value see note 5 overview firm’s fair value measurement policies december 2018 december 2017 carrying value receivables accounted fair value generally approximated fair value receivables accounted fair value included firm’s fair value hierarchy notes 5 8 receivables included firm’s fair value hierarchy substantially would classified level 2 december 2018 december 2017 interest customer receivables recognized life transaction included interest income customer receivables includes receivables contracts clients beginning january 2018 also includes contract assets contract assets represent firm’s right receive consideration services provided connection contracts clients collection conditional merely subject passage time december 2018 firm’s receivables contracts clients 194 billion contract assets material customer payables customer payables included payables customers counterparties 17399 billion december 2018 17150 billion december 2017 payables brokers dealers clearing organizations 624 billion december 2018 667 billion december 2017 payables primarily consist customer credit balances related firm’s prime brokerage activities customer payables accounted cost plus accrued interest generally approximates fair value payables accounted fair value included firm’s fair value hierarchy notes 5 8 payables included firm’s fair value hierarchy substantially would classified level 2 december 2018 december 2017 interest customer payables recognized life transaction included interest expense offsetting assets liabilities reduce credit exposures derivatives securities financing transactions firm may enter master netting agreements similar arrangements collectively netting agreements counterparties permit offset receivables payables counterparties netting agreement contract counterparty permits net settlement multiple transactions counterparty including upon exercise termination rights nondefaulting party upon exercise termination rights transactions governed netting agreement terminated net settlement amount calculated addition firm receives posts cash securities collateral respect derivatives securities financing transactions subject terms related credit support agreements similar arrangements collectively credit support agreements enforceable credit support agreement grants nondefaulting party exercising termination rights right liquidate collateral apply proceeds amounts owed order assess enforceability firm’s right setoff netting credit support agreements firm evaluates various factors including applicable bankruptcy laws local statutes regulatory provisions jurisdiction parties agreement goldman sachs group inc subsidiaries notes consolidated financial statements derivatives reported netbycounterparty basis ie net payable receivable derivative assets liabilities given counterparty consolidated statements financial condition legal right setoff exists enforceable netting agreement securities purchased agreements resell resale agreements securities sold agreements repurchase agreements securities borrowed loaned transactions term currency presented netbycounterparty basis consolidated statements financial condition transactions meet certain settlement criteria subject netting agreements consolidated statements financial condition derivatives reported net cash collateral received posted enforceable credit support agreements transacted enforceable netting agreement consolidated statements financial condition resale repurchase agreements securities borrowed loaned reported net related cash securities received posted collateral see note 10 information collateral received pledged including rights deliver repledge collateral see notes 7 10 information offsetting foreign currency translation assets liabilities denominated nonus currencies translated rates exchange prevailing date consolidated statements financial condition revenues expenses translated average rates exchange period foreign currency remeasurement gains losses transactions nonfunctional currencies recognized earnings gains losses translation financial statements nonus operation functional currency us dollar included net hedges taxes consolidated statements comprehensive income recent accounting developments revenue contracts customers asc 606 may 2014 fasb issued asu 201409 asu amended provides comprehensive guidance recognition revenue earned contracts customers arising transfer goods services guidance accounting certain contract costs new disclosures firm adopted asu january 2018 modified retrospective approach result adopting asu firm among things delays recognition nonrefundable milestone payments financial advisory assignments completed recognizes certain investment management fees earlier firm’s previous revenue recognition policies firm also prospectively changed presentation certain costs net presentation within revenues gross basis vice versa beginning 2018 certain underwriting expenses netted investment banking revenues certain distribution fees netted investment management revenues presented gross operating expenses costs incurred connection certain softdollar arrangements presented gross operating expenses presented net within commissions fees cumulative effect adopting asu january 1 2018 decrease retained earnings 53 million net tax addition net revenues operating expenses higher approximately 300 million 2018 due changes presentation certain costs net presentation within revenues gross basis recognition measurement financial assets financial liabilities asc 825 january 2016 fasb issued asu 201601 “financial instruments topic 825 recognition measurement financial assets financial liabilities” asu amends certain aspects recognition measurement presentation disclosure financial instruments includes requirement present separately comprehensive income changes fair value attributable firm’s credit spreads debt valuation adjustment dva net tax financial liabilities fair value option elected january 2016 firm early adopted asu requirements related dva reclassified cumulative dva gain 305 million net tax retained earnings accumulated comprehensive loss adoption remaining provisions asu january 2018 material impact firm’s financial condition results operations cash flows leases asc 842 february 2016 fasb issued asu 201602 “leases topic 842” asu requires leases longer one year lessee recognize statements financial condition rightofuse asset representing right use underlying asset lease term lease liability representing liability make lease payments also requires finance leases lessee recognize interest expense lease liability separately amortization rightofuse asset statements earnings operating leases amounts recognized combined expense also requires qualifying saleleaseback transactions seller recognize gain loss based estimated fair value asset time sale control asset transferred instead amortizing lease period addition asu requires expanded disclosures nature terms lease agreements goldman sachs group inc subsidiaries notes consolidated financial statements firm adopted asu january 2019 modified retrospective approach impact adopting asu gross 177 billion firm’s consolidated statements financial condition increase retained earnings 12 million net tax january 1 2019 improvements employee sharebased payment accounting asc 718 march 2016 fasb issued asu 201609 “compensation stock compensation topic 718 improvements employee sharebased payment accounting” asu includes requirement tax effect related settlement sharebased awards recorded income tax benefit expense statements earnings rather directly additional paidin capital change impact total shareholders’ equity required adopted prospectively asu also allows forfeitures recorded occur rather estimated vesting period change required applied modified retrospective basis firm adopted asu january 2017 subsequent adoption tax effect related settlement sharebased awards recognized statements earnings rather directly additional paidin capital firm also elected account forfeitures occur rather estimate forfeitures vesting period cumulative effect election upon adoption increase 35 million sharebased awards decrease 24 million net tax 11 million retained earnings addition asu modifies classification certain sharebased payment activities within statements cash flows upon adoption firm reclassified amounts related activities within consolidated statements cash flows retrospective basis measurement credit losses financial instruments asc 326 june 2016 fasb issued asu 201613 “financial instruments credit losses topic 326 measurement credit losses financial instruments” asu amends several aspects measurement credit losses financial instruments including replacing existing incurred credit loss model models current expected credit losses cecl model amending certain aspects accounting purchased financial assets deterioration credit quality since origination cecl allowance losses financial assets measured amortized cost reflects management’s estimate credit losses remaining expected life financial assets expected credit losses newly recognized financial assets well changes expected credit losses period would recognized earnings certain purchased financial assets deterioration credit quality since origination initial allowance would recorded expected credit losses recognized increase purchase price rather expense asu eliminates existing accounting guidance purchased credit impaired pci loans asu effective firm january 2020 modified retrospective approach early adoption permitted beginning january 2019 firm plans adopt asu january 1 2020 expected credit losses including losses offbalancesheet exposures lending commitments measured based historical experience current conditions forecasts affect collectability reported amount firm substantially completed development credit loss models significant loan portfolios process validating data inputs models continuing develop policies systems controls required implement cecl firm currently expects begin testing models first half 2019 firm currently expects allowance credit losses likely increase cecl adopted allowance cover expected credit losses full expected life loan portfolios also take account expected changes future economic conditions addition allowance recorded certain purchased loans deterioration credit quality since origination corresponding increase gross carrying value extent impact adoption asu firm’s financial condition results operations cash flows depend among things economic environment size type loan portfolios held firm date adoption classification certain cash receipts cash payments asc 230 august 2016 fasb issued asu 201615 “statement cash flows topic 230 classification certain cash receipts cash payments” asu provides guidance disclosure classification certain items within statements cash flows goldman sachs group inc subsidiaries notes consolidated financial statements firm adopted asu january 2018 retrospective approach impact 2017 increase 485 million net cash used operating activities decrease 477 million net cash used investing activities increase 8 million net cash provided financing activities impact 2016 decrease 406 million net cash provided operating activities increase 405 million net cash provided investing activities increase 1 million net cash provided financing activities clarifying definition business asc 805 january 2017 fasb issued asu 201701 “business combinations topic 805 clarifying definition business” asu amends definition business provides threshold must considered determine whether transaction acquisition disposal asset business firm adopted asu january 2018 prospective approach adoption asu material impact firm’s financial condition results operations cash flows firm expects fewer transactions treated acquisitions disposals businesses result adopting asu simplifying test goodwill impairment asc 350 january 2017 fasb issued asu 201704 “intangibles goodwill topic 350 simplifying test goodwill impairment” asu simplifies quantitative goodwill impairment test eliminating second step test asu impairment measured comparing estimated fair value reporting unit carrying value firm early adopted asu fourth quarter 2017 adoption asu material impact results firm’s goodwill impairment test clarifying scope asset derecognition guidance accounting partial sales nonfinancial assets asc 61020 february 2017 fasb issued asu 201705 “other income gains losses derecognition nonfinancial assets subtopic 61020 clarifying scope asset derecognition guidance accounting partial sales nonfinancial assets” asu clarifies scope guidance applicable sales nonfinancial assets also provides guidance accounting partial sales assets firm adopted asu january 2018 modified retrospective approach adoption asu impact firm’s financial condition results operations cash flows targeted improvements accounting hedging activities asc 815 august 2017 fasb issued asu 201712 “derivatives hedging topic 815 targeted improvements accounting hedging activities” asu amends certain rules hedging relationships expands types strategies eligible hedge accounting treatment closely align results hedge accounting risk management activities amends disclosure requirements related fair value net investment hedges firm early adopted asu january 2018 modified retrospective approach hedge accounting treatment prospective approach amended disclosure requirements adoption asu material impact firm’s financial condition results operations cash flows see note 7 information reclassification certain tax effects accumulated comprehensive income asc 220 february 2018 fasb issued asu 201802 “income statement reporting comprehensive income topic 220 reclassification certain tax effects accumulated comprehensive income” asu permits reporting entity reclassify income tax effects tax cuts jobs act tax legislation items within accumulated comprehensive income retained earnings firm adopted asu january 2019 elect reclassify income tax effects tax legislation accumulated comprehensive income retained earnings therefore adoption asu impact firm’s financial condition results operations cash flows changes disclosure requirements fair value measurement asc 820 august 2018 fasb issued asu 201813 “fair value measurement topic 820 changes disclosure requirements fair value measurement” asu among amendments eliminates requirement disclose amounts reasons transfers level 1 level 2 fair value hierarchy modifies disclosure requirement relating investments funds nav firm early adopted asu third quarter 2018 disclosures modified accordance asu see notes 5 8 information goldman sachs group inc subsidiaries notes consolidated financial statements note 4 financial instruments owned financial instruments sold yet purchased financial instruments owned financial instruments sold yet purchased accounted fair value either fair value option accordance us gaap see note 8 information financial assets financial liabilities fair value table presents financial instruments owned financial instruments sold yet purchased table • money market instruments includes commercial paper certificates deposit time deposits substantially maturity less one year • corporate debt instruments includes corporate loans debt securities • equity securities includes public private equities exchangetraded funds convertible debentures amounts include investments accounted fair value fair value option firm would otherwise apply equity method accounting 791 billion december 2018 849 billion december 2017 gains losses market making principal transactions table presents market making revenues major product type principal transactions revenues table • gainslosses include realized unrealized gains losses primarily related firm’s financial instruments owned financial instruments sold yet purchased including derivative nonderivative financial instruments • gainslosses exclude related interest income interest expense see note 23 information interest income interest expense • gainslosses principal transactions included firm’s investing lending segment see note 25 net revenues including net interest income product type investing lending well amount net interest income included investing lending • gainslosses representative manner firm manages business activities many firm’s marketmaking client facilitation strategies utilize financial instruments across various product types accordingly gains losses one product type frequently offset gains losses product types example firm’s longerterm derivatives across product types sensitive changes interest rates may economically hedged interest rate swaps similarly significant portion firm’s cash instruments derivatives across product types exposure foreign currencies may economically hedged foreign currency contracts goldman sachs group inc subsidiaries notes consolidated financial statements note 5 fair value measurements fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date financial assets marked bid prices financial liabilities marked offer prices fair value measurements include transaction costs firm measures certain financial assets financial liabilities portfolio ie based net exposure market andor credit risks best evidence fair value quoted price active market quoted prices active markets available fair value determined reference prices similar instruments quoted prices recent transactions less active markets internally developed models primarily use marketbased independently sourced inputs including limited interest rates volatilities equity debt prices foreign exchange rates commodity prices credit spreads funding spreads ie spread difference interest rate borrower could finance given financial instrument relative benchmark interest rate us gaap threelevel hierarchy disclosure fair value measurements hierarchy prioritizes inputs valuation techniques used measure fair value giving highest priority level 1 inputs lowest priority level 3 inputs financial instrument’s level hierarchy based lowest level input significant fair value measurement evaluating significance valuation input firm considers among factors portfolio’s net risk exposure input fair value hierarchy follows level 1 inputs unadjusted quoted prices active markets firm access measurement date identical unrestricted assets liabilities level 2 inputs valuation techniques observable either directly indirectly level 3 one inputs valuation techniques significant unobservable fair values substantially firm’s financial assets financial liabilities based observable prices inputs classified levels 1 2 fair value hierarchy certain level 2 level 3 financial assets financial liabilities may require appropriate valuation adjustments market participant would require arrive fair value factors counterparty firm’s credit quality funding risk transfer restrictions liquidity bidoffer spreads valuation adjustments generally based market evidence see notes 6 8 information fair value measurements cash instruments derivatives financial assets financial liabilities fair value table presents financial assets financial liabilities accounted fair value fair value option accordance us gaap table • counterparty netting among positions classified level included level • counterparty cash collateral netting represents impact derivatives netting across levels fair value hierarchy goldman sachs group inc subsidiaries notes consolidated financial statements table presents summary level 3 financial assets level 3 financial assets december 2018 increased compared december 2017 primarily reflecting increase level 3 cash instruments see notes 6 8 information level 3 financial assets including information unrealized gains losses related level 3 financial assets financial liabilities transfers level 3 note 6 cash instruments cash instruments include us government agency obligations nonus government agency obligations mortgagebacked loans securities corporate debt instruments equity securities investments funds nav nonderivative financial instruments owned financial instruments sold yet purchased see types cash instruments included level fair value hierarchy valuation techniques significant inputs used determine fair values see note 5 overview firm’s fair value measurement policies level 1 cash instruments level 1 cash instruments include certain money market instruments us government obligations nonus government obligations certain government agency obligations certain corporate debt instruments actively traded listed equities instruments valued using quoted prices identical unrestricted instruments active markets firm defines active markets equity instruments based average daily trading volume absolute terms relative market capitalization instrument firm defines active markets debt instruments based average daily trading volume number days trading activity level 2 cash instruments level 2 cash instruments include money market instruments government agency obligations certain nonus government obligations mortgagebacked loans securities corporate debt instruments state municipal obligations debt obligations restricted less liquid listed equities commodities certain lending commitments valuations level 2 cash instruments verified quoted prices recent trading activity identical similar instruments broker dealer quotations alternative pricing sources reasonable levels price transparency consideration given nature quotations eg indicative firm relationship recent market activity prices provided alternative pricing sources valuation adjustments typically made level 2 cash instruments cash instrument subject transfer restrictions andor ii premiums liquidity discounts market participant would require arrive fair value valuation adjustments generally based market evidence level 3 cash instruments level 3 cash instruments one significant valuation inputs observable absent evidence contrary level 3 cash instruments initially valued transaction price considered best initial estimate fair value subsequently firm uses methodologies determine fair value vary based type instrument valuation inputs assumptions changed corroborated substantive observable evidence including values realized sales valuation techniques significant inputs level 3 cash instruments valuation techniques level 3 cash instruments vary instrument generally based discounted cash flow techniques valuation techniques nature significant inputs used determine fair values type level 3 cash instrument described loans securities backed commercial real estate loans securities backed commercial real estate directly indirectly collateralized single commercial real estate property portfolio properties may include tranches varying levels subordination significant inputs generally determined based relative value analyses include • market yields implied transactions similar related assets andor current levels changes market indices cmbx index tracks performance commercial mortgage bonds goldman sachs group inc subsidiaries notes consolidated financial statements • transaction prices underlying collateral instruments similar underlying collateral • measure expected future cash flows default scenario recovery rates implied value underlying collateral mainly driven current performance underlying collateral capitalization rates multiples recovery rates expressed percentage notional face value instrument reflect benefit credit enhancements certain instruments • timing expected future cash flows duration certain cases may incorporate impact unobservable inputs eg prepayment speeds loans securities backed residential real estate loans securities backed residential real estate directly indirectly collateralized portfolios residential real estate may include tranches varying levels subordination significant inputs generally determined based relative value analyses incorporate comparisons instruments similar collateral risk profiles significant inputs include • market yields implied transactions similar related assets • transaction prices underlying collateral instruments similar underlying collateral • cumulative loss expectations driven default rates home price projections residential property liquidation timelines related costs subsequent recoveries • duration driven underlying loan prepayment speeds residential property liquidation timelines corporate debt instruments corporate debt instruments includes corporate loans debt securities significant inputs corporate debt instruments generally determined based relative value analyses incorporate comparisons prices credit default swaps reference similar underlying instrument entity debt instruments issuer observable prices broker quotations available significant inputs include • market yields implied transactions similar related assets andor current levels trends market indices cdx index tracks performance corporate credit • current performance recovery assumptions firm uses credit default swaps value related cash instrument cost borrowing underlying reference obligation • duration equity securities equity securities includes private equity securities convertible debentures recent thirdparty completed pending transactions eg merger proposals tender offers debt restructurings considered best evidence change fair value available following valuation methodologies used appropriate • industry multiples primarily ebitda multiples public comparables • transactions similar instruments • discounted cash flow techniques • thirdparty appraisals firm also considers changes outlook relevant industry financial performance issuer compared projected performance significant inputs include • market transaction multiples • discount rates capitalization rates • equity securities debtlike features market yields implied transactions similar related assets current performance recovery assumptions duration cash instruments cash instruments includes us government agency obligations nonus government agency obligations state municipal obligations debt obligations significant inputs generally determined based relative value analyses incorporate comparisons prices credit default swaps reference similar underlying instrument entity debt instruments issuer observable prices broker quotations available significant inputs include • market yields implied transactions similar related assets andor current levels trends market indices • current performance recovery assumptions firm uses credit default swaps value related cash instrument cost borrowing underlying reference obligation • duration goldman sachs group inc subsidiaries notes consolidated financial statements fair value cash instruments level table presents cash instrument assets liabilities fair value level within fair value hierarchy table • cash instrument assets included financial instruments owned cash instrument liabilities included financial instruments sold yet purchased • cash instrument assets shown positive amounts cash instrument liabilities shown negative amounts • money market instruments includes commercial paper certificates deposit time deposits substantially maturity less one year • corporate debt instruments includes corporate loans debt securities • equity securities includes public private equities exchangetraded funds convertible debentures • december 2018 december 2017 substantially level 3 equity securities consisted private equity securities significant unobservable inputs table presents amount level 3 assets ranges weighted averages significant unobservable inputs used value level 3 cash instruments goldman sachs group inc subsidiaries notes consolidated financial statements table • ranges represent significant unobservable inputs used valuation type cash instrument • weighted averages calculated weighting input relative fair value cash instruments • ranges weighted averages inputs representative appropriate inputs use calculating fair value one cash instrument example highest multiple private equity securities appropriate valuing specific private equity security may appropriate valuing private equity security accordingly ranges inputs represent uncertainty possible ranges fair value measurements level 3 cash instruments • increases yield discount rate capitalization rate duration cumulative loss rate used valuation level 3 cash instruments would resulted lower fair value measurement increases recovery rate multiples would resulted higher fair value measurement december 2018 december 2017 due distinctive nature level 3 cash instrument interrelationship inputs necessarily uniform within product type • loans securities backed commercial residential real estate corporate debt instruments cash instruments valued using discounted cash flows equity securities valued using market comparables discounted cash flows • fair value one instrument may determined using multiple valuation techniques example market comparables discounted cash flows may used together determine fair value therefore level 3 balance encompasses techniques level 3 rollforward table presents summary changes fair value level 3 cash instrument assets liabilities table • changes fair value presented cash instrument assets liabilities classified level 3 end period • net unrealized gainslosses relates instruments still held periodend • purchases includes originations secondary purchases • transfers levels fair value hierarchy reported beginning reporting period occur cash instrument asset liability transferred level 3 reporting period entire gain loss period classified level 3 • level 3 cash instrument assets increases shown positive amounts decreases shown negative amounts level 3 cash instrument liabilities increases shown negative amounts decreases shown positive amounts • level 3 cash instruments frequently economically hedged level 1 level 2 cash instruments andor level 1 level 2 level 3 derivatives accordingly gains losses classified level 3 partially offset gains losses attributable level 1 level 2 cash instruments andor level 1 level 2 level 3 derivatives result gains losses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources goldman sachs group inc subsidiaries notes consolidated financial statements table disaggregates product type information cash instrument assets included summary table level 3 rollforward commentary year ended december 2018 net realized unrealized gains level 3 cash instrument assets 132 billion reflecting 501 million net realized gains 816 million net unrealized gains 2018 included gainslosses 96 million reported market making 908 million reported principal transactions 505 million reported interest income net unrealized gains level 3 cash instrument assets 2018 primarily reflected gains private equity securities principally driven strong corporate performance companyspecific events transfers level 3 2018 primarily reflected transfers certain private equity securities corporate debt instruments level 2 principally due reduced price transparency result lack market evidence including fewer market transactions instruments transfers level 3 2018 primarily reflected transfers certain private equity securities corporate debt instruments level 2 principally due increased price transparency result market evidence including market transactions instruments transfers certain corporate debt instruments level 2 principally due certain unobservable yield duration inputs longer significant valuation instruments year ended december 2017 net realized unrealized gains level 3 cash instrument assets 156 billion reflecting 419 million net realized gains 114 billion net unrealized gains 2017 included gainslosses 99 million reported market making 113 billion reported principal transactions 532 million reported interest income net unrealized gains level 3 cash instrument assets 2017 primarily reflected gains private equity securities principally driven strong corporate performance companyspecific events transfers level 3 2017 primarily reflected transfers certain corporate debt instruments private equity securities level 2 principally due reduced price transparency result lack market evidence including fewer market transactions instruments transfers level 3 2017 primarily reflected transfers certain corporate debt instruments private equity securities level 2 principally due increased price transparency result market evidence including market transactions instruments transfers certain corporate debt instruments level 2 principally due certain unobservable yield duration inputs longer significant valuation instruments goldman sachs group inc subsidiaries notes consolidated financial statements availableforsale securities table presents information cash instruments accounted availableforsale table • us government obligations classified level 1 fair value hierarchy december 2018 december 2017 • availableforsale securities included corporate debt securities debt obligations securities backed commercial real estate money market instruments substantially classified level 2 fair value hierarchy december 2017 • gross unrealized losses included accumulated comprehensive loss 153 million december 2018 related us government obligations continuous unrealized loss position greater year losses material december 2017 • availableforsale securities unrealized loss position periodically reviewed otherthantemporary impairment firm considers various factors including market conditions changes issuer credit ratings severity duration unrealized losses intent ability hold security recovery determine securities otherthantemporarily impaired impairments either 2018 2017 investments funds net asset value per share cash instruments fair value include investments funds measured nav investment fund firm uses nav measure fair value fund investments fund investment readily determinable fair value ii nav investment fund calculated manner consistent measurement principles investment company accounting including measurement investments fair value substantially firm’s investments funds nav consist investments firmsponsored private equity credit real estate hedge funds firm coinvests thirdparty investors private equity funds primarily invest broad range industries worldwide including leveraged buyouts recapitalizations growth investments distressed investments credit funds generally invest loans fixed income instruments focused providing private highyield capital leveraged management buyout transactions recapitalizations financings refinancings acquisitions restructurings private equity firms private family companies corporate issuers real estate funds invest globally primarily real estate companies loan portfolios debt recapitalizations property private equity credit real estate funds closedend funds firm’s investments generally eligible redemption distributions received funds underlying assets liquidated distributed timing uncertain firm also invests hedge funds primarily multidisciplinary hedge funds employ fundamental bottomup investment approach across various asset classes strategies firm’s investments hedge funds primarily include interests underlying assets illiquid nature proceeds redemptions received underlying assets liquidated distributed timing uncertain goldman sachs group inc subsidiaries notes consolidated financial statements many funds described “covered funds” defined volcker rule us doddfrank wall street reform consumer protection act doddfrank act board governors federal reserve system frb extended conformance period july 2022 firm’s investments relationships certain legacy “illiquid funds” defined volcker rule place prior december 2013 extension applicable substantially firm’s remaining investments relationships covered funds table presents fair value investments funds nav related unfunded commitments note 7 derivatives hedging activities derivative activities derivatives instruments derive value underlying asset prices indices reference rates inputs combination factors derivatives may traded exchange exchangetraded may privately negotiated contracts usually referred otc derivatives certain firm’s otc derivatives cleared settled central clearing counterparties otccleared others bilateral contracts two counterparties bilateral otc market making market maker firm enters derivative transactions provide liquidity clients facilitate transfer hedging risks role firm typically acts principal required commit capital provide execution maintains inventory response anticipation client demand risk management firm also enters derivatives actively manage risk exposures arise marketmaking investing lending activities derivative cash instruments firm’s holdings exposures hedged many cases either portfolio riskspecific basis opposed instrumentbyinstrument basis offsetting impact economic hedging reflected business segment related revenues addition firm may enter derivatives designated hedges us gaap derivatives used manage interest rate exposure certain fixedrate unsecured longterm shortterm borrowings deposits manage foreign currency exposure net investment certain nonus operations firm enters various types derivatives including • futures forwards contracts commit counterparties purchase sell financial instruments commodities currencies future • swaps contracts require counterparties exchange cash flows currency interest payment streams amounts exchanged based specific terms contract reference specified rates financial instruments commodities currencies indices • options contracts option purchaser right obligation purchase sell option writer financial instruments commodities currencies within defined time period specified price derivatives reported netbycounterparty basis ie net payable receivable derivative assets liabilities given counterparty legal right setoff exists enforceable netting agreement counterparty netting derivatives accounted fair value net cash collateral received posted enforceable credit support agreements cash collateral netting derivative assets included financial instruments owned derivative liabilities included financial instruments sold yet purchased realized unrealized gains losses derivatives designated hedges included market making principal transactions note 4 goldman sachs group inc subsidiaries notes consolidated financial statements tables present gross fair value notional amounts derivative contracts major product type amounts counterparty cash collateral netting consolidated statements financial condition well cash securities collateral posted received enforceable credit support agreements meet criteria netting us gaap tables • gross fair values exclude effects counterparty netting collateral therefore representative firm’s exposure • firm received posted collateral credit support agreements yet determined agreements enforceable related collateral netted • notional amounts represent sum gross long short derivative contracts provide indication volume firm’s derivative activity represent anticipated losses • total gross fair value derivatives included derivative assets 1068 billion december 2018 1124 billion december 2017 derivative liabilities 1195 billion december 2018 1300 billion december 2017 subject enforceable netting agreement subject netting agreement firm yet determined enforceable • second quarter 2018 consistent rules clearing organization firm elected consider transactions clearing organization settled day december 2017 impact change would reduction gross interest rate derivative assets 36 billion gross interest rate derivative liabilities 19 billion corresponding decrease counterparty cash collateral netting impact consolidated statements financial condition goldman sachs group inc subsidiaries notes consolidated financial statements • november 19 2018 clearing organization revised rules calculate notional amounts certain exchangetraded derivative contracts impact rule change effective date decrease notional amounts derivative contracts approximately 7 trillion substantially related interest rate derivatives change fair value valuation techniques derivatives firm’s level 2 level 3 derivatives valued using derivative pricing models eg discounted cash flow models correlation models incorporate option pricing methodologies monte carlo simulations price transparency derivatives generally characterized product type described • interest rate general key inputs used value interest rate derivatives transparent even longdated contracts interest rate swaps options denominated currencies leading industrialized nations characterized high trading volumes tight bidoffer spreads interest rate derivatives reference indices inflation index shape yield curve eg 10year swap rate vs 2year swap rate complex key inputs generally observable • credit price transparency credit default swaps including single names baskets credits varies market underlying reference entity obligation credit default swaps reference indices large corporates major sovereigns generally exhibit price transparency credit default swaps underliers price transparency varies based credit rating cost borrowing underlying reference obligations availability underlying reference obligations delivery upon default issuer credit default swaps reference loans assetbacked securities emerging market debt instruments tend less price transparency reference corporate bonds addition complex credit derivatives sensitive correlation two underlying reference obligations generally less price transparency • currency prices currency derivatives based exchange rates leading industrialized nations including longer tenors generally transparent primary difference price transparency developed emerging market currency derivatives emerging markets tend observable contracts shorter tenors • commodity derivatives include transactions referenced energy eg oil natural gas metals eg precious base soft commodities eg agricultural price transparency varies based underlying commodity delivery location tenor product quality eg diesel fuel compared unleaded gasoline general price transparency commodity derivatives greater contracts shorter tenors contracts closely aligned major andor benchmark commodity indices • equity price transparency equity derivatives varies market underlier options indices common stock corporates included major equity indices exhibit price transparency equity derivatives generally observable market prices except contracts long tenors reference prices differ significantly current market prices complex equity derivatives sensitive correlation two individual stocks generally less price transparency liquidity essential observability product types transaction volumes decline previously transparent prices inputs may become unobservable conversely even highly structured products may times trading volumes large enough provide observability prices inputs see note 5 overview firm’s fair value measurement policies level 1 derivatives level 1 derivatives include shortterm contracts future delivery securities underlying security level 1 instrument exchangetraded derivatives actively traded valued quoted market price level 2 derivatives level 2 derivatives include otc derivatives significant valuation inputs corroborated market evidence exchangetraded derivatives actively traded andor valued using models calibrate marketclearing levels otc derivatives selection particular model value derivative depends contractual terms specific risks inherent instrument well availability pricing information market derivatives trade liquid markets model selection involve significant management judgment outputs models calibrated marketclearing levels goldman sachs group inc subsidiaries notes consolidated financial statements valuation models require variety inputs contractual terms market prices yield curves discount rates including derived interest rates collateral received posted specified credit support agreements collateralized derivatives credit curves measures volatility prepayment rates loss severity rates correlations inputs significant inputs valuations level 2 derivatives verified market transactions broker dealer quotations alternative pricing sources reasonable levels price transparency consideration given nature quotations eg indicative firm relationship recent market activity prices provided alternative pricing sources level 3 derivatives level 3 derivatives valued using models utilize observable level 1 andor level 2 inputs well unobservable level 3 inputs significant unobservable inputs used value firm’s level 3 derivatives described • level 3 interest rate currency derivatives significant unobservable inputs include correlations certain currencies interest rates eg correlation euro inflation euro interest rates addition level 3 interest rate derivatives significant unobservable inputs include specific interest rate volatilities • level 3 credit derivatives significant unobservable inputs include illiquid credit spreads upfront credit points unique specific reference obligations reference entities recovery rates certain correlations required value credit derivatives eg likelihood default underlying reference obligation relative one another • level 3 commodity derivatives significant unobservable inputs include volatilities options strike prices differ significantly current market prices spreads certain products product quality physical location commodity aligned benchmark indices • level 3 equity derivatives significant unobservable inputs generally include equity volatility inputs options longdated andor strike prices differ significantly current market prices addition valuation certain structured trades requires use level 3 correlation inputs correlation price performance two individual stocks correlation price performance basket stocks another asset class commodities subsequent initial valuation level 3 derivative firm updates level 1 level 2 inputs reflect observable market changes resulting gains losses classified level 3 level 3 inputs changed corroborated evidence similar market transactions thirdparty pricing services andor broker dealer quotations empirical market data circumstances firm cannot verify model value reference market transactions possible different valuation model could produce materially different estimate fair value see information significant unobservable inputs used valuation level 3 derivatives valuation adjustments valuation adjustments integral determining fair value derivative portfolios used adjust midmarket valuations produced derivative pricing models appropriate exit price valuation adjustments incorporate bidoffer spreads cost liquidity credit valuation adjustments funding valuation adjustments account credit funding risk inherent uncollateralized portion derivative portfolios firm also makes funding valuation adjustments collateralized derivatives terms agreement permit firm deliver repledge collateral received marketbased inputs generally used calibrating valuation adjustments marketclearing levels addition derivatives include significant unobservable inputs firm makes model exit price adjustments account valuation uncertainty present transaction goldman sachs group inc subsidiaries notes consolidated financial statements fair value derivatives level table presents fair value derivatives gross basis level major product type well impact netting table • gross fair values exclude effects counterparty netting collateral netting therefore representative firm’s exposure • counterparty netting reflected level extent receivable payable balances netted within level included counterparty netting levels counterparty netting across levels netting included crosslevel counterparty netting • derivative assets shown positive amounts derivative liabilities shown negative amounts significant unobservable inputs table presents amount level 3 assets liabilities ranges averages medians significant unobservable inputs used value level 3 derivatives table • derivative assets shown positive amounts derivative liabilities shown negative amounts • ranges represent significant unobservable inputs used valuation type derivative • averages represent arithmetic average inputs weighted relative fair value notional respective financial instruments average greater median indicates majority inputs average example difference average median credit spreads indicates majority inputs fall lower end range goldman sachs group inc subsidiaries notes consolidated financial statements • ranges averages medians inputs representative appropriate inputs use calculating fair value one derivative example highest correlation interest rate derivatives appropriate valuing specific interest rate derivative may appropriate valuing interest rate derivative accordingly ranges inputs represent uncertainty possible ranges fair value measurements level 3 derivatives • interest rates currencies equities derivatives valued using option pricing models credit derivatives valued using option pricing correlation discounted cash flow models commodities derivatives valued using option pricing discounted cash flow models • fair value one instrument may determined using multiple valuation techniques example option pricing models discounted cash flows models typically used together determine fair value therefore level 3 balance encompasses techniques • correlation significant valuation level 3 credit derivatives december 2018 • correlation within currencies equities includes crossproduct type correlation • natural gas spread represents spread per million british thermal units natural gas • oil spread represents spread per barrel oil refined products range significant unobservable inputs following information ranges significant unobservable inputs used value firm’s level 3 derivative instruments • correlation ranges correlation cover variety underliers within one product type eg equity index equity single stock names across product types eg correlation interest rate currency well across regions generally crossproduct type correlation inputs used value complex instruments lower correlation inputs assets within derivative product type • volatility ranges volatility cover numerous underliers across variety markets maturities strike prices example volatility equity indices generally lower volatility single stocks • credit spreads upfront credit points recovery rates ranges credit spreads upfront credit points recovery rates cover variety underliers index single names regions sectors maturities credit qualities highyield investmentgrade broad range population gives rise width ranges significant unobservable inputs • commodity prices spreads ranges commodity prices spreads cover variability products maturities delivery locations sensitivity fair value measurement changes significant unobservable inputs following description directional sensitivity firm’s level 3 fair value measurements december 2018 december 2017 changes significant unobservable inputs isolation • correlation general contracts holder benefits convergence underlying asset index prices eg interest rates credit spreads foreign exchange rates inflation rates equity prices increase correlation results higher fair value measurement • volatility general purchased options increase volatility results higher fair value measurement • credit spreads upfront credit points recovery rates general fair value purchased credit protection increases credit spreads upfront credit points increase recovery rates decrease credit spreads upfront credit points recovery rates strongly related distinctive risk factors underlying reference obligations include reference entityspecific factors leverage volatility industry marketbased risk factors borrowing costs liquidity underlying reference obligation macroeconomic conditions • commodity prices spreads general contracts holder receiving commodity increase spread price difference benchmark index due differences quality delivery location price results higher fair value measurement due distinctive nature firm’s level 3 derivatives interrelationship inputs necessarily uniform within product type goldman sachs group inc subsidiaries notes consolidated financial statements level 3 rollforward table presents summary changes fair value level 3 derivatives table • changes fair value presented derivative assets liabilities classified level 3 end period • net unrealized gainslosses relates instruments still held periodend • transfers levels fair value hierarchy reported beginning reporting period occur derivative transferred level 3 reporting period entire gain loss period classified level 3 • positive amounts transfers level 3 negative amounts transfers level 3 represent net transfers derivative assets negative amounts transfers level 3 positive amounts transfers level 3 represent net transfers derivative liabilities • derivative level 1 andor level 2 inputs classified level 3 entirety least one significant level 3 input • one significant level 3 input entire gain loss adjusting observable inputs ie level 1 level 2 inputs classified level 3 • gains losses classified level 3 resulting changes level 1 level 2 inputs frequently offset gains losses attributable level 1 level 2 derivatives andor level 1 level 2 level 3 cash instruments result gainslosses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources table disaggregates major product type information level 3 derivatives included summary table goldman sachs group inc subsidiaries notes consolidated financial statements level 3 rollforward commentary year ended december 2018 net realized unrealized gains level 3 derivatives 114 billion reflecting 113 million net realized losses 125 billion net unrealized gains 2018 included gains 111 billion reported market making 28 million reported principal transactions net unrealized gains level 3 derivatives 2018 primarily attributable gains certain equity derivatives reflecting impact decrease certain equity prices gains certain currency derivatives primarily reflecting impact changes foreign exchange rates transfers level 3 derivatives transfers level 3 derivatives 2018 material year ended december 2017 net realized unrealized losses level 3 derivatives 555 million reflecting 119 million net realized losses 436 million net unrealized losses 2017 included losses 90 million reported market making 465 million reported principal transactions net unrealized losses level 3 derivatives 2017 primarily attributable losses certain equity derivatives reflecting impact changes equity prices losses certain currency derivatives primarily reflecting impact changes foreign exchanges rates losses certain credit derivatives reflecting impact tighter credit spreads partially offset gains certain commodity derivatives reflecting impact increase commodity prices transfers level 3 derivatives 2017 material transfers level 3 derivatives 2017 primarily reflected transfers certain credit derivatives assets level 2 principally due certain unobservable inputs longer significant valuation derivatives otc derivatives table presents fair values otc derivative assets liabilities tenor major product type table • tenor based remaining contractual maturity • counterparty netting within product type tenor category included within product type tenor category • counterparty netting across product types within tenor category included counterparty netting tenors counterparty netting across tenor categories netting included crosstenor counterparty netting goldman sachs group inc subsidiaries notes consolidated financial statements credit derivatives firm enters broad array credit derivatives locations around world facilitate client transactions manage credit risk associated marketmaking investing lending activities credit derivatives actively managed based firm’s net risk position credit derivatives generally individually negotiated contracts various settlement payment conventions credit events include failure pay bankruptcy acceleration indebtedness restructuring repudiation dissolution reference entity firm enters following types credit derivatives • credit default swaps singlename credit default swaps protect buyer loss principal one bonds loans mortgages reference obligations event issuer reference obligations suffers credit event buyer protection pays initial periodic premium seller receives protection period contract credit event defined contract seller protection makes payments buyer credit event occurs seller protection required make payment buyer calculated according terms contract • credit options credit option writer assumes obligation purchase sell reference obligation specified price credit spread option purchaser buys right assume obligation sell reference obligation purchase option writer payments credit options depend either particular credit spread price reference obligation • credit indices baskets tranches credit derivatives may reference basket singlename credit default swaps broadbased index credit event occurs one underlying reference obligations protection seller pays protection buyer payment typically prorata portion transaction’s total notional amount based underlying defaulted reference obligation certain transactions credit risk basket index separated various portions tranches different levels subordination junior tranches cover initial defaults losses exceed notional amount junior tranches excess loss covered next senior tranche • total return swaps total return swap transfers risks relating economic performance reference obligation protection buyer protection seller typically protection buyer receives floating rate interest protection reduction fair value reference obligation protection seller receives cash flows associated reference obligation plus increase fair value reference obligation firm economically hedges exposure written credit derivatives primarily entering offsetting purchased credit derivatives identical underliers substantially firm’s purchased credit derivative transactions financial institutions subject stringent collateral thresholds addition upon occurrence specified trigger event firm may take possession reference obligations underlying particular written credit derivative consequently may upon liquidation reference obligations recover amounts underlying reference obligations event default december 2018 written credit derivatives total gross notional amount 55417 billion purchased credit derivatives total gross notional amount 60300 billion total net notional purchased protection 4883 billion december 2017 written credit derivatives total gross notional amount 61104 billion purchased credit derivatives total gross notional amount 64337 billion total net notional purchased protection 3233 billion substantially firm’s written purchased credit derivatives credit default swaps goldman sachs group inc subsidiaries notes consolidated financial statements table presents information credit derivatives table • fair values exclude effects netting receivable balances payable balances enforceable netting agreements netting cash received posted enforceable credit support agreements therefore representative firm’s credit exposure • tenor based remaining contractual maturity • credit spread underlier together tenor contract indicators paymentperformance risk firm less likely pay otherwise required perform credit spread tenor lower • offsetting purchased credit derivatives represent notional amount purchased credit derivatives economically hedge written credit derivatives identical underliers • purchased credit derivatives represent notional amount purchased credit derivatives included offsetting impact credit spreads derivatives ongoing basis firm realizes gains losses relating changes credit risk unwind derivative contracts changes credit mitigants net gainslosses including hedges attributable impact changes credit exposure credit spreads counterparty firm’s derivatives 371 million 2018 66 million 2017 85 million 2016 bifurcated embedded derivatives table presents fair value notional amount derivatives bifurcated related borrowings table derivatives recorded fair value primarily consist interest rate equity commodity products included unsecured shortterm borrowings unsecured longterm borrowings related borrowings see note 8 information derivatives creditrelated contingent features certain firm’s derivatives transacted bilateral agreements counterparties may require firm post collateral terminate transactions based changes firm’s credit ratings firm assesses impact bilateral agreements determining collateral termination payments would occur assuming downgrade rating agencies downgrade one rating agency depending agency’s relative ratings firm time downgrade may impact comparable impact downgrade rating agencies table presents information net derivative liabilities bilateral agreements excluding application collateral posted related fair value collateral posted additional collateral termination payments could called counterparties event onenotch twonotch downgrade firm’s credit ratings goldman sachs group inc subsidiaries notes consolidated financial statements hedge accounting firm applies hedge accounting certain interest rate swaps used manage interest rate exposure certain fixedrate unsecured longterm shortterm borrowings certain fixedrate certificates deposit ii certain foreign currency forward contracts foreign currencydenominated debt used manage foreign currency exposures firm’s net investment certain nonus operations qualify hedge accounting hedging instrument must highly effective reducing risk exposure hedged additionally firm must formally document hedging relationship inception assess hedging relationship least quarterly basis ensure hedging instrument continues highly effective life hedging relationship fair value hedges firm designates certain interest rate swaps fair value hedges certain fixedrate unsecured longterm shortterm debt fixedrate certificates deposit interest rate swaps hedge changes fair value attributable designated benchmark interest rate eg london interbank offered rate libor overnight index swap rate effectively converting substantial portion fixedrate obligations floatingrate obligations firm applies statistical method utilizes regression analysis assessing effectiveness fair value hedging relationships achieving offsetting changes fair values hedging instrument risk hedged ie interest rate risk interest rate swap considered highly effective offsetting changes fair value attributable changes hedged risk regression analysis results coefficient determination 80 greater slope 80 125 qualifying fair value hedges gains losses derivatives included interest expense change fair value hedged item attributable risk hedged reported adjustment carrying value hedging adjustment also included interest expense derivative longer designated hedge remaining difference carrying value par value hedged item amortized interest expense remaining life hedged item using effective interest method see note 23 information interest income interest expense table presents gainslosses interest rate derivatives accounted hedges related hedged borrowings deposits total interest expense table • difference gainslosses interest rate hedges hedged borrowings deposits primarily due amortization prepaid credit spreads resulting passage time • hedge ineffectiveness 684 million 2017 646 million 2016 table presents carrying value hedged items currently designated hedging relationship related cumulative hedging adjustment increasedecrease current prior hedging relationships included carrying values table cumulative hedging adjustment included 174 billion hedging adjustments prior hedging relationships dedesignated substantially related unsecured longterm borrowings addition december 2018 cumulative hedging adjustments items longer designated hedging relationship 151 billion substantially related unsecured longterm borrowings goldman sachs group inc subsidiaries notes consolidated financial statements net investment hedges firm seeks reduce impact fluctuations foreign exchange rates net investments certain nonus operations use foreign currency forward contracts foreign currencydenominated debt foreign currency forward contracts designated hedges effectiveness hedge assessed based overall changes fair value forward contracts ie based changes forward rates foreign currencydenominated debt designated hedge effectiveness hedge assessed based changes spot rates beginning january 2018 accordance asu 201712 qualifying net investment hedges gains losses hedging instruments included currency translation prior january 2018 gains losses hedging instruments extent effective included currency translation table presents gainslosses net investment hedging gains losses individual net investments nonus operations reclassified earnings accumulated comprehensive income net investments sold substantially liquidated gross net gains losses hedges related net investments nonus operations reclassified earnings accumulated comprehensive income material 2018 net gain reclassified earnings accumulated comprehensive income 41 million reflecting gain 205 million related hedges loss 164 million related net investments nonus operations 2017 28 million reflecting gain 167 million related hedges loss 139 million related net investments nonus operations 2016 gainloss related ineffectiveness material 2017 2016 firm designated 199 billion december 2018 181 billion december 2017 foreign currencydenominated debt included unsecured longterm borrowings unsecured shortterm borrowings hedges net investments nonus subsidiaries note 8 fair value option financial assets financial liabilities fair value addition cash derivative instruments included financial instruments owned financial instruments sold yet purchased firm accounts certain financial assets financial liabilities fair value substantially fair value option primary reasons electing fair value option • reflect economic events earnings timely basis • mitigate volatility earnings using different measurement attributes eg transfers financial instruments owned accounted financings recorded fair value whereas related secured financing would recorded accrual basis absent electing fair value option • address simplification costbenefit considerations eg accounting hybrid financial instruments fair value entirety versus bifurcation embedded derivatives hedge accounting debt hosts hybrid financial instruments contain bifurcatable embedded derivatives require settlement physical delivery nonfinancial assets eg physical commodities firm elects bifurcate embedded derivative associated debt derivative accounted fair value host contract accounted amortized cost adjusted effective portion fair value hedges firm elect bifurcate entire hybrid financial instrument accounted fair value fair value option financial assets financial liabilities accounted fair value fair value option include • repurchase agreements substantially resale agreements • securities borrowed loaned fixed income currency commodities client execution ficc client execution • substantially secured financings including transfers assets accounted financings • certain unsecured shortterm longterm borrowings substantially hybrid financial instruments • certain customer receivables including transfers assets accounted secured loans certain margin loans • certain time deposits stated maturity eligible fair value option election including structured certificates deposit hybrid financial instruments goldman sachs group inc subsidiaries notes consolidated financial statements fair value financial assets financial liabilities level table presents level within fair value hierarchy financial assets financial liabilities fair value substantially accounted fair value fair value option table financial assets shown positive amounts financial liabilities shown negative amounts valuation techniques significant inputs financial assets financial liabilities fair value generally valued based discounted cash flow techniques incorporate inputs reasonable levels price transparency generally classified level 2 inputs observable valuation adjustments may made liquidity counterparty firm’s credit quality see information significant inputs used value financial assets financial liabilities fair value including ranges significant unobservable inputs used value level 3 instruments within categories ranges represent significant unobservable inputs used valuation type financial assets financial liabilities fair value ranges weighted averages inputs representative appropriate inputs use calculating fair value one instrument example highest yield presented secured financings appropriate valuing specific agreement category may appropriate valuing agreements category accordingly ranges inputs presented represent uncertainty possible ranges fair value measurements firm’s level 3 financial assets financial liabilities resale repurchase agreements securities borrowed loaned significant inputs valuation resale repurchase agreements securities borrowed loaned funding spreads amount timing expected future cash flows interest rates december 2018 december 2017 firm level 3 resale agreements securities borrowed securities loaned december 2018 december 2017 firm’s level 3 repurchase agreements material see note 10 information collateralized agreements financings secured financings significant inputs valuation secured financings fair value amount timing expected future cash flows interest rates funding spreads fair value collateral delivered firm determined using amount timing expected future cash flows market prices market yields recovery assumptions frequency additional collateral calls december 2018 firm’s level 3 secured financings material ranges significant unobservable inputs used value level 3 secured financings december 2017 follows • yield 06 130 weighted average 33 • duration 07 110 years weighted average 27 years generally increases yield duration isolation would resulted lower fair value measurement december 2017 due distinctive nature firm’s level 3 secured financings interrelationship inputs necessarily uniform across financings see note 10 information collateralized agreements financings goldman sachs group inc subsidiaries notes consolidated financial statements unsecured shortterm longterm borrowings significant inputs valuation unsecured shortterm longterm borrowings fair value amount timing expected future cash flows interest rates credit spreads firm well commodity prices case prepaid commodity transactions inputs used value embedded derivative component hybrid financial instruments consistent inputs used value firm’s derivative instruments see note 7 information derivatives note 15 information unsecured shortterm borrowings note 16 information longterm borrowings certain firm’s unsecured shortterm longterm borrowings classified level 3 substantially hybrid financial instruments significant unobservable inputs used value hybrid financial instruments primarily relate embedded derivative component borrowings inputs incorporated firm’s derivative disclosures related unobservable inputs note 7 customer receivables customer receivables fair value primarily consist prepaid commodity transactions transfers assets accounted secured loans rather purchases significant inputs valuation receivables commodity prices interest rates amount timing expected future cash flows funding spreads december 2018 december 2017 firm’s level 3 customer receivables material deposits significant inputs valuation time deposits interest rates amount timing future cash flows inputs used value embedded derivative component hybrid financial instruments consistent inputs used value firm’s derivative instruments see note 7 information derivatives note 14 information deposits firm’s deposits classified level 3 hybrid financial instruments significant unobservable inputs used value hybrid financial instruments primarily relate embedded derivative component deposits inputs incorporated firm’s derivative disclosures related unobservable inputs note 7 level 3 rollforward table presents summary changes fair value level 3 financial assets financial liabilities accounted fair value table • changes fair value presented financial assets financial liabilities classified level 3 end period • net unrealized gainslosses relates instruments still held periodend • transfers levels fair value hierarchy reported beginning reporting period occur financial asset financial liability transferred level 3 reporting period entire gain loss period classified level 3 • level 3 financial assets increases shown positive amounts decreases shown negative amounts level 3 financial liabilities increases shown negative amounts decreases shown positive amounts • level 3 financial assets financial liabilities frequently economically hedged cash instruments derivatives accordingly gains losses classified level 3 partially offset gains losses attributable level 1 2 3 cash instruments derivatives result gains losses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources goldman sachs group inc subsidiaries notes consolidated financial statements table disaggregates consolidated statements financial condition line items information financial liabilities included summary table level 3 rollforward commentary year ended december 2018 net realized unrealized gains level 3 financial liabilities 152 billion reflecting 491 million net realized losses 201 billion net unrealized gains 2018 included gainslosses 883 million reported market making 1 million reported principal transactions 1 million reported interest expense consolidated statements earnings gains 641 million reported debt valuation adjustment consolidated statements comprehensive income net unrealized gains level 3 financial liabilities 2018 primarily reflected gains certain hybrid financial instruments included unsecured longterm borrowings principally due impact wider credit spreads increases interest rates gains certain hybrid financial instruments included unsecured shortterm borrowings principally due decrease global equity prices transfers level 3 financial liabilities 2018 primarily reflected transfers certain hybrid financial instruments included unsecured longterm borrowings level 2 principally due reduced transparency certain inputs used value instruments result lack market transactions similar instruments transfers level 3 financial liabilities 2018 primarily reflected transfers certain hybrid financial instruments included unsecured longterm shortterm borrowings level 2 principally due increased transparency certain volatility correlation inputs used value instruments year ended december 2017 net realized unrealized losses level 3 financial liabilities 141 billion reflecting 362 million net realized losses 105 billion net unrealized losses 2017 included losses 120 billion reported market making 45 million reported principal transactions 10 million reported interest expense consolidated statements earnings losses 149 million reported debt valuation adjustment consolidated statements comprehensive income goldman sachs group inc subsidiaries notes consolidated financial statements net unrealized losses level 3 financial liabilities 2017 primarily reflected losses certain hybrid financial instruments included unsecured longterm shortterm borrowings principally due increase global equity prices impact tighter credit spreads losses certain hybrid financial instruments included deposits principally due impact increase market value underlying assets transfers level 3 financial liabilities 2017 primarily reflected transfers certain hybrid financial instruments included unsecured longterm borrowings level 2 principally due reduced transparency volatility inputs used value instruments transfers level 3 financial liabilities 2017 primarily reflected transfers certain hybrid financial instruments included unsecured longterm shortterm borrowings level 2 principally due increased transparency certain inputs used value instruments result market transactions similar instruments transfers certain hybrid financial instruments included deposits level 2 principally due increased transparency correlation volatility inputs used value instruments gains losses financial assets financial liabilities accounted fair value fair value option table presents gains losses recognized earnings result firm electing apply fair value option certain financial assets financial liabilities table • gainslosses included market making principal transactions • gainslosses exclude contractual interest included interest income interest expense instruments hybrid financial instruments see note 23 information interest income interest expense • gainslosses included unsecured shortterm longterm borrowings substantially related embedded derivative component hybrid financial instruments 2018 2017 2016 gains losses would recognized us gaap even firm elected account entire hybrid financial instrument fair value • primarily consists gainslosses customer receivables deposits secured financings excluding gains losses instruments accounted fair value fair value option described market making principal transactions primarily represent gains losses financial instruments owned financial instruments sold yet purchased loans lending commitments table presents difference aggregate fair value aggregate contractual principal amount loans longterm receivables fair value option elected table aggregate contractual principal amount loans nonaccrual status andor 90 days past due excludes loans carried zero fair value considered uncollectible exceeds related fair value primarily firm regularly purchases loans distressed loans values significantly contractual principal amounts fair value unfunded lending commitments fair value option elected liability 45 million december 2018 31 million december 2017 related total contractual amount lending commitments 772 billion december 2018 994 billion december 2017 see note 18 information lending commitments goldman sachs group inc subsidiaries notes consolidated financial statements longterm debt instruments difference aggregate contractual principal amount related fair value longterm secured financings fair value option elected material december 2018 december 2017 aggregate contractual principal amount unsecured longterm borrowings fair value option elected exceeded related fair value 238 billion december 2018 169 billion december 2017 amounts include principal nonprincipalprotected longterm borrowings impact credit spreads loans lending commitments estimated net gain attributable changes instrumentspecific credit spreads loans lending commitments fair value option elected 211 million 2018 268 million 2017 281 million 2016 firm generally calculates fair value loans lending commitments fair value option elected discounting future cash flows rate incorporates instrumentspecific credit spreads floatingrate loans lending commitments substantially changes fair value attributable changes instrumentspecific credit spreads whereas fixedrate loans lending commitments changes fair value also attributable changes interest rates debt valuation adjustment firm calculates fair value financial liabilities fair value option elected discounting future cash flows rate incorporates firm’s credit spreads table presents information net dva gainslosses financial liabilities fair value option elected table • dva net tax included debt valuation adjustment consolidated statements comprehensive income • gainslosses reclassified earnings accumulated comprehensive loss upon extinguishment financial liabilities material 2018 2017 2016 note 9 loans receivable loans receivable consists loans held investment accounted amortized cost net allowance loan losses interest loans receivable recognized life loan recorded accrual basis table presents information loans receivable fair value loans receivable 8074 billion december 2018 6629 billion december 2017 loans carried fair value included fair value hierarchy 4064 billion december 2018 3875 billion december 2017 would classified level 2 4010 billion december 2018 2754 billion december 2017 would classified level 3 following description captions table • corporate loans corporate loans includes term loans revolving lines credit letter credit facilities bridge loans principally used operating liquidity general corporate purposes connection acquisitions corporate loans may secured unsecured depending loan purpose risk profile borrower factors loans receivable related firm’s relationship lending activities reported within corporate loans • private wealth management pwm loans pwm loans includes loans extended private bank loans used finance investments financial nonfinancial assets bridge cash flow timing gaps provide liquidity needs substantially loans secured securities assets • commercial real estate loans commercial real estate loans includes loans extended firm directly indirectly secured hotels retail stores multifamily housing complexes commercial industrial properties commercial real estate loans also includes loans purchased firm goldman sachs group inc subsidiaries notes consolidated financial statements • residential real estate loans residential real estate loans includes loans extended firm clients warehouse assets directly indirectly secured residential real estate residential real estate loans also includes loans purchased firm • consumer loans consumer loans represents unsecured consumer loans originated firm • loans primarily includes loans extended clients warehouse assets directly indirectly secured consumer loans including auto loans private student loans also includes unsecured consumer loans purchased firm lending commitments table presents information lending commitments held investment accounted accrual basis table • corporate lending commitments primarily relates firm’s relationship lending activities • lending commitments primarily relates lending commitments extended clients warehouse assets backed real estate assets connection commercial real estate financing • carrying value lending commitments liabilities 443 million including allowance losses 286 million december 2018 423 million including allowance losses 274 million december 2017 • estimated fair value lending commitments liabilities 378 billion december 2018 227 billion december 2017 lending commitments carried fair value included fair value hierarchy 112 billion december 2018 772 million december 2017 would classified level 2 266 billion december 2018 150 billion december 2017 would classified level 3 pci loans receivable includes pci loans represent acquired loans pools loans evidence credit deterioration subsequent origination probable acquisition firm able collect contractually required payments loans acquired within reporting period least two common risk characteristics one relates credit risk eligible pooled together considered single unit account pci loans initially recorded acquisition price difference acquisition price expected cash flows accretable yield recognized interest income life loans pools loans effective yield method expected cash flows pci loans determined using various inputs assumptions including default rates loss severities recoveries amount timing prepayments macroeconomic indicators tables present information pci loans table • fair value expected cash flows contractually required cash flows acquisition date • expected cash flows represents cash flows expected received life loan result liquidation underlying collateral • contractually required cash flows represents cash flows required repaid borrower life loan goldman sachs group inc subsidiaries notes consolidated financial statements credit quality risk assessment firm’s risk assessment process includes evaluating credit quality loans receivable loans receivable excluding pci consumer loans lending commitments firm performs credit reviews include initial ongoing analyses borrowers credit review independent analysis capacity willingness borrower meet financial obligations resulting internal credit rating determination internal credit ratings also incorporates assumptions respect nature outlook borrower’s industry economic environment firm also assigns regulatory risk rating loans based definitions provided us federal bank regulatory agencies firm enters economic hedges mitigate credit risk certain loans receivable corporate lending commitments held investment related firm’s relationship lending activities hedges accounted fair value see note 18 information lending commitments associated hedges table presents gross loans receivable excluding pci consumer loans 758 billion december 2018 637 billion december 2017 lending commitments internally determined public rating agency equivalent regulatory risk rating table noncriticizedpass loans lending commitments represent loans lending commitments performing andor demonstrate adverse characteristics likely result credit loss consumer loans important creditquality indicator fair isaac corporation fico credit score measures borrower’s creditworthiness considering factors payment credit history fico credit scores refreshed periodically firm assess updated creditworthiness borrower table presents gross consumer loans receivable concentration refreshed fico credit score pci loans firm’s risk assessment process includes reviewing certain key metrics delinquency status collateral values expected cash flows risk factors impaired loans receivable excluding pci loans determined impaired probable firm collect principal interest due contractual terms time loans generally placed nonaccrual status accrued uncollected interest reversed interest income interest subsequently collected recognized cash basis extent loan balance deemed collectible otherwise cash received used reduce outstanding loan balance loan considered past due principal interest payment made according contractual terms certain circumstances firm may also modify original terms loan agreement granting concession borrower experiencing financial difficulty modifications considered troubled debt restructurings typically include interest rate reductions payment extensions modification loan covenants loans modified troubled debt restructuring considered impaired subject specific loanlevel reserves gross carrying value impaired loans receivable excluding pci loans nonaccrual status 838 million december 2018 845 million december 2017 loans included 27 million december 2018 61 million december 2017 corporate loans modified troubled debt restructuring firm lending commitments related loans december 2018 december 2017 amount loans 30 days past due 208 million december 2018 567 million december 2017 goldman sachs group inc subsidiaries notes consolidated financial statements determined firm cannot reasonably estimate expected cash flows pci loans pools loans placed nonaccrual status allowance credit losses firm’s allowance credit losses consists allowance losses loans lending commitments firm’s allowance loan losses consists specific loanlevel reserves portfolio level reserves pci loans described • specific loanlevel reserves determined loans excluding pci loans exhibit credit quality weakness therefore individually evaluated impairment • portfolio level reserves determined loans excluding pci loans evaluated specific loanlevel reserves aggregating groups loans similar risk characteristics estimating probable loss inherent portfolio • reserves pci loans recorded determined expected cash flows reassessed quarterly basis lower used establish current effective yield loans pools loans expected cash flows determined significantly higher used establish current effective yield increases initially recognized reduction previously recorded allowances loan losses remaining increases recognized interest income prospectively life loan pools loans increase effective yield allowance loan losses determined using various risk factors including industry default loss data current macroeconomic indicators borrower’s capacity meet financial obligations borrower’s country risk loan seniority collateral type addition loans backed real estate risk factors include loan value ratio debt service ratio home price index risk factors consumer loans include fico credit scores delinquency status management’s estimate loan losses entails judgment loan collectability reporting dates uncertainties inherent judgments management uses best information available determine estimate future adjustments allowance may necessary based among things changes economic environment variances actual results original assumptions used loans charged allowance loan losses deemed uncollectible firm also records allowance losses lending commitments held investment accounted accrual basis allowance determined using methodology allowance loan losses also taking consideration probability drawdowns funding included liabilities table presents gross loans receivable lending commitments impairment methodology table • gross loans receivable lending commitments subject specific loanlevel reserves included 484 million december 2018 492 million december 2017 impaired loans lending commitments require reserve loan deemed recoverable • gross loans receivable deemed impaired subject specific loanlevel reserves percentage total gross loans receivable 10 december 2018 13 december 2017 goldman sachs group inc subsidiaries notes consolidated financial statements table presents information allowance credit losses table • net chargeoffs primarily related consumer loans commercial real estate pci loans 2018 primarily related corporate loans 2017 • provision credit losses primarily related consumer loans corporate loans 2018 primarily related corporate loans lending commitments commercial real estate loans 2017 • represents reduction allowance related loans lending commitments transferred held sale • portfolio level reserves primarily related corporate loans lending commitments specific loanlevel reserves substantially related corporate loans reserves pci loans related real estate loans • substantially allowance losses lending commitments related corporate lending commitments • allowance loan losses percentage total gross loans receivable 13 december 2018 12 december 2017 • net chargeoffs percentage average total gross loans receivable 05 2018 04 2017 note 10 collateralized agreements financings collateralized agreements resale agreements securities borrowed collateralized financings repurchase agreements securities loaned secured financings firm enters transactions order among things facilitate client activities invest excess cash acquire securities cover short positions finance certain firm activities collateralized agreements financings presented netbycounterparty basis legal right setoff exists interest collateralized agreements included interest income collateralized financings included interest expense recognized life transaction see note 23 information interest income interest expense table presents carrying value resale repurchase agreements securities borrowed loaned transactions table • substantially resale agreements repurchase agreements carried fair value fair value option see note 8 information valuation techniques significant inputs used determine fair value • securities borrowed 2314 billion december 2018 7819 billion december 2017 securities loaned 324 billion december 2018 536 billion december 2017 fair value resale repurchase agreements resale agreement transaction firm purchases financial instruments seller typically exchange cash simultaneously enters agreement resell substantially financial instruments seller stated price plus accrued interest future date repurchase agreement transaction firm sells financial instruments buyer typically exchange cash simultaneously enters agreement repurchase substantially financial instruments buyer stated price plus accrued interest future date even though repurchase resale agreements including “repos reversestomaturity” involve legal transfer ownership financial instruments accounted financing arrangements require financial instruments repurchased resold maturity agreement financial instruments purchased sold resale repurchase agreements typically include us government agency investmentgrade sovereign obligations goldman sachs group inc subsidiaries notes consolidated financial statements firm receives financial instruments purchased resale agreements makes delivery financial instruments sold repurchase agreements mitigate credit exposure firm monitors market value financial instruments daily basis delivers obtains additional collateral due changes market value financial instruments appropriate resale agreements firm typically requires collateral fair value approximately equal carrying value relevant assets consolidated statements financial condition securities borrowed loaned transactions securities borrowed transaction firm borrows securities counterparty exchange cash securities firm returns securities counterparty returns cash securities interest generally paid periodically life transaction securities loaned transaction firm lends securities counterparty exchange cash securities counterparty returns securities firm returns cash securities posted collateral interest generally paid periodically life transaction firm receives securities borrowed makes delivery securities loaned mitigate credit exposure firm monitors market value securities daily basis delivers obtains additional collateral due changes market value securities appropriate securities borrowed transactions firm typically requires collateral fair value approximately equal carrying value securities borrowed transaction securities borrowed loaned within ficc client execution recorded fair value fair value option see note 8 information securities borrowed loaned accounted fair value securities borrowed loaned within securities services recorded based amount cash collateral advanced received plus accrued interest agreements generally terminated demand exhibit little sensitivity changes interest rates therefore carrying value agreements approximates fair value agreements accounted fair value included firm’s fair value hierarchy notes 5 8 agreements included firm’s fair value hierarchy would classified level 2 december 2018 december 2017 offsetting arrangements table presents gross net resale repurchase agreements securities borrowed loaned transactions related amount counterparty netting included consolidated statements financial condition well amounts counterparty netting cash securities collateral offset consolidated statements financial condition table • substantially gross carrying values arrangements subject enforceable netting agreements • firm received posted collateral credit support agreements yet determined agreements enforceable related collateral netted • amounts offset includes counterparty netting meet criteria netting us gaap fair value collateral received posted subject enforceable credit support agreements goldman sachs group inc subsidiaries notes consolidated financial statements gross carrying value repurchase agreements securities loaned table presents gross carrying value repurchase agreements securities loaned class collateral pledged table presents gross carrying value repurchase agreements securities loaned maturity date table • repurchase agreements securities loaned repayable prior maturity option firm reflected contractual maturity dates • repurchase agreements securities loaned redeemable prior maturity option holder reflected earliest dates options become exercisable secured financings addition repurchase agreements securities loaned transactions firm funds certain assets use secured financings pledges financial instruments assets collateral transactions secured financings consist • liabilities consolidated vies • transfers assets accounted financings rather sales eg collateralized central bank financings pledged commodities bank loans mortgage whole loans • structured financing arrangements secured financings includes nonrecourse arrangements nonrecourse secured financings 847 billion december 2018 531 billion december 2017 firm elected apply fair value option substantially secured financings use fair value eliminates noneconomic volatility earnings would arise using different measurement attributes see note 8 information secured financings accounted fair value secured financings recorded fair value recorded based amount cash received plus accrued interest generally approximates fair value financings accounted fair value included firm’s fair value hierarchy notes 5 8 financings included firm’s fair value hierarchy would primarily classified level 2 december 2018 december 2017 table presents information secured financings goldman sachs group inc subsidiaries notes consolidated financial statements table • shortterm secured financings includes financings maturing within one year financial statement date financings redeemable within one year financial statement date option holder • us dollardenominated longterm secured financings amortized cost weighted average interest rate 402 december 2018 389 december 2017 rates include effect hedging activities • nonus dollardenominated shortterm secured financings amortized cost weighted average interest rate 261 december 2017 rate includes effect hedging activities • total secured financings included 240 billion december 2018 155 billion december 2017 related transfers financial assets accounted financings rather sales financings collateralized financial assets 241 billion december 2018 157 billion december 2017 primarily included financial instruments owned • secured financings collateralized financial instruments included 1241 billion december 2018 1661 billion december 2017 secured financings collateralized financial instruments owned included 410 billion december 2018 571 billion december 2017 secured financings collateralized financial instruments received collateral repledged table presents secured financings maturity table • longterm secured financings repayable prior maturity option firm reflected contractual maturity dates • longterm secured financings redeemable prior maturity option holder reflected earliest dates options become exercisable collateral received pledged firm receives cash securities eg us government agency obligations sovereign corporate obligations well equity securities collateral primarily connection resale agreements securities borrowed derivative transactions customer margin loans firm obtains cash securities collateral upfront contingent basis derivative instruments collateralized agreements reduce credit exposure individual counterparties many cases firm permitted deliver repledge financial instruments received collateral entering repurchase agreements securities loaned transactions primarily connection secured client financing activities firm also permitted deliver repledge financial instruments connection secured financings collateralized derivative transactions firm customer settlement requirements firm also pledges certain financial instruments owned connection repurchase agreements securities loaned transactions secured financings assets substantially real estate cash connection secured financings counterparties may right deliver repledge table presents financial instruments fair value received collateral available delivered repledged delivered repledged table collateral available delivered repledged excludes 1410 billion december 2018 152 billion december 2017 securities received resale agreements securities borrowed transactions contractually right delivered repledged segregated regulatory purposes table presents information assets pledged firm also segregated securities included financial instruments owned 2303 billion december 2018 1042 billion december 2017 regulatory purposes see note 3 information segregated cash goldman sachs group inc subsidiaries notes consolidated financial statements note 11 securitization activities firm securitizes residential commercial mortgages corporate bonds loans types financial assets selling assets securitization vehicles eg trusts corporate entities limited liability companies resecuritization firm acts underwriter beneficial interests sold investors firm’s residential mortgage securitizations primarily connection government agency securitizations beneficial interests issued securitization entities debt equity instruments give investors rights receive portions specified cash inflows securitization vehicle include senior subordinated interests principal interest andor cash inflows proceeds sale beneficial interests used pay transferor financial assets sold securitization vehicle purchase securities serve collateral firm accounts securitization sale relinquished control transferred financial assets prior securitization firm generally accounts assets pending transfer fair value therefore typically recognize significant gains losses upon transfer assets net revenues underwriting activities recognized connection sales underlying beneficial interests investors transfers financial assets accounted sales assets remain financial instruments owned transfer accounted collateralized financing related interest expense recognized life transaction see note 10 information collateralized financings note 23 information interest expense firm generally receives cash exchange transferred assets may also continuing involvement transferred financial assets including ownership beneficial interests securitized financial assets primarily form debt instruments firm may also purchase senior subordinated securities issued securitization vehicles typically vies connection secondary marketmaking activities primary risks included beneficial interests firm’s continuing involvement securitization vehicles performance underlying collateral position firm’s investment capital structure securitization vehicle market yield security interests primarily accounted fair value classified level 2 fair value hierarchy beneficial interests accounted fair value carried amounts approximate fair value see notes 5 8 information fair value measurements table presents amount financial assets securitized cash flows received retained interests securitization entities firm continuing involvement end period table presents information nonconsolidated securitization entities firm sold assets continuing involvement table • outstanding principal amount presented purpose providing information size securitization entities representative firm’s risk loss • firm’s risk loss retained purchased interests limited carrying value interests goldman sachs group inc subsidiaries notes consolidated financial statements • purchased interests represent senior subordinated interests purchased connection secondary marketmaking activities securitization entities firm also holds retained interests • substantially total outstanding principal amount total retained interests relate securitizations 2014 thereafter december 2018 relate securitizations 2012 thereafter december 2017 • fair value retained interests 328 billion december 2018 213 billion december 2017 addition interests table firm continuing involvement form derivative transactions commitments certain nonconsolidated vies carrying value derivatives commitments net asset 75 million december 2018 86 million december 2017 notional amount derivatives commitments 109 billion december 2018 126 billion december 2017 notional amounts derivatives commitments included maximum exposure loss nonconsolidated vie table note 12 table presents information weighted average key economic assumptions used measuring fair value mortgagebacked retained interests table • amounts reflect benefit financial instruments held mitigate risks inherent retained interests • changes fair value based adverse variation assumptions generally cannot extrapolated relationship change assumptions change fair value usually linear • impact change particular assumption calculated independently changes assumption practice simultaneous changes assumptions might magnify counteract sensitivities disclosed • constant prepayment rate included positions key assumption determination fair value • discount rate retained interests relate us government agencyissued collateralized mortgage obligations include credit loss expected credit loss assumptions reflected discount rate remainder retained interests firm retained interests reflected table fair value 133 million weighted average life 42 years december 2018 fair value 56 million weighted average life 45 years december 2017 due nature fair value certain retained interests weighted average assumptions constant prepayment discount rates related sensitivity adverse changes meaningful december 2018 december 2017 firm’s maximum exposure adverse changes value interests carrying value 133 million december 2018 56 million december 2017 note 12 variable interest entities variable interest vie investment eg debt equity interest eg derivatives loans lending commitments absorb portions vie’s expected losses andor receive portions vie’s expected residual returns firm’s variable interests vies include senior subordinated debt loans lending commitments limited general partnership interests preferred common equity derivatives may include foreign currency equity andor credit risk guarantees certain fees firm receives investment funds certain interest rate foreign currency credit derivatives firm enters vies variable interests create rather absorb risk vies generally finance purchase assets issuing debt equity securities either collateralized indexed assets held vie debt equity securities issued vie may include tranches varying levels subordination firm’s involvement vies includes securitization financial assets described note 11 investments loans types vies described see note 11 information securitization activities including definition beneficial interests see note 3 firm’s consolidation policies including definition vie goldman sachs group inc subsidiaries notes consolidated financial statements vie consolidation analysis enterprise controlling financial interest vie known primary beneficiary consolidates vie firm determines whether primary beneficiary vie performing analysis principally considers • variable interest holder power direct activities vie significantly impact vie’s economic performance • variable interest holder obligation absorb losses right receive benefits vie could potentially significant vie • vie’s purpose design including risks vie designed create pass variable interest holders • vie’s capital structure • terms vie variable interest holders parties involved vie • relatedparty relationships firm reassesses evaluation whether entity vie certain reconsideration events occur firm reassesses determination whether primary beneficiary vie ongoing basis based current facts circumstances vie activities firm principally involved vies following business activities mortgagebacked vies firm sells residential commercial mortgage loans securities mortgagebacked vies may retain beneficial interests assets sold vies firm purchases sells beneficial interests issued mortgagebacked vies connection marketmaking activities addition firm may enter derivatives certain vies primarily interest rate swaps typically variable interests firm generally enters derivatives counterparties mitigate risk real estate credit powerrelated investing vies firm purchases equity debt securities issued makes loans vies hold real estate performing nonperforming debt distressed loans powerrelated assets equity securities firm generally sell assets enter derivatives vies corporate debt assetbacked vies firm structures vies issue notes clients purchases sells beneficial interests issued corporate debt assetbacked vies connection marketmaking activities makes loans vies warehouse corporate debt certain vies synthetically create exposure beneficial interests issue entering credit derivatives firm rather purchasing underlying assets addition firm may enter derivatives total return swaps certain corporate debt assetbacked vies firm pays vie return due beneficial interest holders receives return collateral owned vie collateral owned vies primarily assetbacked loans securities firm generally removed total return swap counterparty enters derivatives counterparties mitigate risk related swaps firm may sell assets corporate debt assetbacked vies structures principalprotected note vies firm structures vies issue principalprotected notes clients vies portfolios assets principally exposure hedge funds substantially principal protection notes issued vies provided asset portfolio rebalancing required terms notes firm enters total return swaps vies firm pays vie return due principalprotected note holders receives return assets owned vie firm may enter derivatives counterparties mitigate risk firm also obtains funding vies investments funds firm makes equity investments certain investment fund vies manages entitled receive fees vies firm generally sell assets enter derivatives vies nonconsolidated vies table presents summary nonconsolidated vies firm holds variable interests goldman sachs group inc subsidiaries notes consolidated financial statements table • nature firm’s variable interests take different forms described rows maximum exposure loss • firm’s exposure obligations vies generally limited interests entities certain instances firm provides guarantees including derivative guarantees vies holders variable interests vies • maximum exposure loss excludes benefit offsetting financial instruments held mitigate risks associated variable interests • maximum exposure loss retained interests purchased interests loans investments carrying value interests • maximum exposure loss commitments guarantees derivatives notional amount represent anticipated losses reduced unrealized losses result maximum exposure loss exceeds liabilities recorded commitments guarantees derivatives table disaggregates principal business activity information nonconsolidated vies included summary table december 2018 december 2017 carrying values firm’s variable interests nonconsolidated vies included consolidated statements financial condition follows • mortgagebacked assets primarily included financial instruments owned • real estate credit powerrelated investing assets primarily included financial instruments owned liabilities included financial instruments sold yet purchased liabilities • corporate debt assetbacked assets primarily included loans receivable liabilities included financial instruments sold yet purchased • investments funds assets included financial instruments owned consolidated vies table presents summary carrying value classification assets liabilities consolidated vies table • assets liabilities presented net intercompany eliminations exclude benefit offsetting financial instruments held mitigate risks associated firm’s variable interests • vies firm holds majority voting interest excluded vie meets definition business ii vie’s assets used purposes settlement obligations • substantially assets used settle obligations vie goldman sachs group inc subsidiaries notes consolidated financial statements table disaggregates principal business activity information consolidated vies included summary table • majority assets principalprotected notes vies intercompany eliminated consolidation • creditors beneficial interest holders real estate creditrelated investing vies mortgagebacked assetbacked vies recourse general credit firm note 13 assets table presents assets type table • property leasehold improvements equipment net accumulated depreciation amortization 908 billion december 2018 828 billion december 2017 property leasehold improvements equipment included 557 billion december 2018 597 billion december 2017 firm uses connection operations 896 million december 2018 982 million december 2017 foreclosed real estate primarily related pci loans remainder held investment entities including vies consolidated firm substantially property equipment depreciated straightline basis useful life asset leasehold improvements amortized straightline basis shorter useful life improvement term lease capitalized costs software developed obtained internal use amortized straightline basis three years • decrease income taxrelated assets december 2017 december 2018 reflected decrease net current tax receivables net deferred tax liability related tax legislation repatriation tax became current netted current tax receivables see note 24 information tax legislation • miscellaneous receivables included debt securities accounted heldtomaturity 129 billion december 2018 800 million december 2017 december 2018 securities primarily backed residential real estate maturities greater ten years december 2017 securities backed residential real estate maturities greater ten years heldtomaturity securities carried amortized cost carrying value securities approximated fair value december 2018 december 2017 securities accounted fair value included firm’s fair value hierarchy notes 5 8 securities included firm’s fair value hierarchy would primarily classified level 2 december 2018 substantially would classified level 2 december 2017 • miscellaneous receivables included investments qualified affordable housing projects 653 million december 2018 679 million december 2017 goldman sachs group inc subsidiaries notes consolidated financial statements • miscellaneous receivables included assets classified held sale 101 billion december 2018 related firm’s new european headquarters london third quarter 2018 firm entered sale leaseback agreement closed january 2019 sell property 153 billion assets classified held sale fourth quarter 2018 construction property substantially completed substantially sale proceeds excess carrying value property recognized life lease reduction occupancy expense accordance asu 201602 firm recorded rightofuse asset upon closing sale lease back agreement january 2019 see note 3 information asu 201602 • miscellaneous receivables included assets classified held sale 365 million december 2018 634 million december 2017 related firm’s consolidated investments within investing lending segment substantially consisted property equipment • miscellaneous receivables included equitymethod investments 357 million december 2018 275 million december 2017 goodwill identifiable intangible assets goodwill table presents carrying value goodwill cost acquired companies excess fair value net assets including identifiable intangible assets acquisition date goodwill assessed impairment annually fourth quarter frequently events occur circumstances change indicate impairment may exist assessing goodwill impairment first qualitative factors assessed determine whether likely estimated fair value reporting unit less estimated carrying value results qualitative assessment conclusive quantitative goodwill test performed quantitative goodwill test compares estimated fair value reporting unit estimated net book value including goodwill identifiable intangible assets reporting unit’s estimated fair value exceeds estimated net book value goodwill impaired impairment recognized estimated fair value reporting unit less estimated net book value estimate fair value reporting unit relative value technique used firm believes market participants would use technique value firm’s reporting units relative value technique applies observable pricetoearnings multiples pricetobook multiples projected return equity comparable competitors reporting units’ net earnings net book value estimated net book value reporting unit reflects allocation total shareholders’ equity represents estimated amount total shareholders’ equity required support activities reporting unit currently applicable regulatory capital requirements fourth quarter 2018 firm assessed goodwill impairment reporting units performing qualitative assessment multiple factors assessed respect firm’s reporting units determine whether likely estimated fair value reporting units less estimated carrying value qualitative assessment also considered changes since prior quantitative tests firm considered following factors qualitative assessment performed fourth quarter evaluating whether likely fair value reporting unit less carrying value • performance indicators 2018 firm’s net revenues diluted earnings per common share return average common shareholders’ equity roe book value per common share increased compared 2017 firm’s operating expenses increased reflecting investments growth higher client activity despite increase expenses efficiency ratio total operating expenses divided total net revenues pretax margin 2018 remained stable compared 2017 significant negative changes firm’s overall cost structure since prior quantitative goodwill tests performed • firm industry events entityspecific otherwise would significant negative impact valuation firm’s reporting units • macroeconomic indicators since prior quantitative goodwill tests firm’s general operating environment improved amid stronger global economic growth goldman sachs group inc subsidiaries notes consolidated financial statements • fair value indicators since prior quantitative goodwill tests fair value indicators market improved global equity prices generally increased credit spreads generally tightened firm publicly traded participants industry stock prices increased since prior tests addition pricetobook multiples generally remained greater 10x pricetoearnings multiples generally lower remained relatively solid result qualitative assessment firm determined likely estimated fair value reporting units exceeded respective carrying value therefore firm determined goodwill reporting unit impaired quantitative goodwill test required subsequent qualitative assessment firm’s stock price declined towards end year due short period time decline continued favorable outlook firm’s performance firm determined triggering event assessment identifiable intangible assets table presents identifiable intangible assets segment type firm acquired 137 million intangible assets 2018 primarily related acquired leases weighted average amortization period four years firm acquired 113 million intangible assets 2017 primarily related acquired leases weighted average amortization period five years substantially firm’s identifiable intangible assets considered finite useful lives amortized estimated useful lives generally using straightline method tables present information amortization identifiable intangible assets impairments firm tests property leasehold improvements equipment identifiable intangible assets impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable extent carrying value asset exceeds projected undiscounted cash flows expected result use eventual disposal asset group firm determines asset impaired records impairment equal difference estimated fair value carrying value asset group addition firm recognize impairment prior sale asset carrying value asset exceeds estimated fair value 2018 2017 2016 impairments material firm’s results operations financial condition note 14 deposits table presents types sources deposits goldman sachs group inc subsidiaries notes consolidated financial statements table • substantially deposits interestbearing • savings demand accounts consist money market deposit accounts negotiable order withdrawal accounts demand deposit accounts stated maturity expiration date • time deposits included 2106 billion december 2018 2290 billion december 2017 deposits accounted fair value fair value option see note 8 information deposits accounted fair value • time deposits weighted average maturity approximately 18 years december 2018 20 years december 2017 • deposit sweep programs represent longterm contractual agreements several us brokerdealers sweep client cash fdicinsured deposits december 2018 december 2017 firm eight deposit sweep program contractual arrangements • deposits insured fdic 8627 billion december 2018 7502 billion december 2017 • deposits insured uk’s financial services compensation scheme 605 billion december 2018 227 million december 2017 table presents deposits held us nonus offices table us deposits held goldman sachs bank usa gs bank usa substantially nonus deposits held goldman sachs international bank gsib table presents maturities time deposits held us nonus offices december 2018 deposits us offices included 378 billion nonus offices included 1712 billion time deposits denominations met exceeded applicable insurance limits otherwise covered insurance firm’s savings demand deposits recorded based amount cash received plus accrued interest approximates fair value addition firm designates certain derivatives fair value hedges convert portion time deposits accounted fair value fixedrate obligations floatingrate obligations carrying value time deposits accounted fair value approximated fair value december 2018 december 2017 savings demand deposits time deposits accounted fair value included firm’s fair value hierarchy notes 5 8 deposits included firm’s fair value hierarchy would classified level 2 december 2018 december 2017 note 15 shortterm borrowings table presents information shortterm borrowings see note 10 information secured financings unsecured shortterm borrowings includes portion unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holder firm accounts certain hybrid financial instruments fair value fair value option see note 8 information unsecured shortterm borrowings accounted fair value addition firm designates certain derivatives fair value hedges convert portion unsecured shortterm borrowings accounted fair value fixedrate obligations floatingrate obligations carrying value unsecured shortterm borrowings recorded fair value generally approximates fair value due shortterm nature obligations unsecured shortterm borrowings accounted fair value included firm’s fair value hierarchy notes 5 8 borrowings included firm’s fair value hierarchy substantially would classified level 2 december 2018 december 2017 goldman sachs group inc subsidiaries notes consolidated financial statements table presents information unsecured shortterm borrowings table • current portion unsecured longterm borrowings included 2091 billion december 2018 2628 billion december 2017 issued group inc • weighted average interest rates borrowings include effect hedging activities exclude unsecured shortterm borrowings accounted fair value fair value option see note 7 information hedging activities note 16 longterm borrowings table presents information longterm borrowings see note 10 information secured financings table presents information unsecured longterm borrowings table • unsecured longterm borrowings consists principally senior borrowings maturities extending 2067 • floatingrate obligations includes equitylinked indexed instruments floating interest rates generally based libor euro interbank offered rate • us dollardenominated debt interest rates ranging 200 1004 weighted average rate 422 december 2018 160 1004 weighted average rate 424 december 2017 rates exclude unsecured longterm borrowings accounted fair value fair value option • nonus dollardenominated debt interest rates ranging 031 1300 weighted average rate 243 december 2018 031 1300 weighted average rate 260 december 2017 rates exclude unsecured longterm borrowings accounted fair value fair value option table presents unsecured longterm borrowings maturity table • unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holder excluded included unsecured shortterm borrowings • unsecured longterm borrowings repayable prior maturity option firm reflected contractual maturity dates • unsecured longterm borrowings redeemable prior maturity option holder reflected earliest dates options become exercisable • unsecured longterm borrowings included 424 billion adjustments carrying value certain unsecured longterm borrowings resulting application hedge accounting year maturity follows 94 million 2020 259 million 2021 69 million 2022 36 million 2023 399 billion 2024 thereafter goldman sachs group inc subsidiaries notes consolidated financial statements 2018 firm repurchased unsecured shortterm longterm borrowings principal amount 410 billion carrying value 453 billion 437 billion recognized net gain 160 million 112 million included institutional client services segment 48 million included investing lending segment firm designates certain derivatives fair value hedges convert portion fixedrate unsecured longterm borrowings accounted fair value floatingrate obligations see note 7 information hedging activities table presents unsecured longterm borrowings giving effect hedging activities table aggregate amounts unsecured longterm borrowings weighted average interest rates 321 379 related fixedrate obligations 279 related floatingrate obligations december 2018 286 367 related fixedrate obligations 202 related floatingrate obligations december 2017 rates exclude unsecured longterm borrowings accounted fair value fair value option december 2018 december 2017 carrying value unsecured longterm borrowings firm elect fair value option approximated fair value borrowings accounted fair value included firm’s fair value hierarchy notes 5 8 borrowings included firm’s fair value hierarchy substantially would classified level 2 december 2018 december 2017 subordinated borrowings unsecured longterm borrowings includes subordinated debt junior subordinated debt junior subordinated debt junior right payment subordinated borrowings junior senior borrowings subordinated debt maturities ranging 2021 2045 december 2018 2020 2045 december 2017 subordinated debt matures within one year included unsecured shortterm borrowings table presents information subordinated borrowings table • par amount subordinated debt issued group inc 1402 billion december 2018 1396 billion december 2017 carrying value subordinated debt issued group inc 1570 billion december 2018 1608 billion december 2017 • rate weighted average interest rate borrowings excluding borrowings accounted fair value fair value option including effect fair value hedges used convert fixedrate obligations floatingrate obligations see note 7 information hedging activities junior subordinated debt 2004 group inc issued 284 billion junior subordinated debt goldman sachs capital trust delaware statutory trust issued 275 billion guaranteed preferred beneficial interests trust preferred securities third parties 85 million common beneficial interests group inc used proceeds issuances purchase junior subordinated debt group inc december 2018 outstanding par amount junior subordinated debt held trust 114 billion outstanding par amount trust preferred securities common beneficial interests issued trust 111 billion 341 million respectively 2018 firm purchased 278 million par amount trust preferred securities delivered securities along 10 million common beneficial interests trust exchange corresponding par amount junior subordinated debt following exchanges trust preferred securities common beneficial interests junior subordinated debt extinguished december 2017 outstanding par amount junior subordinated debt held trust 117 billion outstanding par amount trust preferred securities common beneficial interests issued trust 113 billion 351 million respectively trust whollyowned finance subsidiary firm regulatory legal purposes consolidated accounting purposes goldman sachs group inc subsidiaries notes consolidated financial statements firm pays interest semiannually junior subordinated debt annual rate 6345 debt matures february 15 2034 coupon rate payment dates applicable beneficial interests interest rate payment dates junior subordinated debt firm right time defer payment interest junior subordinated debt therefore cause payment trust’s preferred beneficial interests deferred case ten consecutive semiannual periods deferral period firm permitted among things pay dividends make certain repurchases common stock trust permitted pay distributions common beneficial interests held group inc unless dividends payable preferred beneficial interests paid full firm covenanted favor holders group inc’s 6345 junior subordinated debt due february 15 2034 subject certain exceptions firm redeem purchase capital securities issued goldman sachs capital ii goldman sachs capital iii apex trusts shares group inc’s perpetual noncumulative preferred stock series e series e preferred stock perpetual noncumulative preferred stock series f series f preferred stock perpetual noncumulative preferred stock series redemption purchase results less 253 million aggregate liquidation preference series outstanding prior specified dates 2022 price exceeds maximum amount determined reference net cash proceeds firm received sale qualifying securities apex trusts hold group inc’s series e preferred stock series f preferred stock trusts delaware statutory trusts sponsored firm whollyowned finance subsidiaries firm regulatory legal purposes consolidated accounting purposes note 17 liabilities table presents liabilities type table • decrease income taxrelated liabilities december 2017 december 2018 reflected decrease net deferred tax liability related tax legislation repatriation tax became current netted current tax receivables see note 24 information tax legislation • increase noncontrolling interests december 2017 december 2018 primarily reflected noncontrolling interest consolidated special purpose acquisition company completed initial public offering second quarter 2018 • beginning january 2018 accrued expenses includes contract liabilities represent consideration received firm connection contracts clients prior providing service december 2018 firm’s contract liabilities material note 18 commitments contingencies guarantees commitments table presents commitments type table presents commitments expiration goldman sachs group inc subsidiaries notes consolidated financial statements lending commitments firm’s lending commitments agreements lend fixed termination dates depend satisfaction contractual conditions borrowing commitments presented net amounts syndicated third parties total commitment amount necessarily reflect actual future cash flows firm may syndicate substantial additional portions commitments addition commitments expire unused reduced cancelled counterparty’s request table presents information lending commitments table • held investment lending commitments accounted accrual basis see note 9 information commitments • held sale lending commitments accounted lower cost fair value • gains losses related lending commitments fair value generally recorded net fees principal transactions • substantially lending commitments relates firm’s investing lending segment commercial lending firm’s commercial lending commitments primarily extended investmentgrade corporate borrowers commitments included 9399 billion december 2018 8598 billion december 2017 related relationship lending activities principally used operating general corporate purposes 2792 billion december 2018 4241 billion december 2017 related investment banking activities generally extended contingent acquisition financing often intended shortterm nature borrowers often seek replace funding sources firm also extends lending commitments connection types corporate lending well commercial real estate financing see note 9 information funded loans sumitomo mitsui financial group inc smfg provides firm credit loss protection certain approved loan commitments primarily investmentgrade commercial lending commitments notional amount loan commitments 1552 billion december 2018 2570 billion december 2017 credit loss protection loan commitments provided smfg generally limited 95 first loss firm realizes commitments maximum approximately 950 million addition subject satisfaction certain conditions upon firm’s request smfg provide protection 70 additional losses commitments maximum 10 billion 550 million protection provided december 2018 december 2017 firm also uses financial instruments mitigate credit risks related certain commitments covered smfg instruments primarily include credit default swaps reference similar underlying instrument entity credit default swaps reference market index warehouse financing firm provides financing clients warehouse financial assets arrangements secured warehoused assets primarily consisting consumer corporate loans contingent forward starting collateralized agreements forward starting collateralized financings forward starting collateralized agreements includes resale securities borrowing agreements forward starting collateralized financings includes repurchase secured lending agreements settle future date generally within three business days firm also enters commitments provide contingent financing clients counterparties resale agreements firm’s funding commitments depends satisfaction contractual conditions resale agreement commitments expire unused letters credit firm commitments letters credit issued various banks firm provides counterparties lieu securities cash satisfy various collateral margin deposit requirements investment commitments investment commitments includes commitments invest private equity real estate assets directly funds firm raises manages investment commitments included 242 billion december 2018 209 billion december 2017 related commitments invest funds managed firm commitments called would funded market value date investment goldman sachs group inc subsidiaries notes consolidated financial statements leases firm contractual obligations longterm noncancelable lease agreements office space expiring various dates 2069 certain agreements subject periodic escalation provisions increases real estate taxes charges table presents future minimum rental payments net minimum sublease rentals rent charged operating expense 292 million 2018 273 million 2017 244 million 2016 amounts table include lease payments arising sale leaseback firm’s new european headquarters agreement closed january 2019 see note 13 information sale leaseback agreement operating leases include office space held excess current requirements rent expense relating space held growth included occupancy expenses firm records liability based fair value remaining lease rentals reduced potential existing sublease rentals leases firm ceased using space management concluded firm derive future economic benefits costs terminate lease end term recognized measured fair value termination total occupancy expenses space held excess firm’s current requirements exit costs related office space material 2018 2017 approximately 68 million 2016 contingencies legal proceedings see note 27 information legal proceedings including certain mortgagerelated matters agreements firm entered toll statute limitations certain mortgagerelated contingencies period 2005 2008 connection sales securitizations loans firm provided loanlevel representations andor assigned loanlevel representations party firm purchased loans firm’s exposure claims repurchase residential mortgage loans based alleged breaches representations depend number factors extent claims made within statute limitations taking consideration agreements toll statute limitations firm entered trustees representing certain trusts based upon large number defaults residential mortgages including sold securitized firm potential repurchase claims however firm position make meaningful estimate exposure time contingencies connection sale metro international trade services metro firm agreed provide indemnities buyer primarily relate fundamental representations warranties potential liabilities legal regulatory proceedings arising conduct metro’s business firm owned connection settlement agreement residential mortgagebacked securities working group us financial fraud enforcement task force firm agreed provide 180 billion consumer relief january 2021 december 2018 approximately 120 billion relief provided relief provided form principal forgiveness underwater homeowners distressed borrowers financing construction rehabilitation preservation affordable housing support debt restructuring foreclosure prevention housing quality improvement programs well land banks guarantees table presents derivatives meet definition guarantee securities lending indemnifications certain financial guarantees goldman sachs group inc subsidiaries notes consolidated financial statements table • maximum payout based notional amount contract represent anticipated losses • amounts exclude certain commitments issue standby letters credit included lending commitments see tables “commitments” summary firm’s commitments • carrying value derivatives included derivative assets 148 billion december 2018 133 billion december 2017 derivative liabilities 559 billion december 2018 517 billion december 2017 derivative guarantees firm enters various derivatives meet definition guarantee us gaap including written equity commodity put options written currency contracts interest rate caps floors swaptions derivatives risk managed together derivatives meet definition guarantee therefore amounts table reflect firm’s overall risk related derivative activities disclosures derivatives required may cash settled firm basis conclude probable counterparties held underlying instruments inception contract firm concluded conditions met certain large internationally active commercial investment bank counterparties central clearing counterparties certain counterparties accordingly firm included contracts table addition 2018 firm concluded conditions also met hedge fund counterparties therefore included contracts counterparties table prior periods conformed current presentation see note 7 information credit derivatives meet definition guarantee included table derivatives accounted fair value therefore carrying value considered best indication paymentperformance risk individual contracts however carrying values table exclude effect counterparty cash collateral netting securities lending indemnifications firm capacity agency lender indemnifies securities lending customers losses incurred event borrowers return securities collateral held insufficient cover market value securities borrowed collateral held lenders connection securities lending indemnifications 2875 billion december 2018 3903 billion december 2017 contractual nature arrangements requires firm obtain collateral market value exceeds value securities lent borrower minimal performance risk associated guarantees financial guarantees ordinary course business firm provides financial guarantees obligations third parties eg standby letters credit guarantees enable clients complete transactions fundrelated guarantees represent obligations make payments beneficiaries guaranteed party fails fulfill obligation contractual arrangement beneficiary guarantees securities issued trusts firm established trusts including goldman sachs capital apex trusts entities limited purpose issuing securities third parties lending proceeds firm entering contractual arrangements firm third parties related purpose firm consolidate entities see note 16 information transactions involving goldman sachs capital apex trusts firm effectively provides full unconditional guarantee securities issued entities timely payment firm amounts due entities guarantee borrowing preferred stock related contractual arrangements sufficient cover payments due securities issued entities management believes unlikely circumstances occur nonperformance part paying agents service providers would make necessary firm make payments related entities required terms guarantee borrowing preferred stock related contractual arrangements connection certain expenses incurred entities indemnities guarantees service providers ordinary course business firm indemnifies guarantees certain service providers clearing custody agents trustees administrators specified potential losses connection acting agent providing services firm affiliates goldman sachs group inc subsidiaries notes consolidated financial statements firm may also liable clients parties losses arising custodial role caused acts omissions thirdparty service providers including subcustodians thirdparty brokers certain cases firm right seek indemnification thirdparty service providers certain relevant losses incurred firm addition firm member payment clearing settlement networks well securities exchanges around world may require firm meet obligations networks exchanges event member defaults loss scenarios connection firm’s prime brokerage clearing businesses firm agrees clear settle behalf clients transactions entered brokerage firms firm’s obligations respect transactions secured assets client’s account well proceeds received transactions cleared settled firm behalf client connection joint venture investments firm may issue loan guarantees may liable event fraud misappropriation environmental liabilities certain matters involving borrower firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements material liabilities related guarantees indemnifications recognized consolidated statements financial condition december 2018 december 2017 representations warranties indemnifications firm provides representations warranties counterparties connection variety commercial transactions occasionally indemnifies potential losses caused breach representations warranties firm may also provide indemnifications protecting changes adverse application certain us tax laws connection ordinarycourse transactions securities issuances borrowings derivatives addition firm may provide indemnifications counterparties protect event additional taxes owed payments withheld due either change adverse application certain nonus tax laws indemnifications generally standard contractual terms entered ordinary course business generally stated notional amounts included indemnifications contingencies triggering obligation indemnify expected occur firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements material liabilities related arrangements recognized consolidated statements financial condition december 2018 december 2017 guarantees subsidiaries group inc fully unconditionally guarantees securities issued gs finance corp whollyowned finance subsidiary firm group inc guaranteed payment obligations goldman sachs co llc gsco gs bank usa subject certain exceptions group inc guarantees many obligations consolidated subsidiaries transactionbytransaction basis negotiated counterparties group inc unable develop estimate maximum payout subsidiary guarantees however obligations also obligations consolidated subsidiaries group inc’s liabilities guarantor separately disclosed note 19 shareholders’ equity common equity december 2018 december 2017 firm 400 billion authorized shares common stock 200 million authorized shares nonvoting common stock par value 001 per share firm’s share repurchase program intended help maintain appropriate level common equity share repurchase program effected primarily regular openmarket purchases may include repurchase plans designed comply rule 10b51 amounts timing determined primarily firm’s current projected capital position capital deployment opportunities may also influenced general market conditions prevailing price trading volumes firm’s common stock prior repurchasing common stock firm must receive confirmation frb object capital action goldman sachs group inc subsidiaries notes consolidated financial statements table presents amount common stock repurchased share repurchase program pursuant terms certain sharebased compensation plans employees may remit shares firm may cancel sharebased awards satisfy statutory employee tax withholding requirements exercise price stock options plans 1120 shares 2018 12165 shares 2017 49374 shares 2016 remitted total value 03 million 2018 3 million 2017 7 million 2016 firm cancelled 50 million sharebased awards 2018 127 million 2017 116 million 2016 total value 124 billion 2018 303 billion 2017 203 billion 2016 table presents common stock dividends declared january 15 2019 board directors group inc board declared dividend 080 per common share paid march 28 2019 common shareholders record february 28 2019 preferred equity tables present information perpetual preferred stock issued outstanding december 2018 tables • shares par value 001 per share applicable share represented specified number depositary shares • earliest redemption date represents date share noncumulative preferred stock redeemable firm’s option • prior redeeming preferred stock firm must receive confirmation frb object action • redemption price per share series f preferred stock liquidation preference plus declared unpaid dividends redemption price per share series j p preferred stock liquidation preference plus accrued unpaid dividends share noncumulative series e series f preferred stock issued outstanding redeemable firm’s option subject certain covenant restrictions governing firm’s ability redeem preferred stock without issuing common stock instruments equitylike characteristics see note 16 information replacement capital covenants applicable series e series f preferred stock • series preferred stock pari passu preference firm’s common stock liquidation • firm’s ability declare pay dividends purchase redeem otherwise acquire common stock subject certain restrictions event firm fails pay set aside full dividends preferred stock latest completed dividend period 2018 firm redeemed 26000 shares outstanding series b 620 noncumulative preferred stock series b preferred stock redemption value 650 million 25000 per share difference redemption value series b preferred stock net carrying value time redemption 15 million recorded addition preferred stock dividends 2018 goldman sachs group inc subsidiaries notes consolidated financial statements 2017 firm redeemed 34000 shares series 595 noncumulative preferred stock series preferred stock stated redemption price 850 million 25000 per share plus accrued unpaid dividends difference redemption value series preferred stock net carrying value time redemption 14 million recorded addition preferred stock dividends 2017 2016 firm delivered par amount 132 billion fair value 104 billion apex trusts exchange 9833 shares series e preferred stock 3385 shares series f preferred stock total redemption value 132 billion net carrying value 131 billion following exchange shares series e series f preferred stock cancelled difference fair value apex net carrying value preferred stock time cancellation 266 million recorded reduction preferred stock dividends 2016 table presents dividend rates perpetual preferred stock december 2018 table dividends series preferred stock payable arrears periods specified table presents preferred stock dividends declared table total preferred dividend amounts series e series f preferred stock 2016 include prorated dividends 86667 per share related 4861 shares series e preferred stock 1639 shares series f preferred stock cancelled 2016 january 7 2019 group inc declared dividends 23438 per share series preferred stock 38750 per share series b preferred stock 25000 per share series c preferred stock 25000 per share series preferred stock 34375 per share series j preferred stock 39844 per share series k preferred stock 39375 per share series n preferred stock paid february 11 2019 preferred shareholders record january 27 2019 addition firm declared dividends 97778 per share series e preferred stock series f preferred stock paid march 1 2019 preferred shareholders record february 14 2019 accumulated comprehensive incomeloss table presents changes accumulated comprehensive incomeloss net tax type goldman sachs group inc subsidiaries notes consolidated financial statements note 20 regulation capital adequacy frb primary regulator group inc bank holding company bhc us bank holding company act 1956 financial holding company amendments act bhc firm subject consolidated regulatory capital requirements calculated accordance regulations frb capital framework capital requirements expressed riskbased capital leverage ratios compare measures regulatory capital riskweighted assets rwas average assets offbalancesheet exposures failure comply capital requirements could result restrictions imposed firm’s regulators could limit firm’s ability distribute capital including share repurchases dividend payments make certain discretionary compensation payments firm’s capital levels also subject qualitative judgments regulators components capital risk weightings factors furthermore certain firm’s subsidiaries subject separate regulations capital requirements capital framework regulations capital framework largely based basel committee banking supervision’s basel committee capital framework strengthening international capital standards basel iii also implement certain provisions doddfrank act capital framework firm “advanced approach” banking organization designated global systemically important bank gsib capital framework includes riskbased capital buffers began phase ratably january 1 2016 became fully effective january 1 2019 riskbased capital buffers include capital conservation buffer gsib buffer countercyclical capital buffer must consist entirely capital qualifies common equity tier 1 cet1 gsib buffer extension capital conservation buffer updated annually based financial data prior year generally applicable following year countercyclical capital buffer also extension capital conservation buffer intended counteract systemic vulnerabilities capital framework also requires deductions regulatory capital phased ratably per year 2014 2018 addition junior subordinated debt issued trusts fully phased regulatory capital 2022 firm calculates cet1 tier 1 capital total capital ratios accordance standardized approach market risk rules set capital framework together standardized capital rules ii advanced approach market risk rules set capital framework together basel iii advanced rules lower riskbased capital ratio calculated ii ratio firm’s compliance minimum riskbased ratio requirements assessed capital framework firm also subject tier 1 leverage requirements established frb capital framework also introduced supplementary leverage ratio slr became effective january 1 2018 consolidated regulatory riskbased capital leverage ratios table presents minimum riskbased capital leverage ratios table presents information riskbased capital ratios goldman sachs group inc subsidiaries notes consolidated financial statements table presents information leverage ratios tables • riskbased capital ratios calculated accordance basel iii advanced rules lower calculated accordance standardized capital rules therefore basel iii advanced ratios applied firm december 2018 december 2017 • effective january 2018 firm became subject cet1 ratios calculated fully phasedin basis december 2017 firm’s cet1 ratios calculated accordance standardized capital rules basel iii advanced rules fully phasedin basis 02 percentage points lower transitional basis • beginning fourth quarter 2018 firm’s default experience incorporated determination probability default calculation basel iii advanced rwas impact change increase firm’s basel iii advanced cet1 ratio approximately 08 percentage points • minimum riskbased capital ratios december 2018 reflect 75 phasein capital conservation buffer 25 ii 75 phasein gsib buffer 25 iii countercyclical capital buffer frb set zero • minimum riskbased capital ratios december 2017 reflect 50 phasein capital conservation buffer 25 ii 50 phasein gsib buffer 25 iii countercyclical capital buffer frb set zero • minimum slr december 2018 reflects 2 buffer applicable gsibs • tier 1 capital deductions tier 1 capital calculated transitional basis december 2017 • average total assets represents daily average assets quarter • offbalancesheet exposures represents monthly average consists derivatives securities financing transactions commitments guarantees • tier 1 leverage ratio calculated tier 1 capital divided average adjusted total assets • slr calculated tier 1 capital divided total leverage exposure riskbased capital table presents information riskbased capital table • deduction goodwill net deferred tax liabilities 661 million december 2018 654 million december 2017 • deduction identifiable intangible assets net deferred tax liabilities 27 million december 2018 40 million december 2017 deduction identifiable intangible assets fully phased cet1 january 2018 december 2017 cet1 reflects 80 identifiable intangible assets deduction remaining 20 risk weighted • deduction investments covered funds represents firm’s aggregate investments applicable covered funds excluding investments subject extended conformance period see note 6 information volcker rule goldman sachs group inc subsidiaries notes consolidated financial statements • adjustments within cet1 tier 1 capital primarily include credit valuation adjustments derivative liabilities pension postretirement liabilities overfunded portion firm’s defined benefit pension plan obligation net associated deferred tax liabilities disallowed deferred tax assets debt valuation adjustments required credit riskbased deductions deduction items fully phased cet1 january 2018 december 2017 cet1 reflects 80 deduction substantially balance deducted cet1 december 2017 deducted tier 1 capital within adjustments within basel iii advanced tier 2 capital include eligible credit reserves • qualifying subordinated debt subordinated debt issued group inc original maturity five years greater outstanding amount subordinated debt qualifying tier 2 capital reduced upon reaching remaining maturity five years see note 16 information firm’s subordinated debt • junior subordinated debt represents debt issued trust december 2018 40 debt included tier 2 capital 60 fully phased regulatory capital december 2017 50 debt included tier 2 capital 50 fully phased regulatory capital junior subordinated debt reduced amount trust preferred securities purchased firm fully phased tier 2 capital 2022 rate 10 per year see note 16 information firm’s junior subordinated debt trust preferred securities purchased firm tables present changes cet1 tier 1 capital tier 2 capital tables change transitional provisions represents increased phasein certain deductions adjustments 80 100 effective january 1 2018 60 80 effective january 1 2017 goldman sachs group inc subsidiaries notes consolidated financial statements riskweighted assets rwas calculated accordance standardized capital rules basel iii advanced rules credit risk credit rwas calculated based upon measures exposure risk weighted standardized capital rules basel iii advanced rules • standardized capital rules apply prescribed riskweights depend largely type counterparty exposure measure derivatives securities financing transactions based specific formulas take certain factors consideration • basel iii advanced rules firm computes riskweights wholesale retail credit exposures accordance advanced internal ratingsbased approach exposure measures derivatives securities financing transactions computed utilizing internal models • standardized basel iii advanced credit rwas riskweights securitizations equities based specific required formulaic approaches market risk rwas market risk accordance standardized capital rules basel iii advanced rules generally consistent market rwas calculated based measures exposure include valueatrisk var stressed var incremental risk comprehensive risk based internal models standardized measurement method specific risk • var potential loss value inventory positions well certain financial assets financial liabilities due adverse market movements defined time horizon specified confidence level risk management purposes regulatory capital calculations firm uses single var model captures risks including related interest rates equity prices currency rates commodity prices however var used regulatory capital requirements regulatory var differs risk management var due different time horizons confidence levels 10day 99 regulatory var vs oneday 95 risk management var well differences scope positions var calculated addition daily net revenues used determine risk management var exceptions ie comparing daily net revenues var measure calculated end prior business day include intraday activity whereas frb’s regulatory capital rules require intraday activity excluded daily net revenues calculating regulatory var exceptions intraday activity includes bidoffer net revenues likely positive nature result may differences number var exceptions amount daily net revenues calculated regulatory var compared amounts calculated risk management var firm’s positional losses observed single day exceeded 99 oneday regulatory var two occasions 2018 exceed 99 oneday regulatory var 2017 change var multiplier used calculate market rwas • stressed var potential loss value inventory positions well certain financial assets financial liabilities period significant market stress • incremental risk potential loss value nonsecuritized inventory positions due default credit migration issuers financial instruments oneyear time horizon • comprehensive risk potential loss value due price risk defaults within firm’s credit correlation positions • specific risk loss position could result factors broad market movements including event risk default risk idiosyncratic risk standardized measurement method used determine specific risk rwas applying supervisory defined riskweighting factors applicable netting performed operational risk operational rwas required included basel iii advanced rules firm utilizes internal riskbased model quantify operational rwas tables present information rwas goldman sachs group inc subsidiaries notes consolidated financial statements tables • securities financing transactions represent resale repurchase agreements securities borrowed loaned transactions • includes receivables certain debt securities cash equivalents assets tables present changes rwas rollforward commentary year ended december 2018 standardized credit rwas december 2018 increased 511 billion compared december 2017 primarily reflecting increase commitments guarantees loans principally due increase lending activity increase partially offset decrease securities financing transactions principally due reduced exposures standardized market rwas december 2018 decreased 1281 billion compared december 2017 primarily reflecting decrease specific risk positions firm obtained increased transparency underliers result utilized modeled approach calculate rwas basel iii advanced credit rwas december 2018 decreased 4457 billion compared december 2017 beginning fourth quarter 2018 firm’s default experience incorporated determination probability default resulted decrease credit rwas primarily commitments guarantees loans derivatives basel iii advanced market rwas december 2018 decreased 1228 billion compared december 2017 primarily reflecting decrease specific risk positions firm obtained increased transparency underliers result utilized modeled approach calculate rwas goldman sachs group inc subsidiaries notes consolidated financial statements year ended december 2017 standardized credit rwas december 2017 increased 5682 billion compared december 2016 primarily reflecting increase commitments guarantees loans principally due increased lending activity standardized market rwas december 2017 increased 212 billion compared december 2016 primarily reflecting increase stressed var result increased risk exposures partially offset decreases specific risk result changes risk exposures comprehensive risk result changes risk measurements basel iii advanced credit rwas december 2017 increased 6323 billion compared december 2016 primarily reflecting increase commitments guarantees loans principally due increased lending activity basel iii advanced market rwas december 2017 increased 238 billion compared december 2016 primarily reflecting increase stressed var result increased risk exposures partially offset decreases specific risk result changes risk exposures comprehensive risk result changes risk measurements bank subsidiaries regulatory capital ratios gs bank usa fdicinsured new york statechartered bank member federal reserve system supervised regulated frb fdic new york state department financial services bureau consumer financial protection subject regulatory capital requirements calculated substantially manner applicable bhcs purposes assessing adequacy capital gs bank usa calculates capital ratios accordance regulatory capital requirements applicable state member banks requirements based capital framework described gs bank usa advanced approach banking organization capital framework regulatory framework prompt corrective action applicable gs bank usa order meet quantitative requirements “wellcapitalized” depository institution gs bank usa must meet higher minimum requirements minimum ratios table order considered “wellcapitalized” depository institution gs bank usa must meet slr requirement 60 greater became effective january 1 2018 gs bank usa’s capital levels prompt corrective action classification also subject qualitative judgments regulators components capital risk weightings factors failure comply capital requirements including breach buffers described could result restrictions imposed gs bank usa’s regulators similar firm gs bank usa required calculate cet1 tier 1 capital total capital ratios accordance standardized capital rules basel iii advanced rules lower riskbased capital ratio calculated accordance standardized capital rules basel iii advanced rules ratio gs bank usa’s compliance minimum ratio requirements assessed table presents gs bank usa’s minimum riskbased capital leverage ratios “wellcapitalized” minimum ratios table presents information gs bank usa’s riskbased capital ratios table presents information gs bank usa’s leverage ratios goldman sachs group inc subsidiaries notes consolidated financial statements tables • riskbased capital ratios calculated accordance standardized capital rules lower calculated accordance basel iii advanced rules therefore standardized capital ratios applied gs bank usa december 2018 december 2017 • minimum riskbased capital ratios december 2018 reflect 75 phasein capital conservation buffer 25 ii countercyclical capital buffer zero percent • minimum riskbased capital ratios december 2017 reflect 50 phasein capital conservation buffer 25 ii countercyclical capital buffer zero percent • beginning fourth quarter 2018 firm’s default experience incorporated determination probability default calculation basel iii advanced rwas impact change increase gs bank usa’s basel iii advanced cet1 ratio approximately 16 percentage points • standardized cet1 ratio tier 1 capital ratio remained essentially unchanged december 2017 december 2018 • standardized total capital ratio increased december 2017 december 2018 primarily due increase total capital principally due issuance subordinated debt • basel iii advanced cet1 ratio tier 1 capital ratio total capital ratio increased december 2017 december 2018 beginning fourth quarter 2018 firm’s default experience incorporated determination probability default resulted decrease credit rwas primarily commitments guarantees loans derivatives • tier 1 capital deductions tier 1 capital calculated transitional basis december 2017 • tier 1 leverage ratio calculated tier 1 capital divided average adjusted total assets • slr calculated tier 1 capital divided total leverage exposure firm’s principal nonus bank subsidiary gsib whollyowned credit institution regulated prudential regulation authority financial conduct authority subject minimum capital requirements december 2018 december 2017 gsib compliance regulatory capital requirements deposits gs bank usa insured fdic extent provided law frb requires gs bank usa maintain cash reserves federal reserve bank new york amount deposited gs bank usa federal reserve bank new york 2920 billion december 2018 5086 billion december 2017 exceeded required reserve amounts 2903 billion december 2018 5074 billion december 2017 restrictions payments group inc may limited ability access capital held certain subsidiaries result regulatory tax constraints limitations include provisions applicable law regulations regulatory restrictions limit ability subsidiaries declare pay dividends without prior regulatory approval eg dividends may paid gs bank usa limited lesser amounts calculated recent earnings test undivided profits test even relevant subsidiary would satisfy equity capital requirements applicable giving effect dividend example frb fdic new york state department financial services authority prohibit limit payment dividends banking organizations supervise including gs bank usa regulator’s opinion payment dividend would constitute unsafe unsound practice light financial condition banking organization addition subsidiaries subject separate regulatory capital requirements may hold capital satisfy local tax legal guidelines rating agency requirements entities assigned credit ratings internal policies including policies concerning minimum amount capital subsidiary hold based underlying level risk group inc’s equity investment subsidiaries 9022 billion december 2018 9388 billion december 2017 group inc required maintain 5292 billion december 2018 5302 billion december 2017 minimum equity capital regulated subsidiaries order satisfy regulatory requirements subsidiaries group inc’s capital invested certain nonus subsidiaries exposed foreign exchange risk substantially managed combination derivatives nonus denominated debt see note 7 information firm’s net investment hedges used hedge risk goldman sachs group inc subsidiaries notes consolidated financial statements note 21 earnings per common share basic earnings per common share eps calculated dividing net earnings applicable common shareholders weighted average number common shares outstanding restricted stock units rsus future service required condition delivery underlying common stock collectively basic shares diluted eps includes determinants basic eps addition reflects dilutive effect common stock deliverable stock options rsus future service required condition delivery underlying common stock table presents information basic diluted eps table • unvested sharebased awards nonforfeitable rights dividends dividend equivalents treated separate class securities calculating eps impact applying methodology reduction basic eps 005 2018 006 2017 005 2016 • diluted eps include antidilutive securities rsus common shares underlying stock options less 01 million 2018 01 million 2017 28 million 2016 note 22 transactions affiliated funds firm formed numerous nonconsolidated investment funds thirdparty investors firm generally acts investment manager funds entitled receive management fees certain cases advisory fees incentive fees funds additionally firm invests alongside thirdparty investors certain funds tables present fees earned affiliated funds fees receivable affiliated funds aggregate carrying value firm’s interests affiliated funds firm may periodically determine waive certain management fees selected money market funds management fees waived 51 million 2018 98 million 2017 volcker rule restricts firm providing financial support covered funds defined rule expiration conformance period general matter ordinary course business firm expect provide additional voluntary financial support covered funds may choose respect funds subject volcker rule however event support provided amount expected material firm outstanding guarantee permitted volcker rule behalf funds 154 million december 2018 december 2017 firm voluntarily provided guarantee connection financing agreement thirdparty lender executed one firm’s real estate funds covered volcker rule december 2018 december 2017 except noted firm provided additional financial support affiliated funds addition ordinary course business firm may also engage activities affiliated funds including among others securities lending trade execution marketmaking custody acquisition bridge financing see note 18 firm’s investment commitments related funds goldman sachs group inc subsidiaries notes consolidated financial statements note 23 interest income interest expense interest recorded life instrument accrual basis based contractual interest rates table presents sources interest income interest expense table • collateralized agreements includes rebates paid interest income securities borrowed • interest income includes interest income customer debit balances interestearning assets • collateralized financings consists repurchase agreements securities loaned • interest expense includes rebates received interestbearing liabilities interest expense customer credit balances note 24 income taxes tax legislation provision taxes 2017 reflected estimated impact tax legislation 440 billion 440 billion income tax expense included repatriation tax undistributed earnings foreign subsidiaries effects implementation territorial tax system remeasurement us deferred tax assets lower enacted tax rates 2018 firm finalized estimate reflect impact updated information including subsequent guidance issued us internal revenue service irs resulting 487 million income tax benefit provision income taxes income taxes provided using asset liability method deferred tax assets liabilities recognized temporary differences financial reporting tax bases assets liabilities firm reports interest expense related income tax matters provision taxes income tax penalties expenses table presents information provision taxes table • state local current taxes 2017 2016 includes impact settlements state local examinations • us federal current tax expense us federal deferred tax expense 2018 2017 includes impact tax legislation goldman sachs group inc subsidiaries notes consolidated financial statements table presents reconciliation us federal statutory income tax rate effective income tax rate table • nonus operations 2018 includes impact base erosion antiabuse tax global intangible low taxed income gilti • nonus operations 2017 2016 includes impact permanently reinvested earnings excludes estimated impact tax legislation • state local taxes 2017 2016 net us federal income tax effects includes impact settlements state local examinations deferred income taxes deferred income taxes reflect net tax effects temporary differences financial reporting tax bases assets liabilities temporary differences result taxable deductible amounts future years measured using tax rates laws effect differences expected reverse valuation allowances established reduce deferred tax assets amount likely realized primarily relate ability utilize losses various tax jurisdictions tax assets included assets tax liabilities included liabilities table presents information deferred tax assets liabilities excluding impact netting within tax jurisdictions firm recorded deferred tax assets 688 million december 2018 428 million december 2017 connection us federal state local foreign net operating loss carryforwards firm also recorded valuation allowance 81 million december 2018 128 million december 2017 related net operating loss carryforwards december 2018 us federal net operating loss carryforward 259 million state local net operating loss carryforward 135 billion foreign net operating loss carryforward 239 billion utilized us federal state local foreign net operating loss carryforwards begin expire 2019 carryforwards expire material impact firm’s results operations december 2018 firm recorded deferred tax assets 24 million connection foreign tax credit carryforwards valuation allowance 24 million related foreign tax credit carryforwards december 2018 firm recorded deferred tax assets 38 million connection state local tax credit carryforwards utilized foreign tax credit carryforward expire 2028 state local tax credit carryforward begin expire 2020 december 2018 firm general business credit carryforwards december 2018 december 2017 firm us capital loss carryforwards related net deferred income tax assets december 2018 firm deferred tax assets 77 million connection foreign capital loss carryforwards valuation allowance 77 million related capital loss carryforwards december 2017 foreign capital loss carryforwards goldman sachs group inc subsidiaries notes consolidated financial statements valuation allowance increased 89 million 2018 increased 41 million 2017 increases 2018 2017 primarily due increase deferred tax assets firm expect realize benefit firm permanently reinvested eligible earnings certain foreign subsidiaries december 2018 us taxes accrued subsidiaries’ distributable earnings substantially resulted tax legislation repatriation tax gilti december 2017 substantially us taxes accrued subsidiaries’ earnings profits result tax legislation repatriation tax unrecognized tax benefits firm recognizes tax positions consolidated financial statements likely position sustained examination relevant taxing authority based technical merits position meets standard measured largest amount benefit likely realized settlement liability established differences positions taken tax return amounts recognized consolidated financial statements accrued liability interest expense related income tax matters income tax penalties 107 million december 2018 81 million december 2017 firm recognized interest expense income tax penalties 18 million 2018 63 million 2017 27 million 2016 reasonably possible unrecognized tax benefits could change significantly twelve months subsequent december 2018 due potential audit settlements however time possible estimate potential change table presents changes liability unrecognized tax benefits included liabilities regulatory tax examinations firm subject examination irs taxing authorities jurisdictions firm significant business operations united kingdom japan hong kong various states new york tax years examination vary jurisdiction firm expect completion audits material impact firm’s financial condition may material operating results particular period depending part operating results period table presents earliest tax years remain subject examination major jurisdiction us federal examinations 2011 2012 began 2013 firm accepted compliance assurance process program irs tax years 2013 2019 program allows firm work irs identify resolve potential us federal tax issues filing tax returns 2013 2017 tax years remain subject postfiling review new york state city examinations excluding gs bank usa 2011 2014 began 2017 new york state city examinations gs bank usa completed 2014 years including subsequent years table remain open examination taxing authorities firm believes liability unrecognized tax benefits established adequate relation potential additional assessments goldman sachs group inc subsidiaries notes consolidated financial statements note 25 business segments firm reports activities following four business segments investment banking institutional client services investing lending investment management basis presentation reporting segments certain firm’s business lines aggregated similar economic characteristics similar following areas nature services provide ii methods distribution iii types clients serve iv regulatory environments operate cost drivers firm taken whole compensation headcount levels business activity broadly similar firm’s business segments compensation benefits expenses firm’s segments reflect among factors overall performance firm well performance individual businesses consequently pretax margins one segment firm’s business may significantly affected performance firm’s business segments firm allocates assets including allocations global core liquid assets cash secured client financing assets revenues expenses among four business segments due integrated nature segments estimates judgments made allocating certain assets revenues expenses allocation process based manner management currently views performance segments management believes allocation provides reasonable representation segment’s contribution consolidated pretax earnings total assets transactions segments based specific criteria approximate thirdparty rates table presents net revenues provision credit losses operating expenses pretax earnings segment goldman sachs group inc subsidiaries notes consolidated financial statements table • revenues expenses directly associated segment included determining pretax earnings • net revenues firm’s segments include allocations interest income expense specific securities commodities positions relation cash generated funding requirements positions net interest included segment net revenues consistent management assesses segment performance • overhead expenses directly allocable specific segments allocated ratably based direct segment expenses • provision credit losses previously reported investing lending segment net revenues reported separate line item consolidated statements earnings previously reported amounts conformed current presentation • operating expenses allocated firm’s segments except charitable contributions 132 million 2018 127 million 2017 114 million 2016 • total operating expenses included net provisions litigation regulatory proceedings 844 million 2018 188 million 2017 396 million 2016 table presents assets segment table presents net interest income segment table presents depreciation amortization expense segment geographic information due highly integrated nature international financial markets firm manages businesses based profitability enterprise whole methodology allocating profitability geographic regions dependent estimates management judgment significant portion firm’s activities require crossborder coordination order facilitate needs firm’s clients geographic results generally allocated follows • investment banking location client investment banking team • institutional client services ficc client execution equities excluding securities services location marketmaking desk securities services location primary market underlying security • investing lending investing location investment lending location client • investment management location sales team table presents total net revenues pretax earnings net earnings excluding corporate geographic region allocated based methodology referred goldman sachs group inc subsidiaries notes consolidated financial statements table • americas net earnings included income tax benefit 487 million 2018 estimated income tax expense 440 billion 2017 related tax legislation • corporate pretax earnings includes charitable contributions allocated firm’s geographic regions • substantially amounts americas attributable us • asia includes australia new zealand note 26 credit concentrations firm’s concentrations credit risk arise market making client facilitation investing underwriting lending collateralized transactions cash management activities may impacted changes economic industry political factors activities expose firm many different industries counterparties may also subject firm concentration credit risk particular central bank counterparty borrower issuer including sovereign issuers particular clearing house exchange firm seeks mitigate credit risk actively monitoring exposures obtaining collateral counterparties deemed appropriate firm measures monitors credit exposure based amounts owed firm taking account risk mitigants management considers determining credit risk mitigants include netting collateral arrangements economic hedges credit derivatives futures forward contracts netting collateral agreements permit firm offset receivables payables counterparties andor enable firm obtain collateral upfront contingent basis table presents credit concentrations cash instruments included financial instruments owned addition firm 9047 billion december 2018 7613 billion december 2017 cash deposits held central banks included cash equivalents 2920 billion december 2018 5086 billion december 2017 held federal reserve bank new york december 2018 december 2017 firm credit exposure counterparty exceeded 2 total assets collateral obtained firm related derivative assets principally cash held firm thirdparty custodian collateral obtained firm related resale agreements securities borrowed transactions primarily us government agency obligations nonus government agency obligations see note 10 information collateralized agreements financings table presents us government agency obligations nonus government agency obligations collateralize resale agreements securities borrowed transactions table • nonus government agency obligations primarily consists securities issued governments japan france uk germany • given firm’s primary credit exposure transactions counterparty transaction firm would exposed collateral issuer event counterparty default goldman sachs group inc subsidiaries notes consolidated financial statements note 27 legal proceedings firm involved number judicial regulatory arbitration proceedings including described concerning matters arising connection conduct firm’s businesses many proceedings early stages many cases seek indeterminate amount damages asc 450 event “reasonably possible” “the chance future event events occurring remote less likely” event “remote” “the chance future event events occurring slight” thus references upper end range reasonably possible loss cases firm able estimate range reasonably possible loss mean upper end range loss cases firm believes risk loss slight respect matters described management able estimate range reasonably possible loss actual potential plaintiffs claimed amount money damages ii firm threatened sued purchasers securities offering indemnified party firm believes pay full amount judgment iii purchasers demanding firm repurchase securities management estimated upper end range reasonably possible loss equal case amount money damages claimed b case ii difference initial sales price securities firm sold offering estimated lowest subsequent price securities prior action commenced c case iii price purchasers paid securities less estimated value december 2018 relevant securities cases ii iii taking account factors believed relevant particular matter matters type date hereof firm estimated upper end range reasonably possible aggregate loss matters described management able estimate range reasonably possible aggregate loss approximately 19 billion excess aggregate reserves matters management generally unable estimate range reasonably possible loss matters included estimate including actual potential plaintiffs claimed amount money damages except instances management otherwise determine appropriate amount ii matters early stages iii matters relate regulatory investigations reviews except instances management otherwise determine appropriate amount iv uncertainty likelihood class certified ultimate size class v uncertainty outcome pending appeals motions vi significant factual issues resolved andor vii novel legal issues presented example firm’s potential liabilities respect investigations reviews described “regulatory investigations reviews related litigation” generally included management’s estimate reasonably possible loss however management believe based currently available information outcomes matters material adverse effect firm’s financial condition though outcomes could material firm’s operating results particular period depending part upon operating results period see note 18 information mortgagerelated contingencies 1malaysia development berhad 1mdbrelated matters firm received subpoenas requests documents information various governmental regulatory bodies selfregulatory organizations part investigations reviews relating financing transactions matters involving 1mdb sovereign wealth fund malaysia subsidiaries firm acted arrangers purchasers approximately 65 billion debt securities 1mdb goldman sachs group inc subsidiaries notes consolidated financial statements november 1 2018 us department justice doj unsealed criminal information guilty plea tim leissner former participating managing director firm indictment ng chong hwa former managing director firm low taek jho leissner pleaded guilty twocount criminal information charging conspiring launder money conspiring violate us foreign corrupt practices act’s fcpa antibribery internal accounting controls provisions low ng charged threecount indictment conspiring launder money conspiring violate fcpa’s antibribery provisions august 28 2018 leissner’s guilty plea accepted us district court eastern district new york leissner adjudicated guilty counts ng also charged indictment conspiring violate fcpa’s internal accounting controls provisions charging documents state among things leissner ng participated conspiracy misappropriate proceeds 1mdb offerings pay bribes various government officials obtain retain 1mdb business firm plea charging documents indicate leissner ng knowingly willfully circumvented firm’s system internal accounting controls part repeatedly lying control personnel internal committees reviewed offerings indictment ng low alleges firm’s system internal accounting controls could easily circumvented firm’s business culture particularly southeast asia times prioritized consummation deals ahead proper operation compliance functions addition unnamed participating managing director firm alleged aware bribery scheme agreed disclose information firm’s compliance control personnel employee identified coconspirator put administrative leave december 17 2018 attorney general malaysia issued press statement criminal charges malaysia filed goldman sachs international gsi arranger three offerings debt securities 1mdb aggregating approximately 65 billion principal amount alleged disclosure deficiencies offering documents relating among things use proceeds debt securities ii goldman sachs asia llc gs asia goldman sachs singapore pte gs singapore leissner low jasmine loo ai swan criminally charged malaysia ng would charged shortly iii prosecutors malaysia seek criminal fines accused excess 27 billion plus 600 million fees received connection debt offerings firm received multiple demands beginning november 2018 alleged shareholders section 220 delaware general corporation law books records relating among things firm’s involvement 1mdb firm’s compliance procedures february 19 2019 purported shareholder derivative action relating 1mdb filed us district court southern district new york group inc current directors former chairman chief executive officer firm complaint seeks unspecified damages disgorgement alleges breaches fiduciary duties including connection alleged insider trading certain current former directors unjust enrichment gross mismanagement violations antifraud provisions exchange act including connection group inc’s common stock repurchases solicitation proxies november 21 2018 summons notice filed new york supreme court new york county international petroleum investment company guaranteed certain debt securities issued 1mdb subsidiary aabar investments pjs summons notice makes unspecified claims relating 1mdb seeks unspecified compensatory punitive damages relief group inc gsi gs asia gs singapore goldman sachs malaysia sdn bhd leissner ng employee firm well individuals employees firm formerly associated plaintiffs december 20 2018 putative securities class action lawsuit filed us district court southern district new york group inc certain current former officers firm alleging violations antifraud provisions exchange act respect group inc’s disclosures concerning 1mdb seeking unspecified damages firm cooperating doj governmental regulatory investigations relating 1mdb proceedings doj governmental regulatory authorities could result imposition significant fines penalties sanctions firm including restrictions firm’s activities goldman sachs group inc subsidiaries notes consolidated financial statements mortgagerelated matters beginning april 2010 number purported securities law class actions filed us district court southern district new york challenging adequacy group inc’s public disclosure among things firm’s activities collateralized debt obligation market firm’s conflict interest management consolidated amended complaint filed july 25 2011 names defendants group inc certain current former officers employees group inc affiliates generally alleges violations sections 10b 20a exchange act seeks unspecified damages defendants moved summary judgment december 11 2018 second circuit court appeals granted defendants’ petition interlocutory review district court’s august 14 2018 grant class certification january 23 2019 district court stayed proceedings district court pending appellate court’s decision june 2012 board received demand shareholder board investigate take action relating firm’s mortgagerelated activities stock sales certain directors executives firm february 15 2013 shareholder filed putative shareholder derivative action new york supreme court new york county group inc certain current former directors employees based activities stock sales derivative complaint includes allegations breach fiduciary duty unjust enrichment abuse control gross mismanagement corporate waste seeks among things unspecified monetary damages disgorgement profits certain corporate governance disclosure reforms may 28 2013 group inc informed shareholder board completed investigation determined refuse demand june 20 2013 shareholder made books records demand requesting materials relating board’s determination parties agreed stay proceedings putative derivative action pending resolution books records demand addition board received books records demands several shareholders materials relating among subjects firm’s mortgage servicing foreclosure activities participation federal programs providing assistance financial institutions homeowners loan sales fannie mae freddie mac mortgagerelated activities conflicts management beginning february 15 2019 two summonses notice filed goldman sachs mortgage company gs mortgage securities corp new york supreme court new york county us bank national association trustee two residential mortgagebacked securitization trusts summonses notice generally allege mortgage loans trusts failed conform applicable representations warranties seek specific performance alternatively compensatory damages relief firm received subpoenas requests information engaged discussions certain regulators law enforcement agencies entered settlement agreements part inquiries investigations relating mortgagerelated matters director compensationrelated litigation may 9 2017 group inc certain current former directors named defendants purported direct derivative shareholder action court chancery state delaware similar purported derivative action filed june 2015 alleging excessive director compensation period 2012 2014 voluntarily dismissed without prejudice december 2016 new complaint alleges excessive compensation paid nonemployee director defendants since 2015 certain disclosures connection soliciting shareholder approval stock incentive plans deficient complaint asserts claims breaches fiduciary duties seeks among things rescission cases rescissory damages disgorgement shareholder votes several matters october 23 2018 court declined approve parties’ proposed settlement defendants’ july 2017 motion dismiss still pending currenciesrelated litigation gsco group inc among defendants named putative class actions filed us district court southern district new york beginning september 2016 behalf putative indirect purchasers foreign exchange instruments consolidated amended complaint filed june 30 2017 generally alleged conspiracy manipulate foreign currency exchange markets asserted claims federal state antitrust laws state consumer protection laws march 15 2018 court granted defendants’ motion dismiss october 25 2018 plaintiffs’ motion leave replead denied claim federal antitrust law granted claims state antitrust consumer protection laws november 28 2018 plaintiffs filed second consolidated amended complaint asserting claims various state antitrust laws state consumer protection laws seeking treble damages unspecified amount goldman sachs group inc subsidiaries notes consolidated financial statements gsco group inc among defendants named action filed us district court southern district new york november 7 2018 certain direct purchasers foreign exchange instruments opted class settlement reached among others gsco group inc complaint generally alleges defendants violated federal antitrust laws connection alleged conspiracy manipulate foreign currency exchange markets seeks injunctive relief well treble damages unspecified amount gsco group inc among defendants named two putative class actions filed district court central district israel behalf direct purchasers foreign exchange instruments complaints filed september 11 2018 september 29 2018 respectively generally allege conspiracy manipulate prices foreign exchange instruments second putative class action also asserts claims based misuse “last look” features foreign exchange trading systems financial advisory services group inc certain affiliates time parties various civil litigation arbitration proceedings disputes clients third parties relating firm’s financial advisory activities claims generally seek among things compensatory damages cases punitive damages certain cases allege firm appropriately disclose deal conflicts interest underwriting litigation firm affiliates among defendants number proceedings connection securities offerings proceedings including described plaintiffs assert class action individual claims federal state securities laws cases applicable laws allege offering documents securities purchased contained material misstatements omissions generally seek compensatory rescissory damages unspecified amounts certain proceedings involve additional allegations cobalt international energy group inc certain former directors cobalt international energy inc cobalt designated affiliates group inc gsco among defendants putative securities class action relating certain offerings cobalt’s securities among parties reached settlement february 13 2019 court approved settlement claims goldman sachs defendants firm paid full contribution settlement fund adeptus health gsco among underwriters named defendants several putative securities class actions filed beginning october 2016 consolidated us district court eastern district texas addition underwriters defendants include certain former directors officers adeptus health inc adeptus well adeptus’ sponsor underwriters consolidated complaint filed november 21 2017 relates 124 million june 2014 initial public offering 154 million may 2015 secondary equity offering 411 million july 2015 secondary equity offering 175 million june 2016 secondary equity offering gsco underwrote 169 million shares common stock june 2014 initial public offering representing aggregate offering price approximately 37 million 962378 shares common stock may 2015 offering representing aggregate offering price approximately 61 million 176 million shares common stock july 2015 offering representing aggregate offering price approximately 184 million shares common stock june 2016 offering representing aggregate offering price approximately 175 million april 19 2017 adeptus filed chapter 11 bankruptcy september 12 2018 defendants’ motions dismiss granted june 2014 may 2015 offerings denied july 2015 june 2016 offerings september 26 2018 plaintiffs filed amended consolidated complaint remove dismissed claims december 7 2018 plaintiffs moved class certification sunedison gsco among underwriters named defendants several putative class actions individual actions filed beginning march 2016 relating august 2015 public offering 650 million sunedison inc sunedison convertible preferred stock defendants also include certain sunedison’s directors officers april 21 2016 sunedison filed chapter 11 bankruptcy pending cases transferred us district court southern district new york march 17 2017 plaintiffs putative class action filed consolidated amended complaint gsco underwriter sold 138890 shares sunedison convertible preferred stock offering representing aggregate offering price approximately 139 million march 6 2018 defendants’ motion dismiss class action granted part denied part february 11 2019 plaintiffs’ motion class certification class action granted april 10 2018 april 17 2018 certain plaintiffs individual actions filed amended complaints defendants reached settlement certain plaintiffs individual actions goldman sachs group inc subsidiaries notes consolidated financial statements valeant pharmaceuticals international gsco goldman sachs canada inc gs canada among underwriters initial purchasers named defendants putative class action filed march 2 2016 superior court quebec canada addition underwriters initial purchasers defendants include valeant pharmaceuticals international inc valeant certain directors officers valeant’s auditor gsco gs canada complaint relates june 2013 public offering 23 billion common stock june 2013 rule 144a offering 32 billion principal amount senior notes november 2013 rule 144a offering 900 million principal amount senior notes complaint asserts claims quebec securities act civil code quebec august 29 2017 court certified class includes nonus purchasers offerings defendants’ motion leave appeal certification denied november 30 2017 gsco gs canada sole underwriters sold 5334897 shares common stock june 2013 offering nonus purchasers representing aggregate offering price approximately 453 million initial purchasers proportional share sales nonus purchasers approximately cad142 million principal amount senior notes june 2013 november 2013 rule 144a offerings snap inc gsco among underwriters named defendants putative securities class actions pending california superior court county los angeles us district court central district california beginning may 2017 relating snap inc’s 391 billion march 2017 initial public offering addition underwriters defendants include snap inc certain officers directors gsco underwrote 57040000 shares common stock representing aggregate offering price approximately 970 million underwriter defendants including gsco voluntarily dismissed federal action september 18 2018 sea limited gs asia among underwriters named defendants putative securities class action filed november 1 2018 supreme court new york county new york relating sea limited’s 989 million october 2017 initial public offering american depository shares addition underwriters defendants include sea limited certain officers directors gs asia underwrote 28026721 american depository shares representing aggregate offering price approximately 420 million january 25 2019 plaintiffs filed amended complaint investment management services group inc certain affiliates parties various civil litigation arbitration proceedings disputes clients relating losses allegedly sustained result firm’s investment management services claims generally seek among things restitution compensatory damages cases punitive damages interest rate swap antitrust litigation group inc gsco gsi gs bank usa goldman sachs financial markets lp gsfm among defendants named putative antitrust class action relating trading interest rate swaps filed november 2015 consolidated us district court southern district new york goldman sachs entities also among defendants named two antitrust actions relating trading interest rate swaps commenced april 2016 june 2018 respectively us district court southern district new york three operators swap execution facilities certain affiliates actions consolidated pretrial proceedings complaints generally assert claims federal antitrust law state common law connection alleged conspiracy among defendants preclude exchange trading interest rate swaps complaints individual actions also assert claims state antitrust law complaints seek declaratory injunctive relief well treble damages unspecified amount defendants moved dismiss class first individual action january 20 2017 july 28 2017 district court issued decision dismissing state common law claims asserted plaintiffs first individual action otherwise limiting state common law claim putative class action antitrust claims actions period 2013 2016 may 30 2018 plaintiffs putative class action filed third consolidated amended complaint adding allegations surviving claims october 26 2018 plaintiffs putative class action filed motion leave file fourth amended complaint november 20 2018 court granted part denied part defendants’ motion dismiss second individual action dismissing state common law claims unjust enrichment tortious interference denying dismissal federal state antitrust claims goldman sachs group inc subsidiaries notes consolidated financial statements securities lending antitrust litigation group inc gsco among defendants named putative antitrust class action two individual actions relating securities lending practices filed us district court southern district new york beginning august 2017 complaints generally assert claims federal antitrust law state common law connection alleged conspiracy among defendants preclude development electronic platforms securities lending transactions individual complaints also assert claims tortious interference business relations state trade practices law second individual action unjust enrichment state common law complaints seek declaratory injunctive relief well treble damages restitution unspecified amounts group inc voluntarily dismissed putative class action january 26 2018 defendants moved dismiss first individual action june 1 2018 moved dismiss second individual action december 21 2018 defendants’ motion dismiss class action complaint denied september 27 2018 credit default swap antitrust litigation group inc gsco gsi gs bank usa gsfm among defendants named antitrust action relating trading credit default swaps filed us district court southern district new york june 8 2017 operator swap execution facility certain affiliates complaint generally asserts claims federal state antitrust laws state common law connection alleged conspiracy among defendants preclude trading credit default swaps plaintiffs’ swap execution facility complaint seeks declaratory injunctive relief well treble damages unspecified amount defendants moved dismiss september 11 2017 commoditiesrelated litigation gsi among defendants named putative class actions relating trading platinum palladium filed beginning november 25 2014 recently amended may 15 2017 us district court southern district new york amended complaint generally alleges defendants violated federal antitrust laws commodity exchange act connection alleged conspiracy manipulate benchmark physical platinum palladium prices seek declaratory injunctive relief well treble damages unspecified amount defendants moved dismiss third consolidated amended complaint july 21 2017 us treasury securities litigation gsco among primary dealers named defendants several putative class actions relating market us treasury securities filed beginning july 2015 consolidated us district court southern district new york gsco also among primary dealers named defendants similar individual action filed us district court southern district new york august 25 2017 consolidated class action complaint filed december 29 2017 generally alleges defendants violated antitrust laws connection alleged conspiracy manipulate whenissued market auctions us treasury securities certain defendants including gsco colluded preclude trading us treasury securities electronic trading platforms order impede competition bidding process individual action alleges similar conspiracy regarding manipulation whenissued market auctions well related futures options violation commodity exchange act complaints seek declaratory injunctive relief treble damages unspecified amount restitution defendants moved dismiss february 23 2018 employmentrelated matters september 15 2010 putative class action filed us district court southern district new york three female former employees complaint subsequently amended alleges group inc gsco systematically discriminated female employees respect compensation promotion performance evaluations complaint alleges class consisting female employees employed specified levels specified areas group inc gsco since july 2002 asserts claims federal new york city discrimination laws complaint seeks class action status injunctive relief unspecified amounts compensatory punitive damages goldman sachs group inc subsidiaries notes consolidated financial statements july 17 2012 district court issued decision granting part group inc’s gsco’s motion strike certain plaintiffs’ class allegations ground plaintiffs lacked standing pursue certain equitable remedies denying group inc’s gsco’s motion strike plaintiffs’ class allegations entirety premature march 21 2013 us court appeals second circuit held arbitration compelled one named plaintiffs managing director party arbitration agreement firm march 10 2015 magistrate judge district judge assigned remaining plaintiffs’ may 2014 motion class certification recommended motion denied respects august 3 2015 magistrate judge granted plaintiffs’ motion intervene two female individuals one employed firm september 2010 ceased employee firm subsequent magistrate judge’s decision march 30 2018 district court certified damages class plaintiffs’ disparate impact treatment claims september 4 2018 second circuit court appeals denied defendants’ petition interlocutory review district court’s class certification decision subsequently denied defendants’ petition rehearing september 27 2018 plaintiffs advised district court would seek certify class injunctive declaratory relief regulatory investigations reviews related litigation group inc certain affiliates subject number investigations reviews cases received subpoenas requests documents information various governmental regulatory bodies selfregulatory organizations litigation shareholder requests relating various matters relating firm’s businesses operations including • 2008 financial crisis • public offering process • firm’s investment management financial advisory services • conflicts interest • research practices including research independence interactions research analysts firm personnel including investment banking personnel well third parties • transactions involving governmentrelated financings matters municipal securities including wallcross procedures conflict interest disclosure respect state municipal clients trading structuring municipal derivative instruments connection municipal offerings political contribution rules municipal advisory services possible impact credit default swap transactions municipal issuers • offering auction sales trading clearance corporate government securities currencies commodities financial products related sales communications activities well firm’s supervision controls relating activities including compliance applicable short sale rules algorithmic highfrequency quantitative trading firm’s us alternative trading system dark pool futures trading options trading whenissued trading transaction reporting technology systems controls securities lending practices trading clearance credit derivative instruments interest rate swaps commodities activities metals storage private placement practices allocations trading securities trading activities communications connection establishment benchmark rates currency rates • compliance fcpa • firm’s hiring compensation practices • firm’s system risk management controls • insider trading potential misuse dissemination material nonpublic information regarding corporate governmental developments effectiveness firm’s insider trading controls information barriers firm cooperating governmental regulatory investigations reviews goldman sachs group inc subsidiaries notes consolidated financial statements note 28 employee benefit plans firm sponsors various pension plans certain postretirement benefit plans primarily healthcare life insurance firm also provides certain benefits former inactive employees prior retirement defined benefit pension plans postretirement plans employees certain nonus subsidiaries participate various defined benefit pension plans generally provide benefits based years credited service percentage eligible compensation firm maintains defined benefit pension plan certain uk employees april 2008 uk defined benefit plan closed new participants frozen existing participants march 31 2016 nonus plans material impact firm’s consolidated results operations firm also maintains defined benefit pension plan substantially us employees hired prior november 1 2003 november 2004 plan closed new participants frozen existing participants addition firm maintains unfunded postretirement benefit plans provide medical life insurance eligible retirees dependents covered programs plans material impact firm’s consolidated results operations firm recognizes funded status defined benefit pension postretirement plans measured difference fair value plan assets benefit obligation consolidated statements financial condition december 2018 assets included 462 million related overfunded pension plans liabilities included 344 million related plans december 2017 assets included 346 million related overfunded pension plans liabilities included 606 million related plans defined contribution plans firm contributes employersponsored us nonus defined contribution plans firm’s contribution plans 240 million 2018 257 million 2017 236 million 2016 note 29 employee incentive plans cost employee services received exchange sharebased award generally measured based grantdate fair value award sharebased awards require future service ie vested awards including awards granted retirementeligible employees expensed immediately sharebased awards require future service amortized relevant service period effective january 2017 forfeitures recorded occur prior january 2017 expected forfeitures estimated recorded vesting period see note 3 information adoption asu 201609 cash dividend equivalents paid rsus charged retained earnings rsus require future service forfeited related dividend equivalents originally charged retained earnings reclassified compensation expense period forfeiture occurs firm generally issues new shares common stock upon delivery sharebased awards certain cases primarily related conflicted employment outlined applicable award agreements firm may cash settle sharebased compensation awards accounted equity instruments awards whose terms allow cash settlement additional paidin capital adjusted extent difference value award time cash settlement grantdate value award stock incentive plan firm sponsors stock incentive plan goldman sachs amended restated stock incentive plan 2018 sip provides grants rsus restricted stock dividend equivalent rights incentive stock options nonqualified stock options stock appreciation rights sharebased awards may subject performance conditions may 2 2018 shareholders approved 2018 sip 2018 sip replaced goldman sachs amended restated stock incentive plan 2015 sip previously effect applies awards granted date approval 2015 sip previously replaced goldman sachs amended restated stock incentive plan 2013 sip december 2018 682 million shares available grant 2018 sip shares common stock underlying awards granted 2018 sip 2015 sip 2013 sip delivered due forfeiture termination cancellation surrendered withheld shares become available delivered 2018 sip shares available grant also subject adjustment certain changes corporate structure permitted 2018 sip 2018 sip scheduled terminate date annual meeting shareholders occurs 2022 goldman sachs group inc subsidiaries notes consolidated financial statements restricted stock units firm grants rsus including rsus subject performance conditions employees generally valued based closing price underlying shares date grant taking account liquidity discount applicable postvesting delivery transfer restrictions rsus generally vest underlying shares common stock deliver net required withholding tax outlined applicable award agreements award agreements generally provide vesting accelerated certain circumstances retirement death disability conflicted employment delivery underlying shares common stock generally occurs threeyear period conditioned grantees satisfying certain vesting requirements outlined award agreements table presents 2018 activity related rsus table • weighted average grantdate fair value rsus granted 21806 2018 20688 2017 13592 2016 fair value rsus granted included liquidity discount 119 2018 107 2017 105 2016 reflect postvesting delivery transfer restrictions generally 4 years • aggregate fair value awards vested 179 billion 2018 214 billion 2017 226 billion 2016 • ending balance included restricted stock subject future service requirements 1649 shares december 2018 3298 shares december 2017 • ending balance included rsus subject performance conditions subject future service requirements 174579 rsus december 2018 62023 rsus december 2017 relation 2018 yearend first quarter 2019 firm granted employees 113 million rsus 40 million rsus require future service condition delivery related shares common stock awards subject additional conditions outlined award agreements generally shares underlying awards net required withholding tax deliver threeyear period subject postvesting delivery transfer restrictions january 2024 grants included table december 2018 448 million total unrecognized compensation cost related nonvested sharebased compensation arrangements cost expected recognized weighted average period 185 years stock options stock options generally vested outlined applicable stock option agreement general options expired tenth anniversary grant date although may subject earlier termination cancellation certain circumstances accordance terms applicable stock option agreement sip effect time grant options outstanding december 2018 210 million options outstanding december 2017 exercisable options granted 2008 exercise price 7878 december 2017 aggregate intrinsic value 370 million remaining life 1 year 2018 210 million options exercised weighted average exercise price 7878 2017 586 million options exercised weighted average exercise price 13935 total intrinsic value options exercised 288 million 2018 589 million 2017 436 million 2016 table presents sharebased compensation related excess tax benefit table excess net tax benefit sharebased awards includes net tax benefit dividend equivalents paid rsus delivery common stock underlying sharebased awards well excess net tax benefit options exercised following adoption asu 201609 january 2017 amounts recognized prospectively income tax expense prior years amounts recognized additional paidin capital see note 3 information asu goldman sachs group inc subsidiaries notes consolidated financial statements note 30 parent company group inc condensed statements earnings supplemental disclosures condensed statements earnings revenues expenses included following subsidiaries affiliates • dividends bank subsidiaries included cash dividends 76 million 2018 525 million 2017 32 million 2016 • dividends nonbank subsidiaries affiliates included cash dividends 1078 billion 2018 798 billion 2017 346 billion 2016 • revenues included 169 billion 2018 661 million 2017 49 million 2016 • interest income included 633 billion 2018 465 billion 2017 408 billion 2016 • interest expense included 239 billion 2018 105 billion 2017 201 million 2016 • expenses included 159 million 2018 45 million 2017 1 million 2016 group inc’s provision taxes 2017 included substantially firm’s 440 billion estimated income tax expense related tax legislation 2018 firm finalized estimate reflect impact updated information including subsequent guidance issued irs resulting 487 million income tax benefit primarily included group inc’s benefit taxes 2018 see note 24 information tax legislation group inc condensed statements financial condition supplemental disclosures goldman sachs funding llc funding ihc whollyowned direct subsidiary group inc provided group inc committed line credit allows group inc draw sufficient funds meet cash needs ordinary course business financial instruments owned included derivative contracts subsidiaries 683 million december 2018 570 million december 2017 financial instruments sold yet purchased included derivative contracts subsidiaries 280 million december 2018 218 million december 2017 december 2018 unsecured longterm borrowings subsidiaries maturity date 2256 billion 2020 91 million 2021 74 million 2022 66 million 2023 554 million 2024thereafter goldman sachs group inc subsidiaries notes consolidated financial statements group inc condensed statements cash flows supplemental disclosures cash payments interest net capitalized interest 983 billion 2018 631 billion 2017 491 billion 2016 included 305 billion 2018 160 million 2017 187 million 2016 payments subsidiaries cash paymentsrefunds income taxes net 98 million 2018 297 million 2017 61 million 2016 cash flows related common stock repurchased includes common stock repurchased prior period settlement occurred current period excludes common stock repurchased current period settlement occurred following period noncash activities year ended december 2018 • group inc restructured funding goldman sachs group uk ltd goldman sachs international whollyowned subsidiaries group inc resulted net increase loans subsidiaries 571 billion decrease equity interest 571 billion • group inc exchanged 150 million liabilities 46 million related deferred tax assets 104 million equity interest gsco wholly owned subsidiary group inc • group inc exchanged 35 million trust preferred securities common beneficial interests 35 million certain group inc’s junior subordinated debt noncash activities year ended december 2017 • group inc exchanged 8400 billion certain loans receivables subsidiaries 8400 billion unsecured subordinated note funding ihc included loans receivables subsidiaries • group inc exchanged 750 million equity interest goldman sachs uk llc gs uk whollyowned subsidiary group inc 750 million loan gs uk • group inc exchanged 237 million trust preferred securities common beneficial interests 248 million group inc’s junior subordinated debt noncash activities year ended december 2016 • group inc exchanged 104 billion apex 131 billion series e series f preferred stock see note 19 information • group inc exchanged 127 million senior guaranteed trust securities 124 million group inc’s junior subordinated debt goldman sachs group inc subsidiaries supplemental financial information quarterly results unaudited tables present unaudited quarterly results table • quarterly results prepared accordance us gaap reflect adjustments opinion management necessary fair statement results adjustments normal recurring nature timing magnitude changes firm’s discretionary compensation accruals included operating expenses significant effect results given quarter • provision credit losses previously reported total net revenues reported separate line item consolidated statements earnings previously reported amounts conformed current presentation common stock performance graph table compare performance investment firm’s common stock december 31 2013 last trading day firm’s 2014 fiscal year december 31 2018 sp 500 index sp 500 sp 500 financials index sp 500 financials graph table assume 100 invested december 31 2013 firm’s common stock sp 500 sp 500 financials dividends reinvested date payment without payment commissions performance shown represents past performance considered indication future performance goldman sachs group inc subsidiaries supplemental financial information selected financial data table • provision credit losses previously reported total net revenues reported separate line item consolidated statements earnings previously reported amounts conformed current presentation • impact adopting asu 201503 reduction total assets liabilities 398 million december 2014 see note 3 consolidated financial statements part ii item 8 firm’s annual report form 10k year ended december 31 2015 information • basic shares represent common shares outstanding restricted stock units granted employees future service requirements • headcount consists employees excludes consultants temporary staff previously reported total staff statistical disclosures distribution assets liabilities shareholders’ equity tables present information average balances interest average interest rates goldman sachs group inc subsidiaries supplemental financial information tables • assets liabilities interest classified us nonus based location entity assets liabilities held • derivative instruments commodities included noninterestearning assets noninterestbearing liabilities • total interestearning assets primarily consists certain receivables customers counterparties • collateralized financings consists repurchase agreements securities loaned • substantially total interestbearing liabilities consists certain payables customers counterparties • interest rates borrowings include effects interest rate swaps accounted hedges goldman sachs group inc subsidiaries supplemental financial information changes net interest income volume rate analysis tables present effect net interest income volume rate changes analysis changes due volumerate variance allocated volume deposits table presents information interestbearing deposits goldman sachs group inc subsidiaries supplemental financial information table deposits classified us nonus based location entity deposits held december 2018 deposits us offices included 679 billion nonus offices included 1712 billion time deposits greater 100000 table presents maturities time deposits held us offices shortterm borrowed funds table presents information securities loaned repurchase agreements shortterm borrowings table • borrowings generally mature within one year financial statement date include borrowings redeemable option holder within one year financial statement date • amounts outstanding yearend shortterm borrowings included shortterm secured financings 956 billion december 2018 1490 billion december 2017 1312 billion december 2016 • weighted average interest rates borrowings include effect hedging activities loan portfolio table presents information loans receivable table loans receivable classified us nonus based location entity loans held allowance loan losses table presents changes allowance loan losses table • allowance loan losses 2018 primarily related corporate loans consumer loans held entities located us • allowance loan losses 2017 earlier primarily related corporate loans extended pwm clients held entities located us • net chargeoffs 2018 primarily related consumer loans held entities located us commercial real estate pci loans held entities located outside us • net chargeoffs 2017 earlier primarily related corporate loans held entities located us goldman sachs group inc subsidiaries supplemental financial information maturities sensitivity changes interest rates table presents gross loans receivable tenor distribution loans receivable fixed floating interest rates crossborder outstandings crossborder outstandings based federal financial institutions examination council’s ffiec guidelines reporting crossborder information represent amounts firm may able obtain foreign country due countryspecific events including unfavorable economic political conditions economic social instability changes government policies credit exposure represents potential loss due default deterioration credit quality counterparty issuer securities instruments firm holds measured based potential loss event nonpayment counterparty credit exposure reduced effect risk mitigants netting agreements counterparties permit firm offset receivables payables counterparties obtaining collateral counterparties table include effects risk mitigants represent firm’s credit exposure table presents crossborder outstandings commitments country crossborder outstandings exceed 075 consolidated assets accordance ffiec guidelines table • crossborder outstandings includes cash receivables collateralized agreements cash financial instruments exclude derivative instruments • collateralized agreements presented gross without reduction related securities collateral held • margin loans included receivables presented based amount collateral advanced counterparty • substantially commitments consists commitments extend credit forward starting collateralized agreements goldman sachs group inc subsidiaries item 9item 8 financial statements supplementary data management’s report internal control financial reporting management goldman sachs group inc together consolidated subsidiaries firm responsible establishing maintaining adequate internal control financial reporting firm’s internal control financial reporting process designed supervision firm’s principal executive principal financial officers provide reasonable assurance regarding reliability financial reporting preparation firm’s financial statements external reporting purposes accordance us generally accepted accounting principles december 31 2019 management conducted assessment firm’s internal control financial reporting based framework established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso based assessment management determined firm’s internal control financial reporting december 31 2019 effective internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance us generally accepted accounting principles receipts expenditures made accordance authorizations management directors firm provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition firm’s assets could material effect financial statements firm’s internal control financial reporting december 31 2019 audited pricewaterhousecoopers llp independent registered public accounting firm stated report appearing pages 103 104 expresses unqualified opinion effectiveness firm’s internal control financial reporting december 31 2019 goldman sachs 2019 form 10k report independent registered public accounting firm board directors shareholders goldman sachs group inc opinions financial statements internal control financial reporting audited accompanying consolidated balance sheets goldman sachs group inc subsidiaries company december 31 2019 2018 related consolidated statements earnings comprehensive income changes shareholders’ equity cash flows three years period ended december 31 2019 including related notes collectively referred “consolidated financial statements” also audited company’s internal control financial reporting december 31 2019 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion consolidated financial statements referred present fairly material respects financial position company december 31 2019 2018 results operations cash flows three years period ended december 31 2019 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2019 based criteria established internal control integrated framework 2013 issued coso basis opinions company’s management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing page 102 responsibility express opinions company’s consolidated financial statements company’s internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits consolidated financial statements included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate critical audit matters critical audit matters communicated matters arising current period audit consolidated financial statements communicated required communicated audit committee relate accounts disclosures material consolidated financial statements ii involved especially challenging subjective complex judgments communication critical audit matters alter way opinion consolidated financial statements taken whole communicating critical audit matters providing separate opinions critical audit matters accounts disclosures relate goldman sachs 2019 form 10k report independent registered public accounting firm valuation certain level 3 financial instruments described notes 4 10 consolidated financial statements company carries financial instruments fair value includes 231 billion financial assets 259 billion financial liabilities classified level 3 fair value hierarchy one inputs financial instrument’s valuation technique significant unobservable significant unobservable inputs used management value certain level 3 financial instruments included industry multiples public comparables ii credit spreads iii correlation principal considerations determination performing procedures relating valuation certain level 3 financial instruments critical audit matter valuation certain financial instruments involved application significant judgment part management turn led high degree auditor subjectivity performing procedures related valuation financial instruments ii high degree auditor judgment effort evaluate audit evidence obtained related aforementioned significant unobservable inputs used certain level 3 financial instruments iii involvement professionals specialized skill knowledge assist evaluating audit evidence obtained related valuation financial instruments addressing matter involved performing procedures evaluating audit evidence connection forming overall opinion consolidated financial statements procedures included testing effectiveness controls relating valuation financial instruments including controls methods significant unobservable inputs used valuation financial instruments procedures also included among others sample financial instruments involvement professionals specialized skill knowledge assist developing independent estimate fair value testing management’s process determine fair value financial instruments developing independent estimate involved testing completeness accuracy data provided management developing independent significant unobservable inputs comparing management’s estimate independently developed estimate fair value testing management’s process included evaluating reasonableness aforementioned significant unobservable inputs evaluating appropriateness methods used testing completeness accuracy data provided management determine fair value instruments provision losses may arise litigation regulatory proceedings related 1malaysia development berhad described note 27 consolidated financial statements company received subpoenas requests documents information various governmental regulatory bodies selfregulatory organizations part investigations reviews relating financing transactions matters involving 1malaysia development berhad 1mdb sovereign wealth fund malaysia management estimates provides potential losses may arise litigation regulatory proceedings extent losses probable reasonably estimated company’s total estimated liability respect litigation regulatory proceedings determined casebycase basis represents estimate probable losses considering among factors progress case proceeding investigation management’s experience others similar cases proceedings investigations opinions views legal counsel addition management includes disclosures relating actions proceedings inquiries related 1mdb principal considerations determination performing procedures relating provision losses may arise litigation regulatory proceedings related 1mdb critical audit matter significant judgment part management assessing likelihood loss incurred determining reasonable estimate loss turn led high degree auditor judgment subjectivity effort evaluating management’s assessment provision losses related disclosures addressing matter involved performing procedures evaluating audit evidence connection forming overall opinion consolidated financial statements procedures included testing effectiveness controls relating management’s estimation provision losses may arise litigation regulatory proceedings including controls determining whether loss probable whether amount loss reasonably estimated well controls related financial statement disclosures procedures also included among others obtaining evaluating letters audit inquiry internal external legal counsel evaluating reasonableness management’s assessment regarding whether unfavorable outcome reasonably possible probable reasonably estimable evaluating sufficiency company’s litigation regulatory proceedings disclosures pricewaterhousecoopers llp new york new york february 20 2020 served company’s auditor since 1922 goldman sachs 2019 form 10k goldman sachs group inc subsidiaries consolidated statements earnings consolidated statements comprehensive income accompanying notes integral part consolidated financial statements goldman sachs 2019 form 10k goldman sachs group inc subsidiaries consolidated balance sheets accompanying notes integral part consolidated financial statements goldman sachs 2019 form 10k goldman sachs group inc subsidiaries consolidated statements changes shareholders’ equity accompanying notes integral part consolidated financial statements goldman sachs 2019 form 10k goldman sachs group inc subsidiaries consolidated statements cash flows see notes 12 14 16 information noncash activities accompanying notes integral part consolidated financial statements goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 1 description business goldman sachs group inc group inc parent company delaware corporation together consolidated subsidiaries collectively firm leading global investment banking securities investment management firm provides wide range financial services substantial diversified client base includes corporations financial institutions governments individuals founded 1869 firm headquartered new york maintains offices major financial centers around world commencing fourth quarter 2019 firm began reporting activities following four business segments consistent firm’s activities managed investment banking global markets asset management consumer wealth management prior periods presented comparable basis investment banking firm provides broad range investment banking services diverse group corporations financial institutions investment funds governments services include strategic advisory assignments respect mergers acquisitions divestitures corporate defense activities restructurings spinoffs equity debt underwriting public offerings private placements firm also provides lending corporate clients including middlemarket lending relationship lending acquisition financing global markets firm facilitates client transactions makes markets fixed income equity currency commodity products institutional clients corporations financial institutions investment funds governments firm also makes markets clears institutional client transactions major stock options futures exchanges worldwide provides prime brokerage equities financing activities including securities lending margin lending swaps firm also provides financing clients repurchase agreements well structured credit warehouse assetbacked lending asset management firm manages assets offers investment products primarily separately managed accounts commingled vehicles mutual funds private investment funds across major asset classes diverse set institutional clients network thirdparty distributors around world firm makes equity investments includes alternative investing activities related public private equity investments corporate real estate infrastructure entities well investments consolidated investment entities substantially engaged real estate investment activities firm also provides financing related asset management businesses including investments debt securities loans backed real estate consumer wealth management firm provides investing wealth advisory solutions including financial planning counseling executing brokerage transactions managing assets individuals wealth management business firm also provides loans accepts deposits consumer banking digital platform marcus goldman sachs private bank well issues credit cards consumers note 2 basis presentation consolidated financial statements prepared accordance accounting principles generally accepted united states us gaap include accounts group inc entities firm controlling financial interest intercompany transactions balances eliminated references 2019 2018 2017 refer firm’s years ended dates context requires december 31 2019 december 31 2018 december 31 2017 respectively reference future year refers year ending december 31 year beginning fourth quarter 2019 concurrent changes business segments firm changed balance sheet presentation better reflect nature firm’s activities primary changes include elimination financial instruments owned financial instruments sold yet purchased line items introduction new line items trading assets trading liabilities investments inclusion nontrading loans line item reclassifying related cash flows applicable investments loans generally include positions held longerterm purposes trading assets liabilities generally include positions held marketmaking risk management activities addition revenues transactions derivatives related client advisory underwriting assignments previously reported investment banking reported market making within consolidated statements earnings reclassifications made previously reported amounts conform current presentation goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 3 significant accounting policies firm’s significant accounting policies include measure fair value assets liabilities measuring allowance credit losses loans lending commitments accounted amortized cost consolidate entity see note 4 policies fair value measurements note 9 policies allowance credit losses note 17 policies consolidation accounting significant accounting policies either described included following footnotes consolidation firm consolidates entities firm controlling financial interest firm determines whether controlling financial interest entity first evaluating whether entity voting interest entity variable interest entity vie voting interest entities voting interest entities total equity investment risk sufficient enable entity finance activities independently ii equity holders power direct activities entity significantly impact economic performance obligation absorb losses entity right receive residual returns entity usual condition controlling financial interest voting interest entity ownership majority voting interest firm controlling majority voting interest voting interest entity consolidated variable interest entities vie entity lacks one characteristics voting interest entity firm controlling financial interest vie firm variable interest interests provide power direct activities vie significantly impact vie’s economic performance ii obligation absorb losses vie right receive benefits vie could potentially significant vie see note 17 information vies equitymethod investments firm controlling financial interest entity exert significant influence entity’s operating financial policies investment generally accounted fair value electing fair value option available us gaap significant influence generally exists firm owns 20 50 entity’s common stock insubstance common stock certain cases firm applies equity method accounting new investments strategic nature closely related firm’s principal business activities firm significant degree involvement cash flows operations investee costbenefit considerations less significant see note 8 information equitymethod investments goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements investment funds firm formed investment funds thirdparty investors funds typically organized limited partnerships limited liability companies firm acts general partner manager generally firm hold majority economic interests funds usually voting interest entities generally consolidated thirdparty investors typically rights terminate funds remove firm general partner manager investments funds generally measured net asset value nav included investments see notes 8 18 22 information investments funds use estimates preparation consolidated financial statements requires management make certain estimates assumptions important relate fair value measurements allowance credit losses loans lending commitments accounted amortized cost accounting goodwill identifiable intangible assets provisions losses may arise litigation regulatory proceedings including governmental investigations provisions losses may arise tax audits estimates assumptions based best available information actual results could materially different revenue recognition financial assets liabilities fair value trading assets liabilities certain investments recorded fair value either fair value option accordance us gaap addition firm elected account certain loans financial assets liabilities fair value electing fair value option fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date financial assets marked bid prices financial liabilities marked offer prices fair value measurements include transaction costs fair value gains losses generally included market making principal transactions see note 4 information fair value measurements revenue contracts clients firm accounts revenue earned contracts clients services investment banking investment management execution clearing contracts clients asu 201409 “revenue contracts customers topic 606” revenues services recognized performance obligations related underlying transaction completed revenues contracts clients subject asu represent approximately 45 total noninterest revenues 2019 including approximately 85 investment banking revenues approximately 95 investment management revenues commissions fees approximately 50 total noninterest revenues 2018 including approximately 85 investment banking revenues approximately 95 investment management revenues commissions fees 2018 net interest income subject asu see note 25 information net revenues business segment investment banking advisory fees financial advisory assignments recognized revenues services related underlying transaction completed terms assignment nonrefundable deposits milestone payments connection financial advisory assignments recognized revenues upon completion underlying transaction assignment otherwise concluded expenses associated financial advisory assignments recognized incurred included expenses client reimbursements expenses included investment banking revenues underwriting fees underwriting assignments recognized revenues upon completion underlying transaction based terms assignment expenses associated underwriting assignments generally deferred related revenue recognized assignment otherwise concluded expenses included expenses investment management firm earns management fees incentive fees investment management services included investment management revenues firm makes payments brokers advisors related placement firm’s investment funds distribution fees included brokerage clearing exchange distribution fees management fees management fees mutual funds calculated percentage daily net asset value received monthly management fees hedge funds separately managed accounts calculated percentage monthend net asset value generally received quarterly management fees private equity funds calculated percentage monthly invested capital committed capital received quarterly semiannually annually depending fund management fees recognized time period services provided distribution fees paid firm calculated based either percentage management fee investment fund’s net asset value committed capital fees included brokerage clearing exchange distribution fees goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements incentive fees incentive fees calculated percentage fund’s separately managed account’s return excess return specified benchmark performance target incentive fees generally based investment performance twelvemonth period life fund fees based performance twelvemonth period subject adjustment prior end measurement period fees based investment performance life fund future investment underperformance may require fees previously distributed firm returned fund incentive fees earned fund separately managed account recognized probable significant reversal fees occur generally fees longer subject fluctuations market value investments held fund separately managed account therefore incentive fees recognized period may relate performance obligations satisfied previous periods commissions fees firm earns commissions fees executing clearing client transactions stock options futures markets well overthecounter otc transactions commissions fees recognized day trade executed firm also provides thirdparty research services clients connection certain softdollar arrangements thirdparty research costs incurred firm connection arrangements presented net within commissions fees remaining performance obligations remaining performance obligations services firm committed perform future connection contracts clients firm’s remaining performance obligations generally related financial advisory assignments certain investment management activities revenues associated remaining performance obligations relating financial advisory assignments cannot determined outcome transaction firm’s investment management activities fees calculated based net asset value fund separately managed account future revenues associated remaining performance obligations cannot determined fees subject fluctuations market value investments held fund separately managed account firm able determine future revenues associated management fees calculated based committed capital december 2019 substantially future net revenues associated remaining performance obligations recognized 2026 annual revenues associated performance obligations average less 250 million 2026 transfers financial assets transfers financial assets accounted sales firm relinquished control assets transferred transfers financial assets accounted sales gains losses recognized net revenues assets liabilities arise firm’s continuing involvement transferred financial assets initially recognized fair value transfers financial assets accounted sales assets generally included trading assets transfer accounted collateralized financing related interest expense recognized life transaction see note 11 information transfers financial assets accounted collateralized financings note 16 information transfers financial assets accounted sales cash equivalents firm defines cash equivalents highly liquid overnight deposits held ordinary course business cash equivalents included cash due banks 1257 billion december 2019 1066 billion december 2018 cash equivalents also included interestbearing deposits banks 12098 billion december 2019 11989 billion december 2018 firm segregates cash regulatory purposes related client activity cash equivalents segregated regulatory purposes 2278 billion december 2019 2314 billion december 2018 addition firm segregates securities regulatory purposes related client activity see note 11 information segregated securities customer receivables customer receivables included receivables customers counterparties 5090 billion december 2019 4695 billion december 2018 receivables brokers dealers clearing organizations 2371 billion december 2019 2550 billion december 2018 receivables primarily consist customer margin loans receivables resulting unsettled transactions collateral posted connection certain derivative transactions substantially receivables accounted amortized cost net estimated uncollectible amounts generally approximates fair value receivables accounted fair value included firm’s fair value hierarchy notes 4 10 receivables included firm’s fair value hierarchy substantially would classified level 2 december 2019 december 2018 see note 10 information customer receivables accounted fair value fair value option interest customer receivables recognized life transaction included interest income goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements customer receivables includes receivables contracts clients contract assets contract assets represent firm’s right receive consideration services provided connection contracts clients collection conditional merely subject passage time firm’s receivables contracts clients 227 billion december 2019 194 billion december 2018 december 2019 december 2018 contract assets material customer payables customer payables included payables customers counterparties 17021 billion december 2019 17399 billion december 2018 payables brokers dealers clearing organizations 461 billion december 2019 624 billion december 2018 payables primarily consist customer credit balances related firm’s prime brokerage activities customer payables accounted cost plus accrued interest generally approximates fair value payables accounted fair value included firm’s fair value hierarchy notes 4 10 payables included firm’s fair value hierarchy substantially would classified level 2 december 2019 december 2018 interest customer payables recognized life transaction included interest expense offsetting assets liabilities reduce credit exposures derivatives securities financing transactions firm may enter master netting agreements similar arrangements collectively netting agreements counterparties permit offset receivables payables counterparties netting agreement contract counterparty permits net settlement multiple transactions counterparty including upon exercise termination rights nondefaulting party upon exercise termination rights transactions governed netting agreement terminated net settlement amount calculated addition firm receives posts cash securities collateral respect derivatives securities financing transactions subject terms related credit support agreements similar arrangements collectively credit support agreements enforceable credit support agreement grants nondefaulting party exercising termination rights right liquidate collateral apply proceeds amounts owed order assess enforceability firm’s right setoff netting credit support agreements firm evaluates various factors including applicable bankruptcy laws local statutes regulatory provisions jurisdiction parties agreement derivatives reported netbycounterparty basis ie net payable receivable derivative assets liabilities given counterparty consolidated balance sheets legal right setoff exists enforceable netting agreement securities purchased agreements resell resale agreements securities sold agreements repurchase agreements securities borrowed loaned transactions term currency presented netbycounterparty basis consolidated balance sheets transactions meet certain settlement criteria subject netting agreements consolidated balance sheets derivatives reported net cash collateral received posted enforceable credit support agreements transacted enforceable netting agreement consolidated balance sheets resale repurchase agreements securities borrowed loaned reported net related cash securities received posted collateral see note 11 information collateral received pledged including rights deliver repledge collateral see notes 7 11 information offsetting assets liabilities foreign currency translation assets liabilities denominated nonus currencies translated rates exchange prevailing date consolidated balance sheets revenues expenses translated average rates exchange period foreign currency remeasurement gains losses transactions nonfunctional currencies recognized earnings gains losses translation financial statements nonus operation functional currency us dollar included net hedges taxes consolidated statements comprehensive income recent accounting developments revenue contracts customers asc 606 may 2014 fasb issued asu 201409 asu amended provides comprehensive guidance recognition revenue earned contracts customers arising transfer goods services guidance accounting certain contract costs new disclosures firm adopted asu january 2018 modified retrospective approach result adopting asu firm among things delays recognition nonrefundable milestone payments financial advisory assignments completed recognizes certain investment management fees earlier firm’s previous revenue recognition policies cumulative effect adopting asu january 1 2018 decrease retained earnings 53 million net tax goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements firm also prospectively changed presentation certain costs net presentation within revenues gross basis vice versa beginning 2018 certain underwriting expenses netted investment banking revenues certain distribution fees netted investment management revenues presented gross operating expenses costs incurred connection certain softdollar arrangements presented gross operating expenses presented net within commissions fees leases asc 842 february 2016 fasb issued asu 201602 “leases topic 842” asu requires leases longer one year lessee recognize balance sheet rightofuse asset representing right use underlying asset lease term lease liability representing liability make lease payments also requires finance leases lessee recognize interest expense lease liability separately amortization rightofuse asset statements earnings operating leases amounts recognized combined expense also requires qualifying saleleaseback transactions seller recognize gain loss based estimated fair value asset time sale control asset transferred instead amortizing lease period addition asu requires expanded disclosures nature terms lease agreements firm adopted asu january 2019 modified retrospective approach upon adoption accordance asu firm elected reassess lease classification initial direct costs existing leases reassess whether existing contracts contain lease addition firm elected account contract’s lease nonlease components single lease component impact adoption gross 177 billion firm’s consolidated balance sheet increase retained earnings 12 million net tax january 1 2019 measurement credit losses financial instruments asc 326 june 2016 fasb issued asu 201613 “financial instruments credit losses topic 326 measurement credit losses financial instruments” asu amends several aspects measurement credit losses certain financial instruments including replacing existing incurred credit loss model models current expected credit losses cecl model amending certain aspects accounting purchased financial assets deterioration credit quality since origination purchased credit deteriorated pcd loans firm adopted asu january 2020 modified retrospective approach result adopting asu firm’s allowance credit losses financial assets commitments measured amortized cost reflect management’s estimate credit losses remaining expected life assets expected credit losses newly recognized financial assets commitments well changes expected credit losses period recognized earnings expected credit losses measured based historical experience current conditions forecasts affect collectability reported amount cumulative effect measuring allowance cecl result adopting asu january 1 2020 increase allowance credit losses 848 million increase allowance driven fact allowance cecl covers expected credit losses full expected life loan portfolios also takes account forecasts expected future economic conditions addition accordance asu firm elected fair value option loans previously accounted purchased credit impaired pci resulted decrease allowance pci loans 169 million cumulative effect adopting asu decrease retained earnings approximately 640 million net tax reclassification certain tax effects accumulated comprehensive income asc 220 february 2018 fasb issued asu 201802 “income statement reporting comprehensive income topic 220 reclassification certain tax effects accumulated comprehensive income” asu permits reporting entity reclassify income tax effects tax cuts jobs act tax legislation items within accumulated comprehensive income retained earnings firm adopted asu january 2019 elect reclassify income tax effects tax legislation accumulated comprehensive income retained earnings therefore adoption asu impact firm’s consolidated financial statements goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 4 fair value measurements fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date financial assets marked bid prices financial liabilities marked offer prices fair value measurements include transaction costs firm measures certain financial assets liabilities portfolio ie based net exposure market andor credit risks best evidence fair value quoted price active market quoted prices active markets available fair value determined reference prices similar instruments quoted prices recent transactions less active markets internally developed models primarily use marketbased independently sourced inputs including limited interest rates volatilities equity debt prices foreign exchange rates commodity prices credit spreads funding spreads ie spread difference interest rate borrower could finance given financial instrument relative benchmark interest rate us gaap threelevel hierarchy disclosure fair value measurements hierarchy prioritizes inputs valuation techniques used measure fair value giving highest priority level 1 inputs lowest priority level 3 inputs financial instrument’s level hierarchy based lowest level input significant fair value measurement evaluating significance valuation input firm considers among factors portfolio’s net risk exposure input fair value hierarchy follows level 1 inputs unadjusted quoted prices active markets firm access measurement date identical unrestricted assets liabilities level 2 inputs valuation techniques observable either directly indirectly level 3 one inputs valuation techniques significant unobservable fair values substantially firm’s financial assets liabilities based observable prices inputs classified levels 1 2 fair value hierarchy certain level 2 level 3 financial assets liabilities may require valuation adjustments market participant would require arrive fair value factors counterparty firm’s credit quality funding risk transfer restrictions liquidity bidoffer spreads valuation adjustments generally based market evidence valuation techniques nature significant inputs used determine fair value firm’s financial instruments described see notes 5 10 information significant unobservable inputs used value level 3 financial instruments valuation techniques significant inputs trading cash instruments investments loans level 1 level 1 instruments include us government obligations nonus government obligations certain agency obligations certain corporate debt instruments certain debt obligations actively traded listed equities instruments valued using quoted prices identical unrestricted instruments active markets firm defines active markets equity instruments based average daily trading volume absolute terms relative market capitalization instrument firm defines active markets debt instruments based average daily trading volume number days trading activity level 2 level 2 instruments include certain nonus government obligations agency obligations mortgagebacked loans securities corporate debt instruments state municipal obligations debt obligations restricted less liquid listed equities certain private equities commodities certain lending commitments valuations level 2 instruments verified quoted prices recent trading activity identical similar instruments broker dealer quotations alternative pricing sources reasonable levels price transparency consideration given nature quotations eg indicative firm relationship recent market activity prices provided alternative pricing sources valuation adjustments typically made level 2 instruments instrument subject transfer restrictions andor ii premiums liquidity discounts market participant would require arrive fair value valuation adjustments generally based market evidence goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements level 3 level 3 instruments one significant valuation inputs observable absent evidence contrary level 3 instruments initially valued transaction price considered best initial estimate fair value subsequently firm uses methodologies determine fair value vary based type instrument valuation inputs assumptions changed corroborated substantive observable evidence including values realized sales valuation techniques level 3 instruments vary instrument generally based discounted cash flow techniques valuation techniques nature significant inputs used determine fair values type level 3 instrument described loans securities backed commercial real estate loans securities backed commercial real estate directly indirectly collateralized single property portfolio properties may include tranches varying levels subordination significant inputs generally determined based relative value analyses include • market yields implied transactions similar related assets andor current levels changes market indices cmbx index tracks performance commercial mortgage bonds • transaction prices underlying collateral instruments similar underlying collateral • measure expected future cash flows default scenario recovery rates implied value underlying collateral mainly driven current performance underlying collateral capitalization rates recovery rates expressed percentage notional face value instrument reflect benefit credit enhancements certain instruments • timing expected future cash flows duration certain cases may incorporate impact unobservable inputs eg prepayment speeds loans securities backed residential real estate loans securities backed residential real estate directly indirectly collateralized portfolios residential real estate may include tranches varying levels subordination significant inputs generally determined based relative value analyses incorporate comparisons instruments similar collateral risk profiles significant inputs include • market yields implied transactions similar related assets • transaction prices underlying collateral instruments similar underlying collateral • cumulative loss expectations driven default rates home price projections residential property liquidation timelines related costs subsequent recoveries • duration driven underlying loan prepayment speeds residential property liquidation timelines corporate debt instruments corporate debt instruments includes corporate loans debt securities convertible debentures significant inputs corporate debt instruments generally determined based relative value analyses incorporate comparisons prices credit default swaps reference similar underlying instrument entity debt instruments similar issuer observable prices broker quotations available significant inputs include • market yields implied transactions similar related assets andor current levels trends market indices cdx index tracks performance corporate credit • current performance recovery assumptions firm uses credit default swaps value related instrument cost borrowing underlying reference obligation • duration • market transaction multiples corporate debt instruments convertibility participation options equity securities equity securities consists private equities recent thirdparty completed pending transactions eg merger proposals debt restructurings tender offers considered best evidence change fair value available following valuation methodologies used appropriate • industry multiples primarily ebitda revenue multiples public comparables • transactions similar instruments • discounted cash flow techniques • thirdparty appraisals firm also considers changes outlook relevant industry financial performance issuer compared projected performance significant inputs include • market transaction multiples • discount rates capitalization rates • equity securities debtlike features market yields implied transactions similar related assets current performance recovery assumptions duration goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements trading cash instruments investments loans significant inputs valuation instruments us nonus government agency obligations state municipal obligations loans debt obligations generally determined based relative value analyses incorporate comparisons prices credit default swaps reference similar underlying instrument entity debt instruments issuer observable prices broker quotations available significant inputs include • market yields implied transactions similar related assets andor current levels trends market indices • current performance recovery assumptions firm uses credit default swaps value related instrument cost borrowing underlying reference obligation • duration valuation techniques significant inputs derivatives firm’s level 2 level 3 derivatives valued using derivative pricing models eg discounted cash flow models correlation models incorporate option pricing methodologies monte carlo simulations price transparency derivatives generally characterized product type described • interest rate general key inputs used value interest rate derivatives transparent even longdated contracts interest rate swaps options denominated currencies leading industrialized nations characterized high trading volumes tight bidoffer spreads interest rate derivatives reference indices inflation index shape yield curve eg 10year swap rate vs 2year swap rate complex key inputs generally observable • credit price transparency credit default swaps including single names baskets credits varies market underlying reference entity obligation credit default swaps reference indices large corporates major sovereigns generally exhibit price transparency credit default swaps underliers price transparency varies based credit rating cost borrowing underlying reference obligations availability underlying reference obligations delivery upon default issuer credit default swaps reference loans assetbacked securities emerging market debt instruments tend less price transparency reference corporate bonds addition complex credit derivatives sensitive correlation two underlying reference obligations generally less price transparency • currency prices currency derivatives based exchange rates leading industrialized nations including longer tenors generally transparent primary difference price transparency developed emerging market currency derivatives emerging markets tend observable contracts shorter tenors • commodity derivatives include transactions referenced energy eg oil natural gas metals eg precious base soft commodities eg agricultural price transparency varies based underlying commodity delivery location tenor product quality eg diesel fuel compared unleaded gasoline general price transparency commodity derivatives greater contracts shorter tenors contracts closely aligned major andor benchmark commodity indices • equity price transparency equity derivatives varies market underlier options indices common stock corporates included major equity indices exhibit price transparency equity derivatives generally observable market prices except contracts long tenors reference prices differ significantly current market prices complex equity derivatives sensitive correlation two individual stocks generally less price transparency liquidity essential observability product types transaction volumes decline previously transparent prices inputs may become unobservable conversely even highly structured products may times trading volumes large enough provide observability prices inputs level 1 level 1 derivatives include shortterm contracts future delivery securities underlying security level 1 instrument exchangetraded derivatives actively traded valued quoted market price level 2 level 2 derivatives include otc derivatives significant valuation inputs corroborated market evidence exchangetraded derivatives actively traded andor valued using models calibrate marketclearing levels otc derivatives selection particular model value derivative depends contractual terms specific risks inherent instrument well availability pricing information market derivatives trade liquid markets model selection involve significant management judgment outputs models calibrated marketclearing levels goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements valuation models require variety inputs contractual terms market prices yield curves discount rates including derived interest rates collateral received posted specified credit support agreements collateralized derivatives credit curves measures volatility prepayment rates loss severity rates correlations inputs significant inputs valuations level 2 derivatives verified market transactions broker dealer quotations alternative pricing sources reasonable levels price transparency consideration given nature quotations eg indicative firm relationship recent market activity prices provided alternative pricing sources level 3 level 3 derivatives valued using models utilize observable level 1 andor level 2 inputs well unobservable level 3 inputs significant unobservable inputs used value firm’s level 3 derivatives described • level 3 interest rate currency derivatives significant unobservable inputs include correlations certain currencies interest rates eg correlation euro inflation euro interest rates addition level 3 interest rate derivatives significant unobservable inputs include specific interest rate volatilities • level 3 credit derivatives significant unobservable inputs include illiquid credit spreads upfront credit points unique specific reference obligations reference entities recovery rates certain correlations required value credit derivatives eg likelihood default underlying reference obligation relative one another • level 3 commodity derivatives significant unobservable inputs include volatilities options strike prices differ significantly current market prices spreads certain products product quality physical location commodity aligned benchmark indices • level 3 equity derivatives significant unobservable inputs generally include equity volatility inputs options longdated andor strike prices differ significantly current market prices addition valuation certain structured trades requires use level 3 correlation inputs correlation price performance two individual stocks correlation price performance basket stocks another asset class commodities subsequent initial valuation level 3 derivative firm updates level 1 level 2 inputs reflect observable market changes resulting gains losses classified level 3 level 3 inputs changed corroborated evidence similar market transactions thirdparty pricing services andor broker dealer quotations empirical market data circumstances firm cannot verify model value reference market transactions possible different valuation model could produce materially different estimate fair value see note 7 information significant unobservable inputs used valuation level 3 derivatives valuation adjustments valuation adjustments integral determining fair value derivative portfolios used adjust midmarket valuations produced derivative pricing models exit price valuation adjustments incorporate bidoffer spreads cost liquidity credit valuation adjustments funding valuation adjustments account credit funding risk inherent uncollateralized portion derivative portfolios firm also makes funding valuation adjustments collateralized derivatives terms agreement permit firm deliver repledge collateral received marketbased inputs generally used calibrating valuation adjustments marketclearing levels addition derivatives include significant unobservable inputs firm makes model exit price adjustments account valuation uncertainty present transaction valuation techniques significant inputs financial instruments fair value addition trading cash instruments derivatives certain investments loans firm accounts certain financial assets liabilities fair value fair value option instruments include repurchase agreements substantially resale agreements securities borrowed loaned fixed income currency commodities ficc financing certain customer receivables including certain margin loans certain time deposits including structured certificates deposit hybrid financial instruments substantially secured financings including transfers assets accounted financings certain unsecured short longterm borrowings substantially hybrid financial instruments liabilities instruments generally valued based discounted cash flow techniques incorporate inputs reasonable levels price transparency generally classified level 2 inputs observable valuation adjustments may made liquidity counterparty firm’s credit quality significant inputs used value firm’s financial instruments described goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements resale repurchase agreements securities borrowed loaned significant inputs valuation resale repurchase agreements securities borrowed loaned funding spreads amount timing expected future cash flows interest rates customer receivables significant inputs valuation receivables interest rates amount timing expected future cash flows funding spreads deposits significant inputs valuation time deposits interest rates amount timing future cash flows inputs used value embedded derivative component hybrid financial instruments consistent inputs used value firm’s derivative instruments described see note 7 information derivatives note 13 information deposits secured financings significant inputs valuation secured financings amount timing expected future cash flows interest rates funding spreads fair value collateral delivered firm determined using amount timing expected future cash flows market prices market yields recovery assumptions frequency additional collateral calls see note 11 information collateralized agreements financings unsecured short longterm borrowings significant inputs valuation unsecured short longterm borrowings amount timing expected future cash flows interest rates credit spreads firm commodity prices prepaid commodity transactions inputs used value embedded derivative component hybrid financial instruments consistent inputs used value firm’s derivative instruments described see note 7 information derivatives note 14 information borrowings liabilities significant inputs valuation liabilities amount timing expected future cash flows equity volatility correlation inputs financial assets liabilities fair value table presents financial assets liabilities accounted fair value table • counterparty netting among positions classified level included level • counterparty cash collateral netting represents impact derivatives netting across levels fair value hierarchy table presents summary level 3 financial assets level 3 financial assets december 2019 increased compared december 2018 primarily reflecting increase level 3 investments see notes 5 10 information level 3 financial assets including information unrealized gains losses related level 3 financial assets transfers level 3 goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 5 trading assets liabilities trading assets liabilities include trading cash instruments derivatives held connection firm’s marketmaking risk management activities assets liabilities accounted fair value either fair value option accordance us gaap related fair value gains losses generally recognized consolidated statements earnings table presents summary trading assets liabilities see note 6 information trading cash instruments note 7 information derivatives gains losses market making table presents market making revenues major product type table • gainslosses include realized unrealized gains losses gainslosses exclude related interest income interest expense see note 23 information interest income interest expense • gains losses included market making primarily related firm’s trading assets liabilities including derivative nonderivative financial instruments gainslosses representative manner firm manages business activities many firm’s marketmaking client facilitation strategies utilize financial instruments across various product types accordingly gains losses one product type frequently offset gains losses product types example firm’s longerterm derivatives across product types sensitive changes interest rates may economically hedged interest rate swaps similarly significant portion firm’s trading cash instruments derivatives across product types exposure foreign currencies may economically hedged foreign currency contracts goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 6 trading cash instruments trading cash instruments consists instruments held connection firm’s marketmaking risk management activities instruments accounted fair value related fair value gains losses recognized consolidated statements earnings fair value trading cash instruments level table presents trading cash instruments level within fair value hierarchy see note 4 overview firm’s fair value measurement policies valuation techniques significant inputs used determine fair value trading cash instruments table • trading cash instrument assets shown positive amounts trading cash instrument liabilities shown negative amounts • corporate debt instruments includes corporate loans debt securities convertible debentures prepaid commodity transactions transfers assets accounted secured loans rather purchases • equity securities includes public equities exchangetraded funds • debt obligations includes assetbacked securities money market instruments significant unobservable inputs table presents amount level 3 assets ranges weighted averages significant unobservable inputs used value level 3 trading cash instruments level 3 government agency obligations debt obligations equity securities material december 2019 december 2018 therefore included table • ranges represent significant unobservable inputs used valuation type trading cash instrument • weighted averages calculated weighting input relative fair value trading cash instruments goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements • ranges weighted averages inputs representative appropriate inputs use calculating fair value one trading cash instrument example highest recovery rate corporate debt instruments appropriate valuing specific corporate debt instrument may appropriate valuing corporate debt instrument accordingly ranges inputs represent uncertainty possible ranges fair value measurements level 3 trading cash instruments • increases yield duration cumulative loss rate used valuation level 3 trading cash instruments would resulted lower fair value measurement increases recovery rate would resulted higher fair value measurement december 2019 december 2018 due distinctive nature level 3 trading cash instrument interrelationship inputs necessarily uniform within product type • trading cash instruments valued using discounted cash flows level 3 rollforward table presents summary changes fair value level 3 trading cash instruments table • changes fair value presented trading cash instruments classified level 3 end period • net unrealized gainslosses relates trading cash instruments still held periodend • transfers levels fair value hierarchy reported beginning reporting period occur trading cash instrument transferred level 3 reporting period entire gain loss period classified level 3 • level 3 trading cash instrument assets increases shown positive amounts decreases shown negative amounts level 3 trading cash instrument liabilities increases shown negative amounts decreases shown positive amounts • level 3 trading cash instruments frequently economically hedged level 1 level 2 trading cash instruments andor level 1 level 2 level 3 derivatives accordingly gains losses classified level 3 partially offset gains losses attributable level 1 level 2 trading cash instruments andor level 1 level 2 level 3 derivatives result gains losses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents information product type assets included summary table includes us nonus government agency obligations debt obligations equity securities level 3 rollforward commentary year ended december 2019 net realized unrealized gains level 3 trading cash instrument assets 54 million reflecting 89 million net realized gains 35 million net unrealized losses 2019 included gainslosses 56 million reported market making 110 million reported interest income drivers net unrealized losses level 3 trading cash instrument assets 2019 material transfers level 3 trading cash instrument assets 2019 primarily reflected transfers certain corporate debt instruments level 2 principally due reduced price transparency result lack market evidence including fewer market transactions instruments drivers transfers level 3 trading cash instrument assets 2019 material year ended december 2018 net realized unrealized gains level 3 trading cash instrument assets 99 million reflecting 188 million net realized gains 89 million net unrealized losses 2018 included gainslosses 87 million reported market making 186 million reported interest income drivers net unrealized losses level 3 trading cash instrument assets 2018 material transfers level 3 trading cash instrument assets 2018 primarily reflected transfers certain corporate debt instruments loans securities backed commercial real estate level 2 principally due reduced price transparency result lack market evidence including fewer market transactions instruments drivers transfers level 3 trading cash instruments 2018 material goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 7 derivatives hedging activities derivative activities derivatives instruments derive value underlying asset prices indices reference rates inputs combination factors derivatives may traded exchange exchangetraded may privately negotiated contracts usually referred otc derivatives certain firm’s otc derivatives cleared settled central clearing counterparties otccleared others bilateral contracts two counterparties bilateral otc market making market maker firm enters derivative transactions provide liquidity clients facilitate transfer hedging risks role firm typically acts principal required commit capital provide execution maintains marketmaking positions response anticipation client demand risk management firm also enters derivatives actively manage risk exposures arise marketmaking investing financing activities firm’s holdings exposures hedged many cases either portfolio riskspecific basis opposed instrumentbyinstrument basis offsetting impact economic hedging reflected business segment related revenues addition firm may enter derivatives designated hedges us gaap derivatives used manage interest rate exposure certain fixedrate unsecured longterm shortterm borrowings deposits manage foreign currency exposure net investment certain nonus operations firm enters various types derivatives including • futures forwards contracts commit counterparties purchase sell financial instruments commodities currencies future • swaps contracts require counterparties exchange cash flows currency interest payment streams amounts exchanged based specific terms contract reference specified rates financial instruments commodities currencies indices • options contracts option purchaser right obligation purchase sell option writer financial instruments commodities currencies within defined time period specified price derivatives reported netbycounterparty basis ie net payable receivable derivative assets liabilities given counterparty legal right setoff exists enforceable netting agreement counterparty netting derivatives accounted fair value net cash collateral received posted enforceable credit support agreements cash collateral netting derivative assets included trading assets derivative liabilities included trading liabilities realized unrealized gains losses derivatives designated hedges included market making derivatives included global markets segment principal transactions derivatives included remaining business segments consolidated statements earnings years ended december 2019 december 2018 substantially firm’s derivatives included global markets segment goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements tables present gross fair value notional amounts derivative contracts major product type amounts counterparty cash collateral netting consolidated balance sheets well cash securities collateral posted received enforceable credit support agreements meet criteria netting us gaap tables • gross fair values exclude effects counterparty netting collateral therefore representative firm’s exposure • firm received posted collateral credit support agreements yet determined agreements enforceable related collateral netted • notional amounts represent sum gross long short derivative contracts provide indication volume firm’s derivative activity represent anticipated losses • total gross fair value derivatives included derivative assets 915 billion december 2019 1068 billion december 2018 derivative liabilities 1488 billion december 2019 1458 billion december 2018 subject enforceable netting agreement subject netting agreement firm yet determined enforceable goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements fair value derivatives level table presents derivatives gross basis level product type well impact netting see note 4 overview firm’s fair value measurement policies valuation techniques significant inputs used determine fair value derivatives table • gross fair values exclude effects counterparty netting collateral netting therefore representative firm’s exposure • counterparty netting reflected level extent receivable payable balances netted within level included counterparty netting levels counterparty netting across levels netting included crosslevel counterparty netting • derivative assets shown positive amounts derivative liabilities shown negative amounts significant unobservable inputs table presents amount level 3 derivative assets liabilities ranges averages medians significant unobservable inputs used value level 3 derivatives table • derivative assets shown positive amounts derivative liabilities shown negative amounts • ranges represent significant unobservable inputs used valuation type derivative • averages represent arithmetic average inputs weighted relative fair value notional respective financial instruments average greater median indicates majority inputs average example difference average median credit spreads indicates majority inputs fall lower end range goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements • ranges averages medians inputs representative appropriate inputs use calculating fair value one derivative example highest correlation interest rate derivatives appropriate valuing specific interest rate derivative may appropriate valuing interest rate derivative accordingly ranges inputs represent uncertainty possible ranges fair value measurements level 3 derivatives • interest rates currencies equities derivatives valued using option pricing models credit derivatives valued using option pricing correlation discounted cash flow models commodities derivatives valued using option pricing discounted cash flow models • fair value one instrument may determined using multiple valuation techniques example option pricing models discounted cash flows models typically used together determine fair value therefore level 3 balance encompasses techniques • correlation within currencies equities includes crossproduct type correlation • natural gas spread represents spread per million british thermal units natural gas • oil spread represents spread per barrel oil refined products range significant unobservable inputs following information ranges significant unobservable inputs used value firm’s level 3 derivative instruments • correlation ranges correlation cover variety underliers within one product type eg equity index equity single stock names across product types eg correlation interest rate currency well across regions generally crossproduct type correlation inputs used value complex instruments lower correlation inputs assets within derivative product type • volatility ranges volatility cover numerous underliers across variety markets maturities strike prices example volatility equity indices generally lower volatility single stocks • credit spreads upfront credit points recovery rates ranges credit spreads upfront credit points recovery rates cover variety underliers index single names regions sectors maturities credit qualities highyield investmentgrade broad range population gives rise width ranges significant unobservable inputs • commodity prices spreads ranges commodity prices spreads cover variability products maturities delivery locations sensitivity fair value measurement changes significant unobservable inputs following description directional sensitivity firm’s level 3 fair value measurements changes significant unobservable inputs isolation periodend • correlation general contracts holder benefits convergence underlying asset index prices eg interest rates credit spreads foreign exchange rates inflation rates equity prices increase correlation results higher fair value measurement • volatility general purchased options increase volatility results higher fair value measurement • credit spreads upfront credit points recovery rates general fair value purchased credit protection increases credit spreads upfront credit points increase recovery rates decrease credit spreads upfront credit points recovery rates strongly related distinctive risk factors underlying reference obligations include reference entityspecific factors leverage volatility industry marketbased risk factors borrowing costs liquidity underlying reference obligation macroeconomic conditions • commodity prices spreads general contracts holder receiving commodity increase spread price difference benchmark index due differences quality delivery location price results higher fair value measurement due distinctive nature firm’s level 3 derivatives interrelationship inputs necessarily uniform within product type goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements level 3 rollforward table presents summary changes fair value level 3 derivatives table • changes fair value presented derivative assets liabilities classified level 3 end period • net unrealized gainslosses relates instruments still held periodend • transfers levels fair value hierarchy reported beginning reporting period occur derivative transferred level 3 reporting period entire gain loss period classified level 3 • positive amounts transfers level 3 negative amounts transfers level 3 represent net transfers derivative assets negative amounts transfers level 3 positive amounts transfers level 3 represent net transfers derivative liabilities • derivative level 1 andor level 2 inputs classified level 3 entirety least one significant level 3 input • one significant level 3 input entire gain loss adjusting observable inputs ie level 1 level 2 inputs classified level 3 • gains losses classified level 3 resulting changes level 1 level 2 inputs frequently offset gains losses attributable level 1 level 2 derivatives andor level 1 level 2 level 3 trading cash instruments result gainslosses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources table presents information product type derivatives included summary table goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements level 3 rollforward commentary year ended december 2019 net realized unrealized losses level 3 derivatives 336 million reflecting 118 million net realized gains 454 million net unrealized losses 2019 included losses 305 million reported market making 31 million reported principal transactions net unrealized losses level 3 derivatives 2019 primarily attributable losses certain equity derivatives primarily reflecting impact increase equity prices losses certain currency derivatives primarily reflecting impact decrease interest rates changes foreign exchange rates partially offset gains certain credit derivatives primarily reflecting impact decrease interest rates gains certain commodity derivatives primarily reflecting impact changes commodity prices gains certain interest rate derivatives primarily reflecting impact decrease interest rates drivers transfers level 3 derivatives 2019 material transfers level 3 derivatives 2019 primarily reflected transfers certain equity derivative assets level 2 principally due certain unobservable inputs longer significant valuation derivatives year ended december 2018 net realized unrealized gains level 3 derivatives 114 billion reflecting 113 million net realized losses 125 billion net unrealized gains 2018 included gains 111 billion reported market making 28 million reported principal transactions net unrealized gains level 3 derivatives 2018 primarily attributable gains certain equity derivatives reflecting impact decrease certain equity prices gains certain currency derivatives primarily reflecting impact changes foreign exchange rates transfers level 3 derivatives transfers level 3 derivatives 2018 material otc derivatives table presents otc derivative assets liabilities tenor major product type table • tenor based remaining contractual maturity • counterparty netting within product type tenor category included within product type tenor category • counterparty netting across product types within tenor category included counterparty netting tenors counterparty netting across tenor categories netting included crosstenor counterparty netting goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements credit derivatives firm enters broad array credit derivatives facilitate client transactions manage credit risk associated marketmaking investing financing activities credit derivatives actively managed based firm’s net risk position credit derivatives generally individually negotiated contracts various settlement payment conventions credit events include failure pay bankruptcy acceleration indebtedness restructuring repudiation dissolution reference entity firm enters following types credit derivatives • credit default swaps singlename credit default swaps protect buyer loss principal one bonds loans mortgages reference obligations event issuer reference obligations suffers credit event buyer protection pays initial periodic premium seller receives protection period contract credit event defined contract seller protection makes payments buyer credit event occurs seller protection required make payment buyer calculated according terms contract • credit options credit option writer assumes obligation purchase sell reference obligation specified price credit spread option purchaser buys right assume obligation sell reference obligation purchase option writer payments credit options depend either particular credit spread price reference obligation • credit indices baskets tranches credit derivatives may reference basket singlename credit default swaps broadbased index credit event occurs one underlying reference obligations protection seller pays protection buyer payment typically prorata portion transaction’s total notional amount based underlying defaulted reference obligation certain transactions credit risk basket index separated various portions tranches different levels subordination junior tranches cover initial defaults losses exceed notional amount junior tranches excess loss covered next senior tranche • total return swaps total return swap transfers risks relating economic performance reference obligation protection buyer protection seller typically protection buyer receives floating rate interest protection reduction fair value reference obligation protection seller receives cash flows associated reference obligation plus increase fair value reference obligation firm economically hedges exposure written credit derivatives primarily entering offsetting purchased credit derivatives identical underliers substantially firm’s purchased credit derivative transactions financial institutions subject stringent collateral thresholds addition upon occurrence specified trigger event firm may take possession reference obligations underlying particular written credit derivative consequently may upon liquidation reference obligations recover amounts underlying reference obligations event default december 2019 written credit derivatives total gross notional amount 52257 billion purchased credit derivatives total gross notional amount 58176 billion total net notional purchased protection 5919 billion december 2018 written credit derivatives total gross notional amount 55417 billion purchased credit derivatives total gross notional amount 60300 billion total net notional purchased protection 4883 billion firm’s written purchased credit derivatives primarily consist credit default swaps goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents information credit derivatives table • fair values exclude effects netting receivable balances payable balances enforceable netting agreements netting cash received posted enforceable credit support agreements therefore representative firm’s credit exposure • tenor based remaining contractual maturity • credit spread underlier together tenor contract indicators paymentperformance risk firm less likely pay otherwise required perform credit spread tenor lower • offsetting purchased credit derivatives represent notional amount purchased credit derivatives economically hedge written credit derivatives identical underliers • purchased credit derivatives represent notional amount purchased credit derivatives included offsetting impact credit funding spreads derivatives firm realizes gains losses derivative contracts gains losses include credit valuation adjustments cva relating uncollateralized derivative assets liabilities represents gains losses including hedges attributable impact changes credit exposure counterparty credit spreads liability funding spreads includes firm’s credit probability default assumed recovery gains losses also include funding valuation adjustments fva relating uncollateralized derivative assets represents gains losses including hedges attributable impact changes expected funding exposures funding spreads table presents information cva fva bifurcated embedded derivatives table presents fair value notional amount derivatives bifurcated related borrowings table derivatives bifurcated related borrowings recorded fair value primarily consist interest rate equity commodity products derivatives included unsecured short longterm borrowings related borrowings derivatives creditrelated contingent features certain firm’s derivatives transacted bilateral agreements counterparties may require firm post collateral terminate transactions based changes firm’s credit ratings firm assesses impact bilateral agreements determining collateral termination payments would occur assuming downgrade rating agencies downgrade one rating agency depending agency’s relative ratings firm time downgrade may impact comparable impact downgrade rating agencies goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents information net derivative liabilities bilateral agreements excluding collateral posted fair value collateral posted additional collateral termination payments could called counterparties event one twonotch downgrade firm’s credit ratings hedge accounting firm applies hedge accounting certain interest rate swaps used manage interest rate exposure certain fixedrate unsecured longterm shortterm borrowings certain fixedrate certificates deposit ii certain foreign currency forward contracts foreign currencydenominated debt used manage foreign currency exposures firm’s net investment certain nonus operations qualify hedge accounting hedging instrument must highly effective reducing risk exposure hedged additionally firm must formally document hedging relationship inception assess hedging relationship least quarterly basis ensure hedging instrument continues highly effective life hedging relationship fair value hedges firm designates certain interest rate swaps fair value hedges certain fixedrate unsecured longterm shortterm debt fixedrate certificates deposit interest rate swaps hedge changes fair value attributable designated benchmark interest rate eg london interbank offered rate libor overnight index swap rate effectively converting substantial portion fixedrate obligations floatingrate obligations firm applies statistical method utilizes regression analysis assessing effectiveness fair value hedging relationships achieving offsetting changes fair values hedging instrument risk hedged ie interest rate risk interest rate swap considered highly effective offsetting changes fair value attributable changes hedged risk regression analysis results coefficient determination 80 greater slope 80 125 qualifying fair value hedges gains losses derivatives included interest expense change fair value hedged item attributable risk hedged reported adjustment carrying value hedging adjustment also included interest expense derivative longer designated hedge remaining difference carrying value par value hedged item amortized interest expense remaining life hedged item using effective interest method see note 23 information interest income interest expense table presents gainslosses interest rate derivatives accounted hedges related hedged borrowings deposits total interest expense table • difference gainslosses interest rate hedges hedged borrowings deposits primarily due amortization prepaid credit spreads resulting passage time • hedge ineffectiveness 684 million 2017 table presents carrying value hedged items currently designated hedging relationship related cumulative hedging adjustment increasedecrease current prior hedging relationships included carrying values table cumulative hedging adjustment included 348 billion december 2019 174 billion december 2018 hedging adjustments prior hedging relationships dedesignated substantially related unsecured longterm borrowings addition cumulative hedging adjustments items longer designated hedging relationship 425 million december 2019 151 billion december 2018 substantially related unsecured longterm borrowings goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements net investment hedges firm seeks reduce impact fluctuations foreign exchange rates net investments certain nonus operations use foreign currency forward contracts foreign currencydenominated debt foreign currency forward contracts designated hedges effectiveness hedge assessed based overall changes fair value forward contracts ie based changes forward rates foreign currencydenominated debt designated hedge effectiveness hedge assessed based changes spot rates qualifying net investment hedges gains losses hedging instruments included currency translation table presents gainslosses net investment hedging gains losses individual net investments nonus operations reclassified earnings accumulated comprehensive incomeloss net investments sold substantially liquidated gross net gains losses hedges related net investments nonus operations reclassified earnings accumulated comprehensive incomeloss material 2019 2018 net gain reclassified earnings accumulated comprehensive income 41 million reflecting gain 205 million related hedges loss 164 million related net investments nonus operations 2017 gainloss related ineffectiveness material 2017 firm designated 305 billion december 2019 199 billion december 2018 foreign currencydenominated debt included unsecured longterm shortterm borrowings hedges net investments nonus subsidiaries note 8 investments includes debt instruments equity securities accounted fair value generally held firm connection longterm investing activities addition investments includes debt securities classified availableforsale heldtomaturity generally held connection firm’s assetliability management activities investments also consists equity securities accounted equity method table presents information investments equity securities debt instruments fair value equity securities debt instruments fair value accounted fair value either fair value option accordance us gaap related fair value gains losses recognized earnings equity securities fair value equity securities fair value consists firm’s public private equityrelated investments corporate real estate entities table presents information equity securities fair value goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table • equity securities fair value included investments accounted fair value fair value option firm would otherwise apply equity method accounting 823 billion december 2019 791 billion december 2018 gains recognized firm result changes fair value securities 129 billion 2019 141 billion 2018 gains included principal transactions consolidated statements earnings • equity securities fair value included 322 billion december 2019 339 billion december 2018 investments funds measured nav • emea represents europe middle east africa debt instruments fair value debt instruments fair value primarily includes mezzanine debt senior distressed debt table presents information debt instruments fair value table • corporate debt securities includes convertible debentures • primarily includes money market instruments time deposits • total debt instruments included 983 million december 2019 548 million december 2018 investments credit funds measured nav investments funds net asset value per share equity securities debt instruments fair value include investments funds measured nav investment fund firm uses nav measure fair value fund investments fund investment readily determinable fair value ii nav investment fund calculated manner consistent measurement principles investment company accounting including measurement investments fair value substantially firm’s investments funds nav consist investments firmsponsored private equity credit real estate hedge funds firm coinvests thirdparty investors private equity funds primarily invest broad range industries worldwide including leveraged buyouts recapitalizations growth investments distressed investments credit funds generally invest loans fixed income instruments focused providing private highyield capital leveraged management buyout transactions recapitalizations financings refinancings acquisitions restructurings private equity firms private family companies corporate issuers real estate funds invest globally primarily real estate companies loan portfolios debt recapitalizations property private equity credit real estate funds closedend funds firm’s investments generally eligible redemption distributions received funds underlying assets liquidated distributed timing uncertain firm also invests hedge funds primarily multidisciplinary hedge funds employ fundamental bottomup investment approach across various asset classes strategies firm’s investments hedge funds primarily include interests underlying assets illiquid nature proceeds redemptions received underlying assets liquidated distributed timing uncertain private equity hedge real estate funds described primarily “covered funds” defined volcker rule us doddfrank wall street reform consumer protection act doddfrank act board governors federal reserve system frb extended conformance period july 2022 firm’s investments relationships certain legacy “illiquid funds” defined volcker rule place prior december 2013 extension applicable substantially firm’s remaining investments relationships covered funds substantially credit funds described covered funds goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents fair value investments funds nav related unfunded commitments availableforsale securities availableforsale securities accounted fair value related unrealized fair value gains losses included accumulated comprehensive incomeloss table presents information availableforsale securities tenor table • availableforsale securities consists us government obligations classified level 1 fair value hierarchy december 2019 december 2018 • firm sold 958 billion availableforsale securities 2019 realized gains sales securities 181 million 2019 included consolidated statements earnings sales realized gains 2018 material • gross unrealized gains included accumulated comprehensive incomeloss 137 million gross unrealized losses included accumulated comprehensive incomeloss material december 2019 gross unrealized losses included accumulated comprehensive incomeloss 153 million december 2018 related securities continuous unrealized loss position greater year • availableforsale securities unrealized loss position periodically reviewed otherthantemporary impairment firm considers various factors including market conditions changes issuer credit ratings severity duration unrealized losses intent ability hold security recovery determine securities otherthantemporarily impaired impairments 2019 2018 2017 fair value investments level table presents investments accounted fair value level within fair value hierarchy see note 4 overview firm’s fair value measurement policies valuation techniques significant inputs used determine fair value investments goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements significant unobservable inputs table presents amount level 3 investments ranges weighted averages significant unobservable inputs used value investments table • ranges represent significant unobservable inputs used valuation type investment • weighted averages calculated weighting input relative fair value investment • ranges weighted averages inputs representative appropriate inputs use calculating fair value one investment example highest multiple private equity securities appropriate valuing specific private equity security may appropriate valuing private equity security accordingly ranges inputs represent uncertainty possible ranges fair value measurements level 3 investments • increases yield discount rate capitalization rate duration used valuation level 3 investments would resulted lower fair value measurement increases recovery rate multiples would resulted higher fair value measurement december 2019 december 2018 due distinctive nature level 3 investment interrelationship inputs necessarily uniform within product type • corporate debt securities backed real estate debt obligations valued using discounted cash flows equity securities valued using market comparables discounted cash flows • fair value one instrument may determined using multiple valuation techniques example market comparables discounted cash flows may used together determine fair value therefore level 3 balance encompasses techniques • recovery rate significant valuation level 3 securities backed real estate december 2018 level 3 rollforward table presents summary changes fair value level 3 investments table • changes fair value presented investments classified level 3 end period • net unrealized gainslosses relates instruments still held periodend • transfers levels fair value hierarchy reported beginning reporting period occur investment transferred level 3 reporting period entire gain loss period classified level 3 • level 3 investments increases shown positive amounts decreases shown negative amounts goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents information product type investments included summary table level 3 rollforward commentary year ended december 2019 net realized unrealized gains level 3 investments 155 billion reflecting 252 million net realized gains 130 billion net unrealized gains 2019 included gains 144 billion reported principal transactions 108 million reported interest income net unrealized gains level 3 investments 2019 primarily reflected gains private equity securities principally driven corporate performance companyspecific events transfers level 3 2019 primarily reflected transfers certain private equity securities corporate debt securities level 2 principally due reduced price transparency result lack market evidence including fewer transactions instruments transfers level 3 investments 2019 primarily reflected transfers certain private equity securities corporate debt securities level 2 principally due increased price transparency result market evidence including market transactions instruments year ended december 2018 net realized unrealized gains level 3 investments 107 billion reflecting 237 million net realized gains 834 million net unrealized gains 2018 included gains 848 million reported principal transactions 223 million reported interest income net unrealized gains level 3 investments 2018 primarily reflected gains private equity securities principally driven corporate performance transfers level 3 2018 primarily reflected transfers certain private equity securities corporate debt instruments level 2 principally due reduced price transparency result lack market evidence including fewer transactions instruments transfers level 3 investments 2018 primarily reflected transfers certain private equity securities level 2 principally due increased price transparency result market evidence including market transactions instruments goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements heldtomaturity securities heldtomaturity securities accounted amortized cost net otherthantemporary impairments table presents information heldtomaturity securities type tenor table • substantially securities backed real estate consist securities backed residential real estate • securities accounted fair value included firm’s fair value hierarchy notes 4 10 securities included firm’s fair value hierarchy us government obligations would classified level 1 substantially securities backed real estate would classified level 2 fair value hierarchy december 2019 december 2018 • gross unrealized gains 141 million gross unrealized losses material december 2019 gross unrealized gainslosses material december 2018 • heldtomaturity securities unrealized loss position periodically reviewed otherthantemporary impairment firm considers various factors including market conditions changes issuer credit ratings severity duration unrealized losses intent ability hold security recovery determine securities otherthantemporarily impaired impairments 2019 2018 2017 note 9 loans include loans held investment accounted amortized cost net allowance loan losses fair value fair value option ii loans held sale accounted lower cost fair value interest loans recognized life loan recorded accrual basis table presents information loans following description loan types table • corporate loans includes term loans revolving lines credit letter credit facilities bridge loans principally used operating general corporate purposes connection acquisitions corporate loans may secured unsecured depending loan purpose risk profile borrower factors • wealth management wealth management loans includes loans extended private bank wealth management clients loans used finance investments financial nonfinancial assets bridge cash flow timing gaps provide liquidity needs substantially loans secured securities residential real estate commercial real estate assets goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements • commercial real estate commercial real estate loans includes loans extended firm extended private bank directly indirectly secured hotels retail stores multifamily housing complexes commercial industrial properties commercial real estate loans also includes loans purchased firm • residential real estate residential real estate loans primarily includes loans extended firm extended private bank clients warehouse assets directly indirectly secured residential real estate loans purchased firm • consumer loans unsecured originated firm • credit cards credit card loans made pursuant revolving lines credit issued consumers firm • loans primarily includes loans extended clients warehouse assets directly indirectly secured consumer loans including auto loans private student loans also includes unsecured consumer credit card loans purchased firm pci loans accounted amortized cost include pci loans represent acquired loans pools loans evidence credit deterioration subsequent origination probable acquisition firm able collect contractually required payments pci loans initially recorded acquisition price difference acquisition price expected cash flows accretable yield recognized interest income life loans effective yield method tables present information pci loans january 2020 firm elected fair value option pci loans accordance asu 201613 see note 3 information adoption asu table • fair value expected cash flows contractually required cash flows acquisition date • expected cash flows represents cash flows expected received life loan result liquidation underlying collateral • contractually required cash flows represents cash flows required repaid borrower life loan credit quality risk assessment firm’s risk assessment process includes evaluating credit quality loans excluding originated purchased consumer credit card loans pci loans certain wealth management loans backed residential real estate firm performs credit reviews include initial ongoing analyses borrowers resulting internal credit rating credit review independent analysis capacity willingness borrower meet financial obligations determination internal credit ratings also incorporates assumptions respect nature outlook borrower’s industry economic environment table presents gross loans internally determined public rating agency equivalent credit metrics concentration secured unsecured loans table otherunrated includes 1552 billion december 2019 1172 billion december 2018 loans evaluated using credit metrics described loans primarily include originated purchased consumer credit card loans pci loans certain wealth management loans backed residential real estate goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements purchased consumer credit card loans pci loans certain wealth management loans backed residential real estate firm’s risk assessment process includes reviewing certain key metrics loantovalue ratio delinquency status collateral values expected cash flows fair isaac corporation fico credit score risk factors originated consumer credit card loans important creditquality indicator fico credit score measures borrower’s creditworthiness considering factors payment credit history fico credit scores refreshed periodically firm assess updated creditworthiness borrower table presents gross consumer credit card loans concentration refreshed fico credit score firm also assigns regulatory risk rating loans based definitions provided us federal bank regulatory agencies table presents gross loans regulatory risk rating credit concentrations table presents concentration gross loans region table presents concentration gross corporate loans industry impaired loans accounted amortized cost excluding pci loans determined impaired probable firm collect principal interest due contractual terms time loans generally placed nonaccrual status accrued uncollected interest reversed interest income interest subsequently collected recognized cash basis extent loan balance deemed collectible otherwise cash received used reduce outstanding loan balance loan considered past due principal interest payment made according contractual terms certain circumstances firm may also modify original terms loan agreement granting concession borrower experiencing financial difficulty modifications considered troubled debt restructurings typically include interest rate reductions payment extensions modification loan covenants loans modified troubled debt restructuring considered impaired subject specific loanlevel reserves goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements gross carrying value impaired loans excluding pci loans nonaccrual status 149 billion december 2019 838 million december 2018 loans included 251 million december 2019 27 million december 2018 corporate loans modified troubled debt restructuring firm’s lending commitments related loans material december 2019 december 2018 amount loans 30 days past due 627 million december 2019 208 million december 2018 determined firm cannot reasonably estimate expected cash flows pci loans pools loans placed nonaccrual status allowance credit losses firm’s allowance credit losses consists allowance losses loans lending commitments accounted amortized cost loans lending commitments accounted fair value accounted lower cost fair value subject allowance credit losses firm’s allowance loan losses consists specific loanlevel reserves portfoliolevel reserves pci loans described • specific loanlevel reserves determined loans excluding pci loans exhibit credit quality weakness therefore individually evaluated impairment • portfoliolevel reserves determined loans excluding pci loans evaluated specific loanlevel reserves aggregating groups loans similar risk characteristics estimating probable loss inherent portfolio • reserves pci loans recorded determined expected cash flows reassessed quarterly basis lower used establish current effective yield loans pools loans expected cash flows determined significantly higher used establish current effective yield increases initially recognized reduction previously recorded allowances loan losses remaining increases recognized interest income prospectively life loan pools loans increase effective yield allowance loan losses determined using various risk factors including industry default loss data current macroeconomic indicators borrower’s capacity meet financial obligations borrower’s country risk loan seniority collateral type addition loans backed real estate risk factors include loantovalue ratio debt service ratio home price index risk factors consumer credit card loans include fico credit scores delinquency status management’s estimate loan losses entails judgment loan collectability reporting dates uncertainties inherent judgments management uses best information available determine estimate future adjustments allowance may necessary based among things changes economic environment variances actual results original assumptions used loans charged allowance loan losses deemed uncollectible firm also records allowance losses lending commitments held investment accounted amortized cost allowance determined using methodology allowance loan losses also taking consideration probability drawdowns funding included liabilities table presents gross loans lending commitments accounted amortized cost impairment methodology table • gross loans lending commitments subject specific loanlevel reserves included 832 million december 2019 484 million december 2018 impaired loans lending commitments require reserve loan deemed recoverable • gross loans deemed impaired subject specific loanlevel reserves percentage total gross loans 16 december 2019 10 december 2018 • see note 18 information lending commitments goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents information allowance credit losses table • net chargeoffs primarily related consumer loans 2019 consumer loans commercial real estate pci loans 2018 • provision credit losses primarily related consumer loans corporate loans 2019 2018 • represents reduction allowance related loans lending commitments transferred held sale • portfoliolevel reserves primarily related consumer loans corporate loans specific loanlevel reserves substantially related corporate loans reserves pci loans related real estate loans • substantially allowance losses lending commitments related corporate lending commitments • allowance loan losses percentage total gross loans accounted amortized cost 16 december 2019 13 december 2018 • net chargeoffs percentage average total gross loans accounted amortized cost 06 2019 05 2018 fair value loans level table presents loans held investment accounted fair value fair value option level within fair value hierarchy gains result changes fair value loans included table 355 million 2019 372 million 2018 gains included principal transactions see note 4 overview firm’s fair value measurement policies valuation techniques significant inputs used determine fair value loans significant unobservable inputs table presents amount level 3 loans ranges weighted averages significant unobservable inputs used value loans goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table • ranges represent significant unobservable inputs used valuation type loan • weighted averages calculated weighting input relative fair value loan • ranges weighted averages inputs representative appropriate inputs use calculating fair value one loan example highest yield residential real estate loans appropriate valuing specific residential real estate loan may appropriate valuing residential real estate loan accordingly ranges inputs represent uncertainty possible ranges fair value measurements level 3 loans • increases yield duration used valuation level 3 loans would resulted lower fair value measurement increases recovery rate would resulted higher fair value measurement december 2019 december 2018 due distinctive nature level 3 loan interrelationship inputs necessarily uniform within product type • loans valued using discounted cash flows level 3 rollforward table presents summary changes fair value level 3 loans table • changes fair value presented loans classified level 3 end period • net unrealized gainslosses relates loans still held periodend • purchases includes originations secondary purchases • transfers levels fair value hierarchy reported beginning reporting period occur loan transferred level 3 reporting period entire gain loss period classified level 3 table presents information loan type loans included summary table level 3 rollforward commentary year ended december 2019 net realized unrealized gains level 3 loans 131 million reflecting 46 million net realized gains 85 million net unrealized gains 2019 included gains 98 million reported principal transactions 33 million reported interest income drivers net unrealized gains level 3 loans 2019 material transfers level 3 loans 2019 primarily reflected transfers certain corporate loans level 2 principally due reduced price transparency result lack market evidence drivers transfers level 3 loans 2019 material goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements year ended december 2018 net realized unrealized gains level 3 loans 146 million reflecting 74 million net realized gains 72 million net unrealized gains 2018 included gains 52 million reported principal transactions 94 million reported interest income drivers net unrealized gains level 3 loans 2018 material transfers level 3 loans 2018 primarily reflected transfers certain commercial real estate corporate loans level 2 principally due reduced price transparency result lack market evidence transfers level 3 loans 2018 primarily reflected transfers certain commercial real estate loans level 2 principally due certain unobservable yield duration inputs longer significant valuation instruments estimated fair value table presents estimated fair value loans accounted fair value level fair value hierarchy would classified included firm’s fair value hierarchy note 10 fair value option financial assets liabilities fair value addition trading assets liabilities certain investments loans firm accounts certain financial assets liabilities fair value substantially fair value option primary reasons electing fair value option • reflect economic events earnings timely basis • mitigate volatility earnings using different measurement attributes eg transfers financial assets accounted financings recorded fair value whereas related secured financing would recorded accrual basis absent electing fair value option • address simplification costbenefit considerations eg accounting hybrid financial instruments fair value entirety versus bifurcation embedded derivatives hedge accounting debt hosts hybrid financial instruments contain bifurcatable embedded derivatives require settlement physical delivery nonfinancial assets eg physical commodities firm elects bifurcate embedded derivative associated debt derivative accounted fair value host contract accounted amortized cost adjusted effective portion fair value hedges firm elect bifurcate entire hybrid financial instrument accounted fair value fair value option financial assets liabilities accounted fair value fair value option include • repurchase agreements substantially resale agreements • securities borrowed loaned ficc financing • substantially secured financings including transfers assets accounted financings • certain unsecured short longterm borrowings substantially hybrid financial instruments • certain customer receivables including certain margin loans • certain time deposits stated maturity eligible fair value option election including structured certificates deposit hybrid financial instruments goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements fair value financial assets liabilities level table presents level within fair value hierarchy financial assets liabilities fair value substantially accounted fair value fair value option table financial assets shown positive amounts financial liabilities shown negative amounts see note 4 overview firm’s fair value measurement policies valuation techniques significant inputs used determine fair value financial assets liabilities significant inputs see information significant inputs including significant unobservable inputs used value financial assets liabilities fair value resale repurchase agreements securities borrowed loaned december 2019 december 2018 firm level 3 resale agreements securities borrowed securities loaned december 2019 december 2018 firm’s level 3 repurchase agreements material customer receivables december 2019 firm level 3 customer receivables december 2018 firm’s level 3 customer receivables material deposits firm’s deposits classified level 3 hybrid financial instruments significant unobservable inputs used value instruments primarily relate embedded derivative component deposits unobservable inputs incorporated firm’s derivative disclosures note 7 secured financings ranges weighted averages significant unobservable inputs used value level 3 secured financings december 2019 presented ranges weighted averages exclude unobservable inputs relevant single instrument therefore meaningful • yield 33 42 weighted average 35 • duration 06 21 years weighted average 10 year generally increases yield duration isolation would resulted lower fair value measurement december 2019 due distinctive nature level 3 secured financings interrelationship inputs necessarily uniform across financings december 2018 level 3 secured financings material unsecured short longterm borrowings certain firm’s unsecured short longterm borrowings classified level 3 substantially hybrid financial instruments significant unobservable inputs used value hybrid financial instruments primarily relate embedded derivative component borrowings unobservable inputs incorporated firm’s derivative disclosures note 7 liabilities december 2019 december 2018 firm’s level 3 liabilities material goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements level 3 rollforward table presents summary changes fair value level 3 financial assets liabilities accounted fair value table • changes fair value presented financial assets liabilities classified level 3 end period • net unrealized gainslosses relates instruments still held periodend • transfers levels fair value hierarchy reported beginning reporting period occur financial asset liability transferred level 3 reporting period entire gain loss period classified level 3 • level 3 financial assets increases shown positive amounts decreases shown negative amounts level 3 financial liabilities increases shown negative amounts decreases shown positive amounts • level 3 financial assets liabilities frequently economically hedged trading assets liabilities accordingly gains losses classified level 3 partially offset gains losses attributable level 1 2 3 trading assets liabilities result gains losses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources table presents information consolidated balance sheet line items liabilities included summary table goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements level 3 rollforward commentary year ended december 2019 net realized unrealized losses level 3 financial liabilities 259 billion reflecting 337 million net realized losses 225 billion net unrealized losses 2019 included losses 198 billion reported market making 10 million reported principal transactions 9 million reported interest expense consolidated statements earnings 595 million reported debt valuation adjustment consolidated statements comprehensive income unrealized losses level 3 financial liabilities 2019 primarily reflected losses certain hybrid financial instruments included unsecured long shortterm borrowings principally due increase global equity prices losses certain hybrid financial instruments included deposits due impact increase market value underlying assets transfers level 3 financial liabilities 2019 primarily reflected transfers certain hybrid financial instruments included unsecured long shortterm borrowings secured financings level 2 principally due reduced price transparency certain volatility correlation inputs used value instruments transfers level 3 financial liabilities 2019 primarily reflected transfers certain hybrid financial instruments included unsecured long shortterm borrowings level 2 principally due increased price transparency certain volatility correlation inputs used value instruments year ended december 2018 net realized unrealized gains level 3 financial liabilities 152 billion reflecting 491 million net realized losses 201 billion net unrealized gains 2018 included gainslosses 883 million reported market making 1 million reported principal transactions 1 million reported interest expense consolidated statements earnings 641 million reported debt valuation adjustment consolidated statements comprehensive income net unrealized gains level 3 financial liabilities 2018 primarily reflected gains certain hybrid financial instruments included unsecured longterm borrowings principally due impact wider credit spreads increases interest rates gains certain hybrid financial instruments included unsecured shortterm borrowings principally due decrease global equity prices transfers level 3 financial liabilities 2018 primarily reflected transfers certain hybrid financial instruments included unsecured longterm borrowings level 2 principally due reduced transparency certain inputs used value instruments result lack market transactions similar instruments transfers level 3 financial liabilities 2018 primarily reflected transfers certain hybrid financial instruments included unsecured long shortterm borrowings level 2 principally due increased transparency certain volatility correlation inputs used value instruments gains losses financial assets liabilities accounted fair value fair value option table presents gains losses recognized earnings result election apply fair value option certain financial assets liabilities table • gainslosses substantially included market making • gainslosses exclude contractual interest included interest income interest expense instruments hybrid financial instruments see note 23 information interest income interest expense • gainslosses included unsecured short longterm borrowings substantially related embedded derivative component hybrid financial instruments 2019 2018 2017 gains losses would recognized us gaap even firm elected account entire hybrid financial instrument fair value • primarily consists gainslosses customer receivables deposits secured financings liabilities • financial assets liabilities fair value frequently economically hedged trading assets liabilities accordingly gains losses financial assets liabilities partially offset gains losses trading assets liabilities result gains losses financial assets liabilities necessarily represent overall impact firm’s results operations liquidity capital resources goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements see note 8 information gainslosses equity securities note 9 information gainslosses loans accounted fair value fair value option gainslosses trading assets liabilities accounted fair value fair value option included market making see note 5 information gainslosses market making longterm debt instruments difference aggregate contractual principal amount related fair value longterm secured financings fair value option elected material december 2019 december 2018 fair value unsecured longterm borrowings exceeded aggregate contractual principal amount 199 million december 2019 aggregate contractual principal amount exceeded related fair value 347 billion december 2018 amounts include principalprotected nonprincipalprotected longterm borrowings debt valuation adjustment firm calculates fair value financial liabilities fair value option elected discounting future cash flows rate incorporates firm’s credit spreads table presents information net debt valuation adjustment dva gainslosses financial liabilities fair value option elected table • dva net tax included debt valuation adjustment consolidated statements comprehensive income • gainslosses reclassified earnings accumulated comprehensive incomeloss upon extinguishment financial liabilities material 2019 2018 2017 loans lending commitments table presents difference aggregate fair value aggregate contractual principal amount loans included trading assets loans consolidated balance sheets fair value option elected table aggregate contractual principal amount loans nonaccrual status andor 90 days past due excludes loans carried zero fair value considered uncollectible exceeds related fair value primarily firm regularly purchases loans distressed loans values significantly contractual principal amounts fair value unfunded lending commitments fair value option elected liability 373 million december 2019 45 million december 2018 related total contractual amount lending commitments 155 billion december 2019 189 billion december 2018 see note 18 information lending commitments impact credit spreads loans lending commitments estimated net gain attributable changes instrumentspecific credit spreads loans lending commitments fair value option elected 134 million 2019 211 million 2018 268 million 2017 firm generally calculates fair value loans lending commitments fair value option elected discounting future cash flows rate incorporates instrumentspecific credit spreads floatingrate loans lending commitments substantially changes fair value attributable changes instrumentspecific credit spreads whereas fixedrate loans lending commitments changes fair value also attributable changes interest rates goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 11 collateralized agreements financings collateralized agreements resale agreements securities borrowed collateralized financings repurchase agreements securities loaned secured financings firm enters transactions order among things facilitate client activities invest excess cash acquire securities cover short positions finance certain firm activities collateralized agreements financings presented netbycounterparty basis legal right setoff exists interest collateralized agreements included interest income collateralized financings included interest expense recognized life transaction see note 23 information interest income interest expense table presents carrying value resale repurchase agreements securities borrowed loaned transactions table • substantially resale agreements repurchase agreements carried fair value fair value option see note 4 information valuation techniques significant inputs used determine fair value • securities borrowed 2628 billion december 2019 2314 billion december 2018 securities loaned 714 million december 2019 324 billion december 2018 fair value resale repurchase agreements resale agreement transaction firm purchases financial instruments seller typically exchange cash simultaneously enters agreement resell substantially financial instruments seller stated price plus accrued interest future date repurchase agreement transaction firm sells financial instruments buyer typically exchange cash simultaneously enters agreement repurchase substantially financial instruments buyer stated price plus accrued interest future date even though repurchase resale agreements including “repos reversestomaturity” involve legal transfer ownership financial instruments accounted financing arrangements require financial instruments repurchased resold maturity agreement financial instruments purchased sold resale repurchase agreements typically include us government agency investmentgrade sovereign obligations firm receives financial instruments purchased resale agreements makes delivery financial instruments sold repurchase agreements mitigate credit exposure firm monitors market value financial instruments daily basis delivers obtains additional collateral due changes market value financial instruments appropriate resale agreements firm typically requires collateral fair value approximately equal carrying value relevant assets consolidated balance sheets securities borrowed loaned transactions securities borrowed transaction firm borrows securities counterparty exchange cash securities firm returns securities counterparty returns cash securities interest generally paid periodically life transaction securities loaned transaction firm lends securities counterparty exchange cash securities counterparty returns securities firm returns cash securities posted collateral interest generally paid periodically life transaction firm receives securities borrowed makes delivery securities loaned mitigate credit exposure firm monitors market value securities daily basis delivers obtains additional collateral due changes market value securities appropriate securities borrowed transactions firm typically requires collateral fair value approximately equal carrying value securities borrowed transaction goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements securities borrowed loaned within ficc financing recorded fair value fair value option see note 10 information securities borrowed loaned accounted fair value securities borrowed loaned within equities financing recorded based amount cash collateral advanced received plus accrued interest agreements generally terminated demand exhibit little sensitivity changes interest rates therefore carrying value agreements approximates fair value agreements accounted fair value included firm’s fair value hierarchy notes 4 10 agreements included firm’s fair value hierarchy would classified level 2 december 2019 december 2018 offsetting arrangements table presents resale repurchase agreements securities borrowed loaned transactions included consolidated balance sheets well amounts offset consolidated balance sheets table • substantially gross carrying values arrangements subject enforceable netting agreements • firm received posted collateral credit support agreements yet determined agreements enforceable related collateral netted • amounts offset includes counterparty netting meet criteria netting us gaap fair value collateral received posted subject enforceable credit support agreements gross carrying value repurchase agreements securities loaned table presents gross carrying value repurchase agreements securities loaned class collateral pledged table presents gross carrying value repurchase agreements securities loaned maturity table • repurchase agreements securities loaned repayable prior maturity option firm reflected contractual maturity dates • repurchase agreements securities loaned redeemable prior maturity option holder reflected earliest dates options become exercisable goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements secured financings addition repurchase agreements securities loaned transactions firm funds certain assets use secured financings pledges financial instruments assets collateral transactions secured financings consist • liabilities consolidated vies • transfers assets accounted financings rather sales eg collateralized central bank financings pledged commodities bank loans mortgage whole loans • structured financing arrangements secured financings included nonrecourse arrangements nonrecourse secured financings 1091 billion december 2019 847 billion december 2018 firm elected apply fair value option substantially secured financings use fair value eliminates noneconomic volatility earnings would arise using different measurement attributes see note 10 information secured financings accounted fair value secured financings recorded fair value recorded based amount cash received plus accrued interest generally approximates fair value financings accounted fair value included firm’s fair value hierarchy notes 4 10 financings included firm’s fair value hierarchy would primarily classified level 2 december 2019 december 2018 table presents information secured financings table • shortterm secured financings includes financings maturing within one year financial statement date financings redeemable within one year financial statement date option holder • us dollardenominated shortterm secured financings amortized cost weighted average interest rate 432 december 2019 rates include effect hedging activities • us dollardenominated longterm secured financings amortized cost weighted average interest rate 128 december 2019 402 december 2018 rates include effect hedging activities • total secured financings included 216 billion december 2019 240 billion december 2018 related transfers financial assets accounted financings rather sales financings collateralized financial assets 221 billion december 2019 241 billion december 2018 primarily included trading assets • secured financings collateralized financial instruments included 909 billion december 2019 1241 billion december 2018 secured financings collateralized trading assets loans included 293 billion december 2019 410 billion december 2018 secured financings collateralized financial instruments received collateral repledged goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents secured financings maturity table • longterm secured financings repayable prior maturity option firm reflected contractual maturity dates • longterm secured financings redeemable prior maturity option holder reflected earliest dates options become exercisable collateral received pledged firm receives cash securities eg us government agency obligations sovereign corporate obligations well equity securities collateral primarily connection resale agreements securities borrowed derivative transactions customer margin loans firm obtains cash securities collateral upfront contingent basis derivative instruments collateralized agreements reduce credit exposure individual counterparties many cases firm permitted deliver repledge financial instruments received collateral entering repurchase agreements securities loaned transactions primarily connection secured client financing activities firm also permitted deliver repledge financial instruments connection secured financings collateralized derivative transactions firm customer settlement requirements firm also pledges certain trading assets connection repurchase agreements securities loaned transactions secured financings assets substantially real estate cash connection secured financings counterparties may right deliver repledge table presents financial instruments fair value received collateral available delivered repledged delivered repledged table collateral available delivered repledged excluded 615 billion december 2019 1410 billion december 2018 securities received resale agreements securities borrowed transactions contractually right delivered repledged segregated regulatory purposes table presents information assets pledged firm also segregated securities included trading assets 2061 billion december 2019 2303 billion december 2018 regulatory purposes see note 3 information segregated cash goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 12 assets table presents assets type property leasehold improvements equipment property leasehold improvements equipment net accumulated depreciation amortization 995 billion december 2019 908 billion december 2018 property leasehold improvements equipment included 616 billion december 2019 557 billion december 2018 firm uses connection operations 521 million december 2019 896 million december 2018 foreclosed real estate primarily related pci loans remainder held investment entities including vies consolidated firm substantially property equipment depreciated straightline basis useful life asset leasehold improvements amortized straightline basis shorter useful life improvement term lease capitalized costs software developed obtained internal use amortized straightline basis three years firm tests property leasehold improvements equipment impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable extent carrying value asset group exceeds projected undiscounted cash flows expected result use eventual disposal asset group firm determines asset group impaired records impairment equal difference estimated fair value carrying value asset group addition firm recognize impairment prior sale asset group carrying value asset group exceeds estimated fair value material impairments 2019 2018 2017 goodwill identifiable intangible assets goodwill cost acquired companies excess fair value net assets including identifiable intangible assets acquisition date fourth quarter 2019 connection changes firm’s business segments firm reassigned goodwill new reporting units table presents carrying value goodwill reporting unit table • goodwill investment banking ficc reassigned businesses transferred reporting units securities services reporting unit including goodwill combined equities reporting unit new segment structure • goodwill related consumer banking previously included investing lending transferred entirety consumer banking business integrated activities investing lending remaining goodwill previously investing lending transferred entirety asset management wealth management based underlying business activities • goodwill previously investment management reassigned asset management wealth management based relative fair value businesses • increase total goodwill december 2018 december 2019 included 398 million related acquisition united capital financial partners inc united capital third quarter 2019 goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements goodwill assessed impairment annually fourth quarter frequently events occur circumstances change indicate impairment may exist assessing goodwill impairment first qualitative assessment made determine whether likely estimated fair value reporting unit less estimated carrying value results qualitative assessment conclusive quantitative goodwill test performed alternatively quantitative goodwill test performed without performing qualitative assessment quantitative goodwill test compares estimated fair value reporting unit estimated net book value including goodwill identifiable intangible assets reporting unit’s estimated fair value exceeds estimated net book value goodwill impaired impairment recognized estimated fair value reporting unit less estimated net book value fourth quarter 2019 goodwill tested impairment using quantitative test prior following firm’s changes business segments qualitative assessment performed test estimated fair value reporting units exceeded respective net carrying value therefore goodwill impaired estimate fair value reporting unit consumer banking relative value technique used firm believes market participants would use technique value reporting units relative value technique applies observable pricetoearnings multiples pricetobook multiples comparable competitors reporting units’ net earnings net book value estimate fair value consumer banking discounted cash flow valuation approach used firm believes market participants would use technique value reporting unit given early stage development estimated net carrying value reporting unit reflects allocation total shareholders’ equity represents estimated amount total shareholders’ equity required support activities reporting unit currently applicable regulatory capital requirements identifiable intangible assets table presents identifiable intangible assets reporting unit type firm acquired 515 million intangible assets 2019 primarily related customer lists weighted average amortization period 10 years amount included 354 million intangible assets acquired connection acquisition united capital firm acquired 137 million intangible assets 2018 primarily related acquired leases weighted average amortization period 4 years substantially firm’s identifiable intangible assets finite useful lives amortized estimated useful lives generally using straightline method tables present information amortization identifiable intangible assets goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements firm tests intangible assets impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable extent carrying value asset group exceeds projected undiscounted cash flows expected result use eventual disposal asset group firm determines asset group impaired records impairment equal difference estimated fair value carrying value asset group addition firm recognize impairment prior sale asset group carrying value asset group exceeds estimated fair value material impairments 2019 2018 2017 operating lease rightofuse assets firm enters operating leases real estate office equipment assets substantially used connection operations firm adopted asu 201602 january 2019 required firm recognize leases longer one year rightofuse asset representing right use underlying asset lease term lease liability representing liability make payments lease term generally determined based contractual maturity lease leases firm option terminate extend lease assessment likelihood exercising option incorporated determination lease term assessment initially performed inception lease updated events occur impact original assessment operating lease rightofuse asset initially determined based operating lease liability adjusted initial direct costs lease incentives amounts paid prior lease commencement amount amortized lease term firm recognized 963 million primarily related firm’s new european headquarters london rightofuse assets operating lease liabilities noncash transactions leases entered assumed 2019 see note 15 information operating lease liabilities leases firm derive economic benefit leased space vacated firm shortened term lease space longer needed firm record impairment accelerated amortization rightofuse assets material impairments accelerated amortizations 2019 miscellaneous receivables miscellaneous receivables included • investments qualified affordable housing projects 606 million december 2019 653 million december 2018 • assets classified held sale 470 million december 2019 365 million december 2018 related firm’s consolidated investments within asset management segment substantially consisted property equipment addition assets classified held sale also included assets 101 billion december 2018 related firm’s new european headquarters london property sold january 2019 pursuant sale leaseback agreement firm recognized rightofuse asset upon leaseback goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 13 deposits table presents types sources deposits table • substantially deposits interestbearing • savings demand accounts consist money market deposit accounts negotiable order withdrawal accounts demand deposit accounts stated maturity expiration date • time deposits included 1777 billion december 2019 2106 billion december 2018 deposits accounted fair value fair value option see note 10 information deposits accounted fair value • time deposits weighted average maturity approximately 17 years december 2019 18 years december 2018 • deposit sweep programs represent longterm contractual agreements us brokerdealers sweep client cash fdicinsured deposits december 2019 firm 12 deposit sweep program agreements • deposits insured fdic 10398 billion december 2019 8627 billion december 2018 • deposits insured uk’s financial services compensation scheme 1586 billion december 2019 605 billion december 2018 table presents location deposits table us deposits held goldman sachs bank usa gs bank usa substantially nonus deposits held goldman sachs international bank gsib table presents maturities time deposits held us nonus offices december 2019 deposits us offices included 881 billion nonus offices included 1245 billion time deposits denominations met exceeded applicable insurance limits otherwise covered insurance firm’s savings demand deposits recorded based amount cash received plus accrued interest approximates fair value addition firm designates certain derivatives fair value hedges convert portion time deposits accounted fair value fixedrate obligations floatingrate obligations carrying value time deposits accounted fair value approximated fair value december 2019 december 2018 savings demand deposits time deposits accounted fair value included firm’s fair value hierarchy notes 4 10 deposits included firm’s fair value hierarchy would classified level 2 december 2019 december 2018 goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 14 unsecured borrowings table presents information unsecured borrowings unsecured shortterm borrowings unsecured shortterm borrowings includes portion unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holder firm accounts certain hybrid financial instruments fair value fair value option see note 10 information unsecured shortterm borrowings accounted fair value addition firm designates certain derivatives fair value hedges convert portion unsecured shortterm borrowings accounted fair value fixedrate obligations floatingrate obligations carrying value unsecured shortterm borrowings recorded fair value generally approximates fair value due shortterm nature obligations unsecured shortterm borrowings accounted fair value included firm’s fair value hierarchy notes 4 10 borrowings included firm’s fair value hierarchy substantially would classified level 2 december 2019 december 2018 table presents information unsecured shortterm borrowings table • current portion unsecured longterm borrowings included 2127 billion december 2019 2091 billion december 2018 issued group inc • weighted average interest rates borrowings include effect hedging activities exclude unsecured shortterm borrowings accounted fair value fair value option see note 7 information hedging activities unsecured longterm borrowings table presents information unsecured longterm borrowings table • unsecured longterm borrowings consists principally senior borrowings maturities extending 2067 • floatingrate obligations includes equitylinked indexed instruments floating interest rates generally based libor euro interbank offered rate • us dollardenominated debt interest rates ranging 200 1004 weighted average rate 382 december 2019 200 1004 weighted average rate 422 december 2018 rates exclude unsecured longterm borrowings accounted fair value fair value option • nonus dollardenominated debt interest rates ranging 013 1300 weighted average rate 233 december 2019 031 1300 weighted average rate 243 december 2018 rates exclude unsecured longterm borrowings accounted fair value fair value option goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents unsecured longterm borrowings maturity table • unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holder excluded included unsecured shortterm borrowings • unsecured longterm borrowings repayable prior maturity option firm reflected contractual maturity dates • unsecured longterm borrowings redeemable prior maturity option holder reflected earliest dates options become exercisable • unsecured longterm borrowings included 769 billion adjustments carrying value certain unsecured longterm borrowings resulting application hedge accounting year maturity follows 257 million 2021 44 million 2022 83 million 2023 355 million 2024 704 billion 2025 thereafter firm designates certain derivatives fair value hedges convert portion fixedrate unsecured longterm borrowings accounted fair value floatingrate obligations see note 7 information hedging activities table presents unsecured longterm borrowings giving effect hedging activities table aggregate amounts unsecured longterm borrowings weighted average interest rates 287 377 related fixedrate obligations 248 related floatingrate obligations december 2019 321 379 related fixedrate obligations 279 related floatingrate obligations december 2018 rates exclude unsecured longterm borrowings accounted fair value fair value option december 2019 december 2018 carrying value unsecured longterm borrowings firm elect fair value option approximated fair value borrowings accounted fair value included firm’s fair value hierarchy notes 4 10 borrowings included firm’s fair value hierarchy substantially would classified level 2 december 2019 december 2018 goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements subordinated borrowings unsecured longterm borrowings includes subordinated debt junior subordinated debt junior subordinated debt junior right payment subordinated borrowings junior senior borrowings subordinated debt maturities ranging 2021 2045 december 2019 december 2018 subordinated debt matures within one year included unsecured shortterm borrowings table presents information subordinated borrowings table • par amount subordinated debt issued group inc 1404 billion december 2019 1402 billion december 2018 carrying value subordinated debt issued group inc 1698 billion december 2019 1570 billion december 2018 • rate weighted average interest rate borrowings excluding borrowings accounted fair value fair value option including effect fair value hedges used convert fixedrate obligations floatingrate obligations see note 7 information hedging activities junior subordinated debt 2004 group inc issued 284 billion junior subordinated debt goldman sachs capital trust delaware statutory trust issued 275 billion guaranteed preferred beneficial interests trust preferred securities third parties 85 million common beneficial interests group inc december 2019 outstanding par amount junior subordinated debt held trust 976 million outstanding par amount trust preferred securities common beneficial interests issued trust 947 million 29 million respectively december 2018 outstanding par amount junior subordinated debt held trust 114 billion outstanding par amount trust preferred securities common beneficial interests issued trust 111 billion 341 million respectively firm purchased trust preferred securities par amount carrying value 159 million 206 million 2019 28 million 35 million 2018 186 million 237 million 2017 respectively securities delivered trust along common beneficial interests 5 million 2019 1 million 2018 6 million 2017 noncash exchange junior subordinated debt par amount carrying value 164 million 231 million 2019 29 million 36 million 2018 192 million 254 million 2017 respectively following exchanges trust preferred securities common beneficial interests junior subordinated debt extinguished trust whollyowned finance subsidiary firm regulatory legal purposes consolidated accounting purposes firm pays interest semiannually junior subordinated debt annual rate 6345 debt matures february 15 2034 coupon rate payment dates applicable beneficial interests interest rate payment dates junior subordinated debt firm right time defer payment interest junior subordinated debt therefore cause payment trust’s preferred beneficial interests deferred case ten consecutive semiannual periods deferral period firm permitted among things pay dividends make certain repurchases common stock trust permitted pay distributions common beneficial interests held group inc unless dividends payable preferred beneficial interests paid full firm covenanted favor holders group inc’s 6345 junior subordinated debt due february 15 2034 subject certain exceptions firm redeem purchase capital securities issued goldman sachs capital ii goldman sachs capital iii apex trusts shares group inc’s perpetual noncumulative preferred stock series e series e preferred stock perpetual noncumulative preferred stock series f series f preferred stock perpetual noncumulative preferred stock series redemption purchase results less 253 million aggregate liquidation preference series outstanding prior specified dates 2022 price exceeds maximum amount determined reference net cash proceeds firm received sale qualifying securities apex trusts hold group inc’s series e preferred stock series f preferred stock trusts delaware statutory trusts sponsored firm whollyowned finance subsidiaries firm regulatory legal purposes consolidated accounting purposes goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 15 liabilities table presents liabilities type table accrued expenses includes contract liabilities represent consideration received firm connection contracts clients prior providing service december 2019 december 2018 firm’s contract liabilities material operating lease liabilities firm adopted asu 201602 january 2019 required firm recognize leases longer one year rightofuse asset representing right use underlying asset lease term lease liability representing liability make payments see note 12 information operating lease rightofuse assets table presents information operating lease liabilities table weighted average discount rate represents firm’s incremental borrowing rate january 2019 leases existing date adoption asu 201602 lease inception date leases entered subsequent adoption asu operating lease costs 538 million 2019 409 million 2018 390 million 2017 variable lease costs included operating lease costs material 2019 2018 2017 operating lease liabilities include obligations office space held excess current requirements operating lease costs relating space held growth included occupancy expenses total occupancy expenses space held excess firm’s current requirements material 2019 2018 lease payments relating operating lease arrangements signed yet commenced december 2019 material note 16 securitization activities firm securitizes residential commercial mortgages corporate bonds loans types financial assets selling assets securitization vehicles eg trusts corporate entities limited liability companies resecuritization firm acts underwriter beneficial interests sold investors firm’s residential mortgage securitizations primarily connection government agency securitizations firm accounts securitization sale relinquished control transferred financial assets prior securitization firm generally accounts assets pending transfer fair value therefore typically recognize significant gains losses upon transfer assets net revenues underwriting activities recognized connection sales underlying beneficial interests investors firm generally receives cash exchange transferred assets may also continuing involvement transferred financial assets including ownership beneficial interests securitized financial assets primarily form debt instruments firm may also purchase senior subordinated securities issued securitization vehicles typically vies connection secondary marketmaking activities goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements primary risks included beneficial interests firm’s continuing involvement securitization vehicles performance underlying collateral position firm’s investment capital structure securitization vehicle market yield security interests primarily accounted fair value classified level 2 fair value hierarchy interests accounted fair value carried amounts approximate fair value see notes 4 10 information fair value measurements table presents amount financial assets securitized cash flows received retained interests securitization entities firm continuing involvement end period table financial assets securitized included assets 601 million 2019 882 million 2018 572 million 2017 securitized noncash exchange loans heldtomaturity securities table presents information nonconsolidated securitization entities firm sold assets continuing involvement end period table • outstanding principal amount presented purpose providing information size securitization entities representative firm’s risk loss • firm’s risk loss retained purchased interests limited carrying value interests • purchased interests represent senior subordinated interests purchased connection secondary marketmaking activities securitization entities firm also holds retained interests • substantially total outstanding principal amount total retained interests relate securitizations 2014 thereafter • fair value retained interests 335 billion december 2019 328 billion december 2018 addition interests table firm continuing involvement form derivative transactions commitments certain nonconsolidated vies carrying value derivatives commitments net asset 57 million december 2019 75 million december 2018 notional amount derivatives commitments 120 billion december 2019 109 billion december 2018 notional amounts derivatives commitments included maximum exposure loss nonconsolidated vie table note 17 goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents information weighted average key economic assumptions used measuring fair value mortgagebacked retained interests table • amounts reflect benefit financial instruments held mitigate risks inherent retained interests • changes fair value based adverse variation assumptions generally cannot extrapolated relationship change assumptions change fair value usually linear • impact change particular assumption calculated independently changes assumption practice simultaneous changes assumptions might magnify counteract sensitivities disclosed • constant prepayment rate included positions key assumption determination fair value • discount rate retained interests relate us government agencyissued collateralized mortgage obligations include credit loss expected credit loss assumptions reflected discount rate remainder retained interests firm retained interests reflected table fair value 149 million weighted average life 33 years december 2019 fair value 133 million weighted average life 42 years december 2018 due nature fair value certain retained interests weighted average assumptions constant prepayment discount rates related sensitivity adverse changes meaningful december 2019 december 2018 firm’s maximum exposure adverse changes value interests carrying value 149 million december 2019 133 million december 2018 note 17 variable interest entities variable interest vie investment eg debt equity interest eg derivatives loans lending commitments absorb portions vie’s expected losses andor receive portions vie’s expected residual returns firm’s variable interests vies include senior subordinated debt loans lending commitments limited general partnership interests preferred common equity derivatives may include foreign currency equity andor credit risk guarantees certain fees firm receives investment funds certain interest rate foreign currency credit derivatives firm enters vies variable interests create rather absorb risk vies generally finance purchase assets issuing debt equity securities either collateralized indexed assets held vie debt equity securities issued vie may include tranches varying levels subordination firm’s involvement vies includes securitization financial assets described note 16 investments loans types vies described see note 3 firm’s consolidation policies including definition vie consolidation analysis enterprise controlling financial interest vie known primary beneficiary consolidates vie firm determines whether primary beneficiary vie performing analysis principally considers • variable interest holder power direct activities vie significantly impact vie’s economic performance • variable interest holder obligation absorb losses right receive benefits vie could potentially significant vie • vie’s purpose design including risks vie designed create pass variable interest holders • vie’s capital structure • terms vie variable interest holders parties involved vie • relatedparty relationships goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements firm reassesses evaluation whether entity vie certain reconsideration events occur firm reassesses determination whether primary beneficiary vie ongoing basis based current facts circumstances vie activities firm principally involved vies following business activities mortgagebacked vies firm sells residential commercial mortgage loans securities mortgagebacked vies may retain beneficial interests assets sold vies firm purchases sells beneficial interests issued mortgagebacked vies connection marketmaking activities addition firm may enter derivatives certain vies primarily interest rate swaps typically variable interests firm generally enters derivatives counterparties mitigate risk real estate credit powerrelated investing vies firm purchases equity debt securities issued makes loans vies hold real estate performing nonperforming debt distressed loans powerrelated assets equity securities firm generally sell assets enter derivatives vies corporate debt assetbacked vies firm structures vies issue notes clients purchases sells beneficial interests issued corporate debt assetbacked vies connection marketmaking activities makes loans vies warehouse corporate debt certain vies synthetically create exposure beneficial interests issue entering credit derivatives firm rather purchasing underlying assets addition firm may enter derivatives total return swaps certain corporate debt assetbacked vies firm pays vie return due beneficial interest holders receives return collateral owned vie collateral owned vies primarily assetbacked loans securities firm generally removed total return swap counterparty enters derivatives counterparties mitigate risk related swaps firm may sell assets corporate debt assetbacked vies structures principalprotected note vies firm structures vies issue principalprotected notes clients vies portfolios assets principally exposure hedge funds substantially principal protection notes issued vies provided asset portfolio rebalancing required terms notes firm enters total return swaps vies firm pays vie return due principalprotected note holders receives return assets owned vie firm may enter derivatives counterparties mitigate risk firm also obtains funding vies investments funds firm makes equity investments certain investment fund vies manages entitled receive fees vies firm generally sold assets entered derivatives vies nonconsolidated vies table presents summary nonconsolidated vies firm holds variable interests table • nature firm’s variable interests described rows maximum exposure loss • firm’s exposure obligations vies generally limited interests entities certain instances firm provides guarantees including derivative guarantees vies holders variable interests vies • maximum exposure loss excludes benefit offsetting financial instruments held mitigate risks associated variable interests • maximum exposure loss retained interests purchased interests debt equity carrying value interests • maximum exposure loss commitments guarantees derivatives notional amount represent anticipated losses reduced unrealized losses result maximum exposure loss exceeds liabilities recorded commitments guarantees derivatives goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents information principal business activity nonconsolidated vies included summary table december 2019 december 2018 carrying values firm’s variable interests nonconsolidated vies included consolidated balance sheets follows • mortgagebacked assets primarily included trading assets loans • real estate credit powerrelated investing assets primarily included loans investments liabilities included trading liabilities • corporate debt assetbacked assets primarily included loans liabilities included trading liabilities • investments funds assets included investments consolidated vies table presents summary carrying value balance sheet classification assets liabilities consolidated vies table • assets liabilities presented net intercompany eliminations exclude benefit offsetting financial instruments held mitigate risks associated firm’s variable interests • vies firm holds majority voting interest excluded vie meets definition business ii vie’s assets used purposes settlement obligations • substantially assets used settle obligations vie goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents information principal business activity consolidated vies included summary table • majority assets principalprotected notes vies intercompany eliminated consolidation • creditors beneficial interest holders real estate creditrelated investing vies mortgagebacked assetbacked vies recourse general credit firm note 18 commitments contingencies guarantees commitments table presents commitments type table presents commitments expiration lending commitments firm’s commercial warehouse financing lending commitments agreements lend fixed termination dates depend satisfaction contractual conditions borrowing commitments presented net amounts syndicated third parties total commitment amount necessarily reflect actual future cash flows firm may syndicate substantial portions commitments addition commitments expire unused reduced cancelled counterparty’s request firm also provides credit consumers issuing credit card lines goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents information lending commitments table • held investment lending commitments accounted accrual basis carrying value lending commitments liability 527 million including allowance losses 361 million december 2019 443 million including allowance losses 286 million december 2018 estimated fair value lending commitments liability 305 billion december 2019 378 billion december 2018 lending commitments carried fair value included fair value hierarchy 178 billion december 2019 112 billion december 2018 would classified level 2 127 billion december 2019 266 billion december 2018 would classified level 3 • held sale lending commitments accounted lower cost fair value carrying value lending commitments held sale liability 60 million december 2019 155 million december 2018 estimated fair value lending commitments approximates carrying value lending commitments included fair value hierarchy would primarily classified level 2 december 2019 december 2018 • gains losses related lending commitments fair value generally recorded net fees principal transactions commercial lending firm’s commercial lending commitments primarily extended investmentgrade corporate borrowers commitments primarily included 10250 billion december 2019 9399 billion december 2018 related relationship lending activities principally used operating general corporate purposes 3347 billion december 2019 2792 billion december 2018 related investment banking activities generally extended contingent acquisition financing often intended shortterm nature borrowers often seek replace funding sources firm also extends lending commitments connection types corporate lending well commercial real estate financing see note 9 information funded loans sumitomo mitsui financial group inc smfg provides firm credit loss protection certain approved loan commitments primarily investmentgrade commercial lending commitments notional amount loan commitments 574 billion december 2019 1552 billion december 2018 credit loss protection loan commitments provided smfg generally limited 95 first loss firm realizes commitments maximum approximately 950 million addition subject satisfaction certain conditions upon firm’s request smfg provide protection 70 additional losses commitments maximum 750 million protection provided december 2019 550 million provided december 2018 firm also uses financial instruments mitigate credit risks related certain commitments covered smfg instruments primarily include credit default swaps reference similar underlying instrument entity credit default swaps reference credit index warehouse financing firm provides financing clients warehouse financial assets arrangements secured warehoused assets primarily consisting consumer corporate loans credit card firm’s credit card lending commitments represents credit card lines issued firm consumers credit card lines cancelable firm collateralized agreement commitments collateralized financing commitments collateralized agreement commitments includes forward starting resale securities borrowing agreements collateralized financing commitments includes forward starting repurchase secured lending agreements settle future date generally within three business days collateralized agreement commitments also includes transactions firm entered commitments provide contingent financing clients counterparties resale agreements firm’s funding commitments depends satisfaction contractual conditions resale agreement commitments expire unused letters credit firm commitments letters credit issued various banks firm provides counterparties lieu securities cash satisfy various collateral margin deposit requirements goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements investment commitments investment commitments includes commitments invest private equity real estate assets directly funds firm raises manages investment commitments included 206 billion december 2019 242 billion december 2018 related commitments invest funds managed firm commitments called would funded market value date investment contingencies legal proceedings see note 27 information legal proceedings including certain mortgagerelated matters certain mortgagerelated contingencies period 2005 2008 connection sales securitizations loans firm provided loanlevel representations andor assigned loanlevel representations party firm purchased loans based large number defaults residential mortgages including sold securitized firm potential repurchase claims however firm position make meaningful estimate exposure time firm’s exposure claims repurchase residential mortgage loans based alleged breaches representations depend number factors extent claims made within statute limitations taking consideration agreements toll statute limitations firm entered trustees representing certain trusts contingencies connection sale metro international trade services metro firm agreed provide indemnities buyer primarily relate fundamental representations warranties potential liabilities legal regulatory proceedings arising conduct metro’s business firm owned connection settlement agreement residential mortgagebacked securities working group us financial fraud enforcement task force firm agreed provide 180 billion consumer relief january 2021 december 2019 approximately 155 billion relief provided relief provided form principal forgiveness underwater homeowners distressed borrowers financing construction rehabilitation preservation affordable housing support debt restructuring foreclosure prevention housing quality improvement programs well land banks guarantees table presents derivatives meet definition guarantee securities lending indemnifications certain financial guarantees table • maximum payout based notional amount contract represent anticipated losses • amounts exclude certain commitments issue standby letters credit included lending commitments see tables “commitments” summary firm’s commitments • carrying value derivatives included derivative assets 156 billion december 2019 148 billion december 2018 derivative liabilities 538 billion december 2019 559 billion december 2018 goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements derivative guarantees firm enters various derivatives meet definition guarantee us gaap including written equity commodity put options written currency contracts interest rate caps floors swaptions derivatives risk managed together derivatives meet definition guarantee therefore amounts table reflect firm’s overall risk related derivative activities disclosures derivatives required may cash settled firm basis conclude probable counterparties held underlying instruments inception contract firm concluded conditions met certain large internationally active commercial investment bank counterparties central clearing counterparties hedge funds certain counterparties accordingly firm included contracts table see note 7 information credit derivatives meet definition guarantee included table derivatives accounted fair value therefore carrying value considered best indication paymentperformance risk individual contracts however carrying values table exclude effect counterparty cash collateral netting securities lending indemnifications firm capacity agency lender indemnifies securities lending customers losses incurred event borrowers return securities collateral held insufficient cover market value securities borrowed collateral held lenders connection securities lending indemnifications 1914 billion december 2019 2875 billion december 2018 contractual nature arrangements requires firm obtain collateral market value exceeds value securities lent borrower minimal performance risk associated guarantees financial guarantees ordinary course business firm provides financial guarantees obligations third parties eg standby letters credit guarantees enable clients complete transactions fundrelated guarantees represent obligations make payments beneficiaries guaranteed party fails fulfill obligation contractual arrangement beneficiary guarantees securities issued trusts firm established trusts including goldman sachs capital apex trusts entities limited purpose issuing securities third parties lending proceeds firm entering contractual arrangements firm third parties related purpose firm consolidate entities see note 14 information transactions involving goldman sachs capital apex trusts firm effectively provides full unconditional guarantee securities issued entities timely payment firm amounts due entities guarantee borrowing preferred stock related contractual arrangements sufficient cover payments due securities issued entities management believes unlikely circumstances occur nonperformance part paying agents service providers would make necessary firm make payments related entities required terms guarantee borrowing preferred stock related contractual arrangements connection certain expenses incurred entities indemnities guarantees service providers ordinary course business firm indemnifies guarantees certain service providers clearing custody agents trustees administrators specified potential losses connection acting agent providing services firm affiliates firm may also liable clients parties losses arising custodial role caused acts omissions thirdparty service providers including subcustodians thirdparty brokers certain cases firm right seek indemnification thirdparty service providers certain relevant losses incurred firm addition firm member payment clearing settlement networks well securities exchanges around world may require firm meet obligations networks exchanges event member defaults loss scenarios goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements connection firm’s prime brokerage clearing businesses firm agrees clear settle behalf clients transactions entered brokerage firms firm’s obligations respect transactions secured assets client’s account well proceeds received transactions cleared settled firm behalf client connection joint venture investments firm may issue loan guarantees may liable event fraud misappropriation environmental liabilities certain matters involving borrower firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements material liabilities related guarantees indemnifications recognized consolidated balance sheets december 2019 december 2018 representations warranties indemnifications firm provides representations warranties counterparties connection variety commercial transactions occasionally indemnifies potential losses caused breach representations warranties firm may also provide indemnifications protecting changes adverse application certain us tax laws connection ordinarycourse transactions securities issuances borrowings derivatives addition firm may provide indemnifications counterparties protect event additional taxes owed payments withheld due either change adverse application certain nonus tax laws indemnifications generally standard contractual terms entered ordinary course business generally stated notional amounts included indemnifications contingencies triggering obligation indemnify expected occur firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements material liabilities related arrangements recognized consolidated balance sheets december 2019 december 2018 guarantees subsidiaries group inc fully unconditionally guarantees securities issued gs finance corp whollyowned finance subsidiary firm group inc guaranteed payment obligations goldman sachs co llc gsco gs bank usa subject certain exceptions group inc guarantees many obligations consolidated subsidiaries transactionbytransaction basis negotiated counterparties group inc unable develop estimate maximum payout subsidiary guarantees however obligations also obligations consolidated subsidiaries group inc’s liabilities guarantor separately disclosed note 19 shareholders’ equity common equity december 2019 december 2018 firm 400 billion authorized shares common stock 200 million authorized shares nonvoting common stock par value 001 per share firm’s share repurchase program intended help maintain appropriate level common equity share repurchase program effected primarily regular openmarket purchases may include repurchase plans designed comply rule 10b51 amounts timing determined primarily firm’s current projected capital position capital deployment opportunities may also influenced general market conditions prevailing price trading volumes firm’s common stock prior repurchasing common stock firm must receive confirmation frb object capital action table presents information common stock repurchases pursuant terms certain sharebased compensation plans employees may remit shares firm may cancel sharebased awards satisfy statutory employee tax withholding requirements exercise price stock options plans 7490 shares 2019 1120 shares 2018 12165 shares 2017 remitted total value 2 million 2019 03 million 2018 3 million 2017 firm cancelled 38 million sharebased awards 2019 50 million 2018 127 million 2017 total value 743 million 2019 124 billion 2018 303 billion 2017 goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents common stock dividends declared january 14 2020 board directors group inc declared dividend 125 per common share dividend paid march 30 2020 common shareholders record march 2 2020 preferred equity tables present information perpetual preferred stock issued outstanding december 2019 tables • shares par value 001 per share applicable share represented specified number depositary shares • earliest redemption date represents date share noncumulative preferred stock redeemable firm’s option • prior redeeming preferred stock firm must receive confirmation frb object action • june 2019 firm issued 20000 shares series q 550 fixedrate reset noncumulative preferred stock series q preferred stock • november 2019 firm issued 24000 shares series r 495 fixedrate reset noncumulative preferred stock series r preferred stock • redemption price per share series f series q r preferred stock liquidation preference plus declared unpaid dividends redemption price per share series j p preferred stock liquidation preference plus accrued unpaid dividends share series e series f preferred stock redeemable firm’s option subject certain covenant restrictions governing firm’s ability redeem preferred stock without issuing common stock instruments equitylike characteristics see note 14 information replacement capital covenants applicable series e series f preferred stock • series preferred stock pari passu preference firm’s common stock liquidation • firm’s ability declare pay dividends purchase redeem otherwise acquire common stock subject certain restrictions event firm fails pay set aside full dividends preferred stock latest completed dividend period january 2020 firm issued 14000 shares series perpetual 440 fixedrate reset noncumulative preferred stock series preferred stock share series preferred stock issued outstanding liquidation preference 25000 represented 25 depositary shares redeemable firm’s option beginning february 10 2025 redemption price equal 25000 plus declared unpaid dividends series preferred stock declared payable semiannually 440 per annum issuance date excluding february 10 2025 thereafter ii 285 per annum plus fiveyear treasury rate january 2020 firm issued notice would redeem remaining 14000 outstanding shares series l 570 noncumulative preferred stock series l preferred stock redemption value 350 million february 24 2020 difference redemption value net carrying value time issuance notice 1 million recorded addition preferred stock dividends 2020 2019 firm redeemed 38000 shares outstanding series l preferred stock redemption value 950 million 25000 per share plus accrued unpaid dividends addition 2019 firm redeemed remaining 6000 outstanding shares series b 620 noncumulative preferred stock series b preferred stock redemption value 150 million 25000 per share difference redemption value net carrying value time redemptions 9 million recorded addition preferred stock dividends 2019 goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements 2018 firm redeemed 26000 shares series b preferred stock redemption value 650 million 25000 per share difference redemption value series b preferred stock net carrying value time redemption 15 million recorded addition preferred stock dividends 2018 2017 firm redeemed 34000 shares series 595 noncumulative preferred stock series preferred stock stated redemption price 850 million 25000 per share plus accrued unpaid dividends difference redemption value series preferred stock net carrying value time redemption 14 million recorded addition preferred stock dividends 2017 table presents dividend rates perpetual preferred stock december 2019 table dividends series preferred stock payable arrears periods specified table presents preferred stock dividends declared january 10 2020 group inc declared dividends 23438 per share series preferred stock 25000 per share series c preferred stock 25000 per share series preferred stock 34375 per share series j preferred stock 39844 per share series k preferred stock 36154 per share series l preferred stock 39375 per share series n preferred stock 88993 per share series q preferred stock paid february 10 2020 preferred shareholders record january 26 2020 addition firm declared dividends 101111 per share series e preferred stock series f preferred stock paid march 2 2020 preferred shareholders record february 16 2020 accumulated comprehensive incomeloss table presents changes accumulated comprehensive incomeloss net tax type goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 20 regulation capital adequacy frb primary regulator group inc bank holding company bhc us bank holding company act 1956 financial holding company amendments act firm subject consolidated regulatory capital requirements calculated accordance regulations frb capital framework capital requirements expressed riskbased capital leverage ratios compare measures regulatory capital riskweighted assets rwas average assets offbalancesheet exposures failure comply capital requirements could result restrictions imposed firm’s regulators could limit firm’s ability repurchase shares pay dividends make certain discretionary compensation payments firm’s capital levels also subject qualitative judgments regulators components capital risk weightings factors furthermore certain firm’s subsidiaries subject separate regulations capital requirements capital framework regulations capital framework largely based basel committee banking supervision’s basel committee capital framework strengthening international capital standards basel iii also implement certain provisions doddfrank act capital framework firm “advanced approach” banking organization designated global systemically important bank gsib capital requirements calculated accordance capital framework include minimum riskbased capital leverage ratios addition riskbased capital requirements include capital conservation buffer countercyclical capital buffer gsib surcharge must consist entirely capital qualifies common equity tier 1 cet1 capital firm calculates cet1 capital tier 1 capital total capital ratios accordance standardized approach market risk rules set capital framework together standardized capital rules ii advanced approach market risk rules set capital framework together advanced capital rules lower riskbased capital ratio calculated ii ratio firm’s compliance riskbased capital requirements assessed capital framework firm also subject leverage requirements consist minimum tier 1 leverage ratio minimum supplementary leverage ratio slr well slr buffer consolidated regulatory riskbased capital leverage ratios table presents riskbased capital leverage requirements table • december 2019 cet1 capital ratio requirement included minimum 45 tier 1 capital ratio requirement included minimum 60 total capital ratio requirement included minimum 80 requirements also included capital conservation buffer 25 gsib surcharge 25 method 2 countercyclical capital buffer frb set zero percent • december 2018 cet1 capital ratio requirement included minimum 45 tier 1 capital ratio requirement included minimum 60 total capital ratio requirement included minimum 80 requirements also included 75 phasein capital conservation buffer 25 75 phasein gsib surcharge 25 method 2 countercyclical capital buffer frb set zero percent • capital conservation buffer countercyclical capital buffer gsib surcharge phased ratably january 1 2016 january 1 2019 • gsib surcharge updated annually based financial data prior year generally applicable following year gsib surcharge calculated using two methodologies higher reflected firm’s riskbased capital requirements first calculation method 1 based basel committee’s methodology among factors relies upon measures size activity complexity gsib second calculation method 2 uses similar inputs includes measure reliance shortterm wholesale funding • tier 1 leverage ratio requirement minimum 4 slr requirement 5 december 2019 december 2018 includes minimum 3 2 buffer applicable gsibs goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents information riskbased capital ratios table • accordance riskbased capital rules lower standardized advanced ratio firm’s compliance capital requirements assessed therefore standardized ratios applied firm december 2019 advanced ratios applied firm december 2018 • beginning fourth quarter 2019 firm made changes calculation loss given default certain wholesale exposures date adoption estimated impact changes increase firm’s advanced cet1 capital ratio approximately 1 percentage point table presents information leverage ratios table • average total assets represents average daily assets quarter • average offbalancesheet exposures represents monthly average consists derivatives securities financing transactions commitments guarantees • tier 1 leverage ratio calculated tier 1 capital divided average adjusted total assets • slr calculated tier 1 capital divided total leverage exposure riskbased capital table presents information riskbased capital goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table • deduction goodwill net deferred tax liabilities 667 million december 2019 661 million december 2018 • deduction identifiable intangible assets net deferred tax liabilities 37 million december 2019 27 million december 2018 • deduction investments covered funds represents firm’s aggregate investments applicable covered funds excluding investments subject extended conformance period see note 8 information volcker rule • adjustments within cet1 capital tier 1 capital primarily include credit valuation adjustments derivative liabilities overfunded portion firm’s defined benefit pension plan obligation net associated deferred tax liabilities disallowed deferred tax assets debt valuation adjustments required credit riskbased deductions adjustments within advanced tier 2 capital include eligible credit reserves • qualifying subordinated debt subordinated debt issued group inc original maturity five years greater outstanding amount subordinated debt qualifying tier 2 capital reduced upon reaching remaining maturity five years see note 14 information firm’s subordinated debt • junior subordinated debt issued trust december 2019 30 debt included tier 2 capital 70 phased regulatory capital december 2018 40 debt included tier 2 capital 60 phased regulatory capital junior subordinated debt reduced amount trust preferred securities purchased firm fully phased tier 2 capital 2022 rate 10 per year see note 14 information firm’s junior subordinated debt trust preferred securities table presents changes cet1 capital tier 1 capital tier 2 capital rwas calculated accordance standardized advanced capital rules credit risk credit rwas calculated based measures exposure risk weighted standardized advanced capital rules • standardized capital rules apply prescribed riskweights depend largely type counterparty exposure measure derivatives securities financing transactions based specific formulas take certain factors consideration goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements • advanced capital rules firm computes riskweights wholesale retail credit exposures accordance advanced internal ratingsbased approach exposure measures derivatives securities financing transactions computed utilizing internal models • standardized advanced credit rwas riskweights securitizations equities based specific required formulaic approaches market risk rwas market risk accordance standardized advanced capital rules generally consistent market rwas calculated based measures exposure include following • valueatrisk var potential loss value trading assets liabilities well certain investments loans financial assets liabilities accounted fair value due adverse market movements defined time horizon specified confidence level risk management purposes regulatory capital calculations firm uses single var model captures risks including related interest rates equity prices currency rates commodity prices however var used regulatory capital requirements regulatory var differs risk management var due different time horizons confidence levels 10day 99 regulatory var vs oneday 95 risk management var well differences scope positions var calculated addition daily net revenues used determine risk management var exceptions ie comparing daily net revenues var measure calculated end prior business day include intraday activity whereas frb’s regulatory capital rules require intraday activity excluded daily net revenues calculating regulatory var exceptions intraday activity includes bidoffer net revenues likely positive nature result may differences number var exceptions amount daily net revenues calculated regulatory var compared amounts calculated risk management var firm’s positional losses observed single day exceeded 99 oneday regulatory var one occasion 2019 exceeded 99 oneday regulatory var two occasions 2018 change var multiplier used calculate market rwas • stressed var potential loss value trading assets liabilities well certain investments loans financial assets liabilities accounted fair value period significant market stress • incremental risk potential loss value nonsecuritized positions due default credit migration issuers financial instruments oneyear time horizon • comprehensive risk potential loss value due price risk defaults within firm’s credit correlation positions • specific risk loss position could result factors broad market movements including event risk default risk idiosyncratic risk standardized measurement method used determine specific risk rwas applying supervisory defined riskweighting factors applicable netting performed operational risk operational rwas required included advanced capital rules firm utilizes internal riskbased model quantify operational rwas table presents information rwas goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table • securities financing transactions represents resale repurchase agreements securities borrowed loaned transactions • includes receivables certain debt securities cash equivalents assets table presents changes rwas rollforward commentary year ended december 2019 standardized credit rwas december 2019 increased 2565 billion compared december 2018 primarily reflecting increase commitments guarantees loans principally due increase lending activity increase credit rwas principally due recognition operating lease rightofuse assets upon adoption asu 201602 increase corporate debt exposures standardized market rwas december 2019 decreased 998 billion compared december 2018 primarily reflecting decrease specific risk principally due reduced exposures decrease incremental risk principally due reduced exposures changes risk measurements advanced credit rwas december 2019 decreased 767 billion compared december 2018 beginning fourth quarter 2019 firm made changes calculation loss given default certain wholesale exposures resulted decrease credit rwas primarily commitments guarantees loans derivatives decrease partially offset increase credit rwas principally due recognition operating lease rightofuse assets upon adoption asu 201602 increase corporate debt exposures advanced market rwas december 2019 decreased 1019 billion compared december 2018 primarily reflecting decrease specific risk principally due reduced exposures decrease incremental risk principally due reduced exposures changes risk measurements advanced operational rwas december 2019 increased 440 billion compared december 2018 associated litigation regulatory proceedings year ended december 2018 standardized credit rwas december 2018 increased 511 billion compared december 2017 primarily reflecting increase commitments guarantees loans principally due increase lending activity increase partially offset decrease securities financing transactions principally due reduced exposures standardized market rwas december 2018 decreased 1281 billion compared december 2017 primarily reflecting decrease specific risk positions firm obtained increased transparency underliers result utilized modeled approach calculate rwas advanced credit rwas december 2018 decreased 4457 billion compared december 2017 beginning fourth quarter 2018 firm’s default experience incorporated determination probability default resulted decrease credit rwas primarily commitments guarantees loans derivatives advanced market rwas december 2018 decreased 1228 billion compared december 2017 primarily reflecting decrease specific risk positions firm obtained increased transparency underliers result utilized modeled approach calculate rwas goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements bank subsidiaries regulatory capital ratios gs bank usa firm’s primary us bank subsidiary fdicinsured new york statechartered bank member federal reserve system supervised regulated frb fdic new york state department financial services consumer financial protection bureau subject regulatory capital requirements calculated substantially manner applicable bhcs purposes assessing adequacy capital gs bank usa calculates riskbased capital leverage ratios accordance regulatory capital requirements applicable state member banks requirements based capital framework described gs bank usa advanced approach banking organization capital framework regulatory framework prompt corrective action applicable gs bank usa order meet quantitative requirements “wellcapitalized” depository institution gs bank usa must also meet “wellcapitalized” requirements table gs bank usa’s capital levels prompt corrective action classification also subject qualitative judgments regulators components capital risk weightings factors failure comply capital requirements including breach buffers described could result restrictions imposed gs bank usa’s regulators similar firm gs bank usa required calculate cet1 capital tier 1 capital total capital ratios accordance standardized advanced capital rules lower riskbased capital ratio calculated accordance standardized advanced capital rules ratio gs bank usa’s compliance riskbased capital requirements assessed table presents gs bank usa’s riskbased capital leverage “wellcapitalized” requirements table • december 2019 cet1 capital ratio requirement included minimum 45 tier 1 capital ratio requirement included minimum 60 total capital ratio requirement included minimum 80 requirements also included capital conservation buffer 25 countercyclical capital buffer frb set zero percent • december 2018 cet1 capital ratio requirement included minimum 45 tier 1 capital ratio requirement included minimum 60 total capital ratio requirement included minimum 80 requirements also included 75 phasein capital conservation buffer 25 countercyclical capital buffer zero percent • “wellcapitalized” requirements binding requirements riskbased capital ratios december 2018 binding requirements leverage ratios december 2019 december 2018 table presents information gs bank usa’s riskbased capital ratios goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table • accordance capital rules lower standardized advanced ratio gs bank usa’s compliance capital requirements assessed therefore standardized ratios applied gs bank usa december 2019 december 2018 • beginning fourth quarter 2019 gs bank usa made changes calculation loss given default certain wholesale exposures date adoption estimated impact changes increase gs bank usa’s advanced cet1 capital ratio approximately 22 percentage points • standardized riskbased capital ratios increased december 2018 december 2019 reflecting increase capital principally due net earnings partially offset increase credit rwas advanced riskbased capital ratios increased december 2018 december 2019 reflecting decrease credit rwas principally due updates loss given default calculation certain wholesale exposures table presents information gs bank usa’s leverage ratios table • tier 1 leverage ratio calculated tier 1 capital divided average adjusted total assets • slr calculated tier 1 capital divided total leverage exposure firm’s principal nonus bank subsidiary gsib whollyowned credit institution regulated prudential regulation authority financial conduct authority subject regulatory capital requirements december 2019 december 2018 gsib compliance regulatory capital requirements deposits gs bank usa insured fdic extent provided law frb requires gs bank usa maintain cash reserves federal reserve bank new york amount deposited gs bank usa federal reserve bank new york 5055 billion december 2019 2920 billion december 2018 exceeded required reserve amounts 5029 billion december 2019 2903 billion december 2018 restrictions payments group inc may limited ability access capital held certain subsidiaries result regulatory tax constraints limitations include provisions applicable law regulations regulatory restrictions limit ability subsidiaries declare pay dividends without prior regulatory approval eg dividends may paid gs bank usa limited lesser amounts calculated recent earnings test undivided profits test even relevant subsidiary would satisfy equity capital requirements applicable giving effect dividend example frb fdic new york state department financial services authority prohibit limit payment dividends banking organizations supervise including gs bank usa regulator’s opinion payment dividend would constitute unsafe unsound practice light financial condition banking organization addition subsidiaries subject separate regulatory capital requirements may hold capital satisfy local tax legal guidelines rating agency requirements entities assigned credit ratings internal policies including policies concerning minimum amount capital subsidiary hold based underlying level risk group inc’s equity investment subsidiaries 9568 billion december 2019 9022 billion december 2018 group inc required maintain 5758 billion december 2019 5292 billion december 2018 minimum equity capital regulated subsidiaries order satisfy regulatory requirements subsidiaries group inc’s capital invested certain nonus subsidiaries exposed foreign exchange risk substantially managed combination derivatives nonus denominated debt see note 7 information firm’s net investment hedges used hedge risk goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 21 earnings per common share basic earnings per common share eps calculated dividing net earnings common weighted average number common shares outstanding restricted stock units rsus delivery underlying common stock subject satisfaction future service performance conditions collectively basic shares diluted eps includes determinants basic eps addition reflects dilutive effect common stock deliverable stock options rsus delivery underlying common stock subject satisfaction future service performance conditions table presents information basic diluted eps table • net earnings common represents net earnings applicable common shareholders calculated net earnings less preferred stock dividends • unvested sharebased awards nonforfeitable rights dividends dividend equivalents treated separate class securities twoclass method distributed earnings allocated securities reduce net earnings common calculate basic eps impact applying methodology reduction basic eps 007 2019 005 2018 006 2017 • diluted eps include antidilutive rsus 01 million 2019 less 01 million 2018 01 million 2017 note 22 transactions affiliated funds firm formed nonconsolidated investment funds thirdparty investors firm generally acts investment manager funds entitled receive management fees certain cases advisory fees incentive fees funds additionally firm invests alongside thirdparty investors certain funds tables present information affiliated funds firm may periodically determine waive certain management fees selected money market funds management fees waived 44 million 2019 51 million 2018 98 million 2017 volcker rule restricts firm providing financial support covered funds defined rule expiration conformance period general matter ordinary course business firm expect provide additional voluntary financial support covered funds may choose respect funds subject volcker rule however event support provided amount expected material firm outstanding guarantee permitted volcker rule behalf funds 87 million december 2019 154 million december 2018 firm voluntarily provided guarantee connection financing agreement thirdparty lender executed one firm’s real estate funds covered volcker rule december 2019 december 2018 except noted firm provided additional financial support affiliated funds addition ordinary course business firm may also engage activities affiliated funds including among others securities lending trade execution marketmaking custody acquisition bridge financing see note 18 firm’s investment commitments related funds goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 23 interest income interest expense interest recorded life instrument accrual basis based contractual interest rates table presents sources interest income interest expense table • collateralized agreements includes rebates paid interest income securities borrowed • loans excludes interest loans held sale accounted lower cost fair value interest included within interest • interest income includes interest income customer debit balances interestearning assets loans held sale accounted lower cost fair value • collateralized financings consists repurchase agreements securities loaned • short longterm borrowings include secured unsecured borrowings • interest expense includes rebates received interestbearing liabilities interest expense customer credit balances note 24 income taxes provision income taxes income taxes provided using asset liability method deferred tax assets liabilities recognized temporary differences financial reporting tax bases assets liabilities firm reports interest expense related income tax matters provision taxes income tax penalties expenses table presents information provision taxes table • state local current taxes 2017 includes impact settlements state local examinations • us federal current tax expense us federal deferred tax expense 2018 2017 includes impact tax legislation table presents reconciliation us federal statutory income tax rate effective income tax rate goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table • nonus operations 2019 2018 include impact base erosion antiabuse tax global intangible low taxed income gilti • nonus operations 2017 includes impact permanently reinvested earnings excludes estimated impact tax legislation • state local taxes 2017 net us federal income tax effects includes impact settlements state local examinations deferred income taxes deferred income taxes reflect net tax effects temporary differences financial reporting tax bases assets liabilities temporary differences result taxable deductible amounts future years measured using tax rates laws effect differences expected reverse valuation allowances established reduce deferred tax assets amount likely realized primarily relate ability utilize losses various tax jurisdictions tax assets included assets tax liabilities included liabilities table presents information deferred tax assets liabilities excluding impact netting within tax jurisdictions firm recorded deferred tax assets 411 million december 2019 688 million december 2018 connection us federal state local foreign net operating loss carryforwards firm also recorded valuation allowance 79 million december 2019 81 million december 2018 related net operating loss carryforwards december 2019 us federal net operating loss carryforward 327 million state local net operating loss carryforward 146 billion foreign net operating loss carryforward 124 billion utilized us federal net operating loss carryforward begin expire 2025 state local foreign net operating loss carryforwards begin expire 2020 carryforwards expire material impact firm’s results operations december 2019 firm recorded deferred tax assets 5 million connection general business credit carryforwards 29 million connection state local tax credit carryforwards utilized general business credit carryforward begin expire 2021 state local tax credit carryforward begin expire 2020 december 2019 firm foreign tax credit carryforwards december 2019 december 2018 firm us capital loss carryforwards related net deferred income tax assets december 2019 firm deferred tax assets 181 million connection foreign capital loss carryforwards valuation allowance 181 million related capital loss carryforwards valuation allowance increased 222 million 2019 increased 89 million 2018 increases 2019 2018 primarily due increase deferred tax assets firm expect realize benefit firm permanently reinvested eligible earnings certain foreign subsidiaries december 2019 december 2018 us taxes accrued subsidiaries’ distributable earnings substantially resulted tax legislation repatriation tax gilti unrecognized tax benefits firm recognizes tax positions consolidated financial statements likely position sustained examination relevant taxing authority based technical merits position meets standard measured largest amount benefit likely realized settlement liability established differences positions taken tax return amounts recognized consolidated financial statements goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements accrued liability interest expense related income tax matters income tax penalties 198 million december 2019 107 million december 2018 firm recognized interest expense income tax penalties 60 million 2019 18 million 2018 63 million 2017 reasonably possible unrecognized tax benefits could change significantly twelve months subsequent december 2019 due potential audit settlements however time possible estimate potential change table presents changes liability unrecognized tax benefits included liabilities regulatory tax examinations firm subject examination us internal revenue service irs taxing authorities jurisdictions firm significant business operations united kingdom japan hong kong various states new york tax years examination vary jurisdiction firm expect completion audits material impact firm’s financial condition may material operating results particular period depending part operating results period table presents earliest tax years remain subject examination major jurisdiction us federal examinations 2011 2012 began 2013 firm accepted compliance assurance process program irs tax years 2013 2019 submitted application 2020 program allows firm work irs identify resolve potential us federal tax issues filing tax returns 2013 2018 tax years remain subject postfiling review new york state city examinations excluding gs bank usa 2011 2014 began 2017 new york state city examinations gs bank usa completed 2014 years including subsequent years table remain open examination taxing authorities firm believes liability unrecognized tax benefits established adequate relation potential additional assessments note 25 business segments firm reports activities following four business segments investment banking global markets asset management consumer wealth management see note 1 information firm’s business segments compensation benefits expenses firm’s segments reflect among factors overall performance firm well performance individual businesses consequently pretax margins one segment firm’s business may significantly affected performance firm’s business segments firm allocates assets including allocations global core liquid assets cash secured client financing assets revenues expenses among four business segments due integrated nature segments estimates judgments made allocating certain assets revenues expenses allocation process based manner management currently views performance segments allocation common shareholders’ equity preferred stock dividends segment based estimated amount equity required support activities segment relevant regulatory capital requirements net earnings segment calculated applying firmwide tax rate segment’s pretax earnings management believes allocation provides reasonable representation segment’s contribution consolidated net earnings common return average common equity total assets transactions segments based specific criteria approximate thirdparty rates goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements segment results table presents summary firm’s segment results table • revenues expenses directly associated segment included determining pretax earnings • net revenues firm’s segments include allocations interest income expense specific positions relation cash generated funding requirements positions net interest included segment net revenues consistent management assesses segment performance • overhead expenses directly allocable specific segments allocated ratably based direct segment expenses • operating expenses related corporate charitable contributions previously allocated segments allocated allocation reflects change manner management measures performance firm’s segments result change operating expenses allocated segments reclassifications made previously reported segment amounts conform current presentation • total operating expenses included net provisions litigation regulatory proceedings 124 billion 2019 844 million 2018 188 million 2017 net provisions 2019 2018 primarily reflected investment banking global markets • net earnings included income tax benefit 487 million 2018 estimated income tax expense 440 billion 2017 related tax legislation table presents depreciation amortization expense segment assets table presents assets segment goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents gross loans segment loan type table presents allowance loan losses segment see note 9 information loans geographic information due highly integrated nature international financial markets firm manages businesses based profitability enterprise whole methodology allocating profitability geographic regions dependent estimates management judgment significant portion firm’s activities require crossborder coordination order facilitate needs firm’s clients geographic results generally allocated follows • investment banking location client investment banking team • global markets ficc equities intermediation location marketmaking desk ficc equities financing excluding prime brokerage financing location desk prime brokerage financing location primary market underlying security • asset management excluding equity investments lending location sales team equity investments location investment lending location client • consumer wealth management wealth management location sales team consumer banking location client table presents total net revenues pretax earnings net earnings geographic region table • americas net earnings included income tax benefit 487 million 2018 estimated income tax expense 440 billion 2017 related tax legislation • asia pretax earnings net earnings 2019 impacted net provisions litigation regulatory proceedings • charitable contributions previously allocated across geographic regions pretax earnings net earnings allocated reclassifications made previously reported amounts conform current presentation • substantially amounts americas attributable us • asia includes australia new zealand goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 26 credit concentrations firm’s concentrations credit risk arise market making client facilitation investing underwriting lending collateralized transactions cash management activities may impacted changes economic industry political factors activities expose firm many different industries counterparties may also subject firm concentration credit risk particular central bank counterparty borrower issuer including sovereign issuers particular clearing house exchange firm seeks mitigate credit risk actively monitoring exposures obtaining collateral counterparties deemed appropriate firm measures monitors credit exposure based amounts owed firm taking account risk mitigants management considers determining credit risk mitigants include netting collateral arrangements economic hedges credit derivatives futures forward contracts netting collateral agreements permit firm offset receivables payables counterparties andor enable firm obtain collateral upfront contingent basis table presents credit concentrations included trading cash instruments investments addition firm 9697 billion december 2019 9047 billion december 2018 cash deposits held central banks included cash equivalents 5055 billion december 2019 2920 billion december 2018 held federal reserve bank new york december 2019 december 2018 firm credit exposure counterparty exceeded 2 total assets collateral obtained firm related derivative assets principally cash held firm thirdparty custodian collateral obtained firm related resale agreements securities borrowed transactions primarily us government agency obligations nonus government agency obligations see note 11 information collateralized agreements financings table presents us government agency obligations nonus government agency obligations collateralize resale agreements securities borrowed transactions table • nonus government agency obligations primarily consists securities issued governments japan france uk germany • given firm’s primary credit exposure transactions counterparty transaction firm would exposed collateral issuer event counterparty default note 27 legal proceedings firm involved number judicial regulatory arbitration proceedings including described concerning matters arising connection conduct firm’s businesses many proceedings early stages many cases seek indeterminate amount damages asc 450 event “reasonably possible” “the chance future event events occurring remote less likely” event “remote” “the chance future event events occurring slight” thus references upper end range reasonably possible loss cases firm able estimate range reasonably possible loss mean upper end range loss cases firm believes risk loss slight goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements respect matters described management able estimate range reasonably possible loss actual potential plaintiffs claimed amount money damages ii firm threatened sued purchasers securities offering indemnified party firm believes pay full amount judgment iii purchasers demanding firm repurchase securities management estimated upper end range reasonably possible loss equal case amount money damages claimed b case ii difference initial sales price securities firm sold offering estimated lowest subsequent price securities prior action commenced c case iii price purchasers paid securities less estimated value december 2019 relevant securities cases ii iii taking account factors believed relevant particular matter matters type date hereof firm estimated upper end range reasonably possible aggregate loss matters described management able estimate range reasonably possible aggregate loss approximately 33 billion excess aggregate reserves matters management generally unable estimate range reasonably possible loss matters included estimate including actual potential plaintiffs claimed amount money damages except instances management otherwise determine appropriate amount ii matters early stages iii matters relate regulatory investigations reviews except instances management otherwise determine appropriate amount iv uncertainty likelihood class certified ultimate size class v uncertainty outcome pending appeals motions vi significant factual issues resolved andor vii novel legal issues presented example firm’s potential liabilities respect investigations reviews described “regulatory investigations reviews related litigation” generally included management’s estimate reasonably possible loss however management believe based currently available information outcomes matters material adverse effect firm’s financial condition though outcomes could material firm’s operating results particular period depending part upon operating results period see note 18 information mortgagerelated contingencies 1malaysia development berhad 1mdbrelated matters firm received subpoenas requests documents information various governmental regulatory bodies selfregulatory organizations part investigations reviews relating financing transactions matters involving 1mdb sovereign wealth fund malaysia subsidiaries firm acted arrangers purchasers approximately 65 billion debt securities 1mdb november 1 2018 us department justice doj unsealed criminal information guilty plea tim leissner former participating managing director firm indictment ng chong hwa former managing director firm low taek jho leissner pleaded guilty twocount criminal information charging conspiring launder money conspiring violate us foreign corrupt practices act’s fcpa antibribery internal accounting controls provisions low ng charged threecount indictment conspiring launder money conspiring violate fcpa’s antibribery provisions august 28 2018 leissner’s guilty plea accepted us district court eastern district new york leissner adjudicated guilty counts ng also charged indictment conspiring violate fcpa’s internal accounting controls provisions charging documents state among things leissner ng participated conspiracy misappropriate proceeds 1mdb offerings pay bribes various government officials obtain retain 1mdb business firm plea charging documents indicate leissner ng knowingly willfully circumvented firm’s system internal accounting controls part repeatedly lying control personnel internal committees reviewed offerings indictment ng low alleges firm’s system internal accounting controls could easily circumvented firm’s business culture particularly southeast asia times prioritized consummation deals ahead proper operation compliance functions may 6 2019 ng pleaded guilty doj’s criminal charges february 4 2020 frb disclosed andrea vella former participating managing director doj previously referred unindicted coconspirator agreed without admitting denying frb’s allegations consent order prohibited participating banking industry penalties imposed consent order goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements december 17 2018 attorney general malaysia filed criminal charges malaysia goldman sachs international gsi arranger three offerings debt securities 1mdb aggregating approximately 65 billion principal amount alleged disclosure deficiencies offering documents relating among things use proceeds debt securities well goldman sachs asia llc gs asia goldman sachs singapore pte gs singapore criminal charges also filed leissner low ng jasmine loo ai swan related press release attorney general malaysia indicated prosecutors malaysia seek criminal fines accused excess 27 billion plus 600 million fees received connection debt offerings august 9 2019 attorney general malaysia announced criminal charges also filed seventeen current former directors gsi gs asia gs singapore malaysia securities commission issued notices show cause goldman sachs malaysia sdn bhd gs malaysia december 2018 march 2019 allege possible violations malaysian securities laws ii indicate malaysia securities commission considering whether revoke gs malaysia’s license conduct corporate finance fund management activities malaysia firm received multiple demands beginning november 2018 alleged shareholders section 220 delaware general corporation law books records relating among things firm’s involvement 1mdb firm’s compliance procedures december 13 2019 alleged shareholder filed lawsuit court chancery state delaware seeking books records relating among things firm’s involvement 1mdb firm’s compliance procedures february 19 2019 purported shareholder derivative action relating 1mdb filed us district court southern district new york group inc directors time former chairman chief executive officer firm amended complaint filed july 12 2019 seeks unspecified damages disgorgement injunctive relief alleges breaches fiduciary duties including connection alleged insider trading certain current former directors unjust enrichment violations antifraud provisions exchange act including connection group inc’s common stock repurchases solicitation proxies defendants moved dismiss action september 12 2019 beginning march 2019 firm also received demands alleged shareholders investigate pursue claims certain current former directors executive officers based oversight public disclosures regarding 1mdb related internal controls november 21 2018 summons notice filed new york supreme court county new york international petroleum investment company guaranteed certain debt securities issued 1mdb subsidiary aabar investments pjs summons notice makes unspecified claims relating 1mdb seeks unspecified compensatory punitive damages relief group inc gsi gs asia gs singapore gs malaysia leissner ng vella well individuals current former employees firm previously associated plaintiffs december 20 2018 putative securities class action lawsuit filed us district court southern district new york group inc certain former officers firm alleging violations antifraud provisions exchange act respect group inc’s disclosures concerning 1mdb seeking unspecified damages plaintiffs filed second amended complaint october 28 2019 defendants moved dismiss january 9 2020 firm cooperating doj governmental regulatory investigations relating 1mdb firm also engaged discussions certain governmental regulatory authorities respect potential resolution investigations proceedings assurance discussions lead resolution matters resolution well proceedings doj governmental regulatory authorities could result imposition significant fines penalties sanctions firm including restrictions firm’s activities mortgagerelated matters beginning april 2010 number purported securities law class actions filed us district court southern district new york challenging adequacy group inc’s public disclosure among things firm’s activities collateralized debt obligation market firm’s conflict interest management goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements consolidated amended complaint filed july 25 2011 names defendants group inc certain current former officers employees group inc affiliates generally alleges violations sections 10b 20a exchange act seeks unspecified damages defendants moved summary judgment december 11 2018 second circuit court appeals granted defendants’ petition interlocutory review district court’s august 14 2018 grant class certification january 23 2019 district court stayed proceedings pending appellate court’s decision beginning february 15 2019 summons notice complaint filed goldman sachs mortgage company gs mortgage securities corp us bank national association trustee two residential mortgagebacked securitization trusts issued 17 billion securities cases pending us district court southern district new york summons notice complaint generally allege mortgage loans trusts failed conform applicable representations warranties seek specific performance alternatively compensatory damages relief defendants moved dismiss complaint september 23 2019 firm continues receive requests information including certain regulators relating mortgagerelated activities director compensationrelated litigation may 9 2017 group inc certain current former directors named defendants purported direct derivative shareholder action court chancery state delaware similar purported derivative action filed june 2015 alleging excessive director compensation period 2012 2014 voluntarily dismissed without prejudice december 2016 complaint alleges excessive compensation paid nonemployee director defendants since 2015 certain disclosures connection soliciting shareholder approval stock incentive plans deficient complaint asserts claims breaches fiduciary duties seeks among things rescission cases rescissory damages disgorgement shareholder votes several matters october 23 2018 court declined approve parties’ proposed settlement may 31 2019 court dismissed disclosurerelated claims permitted nonemployee director compensation claim proceed currenciesrelated litigation gsco group inc among defendants named putative class actions filed us district court southern district new york beginning september 2016 behalf putative indirect purchasers foreign exchange instruments august 5 2019 plaintiffs filed third consolidated amended complaint generally alleging conspiracy manipulate foreign currency exchange markets asserting claims various state antitrust laws state consumer protection laws seeking treble damages unspecified amount gsco group inc among defendants named action filed us district court southern district new york november 7 2018 certain direct purchasers foreign exchange instruments opted class settlement reached among others gsco group inc second amended complaint filed june 11 2019 generally alleges defendants violated federal antitrust law state common law connection alleged conspiracy manipulate foreign currency exchange markets seeks declaratory injunctive relief well unspecified amounts compensatory punitive treble damages defendants moved dismiss july 25 2019 financial advisory services group inc certain affiliates time parties various civil litigation arbitration proceedings disputes clients third parties relating firm’s financial advisory activities claims generally seek among things compensatory damages cases punitive damages certain cases allege firm appropriately disclose deal conflicts interest goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements underwriting litigation firm affiliates among defendants number proceedings connection securities offerings proceedings including described plaintiffs assert class action individual claims federal state securities laws cases applicable laws allege offering documents securities purchased contained material misstatements omissions generally seek compensatory rescissory damages unspecified amounts certain proceedings involve additional allegations adeptus health inc gsco among underwriters named defendants several putative securities class actions filed beginning october 2016 consolidated us district court eastern district texas addition underwriters defendants include certain former directors officers adeptus health inc adeptus well adeptus’ sponsor underwriters consolidated complaint filed november 21 2017 relates 124 million june 2014 initial public offering 154 million may 2015 secondary equity offering 411 million july 2015 secondary equity offering 175 million june 2016 secondary equity offering gsco underwrote 169 million shares common stock june 2014 initial public offering representing aggregate offering price approximately 37 million 962378 shares common stock may 2015 offering representing aggregate offering price approximately 61 million 176 million shares common stock july 2015 offering representing aggregate offering price approximately 185 million shares common stock june 2016 offering representing aggregate offering price approximately 175 million april 19 2017 adeptus filed chapter 11 bankruptcy january 9 2020 court preliminarily approved settlement among parties firm reserved full amount proposed contribution settlement sunedison inc gsco among underwriters named defendants several putative class actions individual actions filed beginning march 2016 relating august 2015 public offering 650 million sunedison inc sunedison convertible preferred stock defendants also include certain sunedison’s directors officers april 21 2016 sunedison filed chapter 11 bankruptcy pending cases transferred us district court southern district new york march 17 2017 plaintiffs putative class action filed consolidated amended complaint gsco underwriter sold 138890 shares sunedison convertible preferred stock offering representing aggregate offering price approximately 139 million april 10 2018 april 17 2018 certain plaintiffs individual actions filed amended complaints defendants reached settlement certain plaintiffs individual actions settlement class action court approved october 25 2019 firm paid full amount contribution settlement defendants moved dismiss remaining individual actions december 18 2019 valeant pharmaceuticals international inc gsco goldman sachs canada inc gs canada among underwriters initial purchasers named defendants putative class action filed march 2 2016 superior court quebec canada addition underwriters initial purchasers defendants include valeant pharmaceuticals international inc valeant certain directors officers valeant’s auditor gsco gs canada complaint relates june 2013 public offering 23 billion common stock june 2013 rule 144a offering 32 billion principal amount senior notes november 2013 rule 144a offering 900 million principal amount senior notes complaint asserts claims quebec securities act civil code quebec august 29 2017 court certified class includes nonus purchasers offerings defendants’ motion leave appeal certification denied november 30 2017 gsco gs canada sole underwriters sold 5334897 shares common stock june 2013 offering nonus purchasers representing aggregate offering price approximately 453 million initial purchasers proportional share sales nonus purchasers approximately cad142 million principal amount senior notes june 2013 november 2013 rule 144a offerings goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements snap inc gsco among underwriters named defendants putative securities class actions pending california superior court county los angeles us district court central district california beginning may 2017 relating snap inc’s 391 billion march 2017 initial public offering addition underwriters defendants include snap inc certain officers directors gsco underwrote 57040000 shares common stock representing aggregate offering price approximately 970 million underwriter defendants including gsco voluntarily dismissed district court action september 18 2018 district court action defendants moved summary judgment december 19 2019 following court’s november 20 2019 order approving plaintiffs’ motion class certification state court actions stayed january 17 2020 parties federal action reached settlement principle subject documentation court approval sea limited gs asia among underwriters named defendants putative securities class action filed november 1 2018 new york supreme court county new york relating sea limited’s 989 million october 2017 initial public offering american depositary shares addition underwriters defendants include sea limited certain officers directors gs asia underwrote 28026721 american depositary shares representing aggregate offering price approximately 420 million january 25 2019 plaintiffs filed amended complaint defendants moved dismiss march 26 2019 altice usa inc gsco among underwriters named defendants putative securities class actions pending new york supreme court county queens us district court eastern district new york beginning june 2018 relating altice usa inc’s altice 215 billion june 2017 initial public offering addition underwriters defendants include altice certain officers directors gsco underwrote 12280042 shares common stock representing aggregate offering price approximately 368 million may 10 2019 plaintiffs district court filed amended complaint june 27 2019 plaintiffs state court action filed consolidated amended complaint july 23 2019 defendants moved dismiss amended complaint state court action october 14 2019 defendants moved dismiss complaint district court action camping world holdings inc gsco among underwriters named defendants several putative securities class actions pending us district court northern district illinois new york supreme court county new york circuit court cook county illinois chancery division beginning december 2018 addition underwriters defendants include camping world holdings inc camping world certain officers directors well certain stockholders underwriters complaints relate three offerings camping world common stock 261 million october 2016 initial public offering 303 million may 2017 offering 310 million october 2017 offering gsco underwrote 4267214 shares common stock october 2016 initial public offering representing aggregate offering price approximately 94 million 4557286 shares common stock may 2017 offering representing aggregate offering price approximately 126 million 3525348 shares common stock october 2017 offering representing aggregate offering price approximately 143 million gsco defendants moved dismiss new york state court action february 28 2019 illinois state court action april 19 2019 illinois district court action may 17 2019 illinois state court action stayed pending resolution motions dismiss illinois district court action alnylam pharmaceuticals inc gsco among underwriters named defendants putative securities class action filed september 12 2019 new york supreme court county new york relating alnylam pharmaceuticals inc’s alnylam 805 million november 2017 public offering common stock addition underwriters defendants include alnylam certain officers directors gsco underwrote 2576000 shares common stock representing aggregate offering price approximately 322 million december 20 2019 defendants moved dismiss amended complaint filed november 7 2019 uber technologies inc gsco among underwriters named defendants several putative securities class actions filed beginning september 2019 california superior court county san francisco us district court northern district california relating uber technologies inc’s uber 81 billion may 2019 initial public offering addition underwriters defendants include uber certain officers directors gsco underwrote 35864408 shares common stock representing aggregate offering price approximately 16 billion january 30 2020 plaintiffs state court action filed consolidated amended complaint goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements venator materials plc gsco among underwriters named defendants putative securities class actions texas district court dallas county us district court southern district texas filed beginning february 2019 relating venator materials plc’s venator 522 million august 2017 initial public offering 534 million december 2017 secondary equity offering addition underwriters defendants include venator certain officers directors certain shareholders gsco underwrote 6351347 shares common stock august 2017 initial public offering representing aggregate offering price approximately 127 million 5625768 shares common stock december 2017 secondary equity offering representing aggregate offering price approximately 127 million january 21 2020 texas court appeals reversed texas district court dismissed claims underwriter defendants including gsco state court action lack personal jurisdiction february 18 2020 defendants moved dismiss consolidated complaint federal action investment management services group inc certain affiliates parties various civil litigation arbitration proceedings disputes clients relating losses allegedly sustained result firm’s investment management services claims generally seek among things restitution compensatory damages cases punitive damages securities lending antitrust litigation group inc gsco among defendants named putative antitrust class action three individual actions relating securities lending practices filed us district court southern district new york beginning august 2017 complaints generally assert claims federal state antitrust law state common law connection alleged conspiracy among defendants preclude development electronic platforms securities lending transactions individual complaints also assert claims tortious interference business relations state trade practices law second third individual actions unjust enrichment state common law complaints seek declaratory injunctive relief well unspecified amounts compensatory treble punitive damages group inc voluntarily dismissed putative class action january 26 2018 defendants’ motion dismiss class action complaint denied september 27 2018 defendants moved dismiss second individual action december 21 2018 defendants’ motion dismiss first individual action granted august 7 2019 interest rate swap antitrust litigation group inc gsco gsi gs bank usa goldman sachs financial markets lp gsfm among defendants named putative antitrust class action relating trading interest rate swaps filed november 2015 consolidated us district court southern district new york goldman sachs entities also among defendants named two antitrust actions relating trading interest rate swaps commenced april 2016 june 2018 respectively us district court southern district new york three operators swap execution facilities certain affiliates actions consolidated pretrial proceedings complaints generally assert claims federal antitrust law state common law connection alleged conspiracy among defendants preclude exchange trading interest rate swaps complaints individual actions also assert claims state antitrust law complaints seek declaratory injunctive relief well treble damages unspecified amount defendants moved dismiss class first individual action district court dismissed state common law claims asserted plaintiffs first individual action otherwise limited state common law claim putative class action antitrust claims actions period 2013 2016 november 20 2018 court granted part denied part defendants’ motion dismiss second individual action dismissing state common law claims unjust enrichment tortious interference denying dismissal federal state antitrust claims march 13 2019 court denied plaintiffs’ motion putative class action amend complaint add allegations related 20082012 conduct granted motion add limited allegations 20132016 plaintiffs added fourth consolidated amended complaint filed march 22 2019 plaintiffs putative class action moved class certification march 7 2019 goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements gse bonds antitrust litigation gsco among dealers named defendants numerous putative antitrust class actions relating debt securities issued federal national mortgage association federal home loan mortgage corporation federal farm credit banks funding corporation federal home loan banks collectively gses filed beginning february 2019 consolidated us district court southern district new york third consolidated amended complaint filed september 10 2019 asserts claims federal antitrust law connection alleged conspiracy among defendants manipulate secondary market debt securities issued gses complaint seeks declaratory injunctive relief well treble damages unspecified amounts december 12 2019 court preliminarily approved settlement firm class plaintiffs firm reserved full amount contribution settlement beginning september 2019 state louisiana city baton rouge filed complaints us district court middle district louisiana class defendants number dealers alleging claims class action january 2020 state louisiana city baton rouge voluntarily dismissed actions prejudice gsco favor participating class settlement variable rate demand obligations antitrust litigation gsco among defendants named putative class action relating variable rate demand obligations vrdos filed beginning february 2019 separate complaints consolidated us district court southern district new york consolidated amended complaint filed may 31 2019 generally asserts claims federal antitrust law state common law connection alleged conspiracy among defendants manipulate market vrdos complaint seeks declaratory injunctive relief well unspecified amounts compensatory treble damages defendants moved dismiss july 30 2019 commoditiesrelated litigation gsi among defendants named putative class actions relating trading platinum palladium filed beginning november 25 2014 recently amended may 15 2017 us district court southern district new york amended complaint generally alleges defendants violated federal antitrust laws commodity exchange act connection alleged conspiracy manipulate benchmark physical platinum palladium prices seek declaratory injunctive relief well treble damages unspecified amount defendants moved dismiss third consolidated amended complaint july 21 2017 gsco gsi j aron company metro previously consolidated subsidiary group inc sold fourth quarter 2014 among defendants number putative class individual actions filed beginning august 1 2013 consolidated us district court southern district new york complaints generally allege violations federal antitrust laws state laws connection storage aluminum trading complaints seek declaratory injunctive equitable relief well unspecified monetary damages including treble damages december 2016 district court granted defendants’ motions dismiss remaining claims certain plaintiffs subsequently appealed december 2016 august 27 2019 second circuit vacated district court’s dismissals remanded case district court proceedings us treasury securities litigation gsco among primary dealers named defendants several putative class actions relating market us treasury securities filed beginning july 2015 consolidated us district court southern district new york gsco also among primary dealers named defendants similar individual action filed us district court southern district new york august 25 2017 consolidated class action complaint filed december 29 2017 generally alleges defendants violated antitrust laws connection alleged conspiracy manipulate whenissued market auctions us treasury securities certain defendants including gsco colluded preclude trading us treasury securities electronic trading platforms order impede competition bidding process individual action alleges similar conspiracy regarding manipulation whenissued market auctions well related futures options violation commodity exchange act complaints seek declaratory injunctive relief treble damages unspecified amount restitution defendants moved dismiss february 23 2018 goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements employmentrelated matters september 15 2010 putative class action filed us district court southern district new york three female former employees complaint subsequently amended alleges group inc gsco systematically discriminated female employees respect compensation promotion performance evaluations complaint alleges class consisting female employees employed specified levels specified areas group inc gsco since july 2002 asserts claims federal new york city discrimination laws complaint seeks class action status injunctive relief unspecified amounts compensatory punitive damages march 30 2018 district court certified damages class plaintiffs’ disparate impact treatment claims september 4 2018 second circuit court appeals denied defendants’ petition interlocutory review district court’s class certification decision subsequently denied defendants’ petition rehearing september 27 2018 plaintiffs advised district court would seek certify class injunctive declaratory relief april 12 2019 group inc gsco filed motion compel arbitration certain class members parties agreements group inc andor gsco agreed arbitrate employmentrelated disputes plaintiffs filed motion challenging enforceability arbitration agreements executed filing class action regulatory investigations reviews related litigation group inc certain affiliates subject number investigations reviews cases received subpoenas requests documents information various governmental regulatory bodies selfregulatory organizations litigation shareholder requests relating various matters relating firm’s businesses operations including • public offering process • firm’s investment management financial advisory services • conflicts interest • research practices including research independence interactions research analysts firm personnel including investment banking personnel well third parties • transactions involving governmentrelated financings matters municipal securities including wallcross procedures conflict interest disclosure respect state municipal clients trading structuring municipal derivative instruments connection municipal offerings political contribution rules municipal advisory services possible impact credit default swap transactions municipal issuers • offering auction sales trading clearance corporate government securities currencies commodities financial products related sales communications activities well firm’s supervision controls relating activities including compliance applicable short sale rules algorithmic highfrequency quantitative trading firm’s us alternative trading system dark pool futures trading options trading whenissued trading transaction reporting technology systems controls securities lending practices trading clearance credit derivative instruments interest rate swaps commodities activities metals storage private placement practices allocations trading securities trading activities communications connection establishment benchmark rates currency rates • compliance fcpa • firm’s hiring compensation practices • firm’s system risk management controls • insider trading potential misuse dissemination material nonpublic information regarding corporate governmental developments effectiveness firm’s insider trading controls information barriers firm cooperating governmental regulatory investigations reviews goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 28 employee benefit plans firm sponsors various pension plans certain postretirement benefit plans primarily healthcare life insurance firm also provides certain benefits former inactive employees prior retirement defined benefit pension plans postretirement plans employees certain nonus subsidiaries participate various defined benefit pension plans generally provide benefits based years credited service percentage eligible compensation firm maintains defined benefit pension plan certain uk employees april 2008 uk defined benefit plan closed new participants frozen existing participants march 31 2016 nonus plans material impact firm’s consolidated results operations firm also maintains defined benefit pension plan substantially us employees hired prior november 1 2003 november 2004 plan closed new participants frozen existing participants addition firm maintains unfunded postretirement benefit plans provide medical life insurance eligible retirees dependents covered programs plans material impact firm’s consolidated results operations firm recognizes funded status defined benefit pension postretirement plans measured difference fair value plan assets benefit obligation consolidated balance sheets december 2019 assets included 257 million related overfunded pension plans liabilities included 415 million related plans december 2018 assets included 462 million related overfunded pension plans liabilities included 344 million related plans defined contribution plans firm contributes employersponsored us nonus defined contribution plans firm’s contribution plans 254 million 2019 240 million 2018 257 million 2017 note 29 employee incentive plans cost employee services received exchange sharebased award generally measured based grantdate fair value award sharebased awards require future service ie vested awards including awards granted retirementeligible employees expensed immediately sharebased awards require future service amortized relevant service period forfeitures recorded occur cash dividend equivalents paid rsus charged retained earnings rsus require future service forfeited related dividend equivalents originally charged retained earnings reclassified compensation expense period forfeiture occurs firm generally issues new shares common stock upon delivery sharebased awards certain cases primarily related conflicted employment outlined applicable award agreements firm may cash settle sharebased compensation awards accounted equity instruments awards whose terms allow cash settlement additional paidin capital adjusted extent difference value award time cash settlement grantdate value award stock incentive plan firm sponsors stock incentive plan goldman sachs amended restated stock incentive plan 2018 sip provides grants rsus restricted stock dividend equivalent rights incentive stock options nonqualified stock options stock appreciation rights sharebased awards may subject performance conditions may 2 2018 shareholders approved 2018 sip 2018 sip replaced goldman sachs amended restated stock incentive plan 2015 sip previously effect applies awards granted date approval 2015 sip previously replaced goldman sachs amended restated stock incentive plan 2013 sip december 2019 606 million shares available grant 2018 sip shares common stock underlying awards granted 2018 sip 2015 sip 2013 sip delivered due forfeiture termination cancellation surrendered withheld shares become available delivered 2018 sip shares available grant also subject adjustment certain changes corporate structure permitted 2018 sip 2018 sip scheduled terminate date annual meeting shareholders occurs 2022 goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements restricted stock units firm grants rsus including rsus subject performance conditions employees generally valued based closing price underlying shares date grant taking account liquidity discount applicable postvesting delivery transfer restrictions rsus generally vest underlying shares common stock deliver net required withholding tax outlined applicable award agreements award agreements generally provide vesting accelerated certain circumstances retirement death disability conflicted employment delivery underlying shares common stock generally occurs threeyear period conditioned grantees satisfying certain vesting requirements outlined award agreements table presents 2019 activity related rsus table • weighted average grantdate fair value rsus granted 17742 2019 21806 2018 20688 2017 fair value rsus granted included liquidity discount 105 2019 119 2018 107 2017 reflect postvesting delivery transfer restrictions generally 4 years • aggregate fair value awards vested 200 billion 2019 179 billion 2018 214 billion 2017 • ending balance included restricted stock subject future service requirements 23068 shares december 2019 1649 shares december 2018 • ending balance included rsus subject performance conditions future service requirements 224898 rsus december 2019 represents maximum amount rsus may earned december 2019 • ending balance also included rsus subject performance conditions subject future service requirements 268433 rsus december 2019 174579 rsus december 2018 maximum amount rsus may earned 402650 rsus december 2019 261869 rsus december 2018 relation 2019 yearend first quarter 2020 firm granted employees 83 million rsus 29 million rsus require future service condition delivery related shares common stock awards subject additional conditions outlined award agreements generally shares underlying awards net required withholding tax deliver threeyear period subject postvesting delivery transfer restrictions january 2025 grants included table december 2019 467 million total unrecognized compensation cost related nonvested sharebased compensation arrangements cost expected recognized weighted average period 179 years stock options stock options generally vested outlined applicable stock option agreement general options expired tenth anniversary grant date although may subject earlier termination cancellation certain circumstances accordance terms applicable stock option agreement sip effect time grant options outstanding december 2019 december 2018 2019 options exercised 2018 210 million options exercised weighted average exercise price 7878 total intrinsic value options exercised 288 million 2018 589 million 2017 table presents sharebased compensation related excess tax benefit table excess net tax benefit sharebased awards includes net tax benefit dividend equivalents paid rsus delivery common stock underlying sharebased awards well excess net tax benefit options exercised goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 30 parent company group inc condensed statements earnings supplemental disclosures condensed statements earnings revenues expenses included following subsidiaries affiliates • dividends bank subsidiaries included cash dividends 60 million 2019 76 million 2018 525 million 2017 • dividends nonbank subsidiaries affiliates included cash dividends 418 billion 2019 1078 billion 2018 798 billion 2017 • revenues included 129 billion 2019 169 billion 2018 661 million 2017 • interest income included 726 billion 2019 633 billion 2018 465 billion 2017 • interest expense included 315 billion 2019 239 billion 2018 105 billion 2017 • expenses included 138 million 2019 159 million 2018 45 million 2017 group inc’s comprehensive incomeloss 218 billion 2019 257 billion 2018 664 million 2017 february 2020 gsco made cash dividend distribution 400 billion group inc group inc condensed balance sheets supplemental disclosures goldman sachs funding llc funding ihc whollyowned direct subsidiary group inc provided group inc committed line credit allows group inc draw sufficient funds meet cash needs ordinary course business trading assets included derivative contracts subsidiaries 584 million december 2019 683 million december 2018 trading liabilities included derivative contracts subsidiaries 365 million december 2019 280 million december 2018 december 2019 unsecured longterm borrowings subsidiaries maturity date 2687 billion 2021 311 million 2022 107 million 2023 154 million 2024 113 billion 2025thereafter goldman sachs 2019 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements group inc condensed statements cash flows supplemental disclosures cash payments interest net capitalized interest 953 billion 2019 983 billion 2018 631 billion 2017 included 301 billion 2019 305 billion 2018 160 million 2017 payments subsidiaries cash paymentsrefunds income taxes net 272 million 2019 98 million 2018 297 million 2017 cash flows related common stock repurchased includes common stock repurchased prior period settlement occurred current period excludes common stock repurchased current period settlement occurred following period noncash activities year ended december 2019 • group inc acquired 850 billion deposits gs bank usa funding ihc exchange borrowings • group inc exchanged 211 million trust preferred securities common beneficial interests 231 million certain group inc’s junior subordinated debt noncash activities year ended december 2018 • group inc restructured funding goldman sachs group uk limited goldman sachs international whollyowned subsidiaries group inc resulted net increase loans subsidiaries 571 billion decrease equity interest 571 billion • group inc exchanged 150 million liabilities 46 million related deferred tax assets 104 million equity interest gsco whollyowned subsidiary group inc • group inc exchanged 36 million trust preferred securities common beneficial interests 36 million certain group inc’s junior subordinated debt noncash activities year ended december 2017 • group inc exchanged 8400 billion certain loans receivables subsidiaries 8400 billion unsecured subordinated note funding ihc included loans receivables subsidiaries • group inc exchanged 750 million equity interest goldman sachs uk llc gs uk whollyowned subsidiary group inc 750 million loan gs uk • group inc exchanged 243 million trust preferred securities common beneficial interests 254 million group inc’s junior subordinated debt goldman sachs 2019 form 10k goldman sachs group inc subsidiaries supplemental financial information quarterly results unaudited tables present unaudited quarterly results tables • net earnings common represents net earnings applicable common shareholders calculated net earnings less preferred stock dividends • quarterly results prepared accordance us gaap reflect adjustments opinion management necessary fair statement results adjustments normal recurring nature timing magnitude changes firm’s discretionary compensation accruals included operating expenses significant effect results given quarter common stock performance graph table compare performance investment firm’s common stock december 31 2014 last trading day firm’s 2015 fiscal year december 31 2019 sp 500 index sp 500 sp 500 financials index sp 500 financials graph table assume 100 invested december 31 2014 firm’s common stock sp 500 sp 500 financials dividends reinvested without payment commissions performance shown represents past performance considered indication future performance goldman sachs 2019 form 10k goldman sachs group inc subsidiaries supplemental financial information selected financial data table basic shares represent common shares outstanding restricted stock units granted employees future service requirements subject performance conditions statistical disclosures distribution assets liabilities shareholders’ equity tables present information average balances interest average interest rates goldman sachs 2019 form 10k goldman sachs group inc subsidiaries supplemental financial information tables • assets liabilities interest classified us nonus based location entity assets liabilities held • derivative instruments commodities included noninterestearning assets noninterest bearing liabilities • total interestearning assets primarily consists certain receivables customers counterparties • collateralized financings consists repurchase agreements securities loaned • substantially total interestbearing liabilities consists certain payables customers counterparties • interest rates borrowings include effects interest rate swaps accounted hedges goldman sachs 2019 form 10k goldman sachs group inc subsidiaries supplemental financial information • total loans exclude loans held sale accounted lower cost fair value loans included within interestearning assets • total short longterm borrowings include secured unsecured borrowings changes net interest income volume rate analysis tables present effect net interest income volume rate changes analysis changes due volumerate variance allocated volume goldman sachs 2019 form 10k goldman sachs group inc subsidiaries supplemental financial information deposits table presents information interestbearing deposits table deposits classified us nonus based location entity deposits held december 2019 deposits us offices included 1439 billion nonus offices included 807 billion time deposits greater 100000 table presents maturities time deposits held us offices shortterm borrowed funds table presents information securities loaned repurchase agreements shortterm borrowings table • borrowings generally mature within one year financial statement date include borrowings redeemable option holder within one year financial statement date • amounts outstanding yearend shortterm borrowings included shortterm secured financings 732 billion december 2019 956 billion december 2018 1490 billion december 2017 • weighted average interest rates borrowings include effect hedging activities loan portfolio table presents information loans table loans classified us nonus based location entity loans held allowance loan losses table presents changes allowance loan losses goldman sachs 2019 form 10k goldman sachs group inc subsidiaries supplemental financial information table • allowance loan losses 2019 2018 primarily related corporate loans consumer loans held entities located us allowance loan losses 2017 earlier primarily related corporate wealth management loans held entities located us • net chargeoffs 2019 primarily related consumer loans held entities located us net chargeoffs 2018 primarily related consumer loans held entities located us commercial real estate pci loans held entities located outside us net chargeoffs 2017 earlier primarily related corporate loans held entities located us maturities sensitivity changes interest rates table presents gross loans tenor distribution loans fixed floating interest rates crossborder outstandings crossborder outstandings based federal financial institutions examination council’s ffiec guidelines reporting crossborder information represent amounts firm may able obtain foreign country due countryspecific events including unfavorable economic political conditions economic social instability changes government policies credit exposure represents potential loss due default deterioration credit quality counterparty issuer securities instruments measured based potential loss event nonpayment counterparty credit exposure reduced effect risk mitigants netting agreements counterparties permit firm offset receivables payables counterparties obtaining collateral counterparties table include effects risk mitigants represent firm’s credit exposure table presents crossborder outstandings commitments country crossborder outstandings exceed 075 consolidated assets accordance ffiec guidelines table • crossborder outstandings includes cash receivables collateralized agreements cash financial instruments exclude derivative instruments • collateralized agreements presented gross without reduction related securities collateral held • margin loans included receivables presented based amount collateral advanced counterparty • substantially commitments consists commitments extend credit collateralized agreement commitments goldman sachs 2019 form 10k goldman sachs group inc subsidiaries item 9item 8 financial statements supplementary data management’s report internal control financial reporting management goldman sachs group inc together consolidated subsidiaries firm responsible establishing maintaining adequate internal control financial reporting firm’s internal control financial reporting process designed supervision firm’s principal executive principal financial officers provide reasonable assurance regarding reliability financial reporting preparation firm’s financial statements external reporting purposes accordance us generally accepted accounting principles december 31 2020 management conducted assessment firm’s internal control financial reporting based framework established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso based assessment management determined firm’s internal control financial reporting december 31 2020 effective internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance us generally accepted accounting principles receipts expenditures made accordance authorizations management directors firm provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition firm’s assets could material effect financial statements firm’s internal control financial reporting december 31 2020 audited pricewaterhousecoopers llp independent registered public accounting firm stated report appearing pages 113 115 expresses unqualified opinion effectiveness firm’s internal control financial reporting december 31 2020 goldman sachs 2020 form 10k report independent registered public accounting firm board directors shareholders goldman sachs group inc opinions financial statements internal control financial reporting audited accompanying consolidated balance sheets goldman sachs group inc subsidiaries company december 31 2020 2019 related consolidated statements earnings comprehensive income changes shareholders’ equity cash flows three years period ended december 31 2020 including related notes collectively referred “consolidated financial statements” also audited company’s internal control financial reporting december 31 2020 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion consolidated financial statements referred present fairly material respects financial position company december 31 2020 2019 results operations cash flows three years period ended december 31 2020 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2020 based criteria established internal control integrated framework 2013 issued coso change accounting principle discussed note 3 consolidated financial statements company changed manner accounts credit losses certain financial instruments 2020 basis opinions company’s management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing page 112 responsibility express opinions company’s consolidated financial statements company’s internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits consolidated financial statements included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions goldman sachs 2020 form 10k report independent registered public accounting firm definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate critical audit matters critical audit matters communicated matters arising current period audit consolidated financial statements communicated required communicated audit committee relate accounts disclosures material consolidated financial statements ii involved especially challenging subjective complex judgments communication critical audit matters alter way opinion consolidated financial statements taken whole communicating critical audit matters providing separate opinions critical audit matters accounts disclosures relate valuation certain level 3 financial instruments described notes 4 10 consolidated financial statements december 31 2020 company carries financial instruments fair value includes 263 billion financial assets 329 billion financial liabilities classified level 3 fair value hierarchy one inputs financial instrument’s valuation technique significant unobservable significant unobservable inputs used management value certain level 3 financial instruments included industry multiples public comparables ii credit spreads iii correlation principal considerations determination performing procedures relating valuation certain level 3 financial instruments critical audit matter significant judgment management valuing financial instruments turn led high degree auditor judgment subjectivity performing procedures related valuation certain level 3 financial instruments ii high degree auditor judgment effort evaluate audit evidence obtained related aforementioned significant unobservable inputs used valuation certain level 3 financial instruments iii audit effort involved use professionals specialized skill knowledge addressing matter involved performing procedures evaluating audit evidence connection forming overall opinion consolidated financial statements procedures included testing effectiveness controls relating valuation financial instruments including controls methods significant unobservable inputs used valuation certain level 3 financial instruments procedures also included among others sample financial instruments involvement professionals specialized skill knowledge assist developing independent estimate fair value ii testing management’s process determine fair value financial instruments developing independent estimate involved testing completeness accuracy data provided management ii evaluating utilizing management’s significant unobservable inputs developing independent significant unobservable inputs iii comparing management’s estimate independently developed estimate fair value testing management’s process included evaluating reasonableness aforementioned significant unobservable inputs evaluating appropriateness methods used testing completeness accuracy data provided management determine fair value instruments goldman sachs 2020 form 10k report independent registered public accounting firm allowance loan losses wholesale loan portfolio described note 9 consolidated financial statements company’s allowance loan losses related wholesale loans reflects management’s estimate loan losses remaining expected life loans also considers forecasts future economic conditions december 31 2020 26 billion allowance loan losses 955 billion loans accounted amortized cost related wholesale loan portfolio allowance wholesale loan losses measured collective basis loans exhibit similar risk characteristics using modeled approach assetspecific basis loans share similar risk characteristics addition includes qualitative components reflect uncertain nature economic forecasting capture uncertainty regarding model inputs account model imprecision concentration risk wholesale models determine probability default loss given default based various risk factors including internal credit ratings industry default loss data expected life macroeconomic indicators borrower’s capacity meet financial obligations borrower’s country risk industry loan seniority collateral type significant inputs forecast model wholesale loans include forecasted us unemployment rates gdp credit spreads commercial industrial delinquency rates short longterm interest rates oil prices principal considerations determination performing procedures relating allowance loan losses wholesale loan portfolio critical audit matter significant judgment estimation management determinations internal credit ratings forecasted us unemployment rates turn led high degree auditor judgment subjectivity effort performing procedures evaluating audit evidence related management’s determinations ii audit effort involved use professionals specialized skill knowledge addressing matter involved performing procedures evaluating audit evidence connection forming overall opinion consolidated financial statements procedures included testing effectiveness controls relating company’s allowance loan losses wholesale loan portfolio including controls model certain data significant assumptions procedures also included among others testing management’s process estimating allowance loan losses wholesale loans using modeled approach involved evaluating appropriateness model methodology testing completeness accuracy certain data used estimating allowance loan losses procedures also included use professionals specialized skill knowledge assist evaluating appropriateness model methodology ii reasonableness internal credit ratings forecasted us unemployment rates used estimating allowance wholesale loan losses pricewaterhousecoopers llp new york new york february 19 2021 served company’s auditor since 1922 goldman sachs 2020 form 10k goldman sachs group inc subsidiaries consolidated statements earnings consolidated statements comprehensive income accompanying notes integral part consolidated financial statements goldman sachs 2020 form 10k goldman sachs group inc subsidiaries consolidated balance sheets accompanying notes integral part consolidated financial statements goldman sachs 2020 form 10k goldman sachs group inc subsidiaries consolidated statements changes shareholders’ equity accompanying notes integral part consolidated financial statements goldman sachs 2020 form 10k goldman sachs group inc subsidiaries consolidated statements cash flows see notes 12 14 16 information noncash activities accompanying notes integral part consolidated financial statements goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 1 description business goldman sachs group inc group inc parent company delaware corporation together consolidated subsidiaries collectively firm leading global financial institution delivers broad range financial services across investment banking securities investment management consumer banking large diversified client base includes corporations financial institutions governments individuals founded 1869 firm headquartered new york maintains offices major financial centers around world firm reports activities four business segments investment banking firm provides broad range investment banking services diverse group corporations financial institutions investment funds governments services include strategic advisory assignments respect mergers acquisitions divestitures corporate defense activities restructurings spinoffs equity debt underwriting public offerings private placements firm also provides lending corporate clients including relationship lending middlemarket lending acquisition financing firm also provides transaction banking services certain corporate clients global markets firm facilitates client transactions makes markets fixed income equity currency commodity products institutional clients corporations financial institutions investment funds governments firm also makes markets clears institutional client transactions major stock options futures exchanges worldwide provides prime brokerage equities financing activities including securities lending margin lending swaps firm also provides financing clients securities purchased agreements resell resale agreements well structured credit warehouse assetbacked lending asset management firm manages assets offers investment products primarily separately managed accounts commingled vehicles mutual funds private investment funds across major asset classes diverse set institutional clients network thirdparty distributors around world firm makes equity investments include alternative investing activities related public private equity investments corporate real estate infrastructure assets well investments consolidated investment entities substantially engaged real estate investment activities firm also invests corporate debt provides financing real estate assets consumer wealth management firm provides investing wealth advisory solutions including financial planning counseling executing brokerage transactions managing assets individuals wealth management business firm also provides loans accepts deposits consumer banking digital platform marcus goldman sachs private bank well issues credit cards consumers note 2 basis presentation consolidated financial statements prepared accordance accounting principles generally accepted united states us gaap include accounts group inc entities firm controlling financial interest intercompany transactions balances eliminated references 2020 2019 2018 refer firm’s years ended dates context requires december 31 2020 december 31 2019 december 31 2018 respectively reference future year refers year ending december 31 year fourth quarter 2020 brokerage clearing exchange distribution fees renamed transaction based additionally includes expenses resulting completed transactions directly related client revenues expenses previously reported expenses previously reported amounts conformed current presentation goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 3 significant accounting policies firm’s significant accounting policies include measure fair value assets liabilities measuring allowance credit losses loans lending commitments accounted amortized cost consolidate entity see note 4 policies fair value measurements note 9 policies allowance credit losses note 17 policies consolidation accounting significant accounting policies either described included following footnotes consolidation firm consolidates entities firm controlling financial interest firm determines whether controlling financial interest entity first evaluating whether entity voting interest entity variable interest entity vie voting interest entities voting interest entities total equity investment risk sufficient enable entity finance activities independently ii equity holders power direct activities entity significantly impact economic performance obligation absorb losses entity right receive residual returns entity usual condition controlling financial interest voting interest entity ownership majority voting interest firm controlling majority voting interest voting interest entity consolidated variable interest entities vie entity lacks one characteristics voting interest entity firm controlling financial interest vie firm variable interest interests provide power direct activities vie significantly impact vie’s economic performance ii obligation absorb losses vie right receive benefits vie could potentially significant vie see note 17 information vies equitymethod investments firm controlling financial interest entity exert significant influence entity’s operating financial policies investment generally accounted fair value electing fair value option available us gaap significant influence generally exists firm owns 20 50 entity’s common stock insubstance common stock certain cases firm applies equity method accounting new investments strategic nature closely related firm’s principal business activities firm significant degree involvement cash flows operations investee costbenefit considerations less significant see note 8 information equitymethod investments goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements investment funds firm formed investment funds thirdparty investors funds typically organized limited partnerships limited liability companies firm acts general partner manager generally firm hold majority economic interests funds usually voting interest entities generally consolidated thirdparty investors typically rights terminate funds remove firm general partner manager investments funds generally measured net asset value nav included investments see notes 8 18 22 information investments funds use estimates preparation consolidated financial statements requires management make certain estimates assumptions important relate fair value measurements allowance credit losses loans lending commitments accounted amortized cost accounting goodwill identifiable intangible assets provisions losses may arise litigation regulatory proceedings including governmental investigations provisions losses may arise tax audits estimates assumptions based best available information actual results could materially different revenue recognition financial assets liabilities fair value trading assets liabilities certain investments recorded fair value either fair value option accordance us gaap addition firm elected account certain loans financial assets liabilities fair value electing fair value option fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date financial assets marked bid prices financial liabilities marked offer prices fair value measurements include transaction costs fair value gains losses generally included market making principal transactions see note 4 information fair value measurements revenue contracts clients firm recognizes revenue earned contracts clients services investment banking investment management execution clearing contracts clients performance obligations related underlying transaction completed revenues contracts clients represent approximately 45 total noninterest revenues 2020 including approximately 90 investment banking revenues approximately 95 investment management revenues commissions fees approximately 45 total noninterest revenues 2019 including approximately 85 investment banking revenues approximately 95 investment management revenues commissions fees see note 25 information net revenues business segment investment banking advisory fees financial advisory assignments recognized revenues services related underlying transaction completed terms assignment nonrefundable deposits milestone payments connection financial advisory assignments recognized revenues upon completion underlying transaction assignment otherwise concluded expenses associated financial advisory assignments recognized incurred included transaction based expenses client reimbursements expenses included investment banking revenues underwriting fees underwriting assignments recognized revenues upon completion underlying transaction based terms assignment expenses associated underwriting assignments generally deferred related revenue recognized assignment otherwise concluded expenses included transaction based expenses completed assignments goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements investment management firm earns management fees incentive fees investment management services included investment management revenues firm makes payments brokers advisors related placement firm’s investment funds distribution fees included transaction based expenses management fees management fees mutual funds calculated percentage daily net asset value received monthly management fees hedge funds separately managed accounts calculated percentage monthend net asset value generally received quarterly management fees private equity funds calculated percentage monthly invested capital committed capital received quarterly semiannually annually depending fund management fees recognized time period services provided distribution fees paid firm calculated based either percentage management fee investment fund’s net asset value committed capital fees included transaction based expenses incentive fees incentive fees calculated percentage fund’s separately managed account’s return excess return specified benchmark performance target incentive fees generally based investment performance twelvemonth period life fund fees based performance twelvemonth period subject adjustment prior end measurement period fees based investment performance life fund future investment underperformance may require fees previously distributed firm returned fund incentive fees earned fund separately managed account recognized probable significant reversal fees occur generally fees longer subject fluctuations market value investments held fund separately managed account therefore incentive fees recognized period may relate performance obligations satisfied previous periods commissions fees firm earns commissions fees executing clearing client transactions stock options futures markets well overthecounter otc transactions commissions fees recognized day trade executed firm also provides thirdparty research services clients connection certain softdollar arrangements thirdparty research costs incurred firm connection arrangements presented net within commissions fees remaining performance obligations remaining performance obligations services firm committed perform future connection contracts clients firm’s remaining performance obligations generally related financial advisory assignments certain investment management activities revenues associated remaining performance obligations relating financial advisory assignments cannot determined outcome transaction firm’s investment management activities fees calculated based net asset value fund separately managed account future revenues associated remaining performance obligations cannot determined fees subject fluctuations market value investments held fund separately managed account firm able determine future revenues associated management fees calculated based committed capital december 2020 substantially future net revenues associated remaining performance obligations recognized 2028 annual revenues associated performance obligations average less 250 million 2028 transfers financial assets transfers financial assets accounted sales firm relinquished control assets transferred transfers financial assets accounted sales gains losses recognized net revenues assets liabilities arise firm’s continuing involvement transferred financial assets initially recognized fair value transfers financial assets accounted sales assets generally included trading assets transfer accounted collateralized financing related interest expense recognized life transaction see note 11 information transfers financial assets accounted collateralized financings note 16 information transfers financial assets accounted sales goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements cash equivalents firm defines cash equivalents highly liquid overnight deposits held ordinary course business cash equivalents included cash due banks 1195 billion december 2020 1257 billion december 2019 cash equivalents also included interestbearing deposits banks 14389 billion december 2020 12098 billion december 2019 firm segregates cash regulatory purposes related client activity cash equivalents segregated regulatory purposes 2452 billion december 2020 2278 billion december 2019 addition firm segregates securities regulatory purposes related client activity see note 11 information segregated securities customer receivables customer receivables included receivables customers counterparties 8239 billion december 2020 5090 billion december 2019 receivables brokers dealers clearing organizations 3894 billion december 2020 2371 billion december 2019 receivables primarily consist customer margin loans receivables resulting unsettled transactions collateral posted connection certain derivative transactions substantially receivables accounted amortized cost net allowance credit losses generally approximates fair value receivables accounted fair value included firm’s fair value hierarchy notes 4 10 receivables included firm’s fair value hierarchy substantially would classified level 2 december 2020 december 2019 see note 10 information customer receivables accounted fair value fair value option interest customer receivables recognized life transaction included interest income customer receivables includes receivables contracts clients contract assets contract assets represent firm’s right receive consideration services provided connection contracts clients collection conditional merely subject passage time firm’s receivables contracts clients 260 billion december 2020 227 billion december 2019 december 2020 december 2019 contract assets material customer payables customer payables included payables customers counterparties 18357 billion december 2020 17021 billion december 2019 payables brokers dealers clearing organizations 709 billion december 2020 461 billion december 2019 payables primarily consist customer credit balances related firm’s prime brokerage activities customer payables accounted cost plus accrued interest generally approximates fair value payables accounted fair value included firm’s fair value hierarchy notes 4 10 payables included firm’s fair value hierarchy substantially would classified level 2 december 2020 december 2019 interest customer payables recognized life transaction included interest expense offsetting assets liabilities reduce credit exposures derivatives securities financing transactions firm may enter master netting agreements similar arrangements collectively netting agreements counterparties permit offset receivables payables counterparties netting agreement contract counterparty permits net settlement multiple transactions counterparty including upon exercise termination rights nondefaulting party upon exercise termination rights transactions governed netting agreement terminated net settlement amount calculated addition firm receives posts cash securities collateral respect derivatives securities financing transactions subject terms related credit support agreements similar arrangements collectively credit support agreements enforceable credit support agreement grants nondefaulting party exercising termination rights right liquidate collateral apply proceeds amounts owed order assess enforceability firm’s right setoff netting credit support agreements firm evaluates various factors including applicable bankruptcy laws local statutes regulatory provisions jurisdiction parties agreement goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements derivatives reported netbycounterparty basis ie net payable receivable derivative assets liabilities given counterparty consolidated balance sheets legal right setoff exists enforceable netting agreement resale agreements securities sold agreements repurchase agreements securities borrowed loaned transactions term currency presented netbycounterparty basis consolidated balance sheets transactions meet certain settlement criteria subject netting agreements consolidated balance sheets derivatives reported net cash collateral received posted enforceable credit support agreements transacted enforceable netting agreement consolidated balance sheets resale repurchase agreements securities borrowed loaned reported net related cash securities received posted collateral see note 11 information collateral received pledged including rights deliver repledge collateral see notes 7 11 information offsetting assets liabilities foreign currency translation assets liabilities denominated nonus currencies translated rates exchange prevailing date consolidated balance sheets revenues expenses translated average rates exchange period foreign currency remeasurement gains losses transactions nonfunctional currencies recognized earnings gains losses translation financial statements nonus operation functional currency us dollar included net hedges taxes consolidated statements comprehensive income recent accounting developments leases asc 842 february 2016 fasb issued asu 201602 “leases topic 842” asu requires leases longer one year lessee recognize balance sheet rightofuse asset representing right use underlying asset lease term lease liability representing liability make lease payments also requires finance leases lessee recognize interest expense lease liability separately amortization rightofuse asset statements earnings operating leases amounts recognized combined expense also requires qualifying saleleaseback transactions seller recognize gain loss based estimated fair value asset time sale control asset transferred instead amortizing lease period addition asu requires expanded disclosures nature terms lease agreements firm adopted asu january 2019 modified retrospective approach upon adoption accordance asu firm elected reassess lease classification initial direct costs existing leases reassess whether existing contracts contain lease addition firm elected account contract’s lease nonlease components single lease component impact adoption gross 177 billion firm’s consolidated balance sheet increase retained earnings 12 million net tax january 1 2019 measurement credit losses financial instruments asc 326 june 2016 fasb issued asu 201613 “financial instruments credit losses topic 326 measurement credit losses financial instruments” asu amends several aspects measurement credit losses certain financial instruments including replacing existing incurred credit loss model models current expected credit losses cecl model amending certain aspects accounting purchased financial assets deterioration credit quality since origination firm adopted asu january 2020 modified retrospective approach result adopting asu firm’s allowance credit losses financial assets commitments measured amortized cost reflects management’s estimate credit losses remaining expected life assets expected credit losses newly recognized financial assets commitments well changes expected credit losses period recognized earnings expected credit losses measured based historical experience current conditions forecasts affect collectability reported amount cumulative effect measuring allowance cecl result adopting asu january 1 2020 increase allowance credit losses 848 million increase allowance driven fact allowance cecl covers expected credit losses full expected life loan portfolios also takes account forecasts expected future economic conditions addition accordance asu firm elected fair value option loans previously accounted purchased credit impaired pci resulted decrease allowance pci loans 169 million cumulative effect adopting asu decrease retained earnings 638 million net tax goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements facilitation effects reference rate reform financial reporting asc 848 march 2020 fasb issued asu 202004 “reference rate reform facilitation effects reference rate reform financial reporting” asu provides optional relief applying generally accepted accounting principles contracts hedging relationships transactions affected reference rate reform addition january 2021 fasb issued asu 202101 “reference rate reform scope” clarified scope asc 848 relating contract modifications firm adopted asus upon issuance elected apply relief available certain modified derivatives adoption asus material impact firm’s consolidated financial statements note 4 fair value measurements fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date financial assets marked bid prices financial liabilities marked offer prices fair value measurements include transaction costs firm measures certain financial assets liabilities portfolio ie based net exposure market andor credit risks best evidence fair value quoted price active market quoted prices active markets available fair value determined reference prices similar instruments quoted prices recent transactions less active markets internally developed models primarily use marketbased independently sourced inputs including limited interest rates volatilities equity debt prices foreign exchange rates commodity prices credit spreads funding spreads ie spread difference interest rate borrower could finance given financial instrument relative benchmark interest rate us gaap threelevel hierarchy disclosure fair value measurements hierarchy prioritizes inputs valuation techniques used measure fair value giving highest priority level 1 inputs lowest priority level 3 inputs financial instrument’s level hierarchy based lowest level input significant fair value measurement evaluating significance valuation input firm considers among factors portfolio’s net risk exposure input fair value hierarchy follows level 1 inputs unadjusted quoted prices active markets firm access measurement date identical unrestricted assets liabilities level 2 inputs valuation techniques observable either directly indirectly level 3 one inputs valuation techniques significant unobservable fair values substantially firm’s financial assets liabilities based observable prices inputs classified levels 1 2 fair value hierarchy certain level 2 level 3 financial assets liabilities may require valuation adjustments market participant would require arrive fair value factors counterparty firm’s credit quality funding risk transfer restrictions liquidity bidoffer spreads valuation adjustments generally based market evidence valuation techniques nature significant inputs used determine fair value firm’s financial instruments described see notes 5 10 information significant unobservable inputs used value level 3 financial instruments valuation techniques significant inputs trading cash instruments investments loans level 1 level 1 instruments include us government obligations nonus government obligations certain agency obligations certain corporate debt instruments certain money market instruments actively traded listed equities instruments valued using quoted prices identical unrestricted instruments active markets firm defines active markets equity instruments based average daily trading volume absolute terms relative market capitalization instrument firm defines active markets debt instruments based average daily trading volume number days trading activity level 2 level 2 instruments include certain nonus government obligations agency obligations mortgagebacked loans securities corporate debt instruments state municipal obligations money market instruments debt obligations restricted less liquid listed equities certain private equities commodities certain lending commitments valuations level 2 instruments verified quoted prices recent trading activity identical similar instruments broker dealer quotations alternative pricing sources reasonable levels price transparency consideration given nature quotations eg indicative firm relationship recent market activity prices provided alternative pricing sources goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements valuation adjustments typically made level 2 instruments instrument subject transfer restrictions andor ii premiums liquidity discounts market participant would require arrive fair value valuation adjustments generally based market evidence level 3 level 3 instruments one significant valuation inputs observable absent evidence contrary level 3 instruments initially valued transaction price considered best initial estimate fair value subsequently firm uses methodologies determine fair value vary based type instrument valuation inputs assumptions changed corroborated substantive observable evidence including values realized sales valuation techniques level 3 instruments vary instrument generally based discounted cash flow techniques valuation techniques nature significant inputs used determine fair values type level 3 instrument described loans securities backed commercial real estate loans securities backed commercial real estate directly indirectly collateralized single property portfolio properties may include tranches varying levels subordination significant inputs generally determined based relative value analyses include • market yields implied transactions similar related assets andor current levels changes market indices cmbx index tracks performance commercial mortgage bonds • transaction prices underlying collateral instruments similar underlying collateral • measure expected future cash flows default scenario recovery rates implied value underlying collateral mainly driven current performance underlying collateral capitalization rates recovery rates expressed percentage notional face value instrument reflect benefit credit enhancements certain instruments • timing expected future cash flows duration certain cases may incorporate impact loan forbearances unobservable inputs eg prepayment speeds loans securities backed residential real estate loans securities backed residential real estate directly indirectly collateralized portfolios residential real estate may include tranches varying levels subordination significant inputs generally determined based relative value analyses incorporate comparisons instruments similar collateral risk profiles significant inputs include • market yields implied transactions similar related assets • transaction prices underlying collateral instruments similar underlying collateral • cumulative loss expectations driven default rates home price projections residential property liquidation timelines related costs subsequent recoveries • duration driven underlying loan prepayment speeds residential property liquidation timelines corporate debt instruments corporate debt instruments includes corporate loans debt securities convertible debentures significant inputs corporate debt instruments generally determined based relative value analyses incorporate comparisons prices credit default swaps reference similar underlying instrument entity debt instruments similar issuer observable prices broker quotations available significant inputs include • market yields implied transactions similar related assets andor current levels trends market indices cdx index tracks performance corporate credit • current performance recovery assumptions firm uses credit default swaps value related instrument cost borrowing underlying reference obligation • duration • market transaction multiples corporate debt instruments convertibility participation options equity securities equity securities consists private equities recent thirdparty completed pending transactions eg merger proposals debt restructurings tender offers considered best evidence change fair value available following valuation methodologies used appropriate • industry multiples primarily ebitda revenue multiples public comparables • transactions similar instruments goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements • discounted cash flow techniques • thirdparty appraisals firm also considers changes outlook relevant industry financial performance issuer compared projected performance significant inputs include • market transaction multiples • discount rates capitalization rates • equity securities debtlike features market yields implied transactions similar related assets current performance recovery assumptions duration trading cash instruments investments loans significant inputs valuation instruments nonus government obligations us nonus agency obligations state municipal obligations loans debt obligations generally determined based relative value analyses incorporate comparisons prices credit default swaps reference similar underlying instrument entity debt instruments issuer observable prices broker quotations available significant inputs include • market yields implied transactions similar related assets andor current levels trends market indices • current performance recovery assumptions firm uses credit default swaps value related instrument cost borrowing underlying reference obligation • duration valuation techniques significant inputs derivatives firm’s level 2 level 3 derivatives valued using derivative pricing models eg discounted cash flow models correlation models incorporate option pricing methodologies monte carlo simulations price transparency derivatives generally characterized product type described • interest rate general key inputs used value interest rate derivatives transparent even longdated contracts interest rate swaps options denominated currencies leading industrialized nations characterized high trading volumes tight bidoffer spreads interest rate derivatives reference indices inflation index shape yield curve eg 10year swap rate vs 2year swap rate complex key inputs generally observable • credit price transparency credit default swaps including single names baskets credits varies market underlying reference entity obligation credit default swaps reference indices large corporates major sovereigns generally exhibit price transparency credit default swaps underliers price transparency varies based credit rating cost borrowing underlying reference obligations availability underlying reference obligations delivery upon default issuer credit default swaps reference loans assetbacked securities emerging market debt instruments tend less price transparency reference corporate bonds addition complex credit derivatives sensitive correlation two underlying reference obligations generally less price transparency • currency prices currency derivatives based exchange rates leading industrialized nations including longer tenors generally transparent primary difference price transparency developed emerging market currency derivatives emerging markets tend observable contracts shorter tenors • commodity derivatives include transactions referenced energy eg oil natural gas metals eg precious base soft commodities eg agricultural price transparency varies based underlying commodity delivery location tenor product quality eg diesel fuel compared unleaded gasoline general price transparency commodity derivatives greater contracts shorter tenors contracts closely aligned major andor benchmark commodity indices • equity price transparency equity derivatives varies market underlier options indices common stock corporates included major equity indices exhibit price transparency equity derivatives generally observable market prices except contracts long tenors reference prices differ significantly current market prices complex equity derivatives sensitive correlation two individual stocks generally less price transparency liquidity essential observability product types transaction volumes decline previously transparent prices inputs may become unobservable conversely even highly structured products may times trading volumes large enough provide observability prices inputs goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements level 1 level 1 derivatives include shortterm contracts future delivery securities underlying security level 1 instrument exchangetraded derivatives actively traded valued quoted market price level 2 level 2 derivatives include otc derivatives significant valuation inputs corroborated market evidence exchangetraded derivatives actively traded andor valued using models calibrate marketclearing levels otc derivatives selection particular model value derivative depends contractual terms specific risks inherent instrument well availability pricing information market derivatives trade liquid markets model selection involve significant management judgment outputs models calibrated marketclearing levels valuation models require variety inputs contractual terms market prices yield curves discount rates including derived interest rates collateral received posted specified credit support agreements collateralized derivatives credit curves measures volatility prepayment rates loss severity rates correlations inputs significant inputs valuations level 2 derivatives verified market transactions broker dealer quotations alternative pricing sources reasonable levels price transparency consideration given nature quotations eg indicative firm relationship recent market activity prices provided alternative pricing sources level 3 level 3 derivatives valued using models utilize observable level 1 andor level 2 inputs well unobservable level 3 inputs significant unobservable inputs used value firm’s level 3 derivatives described • level 3 interest rate currency derivatives significant unobservable inputs include correlations certain currencies interest rates eg correlation euro inflation euro interest rates specific interest rate currency volatilities • level 3 credit derivatives significant unobservable inputs include illiquid credit spreads upfront credit points unique specific reference obligations reference entities recovery rates • level 3 commodity derivatives significant unobservable inputs include volatilities options strike prices differ significantly current market prices spreads certain products product quality physical location commodity aligned benchmark indices • level 3 equity derivatives significant unobservable inputs generally include equity volatility inputs options longdated andor strike prices differ significantly current market prices addition valuation certain structured trades requires use level 3 correlation inputs correlation price performance two individual stocks correlation price performance basket stocks another asset class commodities subsequent initial valuation level 3 derivative firm updates level 1 level 2 inputs reflect observable market changes resulting gains losses classified level 3 level 3 inputs changed corroborated evidence similar market transactions thirdparty pricing services andor broker dealer quotations empirical market data circumstances firm cannot verify model value reference market transactions possible different valuation model could produce materially different estimate fair value see note 7 information significant unobservable inputs used valuation level 3 derivatives valuation adjustments valuation adjustments integral determining fair value derivative portfolios used adjust midmarket valuations produced derivative pricing models exit price valuation adjustments incorporate bidoffer spreads cost liquidity credit valuation adjustments funding valuation adjustments account credit funding risk inherent uncollateralized portion derivative portfolios firm also makes funding valuation adjustments collateralized derivatives terms agreement permit firm deliver repledge collateral received marketbased inputs generally used calibrating valuation adjustments marketclearing levels addition derivatives include significant unobservable inputs firm makes model exit price adjustments account valuation uncertainty present transaction goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements valuation techniques significant inputs financial instruments fair value addition trading cash instruments derivatives certain investments loans firm accounts certain financial assets liabilities fair value fair value option instruments include repurchase agreements substantially resale agreements securities borrowed loaned fixed income currency commodities ficc financing certain customer receivables including certain margin loans certain time deposits including structured certificates deposit hybrid financial instruments substantially secured financings including transfers assets accounted financings certain unsecured short longterm borrowings substantially hybrid financial instruments liabilities instruments generally valued based discounted cash flow techniques incorporate inputs reasonable levels price transparency generally classified level 2 inputs observable valuation adjustments may made liquidity counterparty firm’s credit quality significant inputs used value firm’s financial instruments described resale repurchase agreements securities borrowed loaned significant inputs valuation resale repurchase agreements securities borrowed loaned funding spreads amount timing expected future cash flows interest rates customer receivables significant inputs valuation receivables interest rates amount timing expected future cash flows funding spreads deposits significant inputs valuation time deposits interest rates amount timing future cash flows inputs used value embedded derivative component hybrid financial instruments consistent inputs used value firm’s derivative instruments described see note 7 information derivatives note 13 information deposits secured financings significant inputs valuation secured financings amount timing expected future cash flows interest rates funding spreads fair value collateral delivered firm determined using amount timing expected future cash flows market prices market yields recovery assumptions frequency additional collateral calls see note 11 information secured financings unsecured short longterm borrowings significant inputs valuation unsecured short longterm borrowings amount timing expected future cash flows interest rates credit spreads firm commodity prices prepaid commodity transactions inputs used value embedded derivative component hybrid financial instruments consistent inputs used value firm’s derivative instruments described see note 7 information derivatives note 14 information borrowings liabilities significant inputs valuation liabilities amount timing expected future cash flows equity volatility correlation inputs used value embedded derivative component hybrid financial instruments consistent inputs used value firm’s derivative instruments described see note 7 information derivatives financial assets liabilities fair value table presents financial assets liabilities accounted fair value table • counterparty netting among positions classified level included level • counterparty cash collateral netting represents impact derivatives netting across levels goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents summary level 3 financial assets level 3 financial assets december 2020 increased compared december 2019 primarily reflecting increase level 3 derivatives investments loans see notes 5 10 information level 3 financial assets including information unrealized gains losses related level 3 financial assets transfers level 3 note 5 trading assets liabilities trading assets liabilities include trading cash instruments derivatives held connection firm’s marketmaking risk management activities assets liabilities accounted fair value either fair value option accordance us gaap related fair value gains losses generally recognized consolidated statements earnings table presents summary trading assets liabilities see note 6 information trading cash instruments note 7 information derivatives gains losses market making table presents market making revenues major product type table • gainslosses include realized unrealized gains losses gainslosses exclude related interest income interest expense see note 23 information interest income interest expense • gains losses included market making primarily related firm’s trading assets liabilities including derivative nonderivative financial instruments • gainslosses representative manner firm manages business activities many firm’s marketmaking client facilitation strategies utilize financial instruments across various product types accordingly gains losses one product type frequently offset gains losses product types example firm’s longerterm derivatives across product types sensitive changes interest rates may economically hedged interest rate swaps similarly significant portion firm’s trading cash instruments derivatives across product types exposure foreign currencies may economically hedged foreign currency contracts goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 6 trading cash instruments trading cash instruments consists instruments held connection firm’s marketmaking risk management activities instruments accounted fair value related fair value gains losses recognized consolidated statements earnings fair value trading cash instruments level table presents trading cash instruments level within fair value hierarchy table • trading cash instrument assets shown positive amounts trading cash instrument liabilities shown negative amounts • corporate debt instruments includes corporate loans debt securities convertible debentures prepaid commodity transactions transfers assets accounted secured loans rather purchases • equity securities includes public equities exchangetraded funds • debt obligations includes assetbacked securities money market instruments see note 4 overview firm’s fair value measurement policies valuation techniques significant inputs used determine fair value trading cash instruments significant unobservable inputs table presents amount level 3 assets ranges weighted averages significant unobservable inputs used value level 3 trading cash instruments level 3 government agency obligations debt obligations equity securities material december 2020 december 2019 therefore included table goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table • ranges represent significant unobservable inputs used valuation type trading cash instrument • weighted averages calculated weighting input relative fair value trading cash instruments • ranges weighted averages inputs representative appropriate inputs use calculating fair value one trading cash instrument example highest recovery rate corporate debt instruments appropriate valuing specific corporate debt instrument may appropriate valuing corporate debt instrument accordingly ranges inputs represent uncertainty possible ranges fair value measurements level 3 trading cash instruments • increases yield duration cumulative loss rate used valuation level 3 trading cash instruments would resulted lower fair value measurement increases recovery rate would resulted higher fair value measurement december 2020 december 2019 due distinctive nature level 3 trading cash instrument interrelationship inputs necessarily uniform within product type • trading cash instruments valued using discounted cash flows level 3 rollforward table presents summary changes fair value level 3 trading cash instruments table • changes fair value presented trading cash instruments classified level 3 end period • net unrealized gainslosses relates trading cash instruments still held periodend • transfers levels fair value hierarchy reported beginning reporting period occur trading cash instrument transferred level 3 reporting period entire gain loss period classified level 3 • level 3 trading cash instrument assets increases shown positive amounts decreases shown negative amounts level 3 trading cash instrument liabilities increases shown negative amounts decreases shown positive amounts • level 3 trading cash instruments frequently economically hedged level 1 level 2 trading cash instruments andor level 1 level 2 level 3 derivatives accordingly gains losses classified level 3 partially offset gains losses attributable level 1 level 2 trading cash instruments andor level 1 level 2 level 3 derivatives result gains losses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents information product type assets included summary table includes us nonus government agency obligations debt obligations equity securities level 3 rollforward commentary year ended december 2020 net realized unrealized losses level 3 trading cash instrument assets 77 million reflecting 66 million net realized gains 143 million net unrealized losses 2020 included gainslosses 193 million reported market making 116 million reported interest income net unrealized losses level 3 trading cash instrument assets 2020 primarily reflected losses certain corporate debt instruments principally driven wider credit spreads transfers level 3 trading cash instrument assets 2020 primarily reflected transfers certain corporate debt instruments level 2 principally due reduced price transparency result lack market evidence including fewer market transactions instruments transfers level 3 trading cash instrument assets 2020 primarily reflected transfers certain corporate debt instruments loans securities backed residential real estate level 2 principally due increased price transparency result market evidence including market transactions instruments year ended december 2019 net realized unrealized gains level 3 trading cash instrument assets 54 million reflecting 89 million net realized gains 35 million net unrealized losses 2019 included gainslosses 56 million reported market making 110 million reported interest income drivers net unrealized losses level 3 trading cash instrument assets 2019 material transfers level 3 trading cash instrument assets 2019 primarily reflected transfers certain corporate debt instruments level 2 principally due reduced price transparency result lack market evidence including fewer market transactions instruments drivers transfers level 3 trading cash instrument assets 2019 material note 7 derivatives hedging activities derivative activities derivatives instruments derive value underlying asset prices indices reference rates inputs combination factors derivatives may traded exchange exchangetraded may privately negotiated contracts usually referred otc derivatives certain firm’s otc derivatives cleared settled central clearing counterparties otccleared others bilateral contracts two counterparties bilateral otc market making market maker firm enters derivative transactions provide liquidity clients facilitate transfer hedging risks role firm typically acts principal required commit capital provide execution maintains marketmaking positions response anticipation client demand goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements risk management firm also enters derivatives actively manage risk exposures arise marketmaking investing financing activities firm’s holdings exposures hedged many cases either portfolio riskspecific basis opposed instrumentbyinstrument basis offsetting impact economic hedging reflected business segment related revenues addition firm may enter derivatives designated hedges us gaap derivatives used manage interest rate exposure certain fixedrate unsecured borrowings deposits well manage foreign exchange risk certain availableforsale securities net investment certain nonus operations firm enters various types derivatives including • futures forwards contracts commit counterparties purchase sell financial instruments commodities currencies future • swaps contracts require counterparties exchange cash flows currency interest payment streams amounts exchanged based specific terms contract reference specified rates financial instruments commodities currencies indices • options contracts option purchaser right obligation purchase sell option writer financial instruments commodities currencies within defined time period specified price derivatives reported netbycounterparty basis ie net payable receivable derivative assets liabilities given counterparty legal right setoff exists enforceable netting agreement counterparty netting derivatives accounted fair value net cash collateral received posted enforceable credit support agreements cash collateral netting derivative assets included trading assets derivative liabilities included trading liabilities realized unrealized gains losses derivatives designated hedges included market making derivatives included global markets segment principal transactions derivatives included remaining business segments consolidated statements earnings years ended december 2020 december 2019 substantially firm’s derivatives included global markets segment tables present gross fair value notional amounts derivative contracts major product type amounts counterparty cash collateral netting consolidated balance sheets well cash securities collateral posted received enforceable credit support agreements meet criteria netting us gaap goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements tables • gross fair values exclude effects counterparty netting collateral therefore representative firm’s exposure • firm received posted collateral credit support agreements yet determined agreements enforceable related collateral netted • notional amounts represent sum gross long short derivative contracts provide indication volume firm’s derivative activity represent anticipated losses • total gross fair value derivatives included derivative assets 2060 billion december 2020 915 billion december 2019 derivative liabilities 2298 billion december 2020 1488 billion december 2019 subject enforceable netting agreement subject netting agreement firm yet determined enforceable • first quarter 2020 consistent rules clearing organization firm elected consider transactions clearing organization settled day impact change would reduction gross credit derivative assets 397 billion liabilities 415 billion december 2019 corresponding decrease counterparty cash collateral netting impact consolidated balance sheets fair value derivatives level table presents derivatives gross basis level product type well impact netting goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table • gross fair values exclude effects counterparty netting collateral netting therefore representative firm’s exposure • counterparty netting reflected level extent receivable payable balances netted within level included counterparty netting levels counterparty netting across levels netting included crosslevel counterparty netting • derivative assets shown positive amounts derivative liabilities shown negative amounts see note 4 overview firm’s fair value measurement policies valuation techniques significant inputs used determine fair value derivatives significant unobservable inputs table presents amount level 3 derivative assets liabilities ranges averages medians significant unobservable inputs used value level 3 derivatives table • derivative assets shown positive amounts derivative liabilities shown negative amounts • ranges represent significant unobservable inputs used valuation type derivative • averages represent arithmetic average inputs weighted relative fair value notional respective financial instruments average greater median indicates majority inputs average example difference average median credit spreads indicates majority inputs fall lower end range • ranges averages medians inputs representative appropriate inputs use calculating fair value one derivative example highest correlation interest rate derivatives appropriate valuing specific interest rate derivative may appropriate valuing interest rate derivative accordingly ranges inputs represent uncertainty possible ranges fair value measurements level 3 derivatives • interest rates currencies equities derivatives valued using option pricing models credit derivatives valued using option pricing correlation discounted cash flow models commodities derivatives valued using option pricing discounted cash flow models • fair value one instrument may determined using multiple valuation techniques example option pricing models discounted cash flows models typically used together determine fair value therefore level 3 balance encompasses techniques • correlation within currencies equities includes crossproduct type correlation • volatility significant valuation level 3 currency derivatives december 2019 • natural gas spread represents spread per million british thermal units natural gas • oil spread represents spread per barrel oil refined products range significant unobservable inputs following provides information ranges significant unobservable inputs used value firm’s level 3 derivative instruments • correlation ranges correlation cover variety underliers within one product type eg equity index equity single stock names across product types eg correlation interest rate currency well across regions generally crossproduct type correlation inputs used value complex instruments lower correlation inputs assets within derivative product type • volatility ranges volatility cover numerous underliers across variety markets maturities strike prices example volatility equity indices generally lower volatility single stocks goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements • credit spreads upfront credit points recovery rates ranges credit spreads upfront credit points recovery rates cover variety underliers index single names regions sectors maturities credit qualities highyield investmentgrade broad range population gives rise width ranges significant unobservable inputs • commodity prices spreads ranges commodity prices spreads cover variability products maturities delivery locations sensitivity fair value measurement changes significant unobservable inputs following description directional sensitivity firm’s level 3 fair value measurements changes significant unobservable inputs isolation periodend • correlation general contracts holder benefits convergence underlying asset index prices eg interest rates credit spreads foreign exchange rates inflation rates equity prices increase correlation results higher fair value measurement • volatility general purchased options increase volatility results higher fair value measurement • credit spreads upfront credit points recovery rates general fair value purchased credit protection increases credit spreads upfront credit points increase recovery rates decrease credit spreads upfront credit points recovery rates strongly related distinctive risk factors underlying reference obligations include reference entityspecific factors leverage volatility industry marketbased risk factors borrowing costs liquidity underlying reference obligation macroeconomic conditions • commodity prices spreads general contracts holder receiving commodity increase spread price difference benchmark index due differences quality delivery location price results higher fair value measurement due distinctive nature firm’s level 3 derivatives interrelationship inputs necessarily uniform within product type level 3 rollforward table presents summary changes fair value level 3 derivatives table • changes fair value presented derivative assets liabilities classified level 3 end period • net unrealized gainslosses relates instruments still held periodend • transfers levels fair value hierarchy reported beginning reporting period occur derivative transferred level 3 reporting period entire gain loss period classified level 3 • positive amounts transfers level 3 negative amounts transfers level 3 represent net transfers derivative assets negative amounts transfers level 3 positive amounts transfers level 3 represent net transfers derivative liabilities • derivative level 1 andor level 2 inputs classified level 3 entirety least one significant level 3 input • one significant level 3 input entire gain loss adjusting observable inputs ie level 1 level 2 inputs classified level 3 • gains losses classified level 3 resulting changes level 1 level 2 inputs frequently offset gains losses attributable level 1 level 2 derivatives andor level 1 level 2 level 3 trading cash instruments result gainslosses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents information product type derivatives included summary table level 3 rollforward commentary year ended december 2020 net realized unrealized gains level 3 derivatives 838 million reflecting 226 million net realized gains 612 million net unrealized gains 2020 included gains 900 million reported market making losses 62 million reported principal transactions net unrealized gains level 3 derivatives 2020 primarily attributable gains certain equity derivatives primarily reflecting impact increase equity prices gains certain interest rate derivatives primarily reflecting impact decrease interest rates changes foreign exchange rates gains certain commodity derivatives primarily reflecting impact changes commodity prices gains certain credit derivatives primarily reflecting impact decrease interest rates partially offset losses certain currency derivatives primarily reflecting impact changes foreign exchange rates decrease interest rates drivers transfers level 3 derivatives transfers level 3 derivatives 2020 material year ended december 2019 net realized unrealized losses level 3 derivatives 336 million reflecting 118 million net realized gains 454 million net unrealized losses 2019 included losses 305 million reported market making 31 million reported principal transactions net unrealized losses level 3 derivatives 2019 primarily attributable losses certain equity derivatives primarily reflecting impact increase equity prices losses certain currency derivatives primarily reflecting impact decrease interest rates changes foreign exchange rates partially offset gains certain credit derivatives primarily reflecting impact decrease interest rates gains certain commodity derivatives primarily reflecting impact changes commodity prices gains certain interest rate derivatives primarily reflecting impact decrease interest rates drivers transfers level 3 derivatives 2019 material transfers level 3 derivatives 2019 primarily reflected transfers certain equity derivative assets level 2 principally due certain unobservable inputs longer significant valuation derivatives goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements otc derivatives table presents otc derivative assets liabilities tenor major product type table • tenor based remaining contractual maturity • counterparty netting within product type tenor category included within product type tenor category • counterparty netting across product types within tenor category included counterparty netting tenors counterparty netting across tenor categories netting included crosstenor counterparty netting credit derivatives firm enters broad array credit derivatives facilitate client transactions manage credit risk associated marketmaking investing financing activities credit derivatives actively managed based firm’s net risk position credit derivatives generally individually negotiated contracts various settlement payment conventions credit events include failure pay bankruptcy acceleration indebtedness restructuring repudiation dissolution reference entity firm enters following types credit derivatives • credit default swaps singlename credit default swaps protect buyer loss principal one bonds loans mortgages reference obligations event issuer reference obligations suffers credit event buyer protection pays initial periodic premium seller receives protection period contract credit event defined contract seller protection makes payments buyer credit event occurs seller protection required make payment buyer calculated according terms contract • credit options credit option writer assumes obligation purchase sell reference obligation specified price credit spread option purchaser buys right assume obligation sell reference obligation purchase option writer payments credit options depend either particular credit spread price reference obligation goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements • credit indices baskets tranches credit derivatives may reference basket singlename credit default swaps broadbased index credit event occurs one underlying reference obligations protection seller pays protection buyer payment typically prorata portion transaction’s total notional amount based underlying defaulted reference obligation certain transactions credit risk basket index separated various portions tranches different levels subordination junior tranches cover initial defaults losses exceed notional amount junior tranches excess loss covered next senior tranche • total return swaps total return swap transfers risks relating economic performance reference obligation protection buyer protection seller typically protection buyer receives floating rate interest protection reduction fair value reference obligation protection seller receives cash flows associated reference obligation plus increase fair value reference obligation firm economically hedges exposure written credit derivatives primarily entering offsetting purchased credit derivatives identical underliers substantially firm’s purchased credit derivative transactions financial institutions subject stringent collateral thresholds addition upon occurrence specified trigger event firm may take possession reference obligations underlying particular written credit derivative consequently may upon liquidation reference obligations recover amounts underlying reference obligations event default december 2020 written credit derivatives total gross notional amount 51585 billion purchased credit derivatives total gross notional amount 55818 billion total net notional purchased protection 4233 billion december 2019 written credit derivatives total gross notional amount 52257 billion purchased credit derivatives total gross notional amount 58176 billion total net notional purchased protection 5919 billion firm’s written purchased credit derivatives primarily consist credit default swaps table presents information credit derivatives table • fair values exclude effects netting receivable balances payable balances enforceable netting agreements netting cash received posted enforceable credit support agreements therefore representative firm’s credit exposure • tenor based remaining contractual maturity • credit spread underlier together tenor contract indicators paymentperformance risk firm less likely pay otherwise required perform credit spread tenor lower • offsetting purchased credit derivatives represent notional amount purchased credit derivatives economically hedge written credit derivatives identical underliers • purchased credit derivatives represent notional amount purchased credit derivatives included offsetting goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements impact credit funding spreads derivatives firm realizes gains losses derivative contracts gains losses include credit valuation adjustments cva relating uncollateralized derivative assets liabilities represents gains losses including hedges attributable impact changes credit exposure counterparty credit spreads liability funding spreads includes firm’s credit probability default assumed recovery gains losses also include funding valuation adjustments fva relating uncollateralized derivative assets represents gains losses including hedges attributable impact changes expected funding exposures funding spreads table presents information cva fva bifurcated embedded derivatives table presents fair value notional amount derivatives bifurcated related borrowings table derivatives bifurcated related borrowings recorded fair value primarily consist interest rate equity commodity products derivatives included unsecured short longterm borrowings well secured financings related borrowings derivatives creditrelated contingent features certain firm’s derivatives transacted bilateral agreements counterparties may require firm post collateral terminate transactions based changes firm’s credit ratings firm assesses impact bilateral agreements determining collateral termination payments would occur assuming downgrade rating agencies downgrade one rating agency depending agency’s relative ratings firm time downgrade may impact comparable impact downgrade rating agencies table presents information net derivative liabilities bilateral agreements excluding collateral posted fair value collateral posted additional collateral termination payments could called counterparties event one twonotch downgrade firm’s credit ratings hedge accounting firm applies hedge accounting certain interest rate swaps used manage interest rate exposure certain fixedrate unsecured long shortterm borrowings certain fixedrate certificates deposit ii foreign exchange forward contracts used manage foreign exchange risk certain availableforsale securities iii certain foreign currency forward contracts foreign currencydenominated debt used manage foreign currency exposures firm’s net investment certain nonus operations qualify hedge accounting hedging instrument must highly effective reducing risk exposure hedged additionally firm must formally document hedging relationship inception assess hedging relationship least quarterly basis ensure hedging instrument continues highly effective life hedging relationship fair value hedges firm designates certain interest rate swaps fair value hedges certain fixedrate unsecured long shortterm debt fixedrate certificates deposit interest rate swaps hedge changes fair value attributable designated benchmark interest rate eg london interbank offered rate libor secured overnight financing rate overnight index swap rate effectively converting substantial portion fixedrate obligations floatingrate obligations firm applies statistical method utilizes regression analysis assessing effectiveness hedging relationships achieving offsetting changes fair values hedging instrument risk hedged ie interest rate risk interest rate swap considered highly effective offsetting changes fair value attributable changes hedged risk regression analysis results coefficient determination 80 greater slope 80 125 goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements qualifying fair value hedges gains losses derivatives included interest expense change fair value hedged item attributable risk hedged reported adjustment carrying value hedging adjustment also included interest expense derivative longer designated hedge remaining difference carrying value par value hedged item amortized interest expense remaining life hedged item using effective interest method see note 23 information interest income interest expense table presents gainslosses interest rate derivatives accounted hedges related hedged borrowings deposits total interest expense table presents carrying value deposits unsecured borrowings designated hedging relationship related cumulative hedging adjustment increasedecrease current prior hedging relationships included carrying values table cumulative hedging adjustment included 634 billion december 2020 348 billion december 2019 hedging adjustments prior hedging relationships dedesignated substantially related unsecured longterm borrowings addition cumulative hedging adjustments items longer designated hedging relationship 489 million december 2020 425 million december 2019 substantially related unsecured longterm borrowings 2020 firm designated certain foreign exchange forward contracts fair value hedges foreign exchange risk certain availableforsale securities included investments carrying value securities 209 billion december 2020 effectiveness hedges assessed based changes spot rates losses hedges relating spot forward points 112 million gains related availableforsale securities 110 million included market making 2020 net investment hedges firm seeks reduce impact fluctuations foreign exchange rates net investments certain nonus operations use foreign currency forward contracts foreign currencydenominated debt foreign currency forward contracts designated hedges effectiveness hedge assessed based overall changes fair value forward contracts ie based changes forward rates foreign currencydenominated debt designated hedge effectiveness hedge assessed based changes spot rates qualifying net investment hedges gains losses hedging instruments included currency translation table presents gainslosses net investment hedging gains losses individual net investments nonus operations reclassified earnings accumulated comprehensive incomeloss net investments sold substantially liquidated gross net gains losses hedges related net investments nonus operations reclassified earnings accumulated comprehensive income 2020 61 million reflecting gain 214 million related hedges loss 153 million related net investments nonus operations gross net gains losses reclassified earnings accumulated comprehensive income material 2019 2018 firm designated 497 billion december 2020 305 billion december 2019 foreign currencydenominated debt included unsecured long shortterm borrowings hedges net investments nonus subsidiaries goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 8 investments includes debt instruments equity securities accounted fair value generally held firm connection longterm investing activities addition investments includes debt securities classified availableforsale heldtomaturity generally held connection firm’s assetliability management activities investments also consists equity securities accounted equity method table presents information investments equity securities debt instruments fair value equity securities debt instruments fair value accounted fair value either fair value option accordance us gaap related fair value gains losses recognized earnings equity securities fair value equity securities fair value consists firm’s public private equityrelated investments corporate real estate entities table presents information equity securities fair value table • equity securities fair value included investments accounted fair value fair value option firm would otherwise apply equity method accounting 714 billion december 2020 823 billion december 2019 gains recognized result changes fair value equity securities fair value option elected 573 million 2020 129 billion 2019 gains included principal transactions consolidated statements earnings • equity securities fair value included 235 billion december 2020 322 billion december 2019 investments funds measured nav debt instruments fair value debt instruments fair value primarily includes mezzanine senior distressed debt table presents information debt instruments fair value table • money market instruments includes time deposits investments money market funds commercial paper certificates deposit • included 131 billion december 2020 983 million december 2019 investments credit funds measured nav goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements investments funds net asset value per share equity securities debt instruments fair value include investments funds measured nav investment fund firm uses nav measure fair value fund investments fund investment readily determinable fair value ii nav investment fund calculated manner consistent measurement principles investment company accounting including measurement investments fair value substantially firm’s investments funds nav consist investments firmsponsored private equity credit real estate hedge funds firm coinvests thirdparty investors private equity funds primarily invest broad range industries worldwide including leveraged buyouts recapitalizations growth investments distressed investments credit funds generally invest loans fixed income instruments focused providing private highyield capital leveraged management buyout transactions recapitalizations financings refinancings acquisitions restructurings private equity firms private family companies corporate issuers real estate funds invest globally primarily real estate companies loan portfolios debt recapitalizations property private equity credit real estate funds closedend funds firm’s investments generally eligible redemption distributions received funds underlying assets liquidated distributed timing uncertain firm also invests hedge funds primarily multidisciplinary hedge funds employ fundamental bottomup investment approach across various asset classes strategies firm’s investments hedge funds primarily include interests underlying assets illiquid nature proceeds redemptions received underlying assets liquidated distributed timing uncertain private equity hedge real estate funds described primarily “covered funds” defined volcker rule us doddfrank wall street reform consumer protection act doddfrank act board governors federal reserve system frb extended conformance period july 2022 firm’s investments relationships certain legacy “illiquid funds” defined volcker rule place prior december 2013 extension applicable substantially firm’s remaining investments relationships covered funds substantially credit funds described covered funds table presents fair value investments funds nav related unfunded commitments availableforsale securities availableforsale securities accounted fair value related unrealized fair value gains losses included accumulated comprehensive incomeloss unless designated fair value hedging relationship see note 7 information availableforsale securities designated hedging relationship table presents information availableforsale securities tenor table • availableforsale securities classified level 1 fair value hierarchy december 2020 december 2019 • firm sold availableforsale securities 449 billion realized gains 319 million 2020 958 billion realized gains 181 million 2019 gains included consolidated statements earnings goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements • gross unrealized gains included accumulated comprehensive incomeloss 631 million december 2020 137 million december 2019 gross unrealized losses included accumulated comprehensive incomeloss material december 2020 december 2019 • beginning january 2020 availableforsale securities reviewed determine allowance credit losses recorded consolidated statements earnings firm considers various factors determination including market conditions changes issuer credit ratings severity unrealized losses intent ability hold security recovery see note 3 information adoption cecl prior january 2020 securities reviewed otherthantemporary impairment firm record provision credit losses securities 2020 otherthantemporary impairment 2019 fair value investments level table presents investments accounted fair value level within fair value hierarchy see note 4 overview firm’s fair value measurement policies valuation techniques significant inputs used determine fair value investments significant unobservable inputs table presents amount level 3 investments ranges weighted averages significant unobservable inputs used value investments table • ranges represent significant unobservable inputs used valuation type investment • weighted averages calculated weighting input relative fair value investment • ranges weighted averages inputs representative appropriate inputs use calculating fair value one investment example highest multiple private equity securities appropriate valuing specific private equity security may appropriate valuing private equity security accordingly ranges inputs represent uncertainty possible ranges fair value measurements level 3 investments • increases yield discount rate capitalization rate duration used valuation level 3 investments would resulted lower fair value measurement increases recovery rate multiples would resulted higher fair value measurement december 2020 december 2019 due distinctive nature level 3 investment interrelationship inputs necessarily uniform within product type goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements • corporate debt securities backed real estate debt obligations valued using discounted cash flows equity securities valued using market comparables discounted cash flows • fair value one instrument may determined using multiple valuation techniques example market comparables discounted cash flows may used together determine fair value therefore level 3 balance encompasses techniques level 3 rollforward table presents summary changes fair value level 3 investments table • changes fair value presented investments classified level 3 end period • net unrealized gainslosses relates investments still held periodend • transfers levels fair value hierarchy reported beginning reporting period occur investment transferred level 3 reporting period entire gain loss period classified level 3 • level 3 investments increases shown positive amounts decreases shown negative amounts table presents information product type investments included summary table level 3 rollforward commentary year ended december 2020 net realized unrealized losses level 3 investments 228 million reflecting 215 million net realized gains 443 million net unrealized losses 2020 included losses 428 million reported principal transactions 200 million reported interest income net unrealized losses level 3 investments 2020 reflected losses certain private equity corporate debt securities backed real estate principally driven corporate performance goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements transfers level 3 investments 2020 primarily reflected transfers certain corporate debt securities level 2 principally due reduced price transparency result lack market evidence including fewer transactions instruments certain unobservable yield duration inputs becoming significant valuation instruments transfers certain private equity securities level 2 principally due reduced price transparency result lack market evidence including fewer transactions instruments transfers level 3 investments 2020 primarily reflected transfers certain private equity securities corporate debt securities level 2 principally due increased price transparency result market evidence including market transactions instruments year ended december 2019 net realized unrealized gains level 3 investments 155 billion reflecting 252 million net realized gains 130 billion net unrealized gains 2019 included gains 144 billion reported principal transactions 108 million reported interest income net unrealized gains level 3 investments 2019 primarily reflected gains private equity securities principally driven corporate performance companyspecific events transfers level 3 investments 2019 primarily reflected transfers certain private equity securities corporate debt securities level 2 principally due reduced price transparency result lack market evidence including fewer transactions instruments transfers level 3 investments 2019 primarily reflected transfers certain private equity securities corporate debt securities level 2 principally due increased price transparency result market evidence including market transactions instruments heldtomaturity securities heldtomaturity securities accounted amortized cost table presents information heldtomaturity securities type tenor table • substantially securities backed real estate consist securities backed residential real estate • securities accounted fair value included firm’s fair value hierarchy notes 4 10 securities included firm’s fair value hierarchy us government obligations would classified level 1 securities backed real estate would primarily classified level 2 fair value hierarchy december 2020 december 2019 • gross unrealized gains 340 million december 2020 141 million december 2019 gross unrealized losses material december 2020 december 2019 • beginning january 2020 heldtomaturity securities reviewed determine allowance credit losses recorded consolidated statements earnings firm considers various factors determination including market conditions changes issuer credit ratings historical credit losses sovereign guarantees see note 3 information adoption cecl prior january 2020 securities reviewed otherthantemporary impairment provision credit losses securities material 2020 otherthantemporary impairment 2019 goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 9 loans include loans held investment accounted amortized cost net allowance loan losses fair value fair value option ii loans held sale accounted lower cost fair value interest loans recognized life loan recorded accrual basis table presents information loans following description loan types table • corporate loans includes term loans revolving lines credit letter credit facilities bridge loans principally used operating general corporate purposes connection acquisitions corporate loans may secured unsecured depending loan purpose risk profile borrower factors • wealth management wealth management loans includes loans extended private bank clients including wealth management clients loans used finance investments financial nonfinancial assets bridge cash flow timing gaps provide liquidity needs substantially loans secured securities residential real estate commercial real estate assets • commercial real estate commercial real estate loans include originated loans extended private bank clients directly indirectly secured hotels retail stores multifamily housing complexes commercial industrial properties commercial real estate loans also includes loans extended clients warehouse assets directly indirectly backed commercial real estate addition commercial real estate includes loans purchased firm • residential real estate residential real estate loans primarily includes loans extended firm clients extended private bank clients warehouse assets directly indirectly secured residential real estate loans purchased firm • installment loans unsecured originated firm • credit cards credit card loans made pursuant revolving lines credit issued consumers firm • loans primarily includes loans extended clients warehouse assets directly indirectly secured consumer loans including auto loans private student loans also includes unsecured consumer credit card loans purchased firm loans accounted amortized cost included pci loans carrying value 162 billion outstanding principal balance 323 billion accretable yield 220 million december 2019 secured commercial residential real estate january 2020 firm elected fair value option pci loans accordance asu 201613 loans primarily transferred trading assets see note 3 information adoption asu credit quality risk assessment firm’s risk assessment process includes evaluating credit quality loans corporate loans majority wealth management real estate loans firm performs credit reviews include initial ongoing analyses borrowers resulting internal credit rating credit review independent analysis capacity willingness borrower meet financial obligations performed annual basis frequently circumstances change indicate review may necessary determination internal credit ratings also incorporates assumptions respect nature outlook borrower’s industry economic environment goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents gross loans internally determined public rating agency equivalent credit metrics concentration secured unsecured loans table otherunrated loans include installment credit card loans 809 billion december 2020 661 billion december 2019 important creditquality indicator fair isaac corporation fico credit score measures borrower’s creditworthiness considering factors payment credit history fico credit scores periodically refreshed firm assess updated creditworthiness borrower see “vintage” information installment credit card loans fico credit scores vast majority remaining loans 973 billion december 2020 954 billion december 2019 included otherunrated category secured loans primarily consist wealth management loans backed residential real estate securities purchased real estatebacked loans firm’s risk assessment process loans includes reviewing certain key metrics loantovalue ratio delinquency status collateral values expected cash flows risk factors firm also assigns regulatory risk rating loans based definitions provided us federal bank regulatory agencies total loans included 85 loans december 2020 91 loans december 2019 rated passnoncriticized goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements vintage table presents gross loans accounted amortized cost excluding installment credit card loans internally determined public rating agency equivalent credit metrics origination year term loans table revolving loans converted term loans material december 2020 table presents gross installment loans refreshed fico credit scores origination year gross credit card loans refreshed fico credit scores table credit card loans consist revolving lines credit concentrations table presents concentration gross loans region table • emea represents europe middle east africa • top five industry concentrations corporate loans december 2020 17 diversified industrials 17 december 2019 17 technology media telecommunications 17 december 2019 13 funds 9 december 2019 12 natural resources utilities 12 december 2019 10 financial institutions 10 december 2019 goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements nonaccrual past due loans accounted amortized cost credit card loans placed nonaccrual status probable firm collect principal interest due contractual terms regardless delinquency status loan past due 90 days unless loan well collateralized process collection time accrued uncollected interest reversed interest income interest subsequently collected recognized cash basis extent loan balance deemed collectible otherwise cash received used reduce outstanding loan balance loan considered past due principal interest payment made according contractual terms credit card loans placed nonaccrual status accrue interest loan paid full chargedoff certain circumstances firm may modify original terms loan agreement granting concession borrower experiencing financial difficulty typically form modification loan covenants may also include forbearance interest principal payment extensions interest rate reductions modifications extent significant considered troubled debt restructurings tdrs loan modifications extend payment terms period less 90 days generally considered insignificant therefore reported tdrs response global outbreak coronavirus covid19 pandemic firm adopted relief issued coronavirus aid relief economic security cares act amended certain interpretive guidance issued us banking agencies provides certain modified loans would otherwise meet definition tdr classified december 2020 firm 184 million loans accounted amortized cost classified tdrs result relief interpretive guidance table presents information past due loans table presents information nonaccrual loans table • nonaccrual loans included 533 million december 2020 429 million december 2019 loans 30 days past due • loans 90 days past due still accruing material december 2020 december 2019 • nonaccrual loans included 315 million december 2020 251 million december 2019 corporate commercial real estate loans modified troubled debt restructuring firm’s lending commitments related loans material december 2020 december 2019 installment loans modified troubled debt restructuring material december 2020 december 2019 goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements allowance credit losses firm’s allowance credit losses consists allowance losses loans lending commitments accounted amortized cost loans lending commitments accounted fair value accounted lower cost fair value subject allowance credit losses firm adopted asu 201613 january 2020 replaced incurred credit loss model recognizing credit losses cecl model result firm’s allowance credit losses effective january 2020 reflects management’s estimate credit losses remaining expected life loans also considers forecasts future economic conditions prior january 2020 allowance credit losses reflected probable incurred credit losses see note 3 information adoption cecl determine allowance credit losses firm classifies loans lending commitments accounted amortized cost wholesale consumer portfolios prior january 2020 firm also pci loans classified separate portfolio portfolios represent level firm developed documented methodology determine allowance credit losses allowance credit losses measured collective basis loans exhibit similar risk characteristics using modeled approach assetspecific basis loans share similar risk characteristics cecl allowance credit losses takes account weighted average range forecasts future economic conditions expected life loan lending commitments expected life loan lending commitment determined based contractual term adjusted extension options demand features forecasts include baseline favorable adverse economic scenarios threeyear period loans expected lives beyond three years model reverts historical loss information based nonlinear modeled approach forecasted economic scenarios consider number risk factors relevant wholesale consumer portfolios described firm applies judgment weighing individual scenarios quarter based variety factors including firm’s internally derived economic outlook market consensus recent macroeconomic conditions industry trends allowance credit losses also includes qualitative components allow management reflect uncertain nature economic forecasting capture uncertainty regarding model inputs account model imprecision concentration risk management’s estimate credit losses entails judgment loan collectability reporting dates uncertainties inherent judgments allowance credit losses subject governance process involves review approval senior management within firm’s independent risk oversight control functions personnel within firm’s independent risk oversight control functions responsible forecasting economic variables underlie economic scenarios used modeling expected credit losses management uses best information available determine estimate future adjustments allowance may necessary based among things changes economic environment variances actual results original assumptions used table presents gross loans lending commitments accounted amortized cost portfolio goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table wholesale loans included 351 billion december 2020 149 billion december 2019 nonaccrual loans allowance credit losses measured assetspecific basis allowance credit losses loans 649 million december 2020 207 million december 2019 loans included 584 million december 2020 754 million december 2019 loans require reserve loan deemed recoverable see note 18 information lending commitments following description methodology used calculate allowance credit losses wholesale allowance credit losses wholesale loans lending commitments exhibit similar risk characteristics measured using modeled approach models determine probability default loss given default based various risk factors including internal credit ratings industry default loss data expected life macroeconomic indicators borrower’s capacity meet financial obligations borrower’s country risk industry loan seniority collateral type lending commitments methodology also considers probability drawdowns funding addition loans backed real estate risk factors include loantovalue ratio debt service ratio home price index significant inputs forecast model wholesale loans lending commitments include unemployment rates gdp credit spreads commercial industrial delinquency rates short longterm interest rates oil prices allowance loan losses wholesale loans share similar risk characteristics nonaccrual loans troubled debt restructuring calculated using present value expected future cash flows discounted loan’s original effective rate observable market price loan fair value collateral wholesale loans chargedoff allowance loan losses deemed uncollectible consumer allowance credit losses consumer loans exhibit similar risk characteristics calculated using modeled approach classifies consumer loans pools based borrowerrelated exposurerelated characteristics differentiate pool’s risk characteristics pools factors considered determining pool generally consistent risk characteristics used internal credit risk measurement management include key metrics fico credit scores delinquency status loan vintage macroeconomic indicators significant inputs forecast model consumer loans include unemployment rates delinquency rates expected life revolving credit card loans determined modeling expected future draws timing amount repayments allocated funded balance firm recognize allowance credit losses credit card lending commitments cancellable firm allowance credit losses consumer loans share similar risk characteristics loans troubled debt restructuring calculated using present value expected future cash flows discounted loan’s original effective rate installment loans chargedoff 120 days past due credit card loans chargedoff 180 days past due goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements allowance credit losses rollforward table presents information allowance credit losses table • represents reduction allowance related loans lending commitments transferred held sale • allowance ratio calculated dividing allowance loan losses gross loans accounted amortized cost • net chargeoff ratio calculated dividing net chargeoffs average gross loans accounted amortized cost allowance credit losses rollforward commentary year ended december 2020 allowance credit losses increased 263 billion 2020 impact cecl adoption wholesale consumer loans driven fact allowance cecl covers expected credit losses full expected life loan portfolios also considers forecasts expected future economic conditions impact cecl adoption pci loans result firm electing apply fair value option loans provision credit losses wholesale consumer loans reflected continued impact covid19 pandemic economic conditions resulted higher modeled expected losses lower recoveries allowance loan losses ratio wholesale loans increased 27 december 2020 compared 11 december 2019 allowance loan losses ratio consumer loans increased 159 december 2020 compared 60 december 2019 increase allowance loan losses ratios reflected impact adopting cecl standard well higher provision credit losses modeling expected credit losses firm employs weighted multivariate forecast includes baseline adverse favorable economic scenarios december 2020 forecasted economic scenarios heavily weighted towards baseline adverse scenarios forecast model incorporated adjustments reflect impact covid19related economic support programs provided national governments goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents forecasted range across baseline adverse favorable scenarios us unemployment us gdp growth rates used forecast model december 2020 table • us unemployment rate represents rate forecasted respective quarterend • growthdecline us gdp represents change quarterly us gdp relative us gdp fourth quarter 2019 prepandemic levels • recovery quarterly us gdp prepandemic levels three scenarios ranges quarters ending september 2021 march 2023 • us unemployment us gdp growth rates significant inputs forecast model contemplates variety inputs across range scenarios provide forecast future economic conditions given complex nature forecasting process single economic variable viewed isolation independently inputs addition provision credit losses wholesale loans impacted assetspecific provisions ratings downgrades primarily related borrowers diversified industrials technology media communications natural resources industries besides weaker economic outlook related covid19 pandemic provision credit losses consumer loans 2020 also impacted growth credit card portfolio net chargeoffs 2020 wholesale loans substantially related corporate loans net chargeoffs consumer loans primarily related installment loans year ended december 2019 allowance credit losses increased 450 million year ended december 2019 provision credit losses wholesale loans substantially related corporate loans year ended december 2019 provision credit losses related consumer loans primarily related installment loans year ended december 2019 net chargeoffs wholesale loans primarily related corporate loans year ended december 2019 net chargeoffs consumer loans substantially related installment loans year ended december 2019 fair value loans level table presents loans held investment accounted fair value fair value option level within fair value hierarchy gains result changes fair value loans held investment fair value option elected 151 million 2020 355 million 2019 gains included principal transactions see note 4 overview firm’s fair value measurement policies valuation techniques significant inputs used determine fair value loans goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements significant unobservable inputs table presents amount level 3 loans ranges weighted averages significant unobservable inputs used value loans table • ranges represent significant unobservable inputs used valuation type loan • weighted averages calculated weighting input relative fair value loan • ranges weighted averages inputs representative appropriate inputs use calculating fair value one loan example highest yield residential real estate loans appropriate valuing specific residential real estate loan may appropriate valuing residential real estate loan accordingly ranges inputs represent uncertainty possible ranges fair value measurements level 3 loans • increases yield duration used valuation level 3 loans would resulted lower fair value measurement increases recovery rate would resulted higher fair value measurement december 2020 december 2019 due distinctive nature level 3 loan interrelationship inputs necessarily uniform within product type • loans valued using discounted cash flows level 3 rollforward table presents summary changes fair value level 3 loans table • changes fair value presented loans classified level 3 end period • net unrealized gainslosses relates loans still held periodend • purchases includes originations secondary purchases • transfers levels fair value hierarchy reported beginning reporting period occur loan transferred level 3 reporting period entire gain loss period classified level 3 goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents information loan type loans included summary table level 3 rollforward commentary year ended december 2020 net realized unrealized gains level 3 loans 159 million reflecting 72 million net realized gains 87 million net unrealized gains 2020 included gains 135 million reported principal transactions 24 million reported interest income drivers net unrealized gains level 3 loans 2020 material transfers level 3 loans 2020 reflected transfers certain loans backed commercial real estate corporate loans wealth management loans level 2 principally due reduced price transparency result lack market evidence including fewer market transactions instruments transfers level 3 loans 2020 reflected transfers certain corporate loans level 2 principally due duration yield inputs longer significant valuation loans increased price transparency result increased market evidence including market transactions instruments year ended december 2019 net realized unrealized gains level 3 loans 131 million reflecting 46 million net realized gains 85 million net unrealized gains 2019 included gains 98 million reported principal transactions 33 million reported interest income drivers net unrealized gains level 3 loans 2019 material transfers level 3 loans 2019 primarily reflected transfers certain corporate loans level 2 principally due reduced price transparency result lack market evidence drivers transfers level 3 loans 2019 material estimated fair value table presents estimated fair value loans accounted fair value level fair value hierarchy would classified included firm’s fair value hierarchy goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 10 fair value option financial assets liabilities fair value addition trading assets liabilities certain investments loans firm accounts certain financial assets liabilities fair value substantially fair value option primary reasons electing fair value option • reflect economic events earnings timely basis • mitigate volatility earnings using different measurement attributes eg transfers financial assets accounted financings recorded fair value whereas related secured financing would recorded accrual basis absent electing fair value option • address simplification costbenefit considerations eg accounting hybrid financial instruments fair value entirety versus bifurcation embedded derivatives hedge accounting debt hosts hybrid financial instruments contain bifurcatable embedded derivatives require settlement physical delivery nonfinancial assets eg physical commodities firm elects bifurcate embedded derivative associated debt derivative accounted fair value host contract accounted amortized cost adjusted effective portion fair value hedges firm elect bifurcate entire hybrid financial instrument accounted fair value fair value option financial assets liabilities accounted fair value fair value option include • repurchase agreements resale agreements • securities borrowed loaned ficc financing • substantially secured financings including transfers assets accounted financings • certain unsecured short longterm borrowings substantially hybrid financial instruments • certain customer receivables including certain margin loans • certain time deposits stated maturity eligible fair value option election including structured certificates deposit hybrid financial instruments fair value financial assets liabilities level table presents level within fair value hierarchy financial assets liabilities fair value substantially accounted fair value fair value option table financial assets shown positive amounts financial liabilities shown negative amounts see note 4 overview firm’s fair value measurement policies valuation techniques significant inputs used determine fair value financial assets liabilities significant unobservable inputs see information significant unobservable inputs used value level 3 financial assets liabilities fair value december 2020 december 2019 goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements secured financings ranges weighted averages significant unobservable inputs used value level 3 secured financings presented ranges weighted averages exclude unobservable inputs relevant single instrument therefore meaningful december 2020 • yield 14 71 weighted average 27 • duration 14 80 years weighted average 40 years december 2019 • yield 33 42 weighted average 35 • duration 06 21 years weighted average 10 year generally increases yield duration isolation would resulted lower fair value measurement periodend due distinctive nature level 3 secured financings interrelationship inputs necessarily uniform across financings see note 11 information secured financings deposits unsecured borrowings liabilities substantially firm’s deposits unsecured short longterm borrowings liabilities classified level 3 hybrid financial instruments significant unobservable inputs used value hybrid financial instruments primarily relate embedded derivative component deposits unsecured borrowings liabilities unobservable inputs incorporated firm’s derivative disclosures note 7 see note 13 information deposits note 14 information unsecured borrowings note 15 information liabilities repurchase agreements december 2020 december 2019 firm’s level 3 repurchase agreements material level 3 rollforward table presents summary changes fair value level 3 financial liabilities accounted fair value table • changes fair value presented financial liabilities classified level 3 end period • net unrealized gainslosses relates financial liabilities still held periodend • transfers levels fair value hierarchy reported beginning reporting period occur financial liability transferred level 3 reporting period entire gain loss period classified level 3 • level 3 financial liabilities increases shown negative amounts decreases shown positive amounts • level 3 financial liabilities frequently economically hedged trading assets liabilities accordingly gains losses classified level 3 partially offset gains losses attributable level 1 2 3 trading assets liabilities result gains losses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents information consolidated balance sheet line items liabilities included summary table level 3 rollforward commentary year ended december 2020 net realized unrealized losses level 3 financial liabilities 162 billion reflecting 317 million net realized losses 130 billion net unrealized losses 2020 included losses 144 billion reported market making 28 million reported principal transactions 15 million reported interest expense consolidated statements earnings 139 million reported debt valuation adjustment consolidated statements comprehensive income unrealized losses level 3 financial liabilities 2020 primarily reflected losses certain hybrid financial instruments included unsecured long shortterm borrowings principally due increase global equity prices losses certain hybrid financial instruments included deposits principally due increase market value underlying assets transfers level 3 financial liabilities 2020 primarily reflected transfers certain secured financings level 2 principally due reduced price transparency certain yield duration inputs used value instruments certain hybrid financial instruments included unsecured long shortterm borrowings level 2 principally due reduced price transparency certain volatility correlation inputs used value instruments transfers level 3 financial liabilities 2020 primarily reflected transfers certain hybrid financial instruments included unsecured shortterm borrowings level 2 principally due increased price transparency certain volatility correlation inputs used value instruments year ended december 2019 net realized unrealized losses level 3 financial liabilities 259 billion reflecting 337 million net realized losses 225 billion net unrealized losses 2019 included losses 198 billion reported market making 10 million reported principal transactions 9 million reported interest expense consolidated statements earnings 595 million reported debt valuation adjustment consolidated statements comprehensive income unrealized losses level 3 financial liabilities 2019 primarily reflected losses certain hybrid financial instruments included unsecured long shortterm borrowings principally due increase global equity prices losses certain hybrid financial instruments included deposits due impact increase market value underlying assets transfers level 3 financial liabilities 2019 primarily reflected transfers certain hybrid financial instruments included unsecured long shortterm borrowings secured financings level 2 principally due reduced price transparency certain volatility correlation inputs used value instruments transfers level 3 financial liabilities 2019 primarily reflected transfers certain hybrid financial instruments included unsecured long shortterm borrowings level 2 principally due increased price transparency certain volatility correlation inputs used value instruments goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements gains losses financial assets liabilities accounted fair value fair value option table presents gains losses recognized earnings result election apply fair value option certain financial assets liabilities table • gainslosses substantially included market making • gainslosses exclude contractual interest included interest income interest expense instruments hybrid financial instruments see note 23 information interest income interest expense • gainslosses included unsecured short longterm borrowings substantially related embedded derivative component hybrid financial instruments 2020 2019 2018 gains losses would recognized us gaap even firm elected account entire hybrid financial instrument fair value • primarily consists gainslosses customer receivables deposits secured financings liabilities • financial assets liabilities fair value frequently economically hedged trading assets liabilities accordingly gains losses financial assets liabilities partially offset gains losses trading assets liabilities result gains losses financial assets liabilities necessarily represent overall impact firm’s results operations liquidity capital resources see note 8 information gainslosses equity securities note 9 information gainslosses loans accounted fair value fair value option gainslosses trading assets liabilities accounted fair value fair value option included market making see note 5 information gainslosses market making longterm debt instruments difference aggregate contractual principal amount related fair value longterm secured financings fair value option elected material december 2020 december 2019 fair value unsecured longterm borrowings fair value option elected exceeded aggregate contractual principal amount 445 million december 2020 199 million december 2019 amounts include principalprotected nonprincipalprotected longterm borrowings debt valuation adjustment firm calculates fair value financial liabilities fair value option elected discounting future cash flows rate incorporates firm’s credit spreads table presents information net debt valuation adjustment dva gainslosses financial liabilities fair value option elected table • dva net tax included debt valuation adjustment consolidated statements comprehensive income • gainslosses reclassified earnings accumulated comprehensive incomeloss upon extinguishment financial liabilities material 2020 2019 2018 goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements loans lending commitments table presents difference aggregate fair value aggregate contractual principal amount loans included trading assets loans consolidated balance sheets fair value option elected table aggregate contractual principal amount loans nonaccrual status andor 90 days past due excludes loans carried zero fair value considered uncollectible exceeds related fair value primarily firm regularly purchases loans distressed loans values significantly contractual principal amounts fair value unfunded lending commitments fair value option elected liability 25 million december 2020 24 million december 2019 related total contractual amount lending commitments 164 billion december 2020 155 billion december 2019 see note 18 information lending commitments impact credit spreads loans lending commitments estimated net gainloss attributable changes instrumentspecific credit spreads loans lending commitments fair value option elected 106 million 2020 134 million 2019 211 million 2018 firm generally calculates fair value loans lending commitments fair value option elected discounting future cash flows rate incorporates instrumentspecific credit spreads floatingrate loans lending commitments substantially changes fair value attributable changes instrumentspecific credit spreads whereas fixedrate loans lending commitments changes fair value also attributable changes interest rates note 11 collateralized agreements financings collateralized agreements resale agreements securities borrowed collateralized financings repurchase agreements securities loaned secured financings firm enters transactions order among things facilitate client activities invest excess cash acquire securities cover short positions finance certain firm activities collateralized agreements financings presented netbycounterparty basis legal right setoff exists interest collateralized agreements included interest income collateralized financings included interest expense recognized life transaction see note 23 information interest income interest expense resale repurchase agreements resale agreement transaction firm purchases financial instruments seller typically exchange cash simultaneously enters agreement resell substantially financial instruments seller stated price plus accrued interest future date repurchase agreement transaction firm sells financial instruments buyer typically exchange cash simultaneously enters agreement repurchase substantially financial instruments buyer stated price plus accrued interest future date even though repurchase resale agreements including “repos reversestomaturity” involve legal transfer ownership financial instruments accounted financing arrangements require financial instruments repurchased resold maturity agreement financial instruments purchased sold resale repurchase agreements typically include us government agency investmentgrade sovereign obligations firm receives financial instruments purchased resale agreements makes delivery financial instruments sold repurchase agreements mitigate credit exposure firm monitors market value financial instruments daily basis delivers obtains additional collateral due changes market value financial instruments appropriate resale agreements firm typically requires collateral fair value approximately equal carrying value relevant assets consolidated balance sheets goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements securities borrowed loaned transactions securities borrowed transaction firm borrows securities counterparty exchange cash securities firm returns securities counterparty returns cash securities interest generally paid periodically life transaction securities loaned transaction firm lends securities counterparty exchange cash securities counterparty returns securities firm returns cash securities posted collateral interest generally paid periodically life transaction firm receives securities borrowed makes delivery securities loaned mitigate credit exposure firm monitors market value securities daily basis delivers obtains additional collateral due changes market value securities appropriate securities borrowed transactions firm typically requires collateral fair value approximately equal carrying value securities borrowed transaction securities borrowed loaned within ficc financing recorded fair value fair value option see note 10 information securities borrowed loaned accounted fair value securities borrowed loaned within equities financing recorded based amount cash collateral advanced received plus accrued interest firm also reviews securities borrowed determine allowance credit losses recorded taking consideration fair value collateral received agreements generally terminated demand exhibit little sensitivity changes interest rates therefore carrying value agreements approximates fair value agreements accounted fair value included firm’s fair value hierarchy notes 4 10 agreements included firm’s fair value hierarchy would classified level 2 december 2020 december 2019 offsetting arrangements table presents resale repurchase agreements securities borrowed loaned transactions included consolidated balance sheets well amounts offset consolidated balance sheets table • substantially gross carrying values arrangements subject enforceable netting agreements • firm received posted collateral credit support agreements yet determined agreements enforceable related collateral netted • amounts offset includes counterparty netting meet criteria netting us gaap fair value collateral received posted subject enforceable credit support agreements • resale agreements repurchase agreements carried fair value fair value option see note 4 information valuation techniques significant inputs used determine fair value • securities borrowed included consolidated balance sheets 2890 billion december 2020 2628 billion december 2019 securities loaned 105 billion december 2020 714 million december 2019 fair value fair value option see note 10 information securities borrowed securities loaned accounted fair value goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements gross carrying value repurchase agreements securities loaned table presents gross carrying value repurchase agreements securities loaned class collateral pledged table presents gross carrying value repurchase agreements securities loaned maturity table • repurchase agreements securities loaned repayable prior maturity option firm reflected contractual maturity dates • repurchase agreements securities loaned redeemable prior maturity option holder reflected earliest dates options become exercisable secured financings addition repurchase agreements securities loaned transactions firm funds certain assets use secured financings pledges financial instruments assets collateral transactions secured financings include • liabilities consolidated vies • transfers assets accounted financings rather sales eg pledged commodities bank loans mortgage whole loans • structured financing arrangements secured financings included nonrecourse arrangements nonrecourse secured financings 1231 billion december 2020 1091 billion december 2019 firm elected apply fair value option substantially secured financings use fair value eliminates noneconomic volatility earnings would arise using different measurement attributes see note 10 information secured financings accounted fair value secured financings recorded fair value recorded based amount cash received plus accrued interest generally approximates fair value financings accounted fair value included firm’s fair value hierarchy notes 4 10 financings included firm’s fair value hierarchy would primarily classified level 3 december 2020 primarily classified level 2 december 2019 goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents information secured financings table • shortterm secured financings includes financings maturing within one year financial statement date financings redeemable within one year financial statement date option holder • us dollardenominated shortterm secured financings amortized cost weighted average interest rate 432 december 2019 rates include effect hedging activities • us dollardenominated longterm secured financings amortized cost weighted average interest rate 127 december 2020 279 december 2019 rates include effect hedging activities • nonus dollardenominated longterm secured financings amortized cost weighted average interest rate 040 december 2020 039 december 2019 rates include effect hedging activities • total secured financings included 205 billion december 2020 216 billion december 2019 related transfers financial assets accounted financings rather sales financings collateralized financial assets primarily included trading assets 226 billion december 2020 221 billion december 2019 • secured financings collateralized financial instruments included 1128 billion december 2020 909 billion december 2019 secured financings collateralized trading assets investments loans included 563 billion december 2020 293 billion december 2019 secured financings collateralized financial instruments received collateral repledged table presents secured financings maturity table • longterm secured financings repayable prior maturity option firm reflected contractual maturity dates • longterm secured financings redeemable prior maturity option holder reflected earliest dates options become exercisable collateral received pledged firm receives cash securities eg us government agency obligations sovereign corporate obligations well equity securities collateral primarily connection resale agreements securities borrowed derivative transactions customer margin loans firm obtains cash securities collateral upfront contingent basis derivative instruments collateralized agreements reduce credit exposure individual counterparties many cases firm permitted deliver repledge financial instruments received collateral entering repurchase agreements securities loaned transactions primarily connection secured client financing activities firm also permitted deliver repledge financial instruments connection secured financings collateralized derivative transactions firm customer settlement requirements goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements firm also pledges certain trading assets connection repurchase agreements securities loaned transactions secured financings assets substantially real estate cash connection secured financings counterparties may right deliver repledge table presents financial instruments fair value received collateral available delivered repledged delivered repledged table presents information assets pledged firm also segregates securities regulatory purposes related client activity securities segregated trading assets investments well securities received collateral resale agreements securities borrowed transactions securities segregated firm 3297 billion december 2020 2676 billion december 2019 note 12 assets table presents assets type property leasehold improvements equipment property leasehold improvements equipment net accumulated depreciation amortization 1012 billion december 2020 995 billion december 2019 property leasehold improvements equipment included 654 billion december 2020 616 billion december 2019 firm uses connection operations 318 million december 2020 521 million december 2019 foreclosed real estate primarily related distressed loans purchased firm remainder held investment entities including vies consolidated firm substantially property equipment depreciated straightline basis useful life asset leasehold improvements amortized straightline basis shorter useful life improvement term lease capitalized costs software developed obtained internal use amortized straightline basis three years firm tests property leasehold improvements equipment impairment events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable extent carrying value asset group exceeds projected undiscounted cash flows expected result use eventual disposal asset group firm determines asset group impaired records impairment equal difference estimated fair value carrying value asset group addition firm recognize impairment prior sale asset group carrying value asset group exceeds estimated fair value 2020 171 million impairments primarily relating properties held firm’s investment entities material impairments 2019 2018 goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements goodwill cost acquired companies excess fair value net assets including identifiable intangible assets acquisition date table presents carrying value goodwill reporting unit table increase goodwill equities december 2019 december 2020 reflects acquisition folio financial inc 2020 goodwill assessed impairment annually fourth quarter frequently events occur circumstances change indicate impairment may exist assessing goodwill impairment first qualitative assessment made determine whether likely estimated fair value reporting unit less estimated carrying value results qualitative assessment conclusive quantitative goodwill test performed alternatively quantitative goodwill test performed without performing qualitative assessment quantitative goodwill test compares estimated fair value reporting unit estimated net book value including goodwill identifiable intangible assets reporting unit’s estimated fair value exceeds estimated net book value goodwill impaired impairment recognized estimated fair value reporting unit less estimated net book value estimate fair value reporting unit consumer banking relative value technique used firm believes market participants would use technique value reporting units relative value technique applies observable pricetoearnings multiples pricetobook multiples comparable competitors reporting units’ net earnings net book value estimate fair value consumer banking discounted cash flow valuation approach used firm believes market participants would use technique value reporting unit given early stage development estimated net carrying value reporting unit reflects allocation total shareholders’ equity represents estimated amount total shareholders’ equity required support activities reporting unit currently applicable regulatory capital requirements 2020 outbreak covid19 pandemic broadly impacted operating environment uncertainty covid19 pandemic continued impact persisted throughout year result firm performed qualitative assessment first second third quarters 2020 respect firm’s reporting units determine whether likely estimated fair value reporting units less estimated carrying value based qualitative assessments firm determined likely estimated fair value reporting units exceeded respective estimated carrying value impact covid19 pandemic quarter triggering event perform quantitative test fourth quarter 2020 firm performed annual assessment goodwill impairment reporting units performing qualitative assessment multiple factors assessed respect firm’s reporting units determine whether likely estimated fair value reporting units less estimated carrying value qualitative assessment also considered changes since quantitative test performed fourth quarter 2019 goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements firm considered following factors qualitative annual assessment evaluating whether likely estimated fair value reporting unit less estimated carrying value • performance indicators 2020 firm’s net revenues diluted earnings per common share eps return average common shareholders’ equity roe book value per common share increased compared 2019 firm’s operating expenses increased primarily reflecting significantly higher net provisions litigation regulatory proceedings higher compensation benefits expenses reflecting improved financial performance despite increase expenses efficiency ratio total operating expenses divided total net revenues improved compared 2019 pretax margin remained stable addition exception net provisions litigation regulatory proceedings significant changes firm’s overall cost structure since prior quantitative goodwill test performed • macroeconomic indicators impact covid19 pandemic caused sharp contraction economic activity early 2020 however intervention central banks governments undertook significant monetary fiscal policy actions allowed global economy make progress towards recovery second half 2020 global economy expected continue recover 2021 beyond although remains significant uncertainty related impact duration covid19 pandemic • firm industry events aside impact covid19 pandemic firm peers’ operating environment events entityspecific otherwise would significant negative impact valuation firm’s reporting units • fair value indicators since 2019 quantitative goodwill test fair value indicators market generally declined third quarter 2020 global equity prices lower credit spreads wider firm peers’ stock prices pricetobook multiples lower however fourth quarter 2020 improving global economic outlook investor sentiment positive developments covid19 vaccines resulted higher global equity prices tighter credit spreads compared levels end 2019 similarly firm’s stock price pricetobook multiple ended year higher compared end 2019 result qualitative assessment firm determined likely estimated fair value reporting units exceeded respective estimated carrying value therefore firm determined goodwill reporting unit impaired quantitative goodwill test required identifiable intangible assets table presents identifiable intangible assets reporting unit type firm acquired 155 million intangible assets 2020 primarily related acquired leases customer lists weighted average amortization period 10 years firm acquired 515 million intangible assets 2019 primarily related customer lists weighted average amortization period 10 years substantially firm’s identifiable intangible assets finite useful lives amortized estimated useful lives generally using straightline method tables present information amortization identifiable intangible assets goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements firm tests intangible assets impairment events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable extent carrying value asset group exceeds projected undiscounted cash flows expected result use eventual disposal asset group firm determines asset group impaired records impairment equal difference estimated fair value carrying value asset group addition firm recognize impairment prior sale asset group carrying value asset group exceeds estimated fair value material impairments 2020 2019 2018 operating lease rightofuse assets firm enters operating leases real estate office equipment assets substantially used connection operations leases longer one year firm recognizes rightofuse asset representing right use underlying asset lease term lease liability representing liability make payments lease term generally determined based contractual maturity lease leases firm option terminate extend lease assessment likelihood exercising option incorporated determination lease term assessment initially performed inception lease updated events occur impact original assessment operating lease rightofuse asset initially determined based operating lease liability adjusted initial direct costs lease incentives amounts paid prior lease commencement amount amortized lease term firm recognized 182 million 2020 963 million primarily related firm’s new european headquarters london 2019 rightofuse assets operating lease liabilities noncash transactions leases entered assumed see note 15 information operating lease liabilities leases firm derive economic benefit leased space vacated firm shortened term lease space longer needed firm record impairment accelerated amortization rightofuse assets material impairments accelerated amortizations 2020 2019 see note 3 information asu 201602 adopted january 2019 miscellaneous receivables miscellaneous receivables included • investments qualified affordable housing projects 678 million december 2020 606 million december 2019 • assets classified held sale 437 million december 2020 470 million december 2019 related firm’s consolidated investments within asset management segment substantially consisted property equipment note 13 deposits table presents types sources deposits table • substantially deposits interestbearing • savings demand accounts consist money market deposit accounts negotiable order withdrawal accounts demand deposit accounts stated maturity expiration date • time deposits included 1618 billion december 2020 1777 billion december 2019 deposits accounted fair value fair value option see note 10 information deposits accounted fair value • time deposits weighted average maturity approximately 13 years december 2020 17 years december 2019 • deposit sweep programs include longterm contractual agreements us brokerdealers sweep client cash fdicinsured deposits december 2020 firm 12 deposit sweep program agreements goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements • transaction banking deposits consists deposits firm raised cash management services business corporate institutional clients • deposits represent deposits institutional clients • deposits insured fdic 12303 billion december 2020 10398 billion december 2019 • deposits insured nonus insurance programs 2752 billion december 2020 1586 billion december 2019 table presents location deposits table us deposits held goldman sachs bank usa gs bank usa substantially nonus deposits held goldman sachs international bank gsib table presents maturities time deposits held us nonus offices december 2020 deposits us offices included 1171 billion deposits nonus offices included 1225 billion time deposits denominations met exceeded applicable insurance limits otherwise covered insurance firm’s savings demand deposits recorded based amount cash received plus accrued interest approximates fair value addition firm designates certain derivatives fair value hedges convert portion time deposits accounted fair value fixedrate obligations floatingrate obligations carrying value time deposits accounted fair value approximated fair value december 2020 december 2019 savings demand deposits time deposits accounted fair value included firm’s fair value hierarchy notes 4 10 deposits included firm’s fair value hierarchy would classified level 2 december 2020 december 2019 note 14 unsecured borrowings table presents information unsecured borrowings unsecured shortterm borrowings unsecured shortterm borrowings includes portion unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holder firm accounts certain hybrid financial instruments fair value fair value option see note 10 information unsecured shortterm borrowings accounted fair value addition firm designates certain derivatives fair value hedges convert portion unsecured shortterm borrowings accounted fair value fixedrate obligations floatingrate obligations carrying value unsecured shortterm borrowings recorded fair value generally approximates fair value due shortterm nature obligations unsecured shortterm borrowings accounted fair value included firm’s fair value hierarchy notes 4 10 borrowings included firm’s fair value hierarchy substantially would classified level 2 december 2020 december 2019 goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents information unsecured shortterm borrowings table • current portion unsecured longterm borrowings included 1706 billion december 2020 2127 billion december 2019 issued group inc • weighted average interest rates borrowings include effect hedging activities exclude unsecured shortterm borrowings accounted fair value fair value option see note 7 information hedging activities unsecured longterm borrowings table presents information unsecured longterm borrowings table • unsecured longterm borrowings consists principally senior borrowings maturities extending 2065 • floatingrate obligations includes equitylinked creditlinked indexed instruments floating interest rates generally based libor euro interbank offered rate • us dollardenominated debt interest rates ranging 063 930 weighted average rate 407 december 2020 200 1004 weighted average rate 382 december 2019 rates exclude unsecured longterm borrowings accounted fair value fair value option • nonus dollardenominated debt interest rates ranging 013 1300 weighted average rate 220 december 2020 013 1300 weighted average rate 233 december 2019 rates exclude unsecured longterm borrowings accounted fair value fair value option table presents unsecured longterm borrowings maturity table • unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holder excluded included unsecured shortterm borrowings • unsecured longterm borrowings repayable prior maturity option firm reflected contractual maturity dates • unsecured longterm borrowings redeemable prior maturity option holder reflected earliest dates options become exercisable • unsecured longterm borrowings included 1204 billion adjustments carrying value certain unsecured longterm borrowings resulting application hedge accounting year maturity follows 11 million 2022 224 million 2023 680 million 2024 901 million 2025 1025 billion 2026 thereafter firm designates certain derivatives fair value hedges convert portion fixedrate unsecured longterm borrowings accounted fair value floatingrate obligations see note 7 information hedging activities goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents unsecured longterm borrowings giving effect hedging activities table aggregate amounts unsecured longterm borrowings weighted average interest rates 201 334 related fixedrate obligations 170 related floatingrate obligations december 2020 287 377 related fixedrate obligations 248 related floatingrate obligations december 2019 rates exclude unsecured longterm borrowings accounted fair value fair value option carrying value unsecured longterm borrowings firm elect fair value option 17257 billion december 2020 16342 billion december 2019 estimated fair value unsecured longterm borrowings 18329 billion december 2020 16860 billion december 2019 borrowings accounted fair value included firm’s fair value hierarchy notes 4 10 borrowings included firm’s fair value hierarchy substantially would classified level 2 december 2020 december 2019 subordinated borrowings unsecured longterm borrowings includes subordinated debt junior subordinated debt subordinated debt matures within one year included unsecured shortterm borrowings junior subordinated debt junior right payment subordinated borrowings junior senior borrowings longterm subordinated debt maturities ranging 2025 2045 december 2020 2021 2045 december 2019 table presents information subordinated borrowings table • par amount subordinated debt issued group inc 1414 billion december 2020 1404 billion december 2019 carrying value subordinated debt issued group inc 1853 billion december 2020 1698 billion december 2019 • rate weighted average interest rate borrowings excluding borrowings accounted fair value fair value option including effect fair value hedges used convert fixedrate obligations floatingrate obligations see note 7 information hedging activities junior subordinated debt 2004 group inc issued 284 billion junior subordinated debt goldman sachs capital trust delaware statutory trust issued 275 billion guaranteed preferred beneficial interests trust preferred securities third parties 85 million common beneficial interests group inc december 2020 outstanding par amount junior subordinated debt held trust 968 million outstanding par amount trust preferred securities common beneficial interests issued trust 939 million 29 million respectively december 2019 outstanding par amount junior subordinated debt held trust 976 million outstanding par amount trust preferred securities common beneficial interests issued trust 947 million 29 million respectively goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements firm purchased trust preferred securities par amount carrying value 79 million 110 million 2020 159 million 206 million 2019 28 million 35 million 2018 respectively securities delivered trust along common beneficial interests 02 million 2020 5 million 2019 1 million 2018 noncash exchange junior subordinated debt par amount carrying value 81 million 125 million 2020 164 million 231 million 2019 29 million 36 million 2018 respectively following exchange trust preferred securities common beneficial interests junior subordinated debt extinguished trust whollyowned finance subsidiary firm regulatory legal purposes consolidated accounting purposes firm pays interest semiannually junior subordinated debt annual rate 6345 debt matures february 15 2034 coupon rate payment dates applicable beneficial interests interest rate payment dates junior subordinated debt firm right time defer payment interest junior subordinated debt therefore cause payment trust’s preferred beneficial interests deferred case ten consecutive semiannual periods deferral period firm permitted among things pay dividends make certain repurchases common stock trust permitted pay distributions common beneficial interests held group inc unless dividends payable preferred beneficial interests paid full firm covenanted favor holders group inc’s 6345 junior subordinated debt due february 15 2034 subject certain exceptions firm redeem purchase capital securities issued goldman sachs capital ii goldman sachs capital iii apex trusts shares group inc’s perpetual noncumulative preferred stock series e series e preferred stock perpetual noncumulative preferred stock series f series f preferred stock perpetual noncumulative preferred stock series redemption purchase results less 253 million aggregate liquidation preference series outstanding prior specified dates 2022 price exceeds maximum amount determined reference net cash proceeds firm received sale qualifying securities apex trusts hold group inc’s series e preferred stock series f preferred stock trusts delaware statutory trusts sponsored firm whollyowned finance subsidiaries firm regulatory legal purposes consolidated accounting purposes note 15 liabilities table presents liabilities type table accrued expenses includes contract liabilities represent consideration received firm connection contracts clients prior providing service december 2020 december 2019 firm’s contract liabilities material operating lease liabilities leases longer one year firm recognizes rightofuse asset representing right use underlying asset lease term lease liability representing liability make payments see note 12 information operating lease rightofuse assets table presents information operating lease liabilities goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table weighted average discount rate represents firm’s incremental borrowing rate january 2019 operating leases existing date adoption asu 201602 lease inception date leases entered subsequent adoption asu operating lease costs 458 million 2020 538 million 2019 409 million 2018 variable lease costs included operating lease costs material 2020 2019 2018 total occupancy expenses space held excess firm’s current requirements material 2020 2019 lease payments relating operating lease arrangements signed yet commenced december 2020 material note 16 securitization activities firm securitizes residential commercial mortgages corporate bonds loans types financial assets selling assets securitization vehicles eg trusts corporate entities limited liability companies resecuritization firm acts underwriter beneficial interests sold investors firm’s residential mortgage securitizations primarily connection government agency securitizations firm accounts securitization sale relinquished control transferred financial assets prior securitization firm generally accounts assets pending transfer fair value therefore typically recognize significant gains losses upon transfer assets net revenues underwriting activities recognized connection sales underlying beneficial interests investors firm generally receives cash exchange transferred assets may also continuing involvement transferred financial assets including ownership beneficial interests securitized financial assets primarily form debt instruments firm may also purchase senior subordinated securities issued securitization vehicles typically vies connection secondary marketmaking activities primary risks included beneficial interests firm’s continuing involvement securitization vehicles performance underlying collateral position firm’s investment capital structure securitization vehicle market yield security interests accounted fair value primarily classified level 2 fair value hierarchy interests accounted fair value carried amounts approximate fair value see notes 4 10 information fair value measurements table presents amount financial assets securitized cash flows received retained interests securitization entities firm continuing involvement end period table financial assets securitized included assets 551 million 2020 601 million 2019 882 million 2018 securitized noncash exchange loans investments goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents information nonconsolidated securitization entities firm sold assets continuing involvement end period table • cmos represents collateralized mortgage obligations • outstanding principal amount presented purpose providing information size securitization entities representative firm’s risk loss • firm’s risk loss retained purchased interests limited carrying value interests • purchased interests represent senior subordinated interests purchased connection secondary marketmaking activities securitization entities firm also holds retained interests • substantially total outstanding principal amount total retained interests relate securitizations 2014 thereafter • fair value retained interests 319 billion december 2020 335 billion december 2019 addition interests table firm continuing involvement form derivative transactions commitments certain nonconsolidated vies carrying value derivatives commitments net asset 52 million december 2020 57 million december 2019 notional amount derivatives commitments 143 billion december 2020 120 billion december 2019 notional amounts derivatives commitments included maximum exposure loss nonconsolidated vie table note 17 table presents information weighted average key economic assumptions used measuring fair value mortgagebacked retained interests table • amounts reflect benefit financial instruments held mitigate risks inherent retained interests • changes fair value based adverse variation assumptions generally cannot extrapolated relationship change assumptions change fair value usually linear • impact change particular assumption calculated independently changes assumption practice simultaneous changes assumptions might magnify counteract sensitivities disclosed • constant prepayment rate included positions key assumption determination fair value • discount rate retained interests relate us government agencyissued cmos include credit loss expected credit loss assumptions reflected discount rate remainder retained interests firm retained interests reflected table fair value 192 million weighted average life 39 years december 2020 fair value 149 million weighted average life 33 years december 2019 due nature fair value certain retained interests weighted average assumptions constant prepayment discount rates related sensitivity adverse changes meaningful december 2020 december 2019 firm’s maximum exposure adverse changes value interests carrying value 192 million december 2020 149 million december 2019 goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 17 variable interest entities variable interest vie investment eg debt equity interest eg derivatives loans lending commitments absorb portions vie’s expected losses andor receive portions vie’s expected residual returns firm’s variable interests vies include senior subordinated debt loans lending commitments limited general partnership interests preferred common equity derivatives may include foreign currency equity andor credit risk guarantees certain fees firm receives investment funds certain interest rate foreign currency credit derivatives firm enters vies variable interests create rather absorb risk vies generally finance purchase assets issuing debt equity securities either collateralized indexed assets held vie debt equity securities issued vie may include tranches varying levels subordination firm’s involvement vies includes securitization financial assets described note 16 investments loans types vies described see note 3 firm’s consolidation policies including definition vie consolidation analysis enterprise controlling financial interest vie known primary beneficiary consolidates vie firm determines whether primary beneficiary vie performing analysis principally considers • variable interest holder power direct activities vie significantly impact vie’s economic performance • variable interest holder obligation absorb losses right receive benefits vie could potentially significant vie • vie’s purpose design including risks vie designed create pass variable interest holders • vie’s capital structure • terms vie variable interest holders parties involved vie • relatedparty relationships firm reassesses evaluation whether entity vie certain reconsideration events occur firm reassesses determination whether primary beneficiary vie ongoing basis based current facts circumstances vie activities firm principally involved vies following business activities mortgagebacked vies firm sells residential commercial mortgage loans securities mortgagebacked vies may retain beneficial interests assets sold vies firm purchases sells beneficial interests issued mortgagebacked vies connection marketmaking activities addition firm may enter derivatives certain vies primarily interest rate swaps typically variable interests firm generally enters derivatives counterparties mitigate risk real estate credit powerrelated investing vies firm purchases equity debt securities issued makes loans vies hold real estate performing nonperforming debt distressed loans powerrelated assets equity securities firm generally sell assets enter derivatives vies corporate debt assetbacked vies firm structures vies issue notes clients purchases sells beneficial interests issued corporate debt assetbacked vies connection marketmaking activities makes loans vies warehouse corporate debt certain vies synthetically create exposure beneficial interests issue entering credit derivatives firm rather purchasing underlying assets addition firm may enter derivatives total return swaps certain corporate debt assetbacked vies firm pays vie return due beneficial interest holders receives return collateral owned vie collateral owned vies primarily assetbacked loans securities firm may removed total return swap counterparty may enter derivatives counterparties mitigate risk related swaps firm may sell assets corporate debt assetbacked vies structures goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements principalprotected note vies firm structures vies issue principalprotected notes clients vies portfolios assets principally exposure hedge funds substantially principal protection notes issued vies provided asset portfolio rebalancing required terms notes firm enters total return swaps vies firm pays vie return due principalprotected note holders receives return assets owned vie firm may enter derivatives counterparties mitigate risk firm also obtains funding vies investments funds firm makes equity investments certain investment fund vies manages entitled receive fees vies firm generally sold assets entered derivatives vies nonconsolidated vies table presents summary nonconsolidated vies firm holds variable interests table • nature firm’s variable interests described rows maximum exposure loss • firm’s exposure obligations vies generally limited interests entities certain instances firm provides guarantees including derivative guarantees vies holders variable interests vies • maximum exposure loss excludes benefit offsetting financial instruments held mitigate risks associated variable interests • maximum exposure loss retained interests purchased interests debt equity carrying value interests • maximum exposure loss commitments guarantees derivatives notional amount represent anticipated losses reduced unrealized losses result maximum exposure loss exceeds liabilities recorded commitments guarantees derivatives table presents information principal business activity nonconsolidated vies included summary table goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements december 2020 december 2019 carrying values firm’s variable interests nonconsolidated vies included consolidated balance sheets follows • mortgagebacked assets primarily included trading assets loans • real estate credit powerrelated investing assets primarily included loans investments liabilities included trading liabilities • corporate debt assetbacked assets included trading assets loans liabilities included trading liabilities • investments funds assets included investments consolidated vies table presents summary carrying value balance sheet classification assets liabilities consolidated vies table • assets liabilities presented net intercompany eliminations exclude benefit offsetting financial instruments held mitigate risks associated firm’s variable interests • vies firm holds majority voting interest excluded vie meets definition business ii vie’s assets used purposes settlement obligations • substantially assets used settle obligations vie table presents information principal business activity consolidated vies included summary table • majority assets principalprotected notes vies intercompany eliminated consolidation • creditors beneficial interest holders real estate creditrelated investing vies recourse general credit firm goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 18 commitments contingencies guarantees commitments table presents commitments type table presents commitments expiration lending commitments firm’s commercial warehouse financing lending commitments agreements lend fixed termination dates depend satisfaction contractual conditions borrowing commitments presented net amounts syndicated third parties total commitment amount necessarily reflect actual future cash flows firm may syndicate portions commitments addition commitments expire unused reduced cancelled counterparty’s request firm also provides credit consumers issuing credit card lines table presents information lending commitments table • held investment lending commitments accounted amortized cost carrying value lending commitments liability 775 million including allowance credit losses 557 million december 2020 527 million including allowance credit losses 361 million december 2019 estimated fair value lending commitments liability 405 billion december 2020 305 billion december 2019 lending commitments carried fair value included fair value hierarchy 243 billion december 2020 178 billion december 2019 would classified level 2 162 billion december 2020 127 billion december 2019 would classified level 3 • held sale lending commitments accounted lower cost fair value carrying value lending commitments held sale liability 68 million december 2020 60 million december 2019 estimated fair value lending commitments approximates carrying value lending commitments included fair value hierarchy would primarily classified level 3 december 2020 primarily classified level 2 december 2019 • gains losses related lending commitments fair value generally recorded net fees principal transactions goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements commercial lending firm’s commercial lending commitments primarily extended investmentgrade corporate borrowers commitments primarily included 11031 billion december 2020 10131 billion december 2019 related relationship lending activities principally used operating general corporate purposes 1581 billion december 2020 2771 billion december 2019 related investment banking activities generally extended contingent acquisition financing often intended shortterm nature borrowers often seek replace funding sources firm also extends lending commitments connection types corporate lending well commercial real estate financing see note 9 information funded loans mitigate credit risk associated firm’s commercial lending activities firm obtains credit protection certain loans lending commitments credit default swaps singlename indexbased contracts issuance creditlinked notes addition sumitomo mitsui financial group inc provides firm credit loss protection certain approved loan commitments warehouse financing firm provides financing clients warehouse financial assets arrangements secured warehoused assets primarily consisting residential real estate consumer corporate loans credit cards firm’s credit card lending commitments represents credit card lines issued firm consumers credit card lines cancellable firm january 2021 firm entered cobranded credit card relationship general motors agreed acquire related credit card portfolio capital one purchase price portfolio depend outstanding balance credit card loans time acquisition closes expected september 2021 december 2020 portfolio outstanding credit card loans approximately 20 billion connection acquisition firm’s results include provision credit losses first quarter 2021 currently estimated 180 million risk participations firm also risk participates certain commercial lending commitments financial institutions event risk participant’s default firm responsible fund borrower collateralized agreement commitments collateralized financing commitments collateralized agreement commitments includes forward starting resale securities borrowing agreements collateralized financing commitments includes forward starting repurchase secured lending agreements settle future date generally within three business days collateralized agreement commitments also includes transactions firm entered commitments provide contingent financing clients counterparties resale agreements firm’s funding commitments depends satisfaction contractual conditions resale agreement commitments expire unused letters credit firm commitments letters credit issued various banks firm provides counterparties lieu securities cash satisfy various collateral margin deposit requirements investment commitments investment commitments includes commitments invest private equity real estate assets directly funds firm raises manages investment commitments included 169 billion december 2020 206 billion december 2019 related commitments invest funds managed firm commitments called would funded market value date investment contingencies legal proceedings see note 27 information legal proceedings including certain mortgagerelated matters goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements contingencies connection settlement agreement residential mortgagebacked securities working group us financial fraud enforcement task force firm agreed provide 180 billion consumer relief january 2021 january 2021 firm provided consumer relief expects satisfy requirement subject validation independent monitor overseeing firm’s compliance consumer relief obligations relief provided form principal forgiveness underwater homeowners distressed borrowers financing construction rehabilitation preservation affordable housing support debt restructuring foreclosure prevention housing quality improvement programs well land banks guarantees table presents derivatives meet definition guarantee securities lending clearing guarantees certain financial guarantees table • maximum payout based notional amount contract represent anticipated losses • amounts exclude certain commitments issue standby letters credit included lending commitments see tables “commitments” summary firm’s commitments • carrying value derivatives included derivative assets 166 billion december 2020 156 billion december 2019 derivative liabilities 602 billion december 2020 538 billion december 2019 derivative guarantees firm enters various derivatives meet definition guarantee us gaap including written equity commodity put options written currency contracts interest rate caps floors swaptions derivatives risk managed together derivatives meet definition guarantee therefore amounts table reflect firm’s overall risk related derivative activities disclosures derivatives required may cash settled firm basis conclude probable counterparties held underlying instruments inception contract firm concluded conditions met certain large internationally active commercial investment bank counterparties central clearing counterparties hedge funds certain counterparties accordingly firm included contracts table see note 7 information credit derivatives meet definition guarantee included table derivatives accounted fair value therefore carrying value considered best indication paymentperformance risk individual contracts however carrying values table exclude effect counterparty cash collateral netting securities lending clearing guarantees securities lending clearing guarantees include indemnifications guarantees firm provides capacity agency lender capacity sponsoring member fixed income clearing corporation agency lender firm indemnifies securities lending customers losses incurred event borrowers return securities collateral held insufficient cover market value securities borrowed maximum payout indemnifications 1986 billion december 2020 1789 billion december 2019 collateral held lenders connection securities lending indemnifications 2039 billion december 2020 1914 billion december 2019 contractual nature arrangements requires firm obtain collateral market value exceeds value securities lent borrower minimal performance risk associated indemnifications goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements fourth quarter 2020 firm became sponsoring member government securities division fixed income clearing corporation connection certain resale repurchase agreements sponsoring member firm guarantees performance sponsored member clients fixed income clearing corporation minimize potential losses guarantees firm obtains security interest collateral sponsored client placed fixed income clearing corporation therefore risk loss guarantees minimal december 2020 maximum payout guarantee 149 billion related collateral held 150 billion financial guarantees ordinary course business firm provides financial guarantees obligations third parties eg standby letters credit guarantees enable clients complete transactions fundrelated guarantees represent obligations make payments beneficiaries guaranteed party fails fulfill obligation contractual arrangement beneficiary financial guarantees also include guarantee firm provided government malaysia receive least 14 billion assets proceeds assets seized governmental authorities around world related 1malaysia development berhad sovereign wealth fund malaysia 1mdb see note 27 information firm periodically evaluate progress toward satisfying 14 billion obligation based information received semiannual basis expected february august guarantees securities issued trusts firm established trusts including goldman sachs capital apex trusts entities limited purpose issuing securities third parties lending proceeds firm entering contractual arrangements firm third parties related purpose firm consolidate entities see note 14 information transactions involving goldman sachs capital apex trusts firm effectively provides full unconditional guarantee securities issued entities timely payment firm amounts due entities guarantee borrowing preferred stock related contractual arrangements sufficient cover payments due securities issued entities management believes unlikely circumstances occur nonperformance part paying agents service providers would make necessary firm make payments related entities required terms guarantee borrowing preferred stock related contractual arrangements connection certain expenses incurred entities indemnities guarantees service providers ordinary course business firm indemnifies guarantees certain service providers clearing custody agents trustees administrators specified potential losses connection acting agent providing services firm affiliates firm may also liable clients parties losses arising custodial role caused acts omissions thirdparty service providers including subcustodians thirdparty brokers certain cases firm right seek indemnification thirdparty service providers certain relevant losses incurred firm addition firm member payment clearing settlement networks well securities exchanges around world may require firm meet obligations networks exchanges event member defaults loss scenarios connection firm’s prime brokerage clearing businesses firm agrees clear settle behalf clients transactions entered brokerage firms firm’s obligations respect transactions secured assets client’s account well proceeds received transactions cleared settled firm behalf client connection joint venture investments firm may issue loan guarantees may liable event fraud misappropriation environmental liabilities certain matters involving borrower firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements material liabilities related guarantees indemnifications recognized consolidated balance sheets december 2020 december 2019 goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements representations warranties indemnifications firm provides representations warranties counterparties connection variety commercial transactions occasionally indemnifies potential losses caused breach representations warranties firm may also provide indemnifications protecting changes adverse application certain us tax laws connection ordinarycourse transactions securities issuances borrowings derivatives addition firm may provide indemnifications counterparties protect event additional taxes owed payments withheld due either change adverse application certain nonus tax laws indemnifications generally standard contractual terms entered ordinary course business generally stated notional amounts included indemnifications contingencies triggering obligation indemnify expected occur firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements material liabilities related arrangements recognized consolidated balance sheets december 2020 december 2019 guarantees subsidiaries group inc fully unconditionally guarantees securities issued gs finance corp whollyowned finance subsidiary firm group inc guaranteed payment obligations goldman sachs co llc gsco gs bank usa goldman sachs paris inc et cie subject certain exceptions addition group inc provided guarantee gs bank usa related assets gs bank usa acquired certain subsidiaries affiliated funds group inc group inc provided guarantees goldman sachs international gsi goldman sachs bank europe se gsbe related agreements entity entered certain counterparties group inc guarantees many obligations consolidated subsidiaries transactionbytransaction basis negotiated counterparties group inc unable develop estimate maximum payout subsidiary guarantees however obligations also obligations consolidated subsidiaries group inc’s liabilities guarantor separately disclosed note 19 shareholders’ equity common equity december 2020 december 2019 firm 400 billion authorized shares common stock 200 million authorized shares nonvoting common stock par value 001 per share firm’s share repurchase program intended help maintain appropriate level common equity share repurchase program effected primarily regular openmarket purchases may include repurchase plans designed comply rule 10b51 accelerated share repurchases amounts timing determined primarily firm’s current projected capital position capital deployment opportunities may also influenced general market conditions prevailing price trading volumes firm’s common stock firm suspended stock repurchases first quarter 2020 consistent frb’s requirement large bank holding companies bhcs extended suspension stock repurchases fourth quarter 2020 firm resumed stock repurchases first quarter 2021 table presents information common stock repurchases pursuant terms certain sharebased compensation plans employees may remit shares firm may cancel sharebased awards satisfy statutory employee tax withholding requirements exercise price stock options plans 3476 shares 2020 7490 shares 2019 1120 shares 2018 remitted total value 09 million 2020 2 million 2019 03 million 2018 firm cancelled 34 million sharebased awards 2020 38 million 2019 50 million 2018 total value 829 million 2020 743 million 2019 124 billion 2018 table presents common stock dividends declared january 15 2021 board directors group inc board declared dividend 125 per common share paid march 30 2021 common shareholders record march 2 2021 goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements preferred equity tables present information perpetual preferred stock issued outstanding december 2020 tables • shares par value 001 per share applicable share represented specified number depositary shares • earliest redemption date represents date share noncumulative preferred stock redeemable firm’s option • prior redeeming preferred stock firm must receive approval frb • january 2020 firm issued 14000 shares series 440 fixedrate reset noncumulative preferred stock series preferred stock • redemption price per share series f series q preferred stock liquidation preference plus declared unpaid dividends redemption price per share series j p preferred stock liquidation preference plus accrued unpaid dividends share series e series f preferred stock redeemable firm’s option subject certain covenant restrictions governing firm’s ability redeem preferred stock without issuing common stock instruments equitylike characteristics see note 14 information replacement capital covenants applicable series e series f preferred stock • series preferred stock pari passu preference firm’s common stock liquidation • firm’s ability declare pay dividends purchase redeem otherwise acquire common stock subject certain restrictions event firm fails pay set aside full dividends preferred stock latest completed dividend period february 2021 firm redeemed outstanding shares series 5375 fixedtofloating rate noncumulative preferred stock series preferred stock redemption value 2 billion difference redemption value net carrying value time redemption 21 million treated addition preferred stock dividends first quarter 2021 first quarter 2020 firm redeemed remaining 14000 outstanding shares series l 570 noncumulative preferred stock series l preferred stock redemption value 350 million 25000 per share plus accrued unpaid dividends difference redemption value net carrying value time redemption 1 million recorded addition preferred stock dividends 2020 2019 firm redeemed 38000 shares outstanding series l preferred stock redemption value 950 million 25000 per share plus accrued unpaid dividends addition 2019 firm redeemed remaining 6000 outstanding shares series b 620 noncumulative preferred stock series b preferred stock redemption value 150 million 25000 per share difference redemption value net carrying value time redemptions 9 million recorded addition preferred stock dividends 2019 goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents dividend rates perpetual preferred stock december 2020 table dividends series preferred stock payable arrears periods specified table presents preferred stock dividends declared january 13 2021 group inc declared dividends 23958 per share series preferred stock 25556 per share series c preferred stock 25556 per share series preferred stock 34375 per share series j preferred stock 39844 per share series k preferred stock 39375 per share series n preferred stock 68750 per share series q preferred stock 61875 per share series r preferred stock 55000 per share series preferred stock paid february 10 2021 preferred shareholders record january 26 2021 addition firm declared dividends 100000 per share series e preferred stock 100000 per share series f preferred stock paid march 1 2021 preferred shareholders record february 14 2021 accumulated comprehensive incomeloss table presents changes accumulated comprehensive incomeloss net tax type goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 20 regulation capital adequacy frb primary regulator group inc bhc us bank holding company act 1956 financial holding company amendments act firm subject consolidated regulatory capital requirements calculated accordance regulations frb capital framework capital requirements expressed riskbased capital leverage ratios compare measures regulatory capital riskweighted assets rwas average assets offbalance sheet exposures failure comply capital requirements could result restrictions imposed firm’s regulators could limit firm’s ability repurchase shares pay dividends make certain discretionary compensation payments firm’s capital levels also subject qualitative judgments regulators components capital risk weightings factors furthermore certain firm’s subsidiaries subject separate regulations capital requirements capital framework regulations capital framework largely based basel committee banking supervision’s basel committee capital framework strengthening international capital standards basel iii also implement certain provisions doddfrank act capital framework firm “advanced approach” banking organization designated global systemically important bank gsib capital framework includes minimum riskbased capital conservation buffer requirements buffer must consist entirely capital qualifies common equity tier 1 cet1 capital prior october 1 2020 capital conservation buffer requirements standardized advanced capital rules comprised 25 buffer ii countercyclical capital buffer iii gsib surcharge beginning october 1 2020 25 buffer replaced stress capital buffer standardized capital rules components capital conservation buffer requirements advanced capital rules remain unchanged firm calculates cet1 capital tier 1 capital total capital ratios accordance standardized advanced capital rules beginning october 1 2020 ratios calculated standardized advanced capital rules must meet respective capital requirements prior october 1 2020 lower riskbased capital ratio calculated standardized advanced capital rules ratio firm’s compliance riskbased capital requirements assessed capital framework firm also subject leverage requirements consist minimum tier 1 leverage ratio minimum supplementary leverage ratio slr well slr buffer consolidated regulatory capital requirements riskbased capital ratios table presents riskbased capital requirements table • december 2020 standardized advanced capital rules cet1 capital ratio requirement includes minimum 45 tier 1 capital ratio requirement includes minimum 60 total capital ratio requirement includes minimum 80 requirements also include capital conservation buffer requirements consisting gsib surcharge 25 method 2 countercyclical capital buffer frb set zero percent addition capital conservation buffer requirements include stress capital buffer 66 standardized capital rules buffer 25 advanced capital rules • december 2019 standardized advanced capital rules cet1 capital ratio requirement includes minimum 45 tier 1 capital ratio requirement includes minimum 60 total capital ratio requirement includes minimum 80 requirements also include capital conservation buffer requirements consisting buffer 25 gsib surcharge 25 method 2 countercyclical capital buffer frb set zero percent goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements • gsib surcharge updated annually based financial data prior year generally applicable following year gsib surcharge calculated using two methodologies higher reflected firm’s riskbased capital requirements first calculation method 1 based basel committee’s methodology among factors relies upon measures size activity complexity gsib second calculation method 2 uses similar inputs includes measure reliance shortterm wholesale funding table presents information riskbased capital ratios table • december 2019 lower standardized advanced ratios firm’s compliance capital requirements assessed riskbased capital rules therefore standardized ratios applied firm • permitted frb firm elected temporarily delay estimated effects adopting cecl regulatory capital january 2022 subsequently phasein effects january 2025 addition 2020 2021 firm elected increase regulatory capital 25 increase allowance credit losses since january 1 2020 permitted rules issued frb impact increase also phased threeyear transition period reflecting full impact cecl december 2020 would material impact firm’s capital ratios leverage ratios table presents leverage requirements table slr requirement 5 includes minimum 3 2 buffer applicable gsibs table presents information leverage ratios table • average total assets represents average daily assets quarter three months ended december 2020 reflected impact cecl transition • impact slr temporary amendment represents exclusion average holdings us treasury securities average deposits federal reserve permitted frb impact temporary amendment increase firm’s slr approximately 10 percentage points three months ended december 2020 temporary amendment effective march 31 2021 • average offbalance sheet exposures represents monthly average consists derivatives securities financing transactions commitments guarantees • tier 1 leverage ratio calculated tier 1 capital divided average adjusted total assets • slr calculated tier 1 capital divided total leverage exposure goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements riskbased capital table presents information riskbased capital table • impact cecl transition represents impact adoption january 1 2020 impact increasing regulatory capital 25 increase allowance credit losses since january 1 2020 allowance credit losses within standardized advanced tier 2 capital also reflects impact adjustments • deduction goodwill net deferred tax liabilities 680 million december 2020 667 million december 2019 • deduction identifiable intangible assets net deferred tax liabilities 29 million december 2020 37 million december 2019 • deduction investments covered funds represents firm’s aggregate investments applicable covered funds excluding investments subject extended conformance period see note 8 information volcker rule • adjustments within cet1 capital tier 1 capital primarily include credit valuation adjustments derivative liabilities overfunded portion firm’s defined benefit pension plan obligation net associated deferred tax liabilities disallowed deferred tax assets debt valuation adjustments required credit riskbased deductions adjustments within advanced tier 2 capital include eligible credit reserves • qualifying subordinated debt subordinated debt issued group inc original maturity five years greater outstanding amount subordinated debt qualifying tier 2 capital reduced upon reaching remaining maturity five years see note 14 information firm’s subordinated debt • junior subordinated debt issued trust december 2020 20 debt included tier 2 capital 80 phased regulatory capital december 2019 30 debt included tier 2 capital 70 phased regulatory capital junior subordinated debt reduced amount trust preferred securities purchased firm fully phased tier 2 capital 2022 rate 10 per year see note 14 information firm’s junior subordinated debt trust preferred securities goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents changes cet1 capital tier 1 capital tier 2 capital rwas calculated accordance standardized advanced capital rules credit risk credit rwas calculated based measures exposure risk weighted standardized advanced capital rules • standardized capital rules apply prescribed riskweights depend largely type counterparty exposure measure derivatives securities financing transactions based specific formulas take certain factors consideration • advanced capital rules firm computes riskweights wholesale retail credit exposures accordance advanced internal ratingsbased approach exposure measures derivatives securities financing transactions computed utilizing internal models • standardized advanced credit rwas riskweights securitizations equities based specific required formulaic approaches market risk rwas market risk accordance standardized advanced capital rules generally consistent market rwas calculated based measures exposure include following • valueatrisk var potential loss value trading assets liabilities well certain investments loans financial assets liabilities accounted fair value due adverse market movements defined time horizon specified confidence level goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements risk management purposes regulatory capital calculations firm uses single var model captures risks including related interest rates equity prices currency rates commodity prices however var used risk management purposes differs var used regulatory capital requirements regulatory var due differences time horizons confidence levels scope positions var calculated risk management purposes 95 oneday var used whereas regulatory capital requirements 99 10day var used determine market rwas 99 oneday var used determine regulatory var exceptions addition daily net revenues used determine risk management var exceptions ie comparing daily net revenues var measure calculated end prior business day include intraday activity whereas capital framework requires intraday activity excluded daily net revenues calculating regulatory var exceptions intraday activity includes bidoffer net revenues likely positive nature result may differences number var exceptions amount daily net revenues calculated regulatory var compared amounts calculated risk management var firm’s positional losses observed single day exceeded 99 oneday regulatory var six occasions 2020 occurred march 2020 exceeded 99 oneday regulatory var one occasion 2019 permitted frb firm permanently excluded six exceptions occurred march 2020 determining firm’s var multiplier used calculate market rwas • stressed var potential loss value trading assets liabilities well certain investments loans financial assets liabilities accounted fair value period significant market stress • incremental risk potential loss value nonsecuritized positions due default credit migration issuers financial instruments oneyear time horizon • comprehensive risk potential loss value due price risk defaults within firm’s credit correlation positions • specific risk loss position could result factors broad market movements including event risk default risk idiosyncratic risk standardized measurement method used determine specific risk rwas applying supervisory defined riskweighting factors applicable netting performed operational risk operational rwas required included advanced capital rules firm utilizes internal riskbased model quantify operational rwas table presents information rwas table • securities financing transactions represents resale repurchase agreements securities borrowed loaned transactions • includes receivables certain debt securities cash equivalents assets goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents changes rwas rollforward commentary year ended december 2020 standardized credit rwas december 2020 decreased 1355 billion compared december 2019 primarily reflecting decrease equity investments principally due sale certain equity positions decrease principally due decreased receivables result changes risk measurements decreases partially offset increase securities financing transactions principally due increased funding exposures standardized market rwas december 2020 increased 414 billion compared december 2019 primarily reflecting increase regulatory var principally due increased market volatility increase incremental risk principally due increased exposures equities held marketmaking purposes increases partially offset decrease specific risk principally due changes risk measurements certain exposures advanced credit rwas december 2020 increased 5163 billion compared december 2019 primarily reflecting increase derivatives principally due impact higher levels volatility counterparty credit risk increase commitments guarantees loans principally due increased lending activity increases partially offset decrease equity investments principally due sale certain equity positions advanced market rwas december 2020 increased 434 billion compared december 2019 primarily reflecting increase regulatory var principally due increased market volatility increase incremental risk principally due increased exposures equities held marketmaking purposes increases partially offset decrease specific risk principally due changes risk measurements certain exposures advanced operational rwas december 2020 increased 913 billion compared december 2019 vast majority increase associated litigation regulatory proceedings year ended december 2019 standardized credit rwas december 2019 increased 2565 billion compared december 2018 primarily reflecting increase commitments guarantees loans principally due increase lending activity increase credit rwas principally due recognition operating lease rightofuse assets upon adoption asu 201602 increase corporate debt exposures standardized market rwas december 2019 decreased 998 billion compared december 2018 primarily reflecting decrease specific risk principally due reduced exposures decrease incremental risk principally due reduced exposures changes risk measurements advanced credit rwas december 2019 decreased 767 billion compared december 2018 beginning fourth quarter 2019 firm made changes calculation loss given default certain wholesale exposures resulted decrease credit rwas primarily commitments guarantees loans derivatives decrease partially offset increase credit rwas principally due recognition operating lease rightofuse assets upon adoption asu 201602 increase corporate debt exposures advanced market rwas december 2019 decreased 1019 billion compared december 2018 primarily reflecting decrease specific risk principally due reduced exposures decrease incremental risk principally due reduced exposures changes risk measurements advanced operational rwas december 2019 increased 440 billion compared december 2018 associated litigation regulatory proceedings goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements bank subsidiaries regulatory capital ratios gs bank usa firm’s primary us bank subsidiary fdicinsured new york statechartered bank member federal reserve system supervised regulated frb fdic new york state department financial services nydfs consumer financial protection bureau subject regulatory capital requirements calculated capital framework gs bank usa advanced approach banking organization capital framework capital framework includes minimum riskbased capital conservation buffer requirements consisting 25 buffer countercyclical capital buffer must consist entirely capital qualifies cet1 capital addition capital framework includes leverage ratio requirement gs bank usa required calculate cet1 capital tier 1 capital total capital ratios accordance standardized advanced capital rules lower riskbased capital ratio standardized advanced capital rules ratio gs bank usa’s compliance riskbased capital requirements assessed addition regulatory framework prompt corrective action applicable gs bank usa order meet quantitative requirements “wellcapitalized” depository institution gs bank usa must also meet “wellcapitalized” requirements table gs bank usa’s capital levels prompt corrective action classification also subject qualitative judgments regulators components capital risk weightings factors failure comply capital requirements including breach buffers described could result restrictions imposed regulators table presents gs bank usa’s riskbased capital leverage “wellcapitalized” requirements table • cet1 capital ratio requirement includes minimum 45 tier 1 capital ratio requirement includes minimum 60 total capital ratio requirement includes minimum 80 requirements also include capital conservation buffer requirements consisting 25 buffer countercyclical capital buffer frb set zero percent • “wellcapitalized” requirements binding requirements leverage ratios table presents information gs bank usa’s riskbased capital ratios table • lower standardized advanced ratio gs bank usa’s compliance capital requirements assessed riskbased capital rules therefore standardized ratios applied gs bank usa december 2020 december 2019 • permitted frb gs bank usa elected temporarily delay estimated effects adopting cecl regulatory capital january 2022 subsequently phasein effects january 2025 addition 2020 2021 gs bank usa elected increase regulatory capital 25 increase allowance credit losses since january 1 2020 permitted rules issued frb impact increase also phased threeyear transition period reflecting full impact cecl december 2020 would material impact gs bank usa’s standardized riskbased capital ratios goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements • standardized riskbased capital ratios essentially unchanged december 2019 december 2020 advanced riskbased capital ratios decreased december 2019 december 2020 reflecting increase credit market rwas partially offset increase capital principally due net earnings table presents information gs bank usa’s leverage ratios table • average adjusted total assets represents average daily assets quarter adjusted deductions tier 1 capital three months ended december 2020 reflected impact cecl transition • total leverage exposure three months ended december 2020 excluded average holdings us treasury securities average deposits federal reserve permitted frb impact temporary amendment increase gs bank usa’s slr approximately 24 percentage points three months ended december 2020 temporary amendment effective march 31 2021 • tier 1 leverage ratio calculated tier 1 capital divided average adjusted total assets • slr calculated tier 1 capital divided total leverage exposure firm’s principal nonus bank subsidiaries gsib gsbe also subject regulatory capital requirements gsib regulated prudential regulation authority pra financial conduct authority fca gsbe directly supervised european central bank additionally bafin deutsche bundesbank context eu single supervisory mechanism december 2020 december 2019 gsib gsbe compliance regulatory capital requirements deposits gs bank usa insured fdic extent provided law frb requires gs bank usa maintain cash reserves federal reserve amount deposited gs bank usa federal reserve 5271 billion december 2020 5055 billion december 2019 exceeded required reserve amounts 5271 billion december 2020 frb reduced reserve requirement ratios zero percent 2020 5029 billion december 2019 restrictions payments group inc may limited ability access capital held certain subsidiaries result regulatory tax constraints limitations include provisions applicable law regulations regulatory restrictions limit ability subsidiaries declare pay dividends without prior regulatory approval also result gs bank usa’s election exclude holdings us treasury securities deposits federal reserve total leverage exposure dividend gs bank usa period july 1 2020 march 31 2021 subject prior approval frb furthermore amount dividends may paid gs bank usa limited lesser amounts calculated recent earnings test undivided profits test frb fdic nydfs authority prohibit limit payment dividends banking organizations supervise including gs bank usa regulator’s opinion payment dividend would constitute unsafe unsound practice light financial condition banking organization addition subsidiaries subject separate regulatory capital requirements may hold capital satisfy local tax legal guidelines rating agency requirements entities assigned credit ratings internal policies including policies concerning minimum amount capital subsidiary hold based underlying level risk group inc’s equity investment subsidiaries 10380 billion december 2020 9568 billion december 2019 group inc required maintain 6368 billion december 2020 5758 billion december 2019 minimum equity capital regulated subsidiaries order satisfy regulatory requirements subsidiaries group inc’s capital invested certain nonus subsidiaries exposed foreign exchange risk substantially managed combination derivatives nonus denominated debt see note 7 information firm’s net investment hedges used hedge risk goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 21 earnings per common share basic earnings per common share eps calculated dividing net earnings common weighted average number common shares outstanding restricted stock units rsus delivery underlying common stock subject satisfaction future service performance conditions collectively basic shares diluted eps includes determinants basic eps addition reflects dilutive effect common stock deliverable stock options rsus delivery underlying common stock subject satisfaction future service performance conditions table presents information basic diluted eps table • net earnings common represents net earnings applicable common shareholders calculated net earnings less preferred stock dividends • unvested sharebased awards nonforfeitable rights dividends dividend equivalents treated separate class securities twoclass method distributed earnings allocated securities reduce net earnings common calculate eps method impact applying methodology reduction basic eps 007 2020 2019 005 2018 • diluted eps include antidilutive rsus 01 million 2020 2019 less 01 million 2018 note 22 transactions affiliated funds firm formed nonconsolidated investment funds thirdparty investors firm generally acts investment manager funds entitled receive management fees certain cases advisory fees incentive fees funds additionally firm invests alongside thirdparty investors certain funds tables present information affiliated funds firm may periodically determine waive certain management fees selected money market funds management fees waived 109 million 2020 44 million 2019 51 million 2018 volcker rule restricts firm providing financial support covered funds defined rule expiration conformance period general matter ordinary course business firm expect provide additional voluntary financial support covered funds may choose respect funds subject volcker rule however support expected material results operations firm march 2020 gs bank usa unaffiliated entities purchased certificates deposit commercial paper two money market funds managed firm funds covered funds volcker rule gs bank usa’s purchase price securities 184 billion 321 million outstanding december 2020 purchases made promote liquidity shortterm credit markets increase funds’ weekly liquid assets securities included within investments consolidated balance sheets group inc provided guarantee gs bank usa connection securities see note 18 information guarantees provided group inc subsidiaries goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements addition firm outstanding guarantee permitted volcker rule behalf funds 87 million december 2020 december 2019 firm voluntarily provided guarantee connection financing agreement thirdparty lender executed one firm’s real estate funds covered volcker rule except noted firm provided additional financial support affiliated funds 2020 2019 addition ordinary course business firm may also engage activities affiliated funds including among others securities lending trade execution marketmaking custody acquisition bridge financing see note 18 information firm’s investment commitments related funds note 23 interest income interest expense interest recorded life instrument accrual basis based contractual interest rates table presents sources interest income interest expense table • collateralized agreements includes rebates paid interest income securities borrowed • loans excludes interest loans held sale accounted lower cost fair value interest included within interest • interest income includes interest income customer debit balances interestearning assets loans held sale accounted lower cost fair value • collateralized financings consists repurchase agreements securities loaned • short longterm borrowings include secured unsecured borrowings • interest expense includes rebates received interestbearing liabilities interest expense customer credit balances note 24 income taxes provision income taxes income taxes provided using asset liability method deferred tax assets liabilities recognized temporary differences financial reporting tax bases assets liabilities firm reports interest expense related income tax matters provision taxes income tax penalties expenses table presents information provision taxes table us federal current tax expense us federal deferred tax benefit 2018 includes impact tax cuts jobs act tax legislation table presents reconciliation us federal statutory income tax rate effective income tax rate table nonus operations include impact base erosion antiabuse tax global intangible low taxed income gilti goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements deferred income taxes deferred income taxes reflect net tax effects temporary differences financial reporting tax bases assets liabilities temporary differences result taxable deductible amounts future years measured using tax rates laws effect differences expected reverse valuation allowances established reduce deferred tax assets amount likely realized primarily relate ability utilize losses various tax jurisdictions tax assets included assets tax liabilities included liabilities table presents information deferred tax assets liabilities excluding impact netting within tax jurisdictions firm recorded deferred tax assets 510 million december 2020 411 million december 2019 connection us federal state local foreign net operating loss carryforwards firm also recorded valuation allowance 79 million december 2020 december 2019 related net operating loss carryforwards december 2020 us federal net operating loss carryforward 100 billion state local net operating loss carryforward 107 billion foreign net operating loss carryforward 106 billion utilized us federal state local foreign net operating loss carryforwards begin expire 2021 carryforwards expire material impact firm’s results operations december 2020 firm recorded deferred tax assets 14 million connection general business credit carryforwards 20 million connection state local tax credit carryforwards utilized general business credit carryforward begin expire 2021 state local tax credit carryforward begin expire 2023 december 2020 firm foreign tax credit carryforwards december 2020 december 2019 firm us capital loss carryforwards related net deferred income tax assets december 2020 firm deferred tax assets 258 million connection foreign capital loss carryforwards valuation allowance 258 million related capital loss carryforwards valuation allowance increased 84 million 2020 increased 222 million 2019 increases 2020 2019 primarily due increase deferred tax assets firm expect realize benefit firm permanently reinvested eligible earnings certain foreign subsidiaries december 2020 december 2019 us taxes accrued subsidiaries’ distributable earnings substantially resulted tax legislation repatriation tax gilti goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements unrecognized tax benefits firm recognizes tax positions consolidated financial statements likely position sustained examination relevant taxing authority based technical merits position meets standard measured largest amount benefit likely realized settlement liability established differences positions taken tax return amounts recognized consolidated financial statements accrued liability interest expense related income tax matters income tax penalties 129 million december 2020 198 million december 2019 firm recognized interest expense income tax penalties 41 million 2020 60 million 2019 18 million 2018 reasonably possible unrecognized tax benefits could change significantly twelve months subsequent december 2020 due potential audit settlements however time possible estimate potential change table presents changes liability unrecognized tax benefits included liabilities regulatory tax examinations firm subject examination us internal revenue service irs taxing authorities jurisdictions firm significant business operations united kingdom japan hong kong various states new york tax years examination vary jurisdiction firm expect completion audits material impact firm’s financial condition may material operating results particular period depending part operating results period table presents earliest tax years remain subject examination major jurisdiction firm accepted compliance assurance process program irs tax years 2013 2020 submitted application 2021 program allows firm work irs identify resolve potential us federal tax issues filing tax returns fieldwork tax years 2011 2017 completed 2020 firm reached agreement irs certain items related tax years 2017 material impact effective tax rate final resolution audit tax years 2011 2017 expected material impact effective tax rate 2018 2019 tax years remain subject postfiling review 2020 new york state city examinations excluding gs bank usa 2011 2014 completed resolution examinations material impact effective tax rate new york state city examinations gs bank usa 2014 completed 2016 new york state city examinations 2015 2018 expected commence 2021 years including subsequent years table remain open examination taxing authorities firm believes liability unrecognized tax benefits established adequate relation potential additional assessments goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 25 business segments firm reports activities four business segments investment banking global markets asset management consumer wealth management see note 1 information firm’s business segments compensation benefits expenses firm’s segments reflect among factors overall performance firm well performance individual businesses consequently pretax margins one segment firm’s business may significantly affected performance firm’s business segments firm allocates assets including allocations global core liquid assets cash secured client financing assets revenues expenses among four business segments due integrated nature segments estimates judgments made allocating certain assets revenues expenses allocation process based manner management currently views performance segments allocation common shareholders’ equity preferred stock dividends segment based estimated amount equity required support activities segment relevant regulatory capital requirements net earnings segment calculated applying firmwide tax rate segment’s pretax earnings management believes allocation provides reasonable representation segment’s contribution consolidated net earnings common return average common equity total assets transactions segments based specific criteria approximate thirdparty rates segment results table presents summary firm’s segment results goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table • revenues expenses directly associated segment included determining pretax earnings • net revenues firm’s segments include allocations interest income expense specific positions relation cash generated funding requirements positions net interest included segment net revenues consistent management assesses segment performance • total operating expenses included net provisions litigation regulatory proceedings 342 billion 2020 124 billion 2019 844 million 2018 primarily reflected investment banking global markets • net earnings included income tax benefit 487 million 2018 related tax legislation • overhead expenses directly allocable specific segments allocated ratably based direct segment expenses table presents depreciation amortization expense segment assets table presents assets segment table presents gross loans segment loan type allowance loan losses segment see note 9 information loans geographic information due highly integrated nature international financial markets firm manages businesses based profitability enterprise whole methodology allocating profitability geographic regions dependent estimates management judgment significant portion firm’s activities require crossborder coordination order facilitate needs firm’s clients geographic results generally allocated follows • investment banking location client investment banking team • global markets ficc equities intermediation location marketmaking desk ficc equities financing excluding prime brokerage financing location desk prime brokerage financing location primary market underlying security • asset management excluding equity investments lending debt investments location sales team equity investments location investment lending debt investments location client • consumer wealth management wealth management location sales team consumer banking location client goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements table presents total net revenues pretax earnings net earnings geographic region table • americas net earnings included income tax benefit 487 million 2018 related tax legislation • asia pretax earnings net earnings 2020 2019 impacted net provisions litigation regulatory proceedings • substantially amounts americas attributable us • asia includes australia new zealand note 26 credit concentrations firm’s concentrations credit risk arise market making client facilitation investing underwriting lending collateralized transactions cash management activities may impacted changes economic industry political factors activities expose firm many different industries counterparties may also subject firm concentration credit risk particular central bank counterparty borrower issuer including sovereign issuers particular clearing house exchange firm seeks mitigate credit risk actively monitoring exposures obtaining collateral counterparties deemed appropriate firm measures monitors credit exposure based amounts owed firm taking account risk mitigants firm considers determining credit risk mitigants include netting collateral arrangements economic hedges credit derivatives futures forward contracts netting collateral agreements permit firm offset receivables payables counterparties andor enable firm obtain collateral upfront contingent basis table presents credit concentrations included trading cash instruments investments addition firm 11663 billion december 2020 9697 billion december 2019 cash deposits held central banks included cash equivalents 5271 billion december 2020 5055 billion december 2019 held federal reserve december 2020 december 2019 firm credit exposure counterparty exceeded 2 total assets collateral obtained firm related derivative assets principally cash held firm thirdparty custodian collateral obtained firm related resale agreements securities borrowed transactions primarily us government agency obligations nonus government agency obligations see note 11 information collateralized agreements financings table presents us government agency obligations nonus government agency obligations collateralize resale agreements securities borrowed transactions table • nonus government agency obligations primarily consists securities issued governments uk japan • given firm’s primary credit exposure transactions counterparty transaction firm would exposed collateral issuer event counterparty default goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 27 legal proceedings firm involved number judicial regulatory arbitration proceedings including described concerning matters arising connection conduct firm’s businesses many proceedings early stages many cases seek indeterminate amount damages asc 450 event “reasonably possible” “the chance future event events occurring remote less likely” event “remote” “the chance future event events occurring slight” thus references upper end range reasonably possible loss cases firm able estimate range reasonably possible loss mean upper end range loss cases firm believes risk loss slight respect matters described management able estimate range reasonably possible loss actual potential plaintiffs claimed amount money damages ii firm threatened sued purchasers securities offering indemnified party firm believes pay full amount judgment iii purchasers demanding firm repurchase securities management estimated upper end range reasonably possible loss equal case amount money damages claimed b case ii difference initial sales price securities firm sold offering estimated lowest subsequent price securities prior action commenced c case iii price purchasers paid securities less estimated value december 2020 relevant securities cases ii iii taking account factors believed relevant particular matter matters type date hereof firm estimated upper end range reasonably possible aggregate loss matters described management able estimate range reasonably possible aggregate loss approximately 09 billion excess aggregate reserves matters management generally unable estimate range reasonably possible loss matters included estimate including actual potential plaintiffs claimed amount money damages except instances management otherwise determine appropriate amount ii matters early stages iii matters relate regulatory investigations reviews except instances management otherwise determine appropriate amount iv uncertainty likelihood class certified ultimate size class v uncertainty outcome pending appeals motions vi significant factual issues resolved andor vii novel legal issues presented example firm’s potential liabilities respect investigations reviews described “regulatory investigations reviews related litigation” generally included management’s estimate reasonably possible loss however management believe based currently available information outcomes matters material adverse effect firm’s financial condition though outcomes could material firm’s operating results particular period depending part upon operating results period see note 18 information mortgagerelated contingencies 1mdbrelated matters 2012 2013 subsidiaries firm acted arrangers purchasers approximately 65 billion debt securities 1mdb november 1 2018 us department justice doj unsealed criminal information guilty plea tim leissner former participating managing director firm indictment ng chong hwa former managing director firm low taek jho leissner pleaded guilty twocount criminal information charging conspiring launder money conspiring violate us foreign corrupt practices act’s fcpa antibribery internal accounting controls provisions low ng charged threecount indictment conspiring launder money conspiring violate fcpa’s antibribery provisions august 28 2018 leissner’s guilty plea accepted us district court eastern district new york leissner adjudicated guilty counts ng also charged indictment conspiring violate fcpa’s internal accounting controls provisions may 6 2019 ng pleaded guilty doj’s criminal charges goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements august 18 2020 firm announced entered settlement agreement government malaysia resolve criminal regulatory proceedings malaysia involving firm includes guarantee government malaysia receives least 14 billion assets proceeds assets seized governmental authorities around world related 1mdb october 22 2020 firm announced reached settlements governmental regulatory investigations relating 1mdb doj sec frb nydfs fca pra singapore attorney general’s chambers singapore commercial affairs department monetary authority singapore hong kong securities futures commission group inc entered threeyear deferred prosecution agreement doj charge firm one count conspiracy violate fcpa filed later dismissed firm abides terms agreement addition gs malaysia pleaded guilty one count conspiracy violate fcpa firm working secure necessary exemptions authorizations regulators settlements impact firm’s activities services provides clients october 2020 firm submitted application us department labor dol maintain status qualified professional asset manager qpam january 2021 dol published public comment notice proposed exemption firm expects obtain exemption sentencing gs malaysia firm received multiple demands beginning november 2018 alleged shareholders section 220 delaware general corporation law books records relating among things firm’s involvement 1mdb firm’s compliance procedures december 13 2019 alleged shareholder filed lawsuit court chancery state delaware seeking books records relating among things firm’s involvement 1mdb firm’s compliance procedures parties agreed stay proceedings pending resolution books records demand february 19 2019 purported shareholder derivative action relating 1mdb filed us district court southern district new york group inc directors time former chairman chief executive officer firm second amended complaint filed november 13 2020 alleges breaches fiduciary duties including connection alleged insider trading certain current former directors unjust enrichment violations antifraud provisions exchange act including connection group inc’s common stock repurchases solicitation proxies seeks unspecified damages disgorgement injunctive relief defendants moved dismiss action january 15 2021 beginning march 2019 firm also received demands alleged shareholders investigate pursue claims certain current former directors executive officers based oversight public disclosures regarding 1mdb related internal controls december 20 2018 putative securities class action lawsuit filed us district court southern district new york group inc certain former officers firm alleging violations antifraud provisions exchange act respect group inc’s disclosures concerning 1mdb seeking unspecified damages plaintiffs filed second amended complaint october 28 2019 defendants moved dismiss january 9 2020 mortgagerelated matters beginning april 2010 number purported securities law class actions filed us district court southern district new york challenging adequacy group inc’s public disclosure among things firm’s activities collateralized debt obligation market firm’s conflict interest management consolidated amended complaint filed july 25 2011 named defendants group inc certain current former officers employees group inc affiliates generally alleges violations sections 10b 20a exchange act seeks monetary damages defendants moved summary judgment april 7 2020 second circuit court appeals affirmed district court’s august 14 2018 grant class certification december 11 2020 united states supreme court granted defendants’ petition writ certiorari seeking review second circuit court appeals’ april 7 2020 decision goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements complaints filed us district court southern district new york july 25 2019 may 29 2020 goldman sachs mortgage company gs mortgage securities corp us bank national association trustee two residential mortgagebacked securitization trusts issued 17 billion securities complaints generally allege mortgage loans trusts failed conform applicable representations warranties seek specific performance alternatively compensatory damages relief november 23 2020 court granted part denied part defendants’ motion dismiss complaint first action denied defendants’ motion dismiss complaint second action january 14 2021 amended complaints filed actions currenciesrelated litigation gsco group inc among defendants named putative class actions filed us district court southern district new york beginning september 2016 behalf putative indirect purchasers foreign exchange instruments november 28 2018 plaintiffs filed secondconsolidated amended complaint generally alleging conspiracy manipulate foreign currency exchange markets asserting claims various state antitrust laws state consumer protection laws seeking treble damages unspecified amount november 19 2020 court approved settlement among parties firm reserved full amount contribution settlement gsco group inc among defendants named action filed us district court southern district new york november 7 2018 group inc gsi gsib gsco goldman sachs group uk limited gsg uk gs bank usa among defendants named action filed high court england wales november 11 2020 case certain direct purchasers foreign exchange instruments opted class settlement reached among others gsco group inc third amended complaint us district court action filed august 3 2020 generally alleges defendants violated federal antitrust law state common law connection alleged conspiracy manipulate foreign currency exchange markets seeks declaratory injunctive relief well unspecified amounts compensatory punitive treble damages summary claim form filed uk action indicates action breach uk eu competition rules 2003 2013 alleges manipulation foreign exchange rates bidoffer spreads exchange commercially sensitive information among defendants collusive trading financial advisory services group inc certain affiliates time parties various civil litigation arbitration proceedings disputes clients third parties relating firm’s financial advisory activities claims generally seek among things compensatory damages cases punitive damages certain cases allege firm appropriately disclose deal conflicts interest underwriting litigation firm affiliates among defendants number proceedings connection securities offerings proceedings including described plaintiffs assert class action individual claims federal state securities laws cases applicable laws allege offering documents securities purchased contained material misstatements omissions generally seek compensatory rescissory damages unspecified amounts certain proceedings involve additional allegations sunedison inc gsco among underwriters named defendants several putative class actions individual actions filed beginning march 2016 relating august 2015 public offering 650 million sunedison inc sunedison convertible preferred stock defendants also include certain sunedison’s directors officers april 21 2016 sunedison filed chapter 11 bankruptcy pending cases transferred us district court southern district new york march 17 2017 plaintiffs putative class action filed consolidated amended complaint gsco underwriter sold 138890 shares sunedison convertible preferred stock offering representing aggregate offering price approximately 139 million april 10 2018 april 17 2018 certain plaintiffs individual actions filed amended complaints defendants reached settlement certain plaintiffs individual actions settlement class action court approved october 25 2019 firm paid full amount contribution settlement december 31 2020 parties informed court reached agreement principle subject documentation resolve remaining individual actions firm reserved full amount proposed contribution settlement goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements valeant pharmaceuticals international inc gsco goldman sachs canada inc gs canada among underwriters initial purchasers named defendants putative class action filed march 2 2016 superior court quebec canada addition underwriters initial purchasers defendants include valeant pharmaceuticals international inc valeant certain directors officers valeant’s auditor gsco gs canada complaint relates june 2013 public offering 23 billion common stock june 2013 rule 144a offering 32 billion principal amount senior notes november 2013 rule 144a offering 900 million principal amount senior notes complaint asserts claims quebec securities act civil code quebec august 29 2017 court certified class includes nonus purchasers offerings defendants’ motion leave appeal certification denied november 30 2017 november 16 2020 court approved settlement agreement among parties terms agreement firm required contribute settlement gsco gs canada sole underwriters sold 5334897 shares common stock june 2013 offering nonus purchasers representing aggregate offering price approximately 453 million initial purchasers proportional share sales nonus purchasers approximately cad142 million principal amount senior notes june 2013 november 2013 rule 144a offerings snap inc gsco among underwriters named defendants putative securities class actions pending california superior court county los angeles us district court central district california beginning may 2017 relating snap inc’s 391 billion march 2017 initial public offering addition underwriters defendants include snap inc certain officers directors gsco underwrote 57040000 shares common stock representing aggregate offering price approximately 970 million underwriter defendants including gsco voluntarily dismissed district court action september 18 2018 district court action defendants moved summary judgment december 19 2019 following court’s november 20 2019 order approving plaintiffs’ motion class certification state court actions stayed april 27 2020 district court preliminarily approved settlement among parties november 13 2020 state court preliminarily approved settlement among parties terms federal state court preliminary settlements firm required contribute either settlement sea limited gs asia among underwriters named defendants putative securities class action filed november 1 2018 new york supreme court county new york relating sea limited’s 989 million october 2017 initial public offering american depositary shares addition underwriters defendants include sea limited certain officers directors gs asia underwrote 28026721 american depositary shares representing aggregate offering price approximately 420 million january 25 2019 plaintiffs filed amended complaint defendants moved dismiss march 26 2019 december 1 2020 court preliminarily approved settlement agreement among parties terms agreement firm required contribute settlement altice usa inc gsco among underwriters named defendants putative securities class actions pending new york supreme court county queens us district court eastern district new york beginning june 2018 relating altice usa inc’s altice 215 billion june 2017 initial public offering addition underwriters defendants include altice certain officers directors gsco underwrote 12280042 shares common stock representing aggregate offering price approximately 368 million june 26 2020 court dismissed amended complaint state court action september 4 2020 plaintiffs moved leave file consolidated amended complaint plaintiffs district court action filed second amended complaint october 7 2020 december 21 2020 parties informed court district court action finalizing terms settlement principle would resolve district court state court actions goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements alnylam pharmaceuticals inc gsco among underwriters named defendants putative securities class action filed september 12 2019 new york supreme court county new york relating alnylam pharmaceuticals inc’s alnylam 805 million november 2017 public offering common stock addition underwriters defendants include alnylam certain officers directors gsco underwrote 2576000 shares common stock representing aggregate offering price approximately 322 million october 30 2020 court denied defendants’ motion dismiss amended complaint filed november 7 2019 november 12 2020 defendants appealed denial appellate division supreme court state new york first department uber technologies inc gsco among underwriters named defendants several putative securities class actions filed beginning september 2019 california superior court county san francisco us district court northern district california relating uber technologies inc’s uber 81 billion may 2019 initial public offering addition underwriters defendants include uber certain officers directors gsco underwrote 35864408 shares common stock representing aggregate offering price approximately 16 billion november 16 2020 court state court action granted defendants’ motion dismiss consolidated amended complaint filed february 11 2020 december 16 2020 plaintiffs appealed august 7 2020 defendants’ motion dismiss district court action denied september 25 2020 plaintiffs district court action moved class certification december 5 2020 plaintiffs state court action filed complaint district court consolidated existing district court action january 25 2021 venator materials plc gsco among underwriters named defendants putative securities class actions texas district court dallas county new york supreme court new york county us district court southern district texas filed beginning february 2019 relating venator materials plc’s venator 522 million august 2017 initial public offering 534 million december 2017 secondary equity offering addition underwriters defendants include venator certain officers directors certain shareholders gsco underwrote 6351347 shares common stock august 2017 initial public offering representing aggregate offering price approximately 127 million 5625768 shares common stock december 2017 secondary equity offering representing aggregate offering price approximately 127 million january 21 2020 texas court appeals reversed texas district court dismissed claims underwriter defendants including gsco texas state court action lack personal jurisdiction february 18 2020 defendants moved dismiss consolidated complaint federal action july 31 2020 defendants filed motion dismiss new york state court action xp inc gsco among underwriters named defendants putative securities class actions pending new york supreme court county new york us district court eastern district york filed beginning march 19 2020 relating xp inc’s xp 23 billion december 2019 initial public offering addition underwriters defendants include xp certain officers directors certain shareholders gsco underwrote 19326218 shares common stock december 2019 initial public offering representing aggregate offering price approximately 522 million august 5 2020 defendants’ motion stay state court action favor federal court action denied august 21 2020 defendants moved dismiss amended complaint filed state court action september 14 2020 defendants moved dismiss consolidated amended complaint filed federal court action goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements gohealth inc gsco among underwriters named defendants putative securities class actions filed beginning september 21 2020 consolidated us district court northern district illinois relating gohealth inc’s gohealth 914 million july 2020 initial public offering addition underwriters defendants include gohealth certain officers directors certain shareholders gsco underwrote 11540550 shares common stock representing aggregate offering price approximately 242 million investment management services group inc certain affiliates parties various civil litigation arbitration proceedings disputes clients relating losses allegedly sustained result firm’s investment management services claims generally seek among things restitution compensatory damages cases punitive damages securities lending antitrust litigation group inc gsco among defendants named putative antitrust class action three individual actions relating securities lending practices filed us district court southern district new york beginning august 2017 complaints generally assert claims federal state antitrust law state common law connection alleged conspiracy among defendants preclude development electronic platforms securities lending transactions individual complaints also assert claims tortious interference business relations state trade practices law second third individual actions unjust enrichment state common law complaints seek declaratory injunctive relief well unspecified amounts compensatory treble punitive damages group inc voluntarily dismissed putative class action january 26 2018 defendants’ motion dismiss class action complaint denied september 27 2018 defendants moved dismiss second individual action december 21 2018 defendants’ motion dismiss first individual action granted august 7 2019 interest rate swap antitrust litigation group inc gsco gsi gs bank usa goldman sachs financial markets lp among defendants named putative antitrust class action relating trading interest rate swaps filed november 2015 consolidated us district court southern district new york goldman sachs entities also among defendants named two antitrust actions relating trading interest rate swaps commenced april 2016 june 2018 respectively us district court southern district new york three operators swap execution facilities certain affiliates actions consolidated pretrial proceedings complaints generally assert claims federal antitrust law state common law connection alleged conspiracy among defendants preclude exchange trading interest rate swaps complaints individual actions also assert claims state antitrust law complaints seek declaratory injunctive relief well treble damages unspecified amount defendants moved dismiss class first individual action district court dismissed state common law claims asserted plaintiffs first individual action otherwise limited state common law claim putative class action antitrust claims actions period 2013 2016 november 20 2018 court granted part denied part defendants’ motion dismiss second individual action dismissing state common law claims unjust enrichment tortious interference denying dismissal federal state antitrust claims march 13 2019 court denied plaintiffs’ motion putative class action amend complaint add allegations related 20082012 conduct granted motion add limited allegations 20132016 plaintiffs added fourth consolidated amended complaint filed march 22 2019 plaintiffs putative class action moved class certification march 7 2019 goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements variable rate demand obligations antitrust litigation gsco among defendants named putative class action relating variable rate demand obligations vrdos filed beginning february 2019 separate complaints consolidated us district court southern district new york consolidated amended complaint filed may 31 2019 generally asserts claims federal antitrust law state common law connection alleged conspiracy among defendants manipulate market vrdos complaint seeks declaratory injunctive relief well unspecified amounts compensatory treble damages november 2 2020 court granted part denied part defendants’ motion dismiss dismissing state common law claims gsco denying dismissal federal antitrust law claims commoditiesrelated litigation gsi among defendants named putative class actions relating trading platinum palladium filed beginning november 25 2014 recently amended may 15 2017 us district court southern district new york amended complaint generally alleges defendants violated federal antitrust laws commodity exchange act connection alleged conspiracy manipulate benchmark physical platinum palladium prices seek declaratory injunctive relief well treble damages unspecified amount march 29 2020 court granted defendants’ motions dismiss reconsideration resulting dismissal claims april 27 2020 plaintiffs appealed second circuit court appeals gsco gsi j aron company metro international trade services metro previously consolidated subsidiary group inc sold fourth quarter 2014 among defendants number putative class individual actions filed beginning august 1 2013 consolidated us district court southern district new york complaints generally allege violations federal antitrust laws state laws connection storage aluminum trading complaints seek declaratory injunctive equitable relief well unspecified monetary damages including treble damages december 2016 district court granted defendants’ motions dismiss august 27 2019 second circuit vacated district court’s dismissals remanded case district court proceedings july 23 2020 district court denied class plaintiffs’ motion class certification december 16 2020 second circuit denied leave appeal denial february 17 2021 district court granted defendants’ motion summary judgment respect claims individual plaintiffs group inc gsco gsi j aron company metro among defendants action filed february 27 2020 high court justice business property courts england wales particulars claim seeks unspecified compensatory exemplary damages based alleged violations uk eu competition laws connection storage trading aluminum connection sale metro firm agreed provide indemnities buyer including potential liabilities legal regulatory proceedings arising conduct metro’s business firm owned us treasury securities litigation gsco among primary dealers named defendants several putative class actions relating market us treasury securities filed beginning july 2015 consolidated us district court southern district new york gsco also among primary dealers named defendants similar individual action filed us district court southern district new york august 25 2017 consolidated class action complaint filed december 29 2017 generally alleges defendants violated antitrust laws connection alleged conspiracy manipulate whenissued market auctions us treasury securities certain defendants including gsco colluded preclude trading us treasury securities electronic trading platforms order impede competition bidding process individual action alleges similar conspiracy regarding manipulation whenissued market auctions well related futures options violation commodity exchange act complaints seek declaratory injunctive relief treble damages unspecified amount restitution defendants moved dismiss february 23 2018 corporate bonds antitrust litigation group inc gsco among dealers named defendants putative class action relating secondary market oddlot corporate bonds filed april 21 2020 us district court southern district new york amended consolidated complaint filed october 29 2020 asserts claims federal antitrust law connection alleged anticompetitive conduct defendants secondary market oddlots corporate bonds seeks declaratory injunctive relief well unspecified monetary damages including treble punitive damages restitution defendants moved dismiss december 15 2020 goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements employmentrelated matters september 15 2010 putative class action filed us district court southern district new york three female former employees complaint subsequently amended alleges group inc gsco systematically discriminated female employees respect compensation promotion performance evaluations complaint alleges class consisting female employees employed specified levels specified areas group inc gsco since july 2002 asserts claims federal new york city discrimination laws complaint seeks class action status injunctive relief unspecified amounts compensatory punitive damages march 30 2018 district court certified damages class plaintiffs’ disparate impact treatment claims september 4 2018 second circuit court appeals denied defendants’ petition interlocutory review district court’s class certification decision subsequently denied defendants’ petition rehearing september 27 2018 plaintiffs advised district court would seek certify class injunctive declaratory relief march 26 2020 magistrate judge district court granted part motion compel arbitration class members parties certain agreements group inc andor gsco agreed arbitrate employmentrelated disputes april 16 2020 plaintiffs submitted objections magistrate judge’s order defendants submitted conditional objections event district judge overturns portion magistrate judge’s order regulatory investigations reviews related litigation group inc certain affiliates subject number investigations reviews cases received subpoenas requests documents information various governmental regulatory bodies selfregulatory organizations litigation shareholder requests relating various matters relating firm’s businesses operations including • public offering process • firm’s investment management financial advisory services • conflicts interest • research practices including research independence interactions research analysts firm personnel including investment banking personnel well third parties • transactions involving governmentrelated financings matters municipal securities including wallcross procedures conflict interest disclosure respect state municipal clients trading structuring municipal derivative instruments connection municipal offerings political contribution rules municipal advisory services possible impact credit default swap transactions municipal issuers • credit cards unsecured installment residential mortgage lending servicing securitization compliance related consumer laws • offering auction sales trading clearance corporate government securities currencies commodities financial products related sales communications activities well firm’s supervision controls relating activities including compliance applicable short sale rules algorithmic highfrequency quantitative trading firm’s us alternative trading system dark pool futures trading options trading whenissued trading transaction reporting technology systems controls securities lending practices trading clearance credit derivative instruments interest rate swaps commodities activities metals storage private placement practices allocations trading securities trading activities communications connection establishment benchmark rates currency rates • compliance fcpa • firm’s hiring compensation practices • firm’s system risk management controls • insider trading potential misuse dissemination material nonpublic information regarding corporate governmental developments effectiveness firm’s insider trading controls information barriers firm cooperating governmental regulatory investigations reviews goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 28 employee benefit plans firm sponsors various pension plans certain postretirement benefit plans primarily healthcare life insurance firm also provides certain benefits former inactive employees prior retirement defined benefit pension plans postretirement plans employees certain nonus subsidiaries participate various defined benefit pension plans generally provide benefits based years credited service percentage eligible compensation firm maintains defined benefit pension plan certain uk employees april 2008 uk defined benefit plan closed new participants frozen existing participants march 31 2016 nonus plans material impact firm’s consolidated results operations firm also maintains defined benefit pension plan substantially us employees hired prior november 1 2003 november 2004 plan closed new participants frozen existing participants addition firm maintains unfunded postretirement benefit plans provide medical life insurance eligible retirees dependents covered programs plans material impact firm’s consolidated results operations firm recognizes funded status defined benefit pension postretirement plans measured difference fair value plan assets benefit obligation consolidated balance sheets december 2020 assets included 343 million related overfunded pension plans liabilities included 478 million related plans december 2019 assets included 257 million related overfunded pension plans liabilities included 415 million related plans defined contribution plans firm contributes employersponsored us nonus defined contribution plans firm’s contribution plans 261 million 2020 254 million 2019 240 million 2018 note 29 employee incentive plans cost employee services received exchange sharebased award generally measured based grantdate fair value award sharebased awards require future service ie vested awards including awards granted retirementeligible employees expensed immediately sharebased awards require future service amortized relevant service period forfeitures recorded occur cash dividend equivalents paid rsus generally charged retained earnings rsus require future service forfeited related dividend equivalents originally charged retained earnings reclassified compensation expense period forfeiture occurs firm generally issues new shares common stock upon delivery sharebased awards certain cases primarily related conflicted employment outlined applicable award agreements firm may cash settle sharebased compensation awards accounted equity instruments awards whose terms allow cash settlement additional paidin capital adjusted extent difference value award time cash settlement grantdate value award stock incentive plan firm sponsors stock incentive plan goldman sachs amended restated stock incentive plan 2018 sip provides grants rsus restricted stock dividend equivalent rights incentive stock options nonqualified stock options stock appreciation rights sharebased awards may subject performance conditions may 2 2018 shareholders approved 2018 sip 2018 sip replaced goldman sachs amended restated stock incentive plan 2015 sip previously effect applies awards granted date approval 2015 sip previously replaced goldman sachs amended restated stock incentive plan 2013 sip december 2020 555 million shares available grant 2018 sip shares common stock underlying awards granted 2018 sip 2015 sip 2013 sip delivered due forfeiture termination cancellation surrendered withheld shares become available delivered 2018 sip shares available grant also subject adjustment certain changes corporate structure permitted 2018 sip 2018 sip scheduled terminate date annual meeting shareholders occurs 2022 goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements restricted stock units firm grants rsus including rsus subject performance conditions employees generally valued based closing price underlying shares date grant taking account liquidity discount applicable postvesting delivery transfer restrictions rsus generally vest underlying shares common stock deliver net required withholding tax outlined applicable award agreements award agreements generally provide vesting accelerated certain circumstances retirement death disability certain cases conflicted employment delivery underlying shares common stock conditioned grantees satisfying certain vesting requirements outlined award agreements rsus subject performance conditions generally deliver threeyear period rsus subject performance conditions generally deliver end threeyear performance period awards based performance final award adjusted zero 150 original grant dividends accrue performance period paid settlement table presents 2020 activity related stock settled rsus table • weighted average grantdate fair value rsus granted 22045 2020 17742 2019 21806 2018 fair value rsus granted included liquidity discount 101 2020 105 2019 119 2018 reflect postvesting delivery transfer restrictions generally 4 years • aggregate fair value awards vested 201 billion 2020 200 billion 2019 179 billion 2018 • ending balance included restricted stock subject future service requirements 72369 shares december 2020 23068 shares december 2019 • ending balance included rsus subject performance conditions future service requirements 210692 rsus december 2020 224898 rsus december 2019 represents maximum amount rsus may earned december 2020 december 2019 • ending balance also included rsus subject performance conditions subject future service requirements 489602 rsus december 2020 268433 rsus december 2019 maximum amount rsus may earned 734403 rsus december 2020 402650 rsus december 2019 relation 2020 yearend first quarter 2021 firm granted employees 90 million rsus 30 million rsus require future service condition delivery related shares common stock awards subject additional conditions outlined award agreements generally shares underlying awards net required withholding tax deliver threeyear period subject postvesting delivery transfer restrictions january 2026 grants included table december 2020 408 million total unrecognized compensation cost related nonvested sharebased compensation arrangements cost expected recognized weighted average period 169 years stock options stock options generally vested outlined applicable stock option agreement general options expired tenth anniversary grant date although may subject earlier termination cancellation certain circumstances accordance terms stock option agreement sip effect time grant options outstanding december 2020 december 2019 2020 2019 options exercised total intrinsic value options exercised 288 million 2018 table presents sharebased compensation related excess tax benefit table excess net tax benefit sharebased awards includes net tax benefit dividend equivalents paid rsus delivery common stock underlying sharebased awards well excess net tax benefit options exercised goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements note 30 parent company group inc condensed statements earnings supplemental disclosures condensed statements earnings revenues expenses included following subsidiaries affiliates • dividends bank subsidiaries included cash dividends 38 million 2020 60 million 2019 76 million 2018 • dividends nonbank subsidiaries affiliates included cash dividends 1132 billion 2020 418 billion 2019 1078 billion 2018 • revenues included 262 billion 2020 129 billion 2019 169 billion 2018 • interest income included 368 billion 2020 726 billion 2019 633 billion 2018 • interest expense included 173 billion 2020 315 billion 2019 239 billion 2018 • expenses included 100 million 2020 138 million 2019 159 million 2018 group inc’s comprehensive incomeloss 50 million 2020 218 billion 2019 257 billion 2018 group inc condensed balance sheets supplemental disclosures goldman sachs funding llc funding ihc whollyowned direct subsidiary group inc provided group inc committed line credit allows group inc draw sufficient funds meet cash needs ordinary course business trading assets included derivative contracts subsidiaries 843 million december 2020 584 million december 2019 trading liabilities included derivative contracts subsidiaries 320 million december 2020 365 million december 2019 december 2020 unsecured longterm borrowings subsidiaries maturity date 3097 billion 2022 241 million 2023 193 million 2024 308 million 2025 704 million 2026thereafter goldman sachs 2020 form 10k goldman sachs group inc subsidiaries notes consolidated financial statements group inc condensed statements cash flows supplemental disclosures cash payments interest net capitalized interest 592 billion 2020 953 billion 2019 983 billion 2018 included 190 billion 2020 301 billion 2019 305 billion 2018 payments subsidiaries cash paymentsrefunds income taxes net 137 billion 2020 272 million 2019 98 million 2018 noncash activities year ended december 2020 • group inc exchanged 112 million trust preferred securities common beneficial interests 125 million certain group inc’s junior subordinated debt noncash activities year ended december 2019 • group inc acquired 850 billion deposits gs bank usa funding ihc exchange borrowings • group inc exchanged 211 million trust preferred securities common beneficial interests 231 million certain group inc’s junior subordinated debt noncash activities year ended december 2018 • group inc restructured funding gsg uk gsi whollyowned subsidiaries group inc resulted net increase loans subsidiaries 571 billion decrease equity interest 571 billion • group inc exchanged 150 million liabilities 46 million related deferred tax assets 104 million equity interest gsco whollyowned subsidiary group inc • group inc exchanged 36 million trust preferred securities common beneficial interests 36 million certain group inc’s junior subordinated debt goldman sachs 2020 form 10k goldman sachs group inc subsidiaries supplemental financial information common stock performance graph table compare performance investment firm’s common stock december 31 2015 last trading day firm’s 2016 fiscal year december 31 2020 sp 500 index sp 500 sp 500 financials index sp 500 financials graph table assume 100 invested december 31 2015 firm’s common stock sp 500 sp 500 financials dividends reinvested without payment commissions performance shown represents past performance considered indication future performance statistical disclosures distribution assets liabilities shareholders’ equity tables present information average balances interest average interest rates goldman sachs 2020 form 10k goldman sachs group inc subsidiaries supplemental financial information tables • assets liabilities interest classified us nonus based location entity assets liabilities held • derivative instruments commodities included noninterestearning assets noninterestbearing liabilities • total interestearning assets primarily consists certain receivables customers counterparties • collateralized financings consists repurchase agreements securities loaned • substantially total interestbearing liabilities consists certain payables customers counterparties • interest rates borrowings include effects interest rate swaps accounted hedges goldman sachs 2020 form 10k goldman sachs group inc subsidiaries supplemental financial information • total loans exclude loans held sale accounted lower cost fair value loans included within interestearning assets • total short longterm borrowings include secured unsecured borrowings changes net interest income volume rate analysis tables present effect net interest income volume rate changes analysis changes due volumerate variance allocated volume goldman sachs 2020 form 10k goldman sachs group inc subsidiaries supplemental financial information deposits table presents information interestbearing deposits table deposits classified us nonus based location entity deposits held december 2020 deposits us offices included 2172 billion nonus offices included 1257 billion time deposits greater 100000 december 2020 deposits us offices included 453 billion held nonus depositors table presents maturities time deposits held us offices shortterm borrowed funds table presents information securities loaned repurchase agreements shortterm borrowings table • borrowings generally mature within one year financial statement date include borrowings redeemable option holder within one year financial statement date • amounts outstanding yearend shortterm borrowings included shortterm secured financings 1322 billion december 2020 732 billion december 2019 956 billion december 2018 • weighted average interest rates borrowings include effect hedging activities loan portfolio table presents information loans table loans classified us nonus based location entity loans held allowance loan losses table presents changes allowance loan losses goldman sachs 2020 form 10k goldman sachs group inc subsidiaries supplemental financial information table • allowance loan losses 2020 2019 2018 primarily related corporate loans consumer loans held entities located us allowance loan losses 2017 earlier primarily related corporate wealth management loans held entities located us • net chargeoffs 2020 primarily related corporate loans held entities located us net chargeoffs 2019 primarily related consumer loans held entities located us net chargeoffs 2018 primarily related consumer loans held entities located us commercial real estate pci loans held entities located outside us net chargeoffs 2017 earlier primarily related corporate loans held entities located us maturities sensitivity changes interest rates table presents gross loans tenor distribution loans fixed floating interest rates crossborder outstandings crossborder outstandings based federal financial institutions examination council’s ffiec guidelines reporting crossborder information represent amounts firm may able obtain foreign country due countryspecific events including unfavorable economic political conditions economic social instability changes government policies credit exposure represents potential loss due default deterioration credit quality counterparty issuer securities instruments measured based potential loss event nonpayment counterparty credit exposure reduced effect risk mitigants netting agreements counterparties permit firm offset receivables payables counterparties obtaining collateral counterparties table include effects risk mitigants represent firm’s credit exposure table presents crossborder outstandings commitments country crossborder outstandings exceed 075 consolidated assets accordance ffiec guidelines table • crossborder outstandings includes cash receivables collateralized agreements cash financial instruments exclude derivative instruments • collateralized agreements presented gross without reduction related securities collateral held • margin loans included receivables presented based amount collateral advanced counterparty • substantially commitments consists commitments extend credit collateralized agreement commitments goldman sachs 2020 form 10k goldman sachs group inc subsidiaries item 9item 8 financial statements supplementary data consolidated financial statements registrant subsidiaries together notes thereto report independent accountants thereon contained 1999 annual report shareholders pages 46 73 incorporated herein reference addition information page 74 1999 annual report shareholders caption “supplemental financial information quarterly results” incorporated herein reference item 9item 8 financial statements supplementary data index management’s report internal control financial reporting management goldman sachs group inc together consolidated subsidiaries firm responsible establishing maintaining adequate internal control financial reporting firm’s internal control financial reporting process designed supervision firm’s principal executive principal financial officers provide reasonable assurance regarding reliability financial reporting preparation firm’s financial statements external reporting purposes accordance us generally accepted accounting principles december 31 2015 management conducted assessment firm’s internal control financial reporting based framework established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso based assessment management determined firm’s internal control financial reporting december 31 2015 effective internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance us generally accepted accounting principles receipts expenditures made accordance authorizations management directors firm provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition firm’s assets could material effect financial statements firm’s internal control financial reporting december 31 2015 audited pricewaterhousecoopers llp independent registered public accounting firm stated report appearing page 115 expresses unqualified opinion effectiveness firm’s internal control financial reporting december 31 2015 report independent registered public accounting firm board directors shareholders goldman sachs group inc opinion consolidated financial statements listed accompanying index present fairly material respects financial position goldman sachs group inc subsidiaries company december 31 2015 2014 results operations cash flows three years period ended december 31 2015 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2015 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing page 114 responsibility express opinions financial statements company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp new york new york february 19 2016 goldman sachs group inc subsidiaries consolidated statements earnings accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements comprehensive income accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements financial condition accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements changes shareholders’ equity accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements cash flows supplemental disclosures cash payments interest net capitalized interest 482 billion 643 billion 569 billion 2015 2014 2013 respectively cash payments income taxes net refunds 265 billion 305 billion 407 billion 2015 2014 2013 respectively noncash activities 2015 firm exchanged 262 million trust preferred securities common beneficial interests held firm 296 million firm’s junior subordinated debt held issuing trust following exchange junior subordinated debt extinguished 2015 firm repurchased 60 million common stock settlement occurred cash paid 2016 2014 firm exchanged 158 billion trust preferred securities common beneficial interests senior guaranteed trust securities held firm 187 billion firm’s junior subordinated debt held issuing trusts following exchange junior subordinated debt extinguished 2014 firm sold certain consolidated investments provided seller financing resulted noncash increase loans receivable 115 million accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries notes consolidated financial statements note 1 description business goldman sachs group inc group inc parent company delaware corporation together consolidated subsidiaries collectively firm leading global investment banking securities investment management firm provides wide range financial services substantial diversified client base includes corporations financial institutions governments individuals founded 1869 firm headquartered new york maintains offices major financial centers around world firm reports activities following four business segments investment banking firm provides broad range investment banking services diverse group corporations financial institutions investment funds governments services include strategic advisory assignments respect mergers acquisitions divestitures corporate defense activities restructurings spinoffs risk management debt equity underwriting public offerings private placements including local crossborder transactions acquisition financing well derivative transactions directly related activities institutional client services firm facilitates client transactions makes markets fixed income equity currency commodity products primarily institutional clients corporations financial institutions investment funds governments firm also makes markets clears client transactions major stock options futures exchanges worldwide provides financing securities lending prime brokerage services institutional clients investing lending firm invests originates loans provide financing clients investments loans typically longerterm nature firm makes investments consolidated directly indirectly funds separate accounts firm manages debt securities loans public private equity securities real estate entities investment management firm provides investment management services offers investment products primarily separately managed accounts commingled vehicles mutual funds private investment funds across major asset classes diverse set institutional individual clients firm also offers wealth advisory services including portfolio management financial counseling brokerage transaction services highnetworth individuals families note 2 basis presentation consolidated financial statements prepared accordance accounting principles generally accepted united states us gaap include accounts group inc entities firm controlling financial interest intercompany transactions balances eliminated references 2015 2014 2013 refer firm’s years ended dates context requires december 31 2015 december 31 2014 december 31 2013 respectively reference future year refers year ending december 31 year certain reclassifications made previously reported amounts conform current presentation goldman sachs group inc subsidiaries notes consolidated financial statements note 3 significant accounting policies firm’s significant accounting policies include measure fair value assets liabilities accounting goodwill identifiable intangible assets consolidate entity see notes 5 8 policies fair value measurements note 13 policies goodwill identifiable intangible assets note 12 policies consolidation accounting significant accounting policies either described included following footnotes consolidation firm consolidates entities firm controlling financial interest firm determines whether controlling financial interest entity first evaluating whether entity voting interest entity variable interest entity vie voting interest entities voting interest entities total equity investment risk sufficient enable entity finance activities independently ii equity holders power direct activities entity significantly impact economic performance obligation absorb losses entity right receive residual returns entity usual condition controlling financial interest voting interest entity ownership majority voting interest firm majority voting interest voting interest entity consolidated variable interest entities vie entity lacks one characteristics voting interest entity firm controlling financial interest vie firm variable interest interests provide power direct activities vie significantly impact vie’s economic performance ii obligation absorb losses vie right receive benefits vie could potentially significant vie see note 12 information vies equitymethod investments firm controlling financial interest entity exert significant influence entity’s operating financial policies investment accounted either equity method accounting ii fair value electing fair value option available us gaap significant influence generally exists firm owns 20 50 entity’s common stock insubstance common stock general firm accounts investments acquired fair value option became available fair value certain cases firm applies equity method accounting new investments strategic nature closely related firm’s principal business activities firm significant degree involvement cash flows operations investee costbenefit considerations less significant see note 13 information equitymethod investments goldman sachs group inc subsidiaries notes consolidated financial statements investment funds firm formed numerous investment funds thirdparty investors funds typically organized limited partnerships limited liability companies firm acts general partner manager generally firm hold majority economic interests funds usually voting interest entities generally consolidated thirdparty investors typically rights terminate funds remove firm general partner manager investments funds included “financial instruments owned fair value” see notes 6 18 22 information investments funds use estimates preparation consolidated financial statements requires management make certain estimates assumptions important relate fair value measurements accounting goodwill identifiable intangible assets provisions losses may arise litigation regulatory proceedings tax audits allowance losses loans lending commitments held investment estimates assumptions based best available information actual results could materially different revenue recognition financial assets financial liabilities fair value financial instruments owned fair value financial instruments sold yet purchased fair value recorded fair value either fair value option accordance us gaap addition firm elected account certain financial assets financial liabilities fair value electing fair value option fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date financial assets marked bid prices financial liabilities marked offer prices fair value measurements include transaction costs fair value gains losses generally included “market making” positions institutional client services “other principal transactions” positions investing lending see notes 5 8 information fair value measurements investment banking fees financial advisory assignments underwriting revenues recognized earnings services related underlying transaction completed terms assignment expenses associated transactions deferred related revenue recognized assignment otherwise concluded expenses associated financial advisory assignments recorded noncompensation expenses net client reimbursements underwriting revenues presented net related expenses investment management firm earns management fees incentive fees investment management services management fees mutual funds calculated percentage daily net asset value received monthly management fees hedge funds separately managed accounts calculated percentage monthend net asset value generally received quarterly management fees private equity funds calculated percentage monthly invested capital commitments received quarterly semiannually annually depending fund management fees recognized period related service provided incentive fees calculated percentage fund’s separately managed account’s return excess return specified benchmark performance target incentive fees generally based investment performance 12month period life fund fees based performance 12month period subject adjustment prior end measurement period fees based investment performance life fund future investment underperformance may require fees previously distributed firm returned fund incentive fees recognized material contingencies resolved management incentive fee revenues included “investment management” revenues firm makes payments brokers advisors related placement firm’s investment funds payments computed based either percentage management fee investment fund’s net asset value firm principal arrangement costs recorded gross basis included “brokerage clearing exchange distribution fees” firm agent arrangement costs recorded net basis “investment management” revenues goldman sachs group inc subsidiaries notes consolidated financial statements commissions fees firm earns “commissions fees” executing clearing client transactions stock options futures markets well overthecounter otc transactions commissions fees recognized day trade executed transfers assets transfers assets accounted sales firm relinquished control assets transferred transfers assets accounted sales gains losses recognized net revenues assets liabilities arise firm’s continuing involvement transferred assets recognized fair value transfers assets accounted sales assets remain “financial instruments owned fair value” transfer accounted collateralized financing related interest expense recognized life transaction see note 10 information transfers assets accounted collateralized financings note 11 information transfers assets accounted sales cash equivalents firm defines cash equivalents highly liquid overnight deposits held ordinary course business december 2015 december 2014 “cash equivalents” included 647 billion 579 billion respectively cash due banks 6864 billion 5181 billion respectively interestbearing deposits banks receivables payables brokers dealers clearing organizations receivables payables brokers dealers clearing organizations accounted cost plus accrued interest generally approximates fair value receivables payables carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 8 receivables payables included firm’s fair value hierarchy substantially would classified level 2 december 2015 december 2014 receivables customers counterparties receivables customers counterparties generally relate collateralized transactions receivables primarily comprised customer margin loans certain transfers assets accounted secured loans rather purchases fair value collateral posted connection certain derivative transactions substantially receivables accounted amortized cost net estimated uncollectible amounts certain firm’s receivables customers counterparties accounted fair value fair value option changes fair value generally included “market making” revenues see note 8 information receivables customers counterparties accounted fair value fair value option addition december 2015 december 2014 firm’s receivables customers counterparties included 235 billion 400 million respectively loans held sale accounted lower cost fair value see note 5 overview firm’s fair value measurement policies december 2015 december 2014 carrying value receivables accounted fair value generally approximated fair value items carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 8 items included firm’s fair value hierarchy substantially would classified level 2 december 2015 december 2014 interest receivables customers counterparties recognized life transaction included “interest income” payables customers counterparties payables customers counterparties primarily consist customer credit balances related firm’s prime brokerage activities payables customers counterparties accounted cost plus accrued interest generally approximates fair value payables carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 8 payables included firm’s fair value hierarchy substantially would classified level 2 december 2015 december 2014 interest payables customers counterparties recognized life transaction included “interest expense” goldman sachs group inc subsidiaries notes consolidated financial statements offsetting assets liabilities reduce credit exposures derivatives securities financing transactions firm may enter master netting agreements similar arrangements collectively netting agreements counterparties permit offset receivables payables counterparties netting agreement contract counterparty permits net settlement multiple transactions counterparty including upon exercise termination rights nondefaulting party upon exercise termination rights transactions governed netting agreement terminated net settlement amount calculated addition firm receives posts cash securities collateral respect derivatives securities financing transactions subject terms related credit support agreements similar arrangements collectively credit support agreements enforceable credit support agreement grants nondefaulting party exercising termination rights right liquidate collateral apply proceeds amounts owed order assess enforceability firm’s right setoff netting credit support agreements firm evaluates various factors including applicable bankruptcy laws local statutes regulatory provisions jurisdiction parties agreement derivatives reported netbycounterparty basis ie net payable receivable derivative assets liabilities given counterparty consolidated statements financial condition legal right setoff exists enforceable netting agreement resale repurchase agreements securities borrowed loaned transactions term currency presented netbycounterparty basis consolidated statements financial condition transactions meet certain settlement criteria subject netting agreements consolidated statements financial condition derivatives reported net cash collateral received posted enforceable credit support agreements transacted enforceable netting agreement consolidated statements financial condition resale repurchase agreements securities borrowed loaned reported net related cash securities received posted collateral see note 10 information collateral received pledged including rights deliver repledge collateral see notes 7 10 information offsetting foreign currency translation assets liabilities denominated nonus currencies translated rates exchange prevailing date consolidated statements financial condition revenues expenses translated average rates exchange period foreign currency remeasurement gains losses transactions nonfunctional currencies recognized earnings gains losses translation financial statements nonus operation functional currency us dollar included net hedges taxes consolidated statements comprehensive income recent accounting developments reporting discontinued operations disclosures disposals components entity asc 205 asc 360 april 2014 fasb issued asu 201408 “presentation financial statements topic 205 property plant equipment topic 360 reporting discontinued operations disclosures disposals components entity” asu 201408 limits discontinued operations reporting disposals components entity represent strategic shifts major effect entity’s operations financial results asu requires expanded disclosures discontinued operations disposals individually significant components entity qualify discontinued operations reporting asu effective disposals components classified held sale occurred within annual periods beginning december 15 2014 interim periods within years early adoption permitted firm early adopted asu 201408 2014 adoption materially affect firm’s financial condition results operations cash flows revenue contracts customers asc 606 may 2014 fasb issued asu 201409 “revenue contracts customers topic 606” asu 201409 provides comprehensive guidance recognition revenue customers arising transfer goods services asu also provides guidance accounting certain contract costs requires new disclosures asu 201409 amended august 2015 asu 201514 effective annual reporting periods beginning december 15 2017 including interim periods within reporting period early adoption permitted annual reporting periods beginning december 15 2016 firm still evaluating effect asu financial condition results operations cash flows goldman sachs group inc subsidiaries notes consolidated financial statements repurchasetomaturity transactions repurchase financings disclosures asc 860 june 2014 fasb issued asu 201411 “transfers servicing topic 860 repurchasetomaturity transactions repurchase financings disclosures” asu 201411 changes accounting repurchase resaletomaturity agreements requiring agreements recognized financing arrangements requires transfer financial asset repurchase agreement entered contemporaneously accounted separately asu 201411 also requires additional disclosures certain transferred financial assets accounted sales certain securities financing transactions accounting changes additional disclosures certain transferred financial assets accounted sales effective first interim annual reporting periods beginning december 15 2014 additional disclosures certain securities financing transactions required annual reporting periods beginning december 15 2014 interim reporting periods beginning march 15 2015 adoption asu 201411 materially affect firm’s financial condition results operations cash flows measuring financial assets financial liabilities consolidated collateralized financing entity asc 810 august 2014 fasb issued asu 201413 “consolidation topic 810 measuring financial assets financial liabilities consolidated collateralized financing entity cfe” asu 201413 provides alternative reflect changes fair value financial assets financial liabilities cfe measuring either fair value assets liabilities whichever observable asu 201413 provides new disclosure requirements electing approach effective interim annual periods beginning december 15 2015 adoption asu 201413 first quarter 2016 materially affect firm’s financial condition results operations cash flows amendments consolidation analysis asc 810 february 2015 fasb issued asu 201502 “consolidation topic 810 amendments consolidation analysis” asu 201502 eliminates deferral requirements asu 200917 “consolidations topic 810 improvements financial reporting enterprises involved variable interest entities” certain interests investment funds provides scope exception topic 810 certain investments money market funds asu also makes several modifications consolidation guidance vies general partners’ investments limited partnerships well modifications evaluation whether limited partnerships vies voting interest entities asu 201502 effective interim annual reporting periods beginning december 15 2015 asu 201502 required adopted modified retrospective approach retrospectively periods presented early adoption permitted firm adopted asu 201502 effective january 1 2016 using modified retrospective approach impact adoption material approximately 200 million firm’s statement financial condition simplifying presentation debt issuance costs asc 835 april 2015 fasb issued asu 201503 “interest imputation interest subtopic 83530 simplifying presentation debt issuance costs” asu 201503 simplifies presentation debt issuance costs requiring costs related recognized debt liability presented statement financial condition direct reduction carrying amount liability asu 201503 effective annual reporting periods beginning december 15 2015 including interim periods within reporting period asu 201503 required applied retrospectively periods presented beginning year adoption early adoption permitted firm early adopted asu 201503 september 2015 upon adoption impact reduction total assets total liabilities 444 million accordance asu 201503 previously reported amounts conformed current presentation reflected notes 13 16 impact december 2014 reduction total assets total liabilities 398 million goldman sachs group inc subsidiaries notes consolidated financial statements disclosures investments certain entities calculate net asset value nav per share equivalent asc 820 may 2015 fasb issued asu 201507 “fair value measurement topic 820 disclosures investments certain entities calculate net asset value per share equivalent” asu 201507 requires investments fair value measured nav using practical expedient investments funds measured nav “fair value measurements disclosures” topic 820 excluded fair value hierarchy asu 201507 effective annual reporting periods beginning december 15 2015 including interim periods within reporting period asu 201507 required applied retrospectively periods presented beginning period adoption early adoption permitted firm early adopted asu 201507 june 2015 adoption affect firm’s financial condition results operations cash flows accordance asu 201507 previously reported amounts conformed current presentation see notes 4 6 disclosures required asu 201507 simplifying accounting measurementperiod adjustments asc 805 september 2015 fasb issued asu 201516 “business combinations topic 805 simplifying accounting measurementperiod adjustments” asu 201516 eliminates requirement acquirer business combination account measurementperiod adjustments retrospectively asu 201516 effective annual reporting periods beginning december 15 2015 including interim periods within reporting period adoption asu 201516 first quarter 2016 materially affect firm’s financial condition results operations cash flows recognition measurement financial assets financial liabilities asc 825 january 2016 fasb issued asu 201601 “financial instruments topic 825 recognition measurement financial assets financial liabilities” asu 201601 amends certain aspects recognition measurement presentation disclosure financial instruments guidance includes requirement present separately comprehensive income changes fair value attributable firm’s credit spreads debt valuation adjustments dva net tax financial liabilities fair value option elected asu 201601 effective annual reporting periods beginning december 15 2017 including interim periods within reporting period early adoption permitted modified retrospective approach requirements related dva cumulative dva gain net tax approximately 300 million december 2015 reclassified retained earnings accumulated comprehensive loss asu 201601 early adopted firm 2016 addition dva recorded 2016 would classified comprehensive incomeloss note 4 financial instruments owned fair value financial instruments sold yet purchased fair value financial instruments owned fair value financial instruments sold yet purchased fair value accounted fair value either fair value option accordance us gaap see note 8 information financial assets financial liabilities accounted fair value primarily fair value option goldman sachs group inc subsidiaries notes consolidated financial statements tables present firm’s financial instruments owned fair value financial instruments sold yet purchased fair value 1 includes 311 billion 497 billion loans backed commercial real estate december 2015 december 2014 respectively 2 includes 1022 billion 643 billion loans backed residential real estate december 2015 december 2014 respectively 3 includes 272 million 618 million loans backed consumer loans assets december 2015 december 2014 respectively gains losses market making principal transactions table presents “market making” revenues major product type well “other principal transactions” revenues gainslosses include realized unrealized gains losses primarily related firm’s financial instruments owned fair value financial instruments sold yet purchased fair value including derivative nonderivative financial instruments gainslosses exclude related interest income interest expense see note 23 information interest income interest expense gainslosses table representative manner firm manages business activities many firm’s marketmaking client facilitation strategies utilize financial instruments across various product types accordingly gains losses one product type frequently offset gains losses product types example firm’s longerterm derivatives across product types sensitive changes interest rates may economically hedged interest rate swaps similarly significant portion firm’s cash instruments derivatives across product types exposure foreign currencies may economically hedged foreign currency contracts 1 principal transactions included firm’s investing lending segment see note 25 net revenues including net interest income product type investing lending well amount net interest income included investing lending 2 includes gain 211 million sale majority stake firm’s european insurance business goldman sachs group inc subsidiaries notes consolidated financial statements note 5 fair value measurements fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date financial assets marked bid prices financial liabilities marked offer prices fair value measurements include transaction costs firm measures certain financial assets financial liabilities portfolio ie based net exposure market andor credit risks best evidence fair value quoted price active market quoted prices active markets available fair value determined reference prices similar instruments quoted prices recent transactions less active markets internally developed models primarily use marketbased independently sourced parameters inputs including limited interest rates volatilities equity debt prices foreign exchange rates commodity prices credit spreads funding spreads ie spread difference interest rate borrower could finance given financial instrument relative benchmark interest rate us gaap threelevel fair value hierarchy disclosure fair value measurements fair value hierarchy prioritizes inputs valuation techniques used measure fair value giving highest priority level 1 inputs lowest priority level 3 inputs financial instrument’s level fair value hierarchy based lowest level input significant fair value measurement fair value hierarchy follows level 1 inputs unadjusted quoted prices active markets firm access measurement date identical unrestricted assets liabilities level 2 inputs valuation techniques observable either directly indirectly level 3 one inputs valuation techniques significant unobservable fair values substantially firm’s financial assets financial liabilities based observable prices inputs classified levels 1 2 fair value hierarchy certain level 2 level 3 financial assets financial liabilities may require appropriate valuation adjustments market participant would require arrive fair value factors counterparty firm’s credit quality funding risk transfer restrictions liquidity bidoffer spreads valuation adjustments generally based market evidence see notes 6 8 information fair value measurements cash instruments derivatives financial assets financial liabilities accounted fair value primarily fair value option including information unrealized gains losses related level 3 financial assets financial liabilities transfers level 3 respectively table presents financial assets financial liabilities accounted fair value fair value option accordance us gaap counterparty cash collateral netting represents impact derivatives netting across levels fair value hierarchy netting among positions classified level included level 1 includes 836 billion 834 billion december 2015 december 2014 respectively carried fair value amounts generally approximate fair value table presents summary level 3 financial assets see notes 6 8 information level 3 financial assets level 3 financial assets december 2015 decreased compared december 2014 primarily reflecting decrease level 3 cash instruments see note 6 information changes level 3 cash instruments goldman sachs group inc subsidiaries notes consolidated financial statements note 6 cash instruments cash instruments include us government federal agency obligations nonus government agency obligations mortgagebacked loans securities bank loans bridge loans corporate debt securities equities convertible debentures investments funds measured nav nonderivative financial instruments owned financial instruments sold yet purchased see types cash instruments included level fair value hierarchy valuation techniques significant inputs used determine fair values see note 5 overview firm’s fair value measurement policies level 1 cash instruments level 1 cash instruments include us government obligations nonus government obligations actively traded listed equities certain government agency obligations money market instruments valued using quoted prices identical unrestricted instruments active markets firm defines active markets equity instruments based average daily trading volume absolute terms relative market capitalization instrument firm defines active markets debt instruments based average daily trading volume number days trading activity level 2 cash instruments level 2 cash instruments include commercial paper certificates deposit time deposits government agency obligations certain nonus government obligations corporate debt securities commodities certain mortgagebacked loans securities certain bank loans bridge loans restricted less liquid listed equities state municipal obligations certain lending commitments valuations level 2 cash instruments verified quoted prices recent trading activity identical similar instruments broker dealer quotations alternative pricing sources reasonable levels price transparency consideration given nature quotations eg indicative firm relationship recent market activity prices provided alternative pricing sources valuation adjustments typically made level 2 cash instruments cash instrument subject transfer restrictions andor ii premiums liquidity discounts market participant would require arrive fair value valuation adjustments generally based market evidence level 3 cash instruments level 3 cash instruments one significant valuation inputs observable absent evidence contrary level 3 cash instruments initially valued transaction price considered best initial estimate fair value subsequently firm uses methodologies determine fair value vary based type instrument valuation inputs assumptions changed corroborated substantive observable evidence including values realized sales financial assets goldman sachs group inc subsidiaries notes consolidated financial statements valuation techniques significant inputs table presents valuation techniques nature significant inputs valuation techniques significant inputs generally used determine fair values type level 3 cash instrument goldman sachs group inc subsidiaries notes consolidated financial statements significant unobservable inputs table presents ranges weighted averages significant unobservable inputs used value firm’s level 3 cash instruments table • ranges represent significant unobservable inputs used valuation type cash instrument • weighted averages calculated weighting input relative fair value financial instruments • ranges weighted averages inputs representative appropriate inputs use calculating fair value one cash instrument example highest multiple presented tables private equity investments appropriate valuing specific private equity investment may appropriate valuing private equity investment accordingly ranges inputs presented represent uncertainty possible ranges fair value measurements firm’s level 3 cash instruments • increases yield discount rate capitalization rate duration cumulative loss rate used valuation firm’s level 3 cash instruments would result lower fair value measurement increases recovery rate basis multiples longterm growth rate compound annual growth rate would result higher fair value measurement due distinctive nature firm’s level 3 cash instruments interrelationship inputs necessarily uniform within product type • fair value one instrument may determined using multiple valuation techniques example market comparables discounted cash flows may used together determine fair value therefore level 3 balance encompasses techniques goldman sachs group inc subsidiaries notes consolidated financial statements fair value cash instruments level tables present cash instrument assets liabilities fair value level within fair value hierarchy tables • cash instrument assets liabilities included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” respectively • cash instrument assets shown positive amounts cash instrument liabilities shown negative amounts tables • total cash instrument assets includes collateralized debt obligations cdos collateralized loan obligations clos backed real estate corporate obligations 405 million level 2 774 million level 3 december 2015 234 million level 2 134 billion level 3 december 2014 respectively • level 3 equities convertible debentures includes 769 billion private equity investments 308 million investments real estate entities 552 million convertible debentures december 2015 1025 billion private equity investments 294 million investments real estate entities 562 million convertible debentures december 2014 goldman sachs group inc subsidiaries notes consolidated financial statements transfers levels fair value hierarchy transfers levels fair value hierarchy reported beginning reporting period occur 2015 • transfers level 2 level 1 cash instruments 260 million reflecting transfers public equity securities primarily due decreased market activity instruments • transfers level 1 level 2 cash instruments 283 million reflecting transfers public equity securities due increased market activity instruments 2014 • transfers level 2 level 1 cash instruments 60 million including 47 million public equity securities 13 million us government federal agency obligations due decreased market activity instruments • transfers level 1 level 2 cash instruments 92 million reflecting transfers public equity securities due increased market activity instruments see level 3 rollforward information transfers level 2 level 3 level 3 rollforward table presents changes fair value cash instrument assets liabilities categorized level 3 end year table • cash instrument asset liability transferred level 3 reporting period entire gain loss period included level 3 level 3 cash instrument assets increases shown positive amounts decreases shown negative amounts level 3 cash instrument liabilities increases shown negative amounts decreases shown positive amounts • level 3 cash instruments frequently economically hedged level 1 level 2 cash instruments andor level 1 level 2 level 3 derivatives accordingly gains losses reported level 3 partially offset gains losses attributable level 1 level 2 cash instruments andor level 1 level 2 level 3 derivatives result gains losses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources • purchases include originations secondary market purchases • net unrealized gainslosses relate instruments still held yearend • year ended december 2015 net realized unrealized gains level 3 cash instrument assets 166 billion reflecting 957 million realized gains 701 million unrealized gains include gainslosses approximately 142 million 108 billion 718 million reported “market making” “other principal transactions” “interest income” respectively • year ended december 2014 net realized unrealized gains level 3 cash instrument assets 320 billion reflecting 133 billion realized gains 187 billion unrealized gains include gains approximately 247 million 195 billion 100 billion reported “market making” “other principal transactions” “interest income” respectively • see “level 3 rollforward commentary” explanation net unrealized gainslosses level 3 cash instruments activity related transfers level 3 goldman sachs group inc subsidiaries notes consolidated financial statements level 3 rollforward commentary year ended december 2015 net unrealized gain level 3 cash instruments 680 million reflecting 701 million gain cash instrument assets 21 million loss cash instrument liabilities 2015 primarily reflected gains private equity investments principally driven companyspecific events strong corporate performance transfers level 3 2015 primarily reflected transfers certain bank loans bridge loans private equity investments loans securities backed commercial real estate level 2 principally due reduced price transparency result lack market evidence including fewer market transactions instruments transfers level 3 2015 primarily reflected transfers certain private equity investments corporate debt securities loans securities backed residential real estate level 2 principally due increased price transparency result market evidence including market transactions instruments transfers certain bank loans bridge loans level 2 principally due certain unobservable yield duration inputs significant valuation instruments year ended december 2014 net unrealized gain level 3 cash instruments 187 billion reflecting 187 billion gain cash instrument assets 1 million loss cash instrument liabilities 2014 primarily reflected gains private equity investments principally driven companyspecific events strong corporate performance transfers level 3 2014 primarily reflected transfers certain private equity investments corporate debt securities level 2 principally due reduced price transparency result lack market evidence including fewer market transactions instruments transfers level 3 2014 primarily reflected transfers certain private equity investments bank loan bridge loans corporate debt securities level 2 principally due increased price transparency result market evidence including market transactions instruments goldman sachs group inc subsidiaries notes consolidated financial statements investments funds measured net asset value per share cash instruments fair value include investments funds measured nav investment fund firm uses nav measure fair value fund investments fund investment readily determinable fair value ii nav investment fund calculated manner consistent measurement principles investment company accounting including measurement underlying investments fair value firm early adopted asu 201507 june 2015 required disclosures paragraphs tables limited investments funds measured nav accordance asu 201507 previously reported amounts conformed current presentation firm’s investments funds measured nav primarily consist investments firmsponsored private equity credit real estate hedge funds firm coinvests thirdparty investors private equity funds primarily invest broad range industries worldwide variety situations including leveraged buyouts recapitalizations growth investments distressed investments credit funds generally invest loans fixed income instruments focused providing private highyield capital mid largesized leveraged management buyout transactions recapitalizations financings refinancings acquisitions restructurings private equity firms private family companies corporate issuers real estate funds invest globally primarily real estate companies loan portfolios debt recapitalizations property private equity credit real estate funds primarily closedend funds firm’s investments generally eligible redemption distributions received funds underlying assets liquidated distributed firm also invests hedge funds primarily multidisciplinary hedge funds employ fundamental bottomup investment approach across various asset classes strategies including longshort equity credit convertibles risk arbitrage special situations capital structure arbitrage firm’s investments hedge funds primarily include interests underlying assets illiquid nature proceeds redemptions received underlying assets liquidated distributed many funds described “covered funds” defined volcker rule us doddfrank wall street reform consumer protection act doddfrank act board governors federal reserve system federal reserve board extended conformance period july 2016 investments relationships covered funds place prior december 2013 indicated intends extend conformance period july 2017 firm currently expects able exit majority interests funds orderly transactions prior july 2017 subject market conditions however extent underlying investments particular funds sold firm may required sell interests funds occurs firm may receive value interests less carrying value could limited secondary market investments firm may unable sell orderly transactions firm continues manage existing interests funds taking account conformance period outlined order compliant volcker rule firm required reduce interests funds table end conformance period tables present fair value firm’s investments unfunded commitments funds measured nav goldman sachs group inc subsidiaries notes consolidated financial statements note 7 derivatives hedging activities derivative activities derivatives instruments derive value underlying asset prices indices reference rates inputs combination factors derivatives may traded exchange exchangetraded may privately negotiated contracts usually referred otc derivatives certain firm’s otc derivatives cleared settled central clearing counterparties otccleared others bilateral contracts two counterparties bilateral otc marketmaking market maker firm enters derivative transactions provide liquidity clients facilitate transfer hedging risks capacity firm typically acts principal consequently required commit capital provide execution market maker essential maintain inventory financial instruments sufficient meet expected client market demands risk management firm also enters derivatives actively manage risk exposures arise marketmaking investing lending activities derivative cash instruments firm’s holdings exposures hedged many cases either portfolio riskspecific basis opposed instrumentbyinstrument basis offsetting impact economic hedging reflected business segment related revenues addition firm may enter derivatives designated hedges us gaap derivatives used manage interest rate exposure certain fixedrate unsecured longterm shortterm borrowings deposits manage foreign currency exposure net investment certain nonus operations firm enters various types derivatives including • futures forwards contracts commit counterparties purchase sell financial instruments commodities currencies future • swaps contracts require counterparties exchange cash flows currency interest payment streams amounts exchanged based specific terms contract reference specified rates financial instruments commodities currencies indices • options contracts option purchaser right obligation purchase sell option writer financial instruments commodities currencies within defined time period specified price derivatives reported netbycounterparty basis ie net payable receivable derivative assets liabilities given counterparty legal right setoff exists enforceable netting agreement counterparty netting derivatives accounted fair value net cash collateral received posted enforceable credit support agreements cash collateral netting derivative assets liabilities included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” respectively realized unrealized gains losses derivatives designated hedges asc 815 included “market making” “other principal transactions” note 4 goldman sachs group inc subsidiaries notes consolidated financial statements table presents gross fair value notional amount derivative contracts major product type amounts counterparty cash collateral netting consolidated statements financial condition well cash securities collateral posted received enforceable credit support agreements meet criteria netting us gaap table • gross fair values exclude effects counterparty netting collateral therefore representative firm’s exposure • firm received posted collateral credit support agreements yet determined agreements enforceable related collateral netted • notional amounts represent sum gross long short derivative contracts provide indication volume firm’s derivative activity represent anticipated losses 1 includes derivative assets derivative liabilities 1709 billion 1816 billion respectively december 2015 derivative assets derivative liabilities 2593 billion 2619 billion respectively december 2014 subject enforceable netting agreement subject netting agreement firm yet determined enforceable goldman sachs group inc subsidiaries notes consolidated financial statements valuation techniques derivatives firm’s level 2 level 3 derivatives valued using derivative pricing models eg discounted cash flow models correlation models incorporate option pricing methodologies monte carlo simulations price transparency derivatives generally characterized product type described • interest rate general key inputs used value interest rate derivatives transparent even longdated contracts interest rate swaps options denominated currencies leading industrialized nations characterized high trading volumes tight bidoffer spreads interest rate derivatives reference indices inflation index shape yield curve eg 10year swap rate vs 2year swap rate complex key inputs generally observable • credit price transparency credit default swaps including single names baskets credits varies market underlying reference entity obligation credit default swaps reference indices large corporates major sovereigns generally exhibit price transparency credit default swaps underliers price transparency varies based credit rating cost borrowing underlying reference obligations availability underlying reference obligations delivery upon default issuer credit default swaps reference loans assetbacked securities emerging market debt instruments tend less price transparency reference corporate bonds addition complex credit derivatives sensitive correlation two underlying reference obligations generally less price transparency • currency prices currency derivatives based exchange rates leading industrialized nations including longer tenors generally transparent primary difference price transparency developed emerging market currency derivatives emerging markets tend observable contracts shorter tenors • commodity derivatives include transactions referenced energy eg oil natural gas metals eg precious base soft commodities eg agricultural price transparency varies based underlying commodity delivery location tenor product quality eg diesel fuel compared unleaded gasoline general price transparency commodity derivatives greater contracts shorter tenors contracts closely aligned major andor benchmark commodity indices • equity price transparency equity derivatives varies market underlier options indices common stock corporates included major equity indices exhibit price transparency equity derivatives generally observable market prices except contracts long tenors reference prices differ significantly current market prices complex equity derivatives sensitive correlation two individual stocks generally less price transparency liquidity essential observability product types transaction volumes decline previously transparent prices inputs may become unobservable conversely even highly structured products may times trading volumes large enough provide observability prices inputs see note 5 overview firm’s fair value measurement policies level 1 derivatives level 1 derivatives include shortterm contracts future delivery securities underlying security level 1 instrument exchangetraded derivatives actively traded valued quoted market price level 2 derivatives level 2 derivatives include otc derivatives significant valuation inputs corroborated market evidence exchangetraded derivatives actively traded andor valued using models calibrate marketclearing levels otc derivatives evaluating significance valuation input firm considers among factors portfolio’s net risk exposure input goldman sachs group inc subsidiaries notes consolidated financial statements selection particular model value derivative depends contractual terms specific risks inherent instrument well availability pricing information market derivatives trade liquid markets model selection involve significant management judgment outputs models calibrated marketclearing levels valuation models require variety inputs contractual terms market prices yield curves discount rates including derived interest rates collateral received posted specified credit support agreements collateralized derivatives credit curves measures volatility prepayment rates loss severity rates correlations inputs significant inputs valuations level 2 derivatives verified market transactions broker dealer quotations alternative pricing sources reasonable levels price transparency consideration given nature quotations eg indicative firm relationship recent market activity prices provided alternative pricing sources level 3 derivatives level 3 derivatives valued using models utilize observable level 1 andor level 2 inputs well unobservable level 3 inputs significant unobservable inputs used value firm’s level 3 derivatives described • majority firm’s interest rate currency derivatives classified within level 3 significant unobservable inputs include correlations certain currencies interest rates eg correlation euro inflation euro interest rates specific interest rate volatilities • level 3 credit derivatives significant unobservable inputs include illiquid credit spreads upfront credit points unique specific reference obligations reference entities recovery rates certain correlations required value credit mortgage derivatives eg likelihood default underlying reference obligation relative one another • level 3 commodity derivatives significant unobservable inputs include volatilities options strike prices differ significantly current market prices spreads certain products product quality physical location commodity aligned benchmark indices • level 3 equity derivatives significant unobservable inputs generally include equity volatility inputs options longdated andor strike prices differ significantly current market prices addition valuation certain structured trades requires use level 3 correlation inputs correlation price performance two individual stocks correlation price performance basket stocks another asset class commodities subsequent initial valuation level 3 derivative firm updates level 1 level 2 inputs reflect observable market changes resulting gains losses recorded level 3 level 3 inputs changed corroborated evidence similar market transactions thirdparty pricing services andor broker dealer quotations empirical market data circumstances firm cannot verify model value reference market transactions possible different valuation model could produce materially different estimate fair value see information significant unobservable inputs used valuation level 3 derivatives valuation adjustments valuation adjustments integral determining fair value derivative portfolios used adjust midmarket valuations produced derivative pricing models appropriate exit price valuation adjustments incorporate bidoffer spreads cost liquidity credit valuation adjustments funding valuation adjustments account credit funding risk inherent uncollateralized portion derivative portfolios firm also makes funding valuation adjustments collateralized derivatives terms agreement permit firm deliver repledge collateral received marketbased inputs generally used calibrating valuation adjustments marketclearing levels addition derivatives include significant unobservable inputs firm makes model exit price adjustments account valuation uncertainty present transaction goldman sachs group inc subsidiaries notes consolidated financial statements significant unobservable inputs table presents ranges averages medians significant unobservable inputs used value firm’s level 3 derivatives table • ranges represent significant unobservable inputs used valuation type derivative • averages represent arithmetic average inputs weighted relative fair value notional respective financial instruments average greater median indicates majority inputs average • ranges averages medians inputs representative appropriate inputs use calculating fair value one derivative example highest correlation presented tables interest rate derivatives appropriate valuing specific interest rate derivative may appropriate valuing interest rate derivative accordingly ranges inputs presented represent uncertainty possible ranges fair value measurements firm’s level 3 derivatives • fair value one instrument may determined using multiple valuation techniques example option pricing models discounted cash flows models typically used together determine fair value therefore level 3 balance encompasses techniques 1 difference average median spread inputs indicates majority inputs fall lower end range goldman sachs group inc subsidiaries notes consolidated financial statements range significant unobservable inputs following information ranges significant unobservable inputs used value firm’s level 3 derivative instruments • correlation ranges correlation cover variety underliers within one market eg equity index equity single stock names across markets eg correlation interest rate foreign exchange rate well across regions generally crossproduct correlation inputs used value complex instruments lower correlation inputs assets within derivative product type • volatility ranges volatility cover numerous underliers across variety markets maturities strike prices example volatility equity indices generally lower volatility single stocks • credit spreads upfront credit points recovery rates ranges credit spreads upfront credit points recovery rates cover variety underliers index single names regions sectors maturities credit qualities highyield investmentgrade broad range population gives rise width ranges significant unobservable inputs • commodity prices spreads ranges commodity prices spreads cover variability products maturities locations sensitivity fair value measurement changes significant unobservable inputs following description directional sensitivity firm’s level 3 fair value measurements changes significant unobservable inputs isolation • correlation general contracts holder benefits convergence underlying asset index prices eg interest rates credit spreads foreign exchange rates inflation rates equity prices increase correlation results higher fair value measurement • volatility general purchased options increase volatility results higher fair value measurement • credit spreads upfront credit points recovery rates general fair value purchased credit protection increases credit spreads upfront credit points increase recovery rates decrease credit spreads upfront credit points recovery rates strongly related distinctive risk factors underlying reference obligations include reference entityspecific factors leverage volatility industry marketbased risk factors borrowing costs liquidity underlying reference obligation macroeconomic conditions • commodity prices spreads general contracts holder receiving commodity increase spread price difference benchmark index due differences quality delivery location price results higher fair value measurement due distinctive nature firm’s level 3 derivatives interrelationship inputs necessarily uniform within product type goldman sachs group inc subsidiaries notes consolidated financial statements fair value derivatives level tables present fair value derivatives gross basis level major product type well impact netting tables • gross fair values exclude effects counterparty netting collateral netting therefore representative firm’s exposure • counterparty netting reflected level extent receivable payable balances netted within level included “counterparty netting within levels” counterparty netting across levels netting reflected “crosslevel counterparty netting” • derivative assets shown positive amounts derivative liabilities shown negative amounts goldman sachs group inc subsidiaries notes consolidated financial statements level 3 rollforward table presents changes fair value derivatives categorized level 3 end year table • derivative transferred level 3 reporting period entire gain loss period included level 3 transfers levels reported beginning reporting period occur • positive amounts transfers level 3 negative amounts transfers level 3 represent net transfers derivative assets negative amounts transfers level 3 positive amounts transfers level 3 represent net transfers derivative liabilities • derivative level 1 andor level 2 inputs classified level 3 entirety least one significant level 3 input • one significant level 3 input entire gain loss adjusting observable inputs ie level 1 level 2 inputs classified level 3 • gains losses reported level 3 resulting changes level 1 level 2 inputs frequently offset gains losses attributable level 1 level 2 derivatives andor level 1 level 2 level 3 cash instruments result gainslosses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources • net unrealized gainslosses relate instruments still held yearend • year ended december 2015 net realized unrealized gains level 3 derivative assets liabilities 746 million reflecting 67 million realized gains 679 million unrealized gains include gains approximately 518 million 228 million reported “market making” “other principal transactions” respectively • year ended december 2014 net realized unrealized losses level 3 derivative assets liabilities 306 million reflecting 123 million realized losses 183 million unrealized losses include losses approximately 276 million 30 million reported “market making” “other principal transactions” respectively • see “level 3 rollforward commentary” explanation net unrealized gainslosses level 3 derivative assets liabilities activity related transfers level 3 goldman sachs group inc subsidiaries notes consolidated financial statements level 3 rollforward commentary year ended december 2015 net unrealized gain level 3 derivatives 679 million 2015 primarily attributable gains certain credit derivatives reflecting impact wider credit spreads changes foreign exchange interest rates transfers level 3 derivatives 2015 primarily reflected transfers certain credit derivative assets level 2 primarily due unobservable credit spread inputs becoming significant valuations derivatives transfers certain interest rate derivative liabilities level 2 primarily due certain unobservable inputs becoming significant valuations derivatives transfers level 3 derivatives 2015 primarily reflected transfers certain credit derivative assets level 2 principally due increased transparency reduced significance certain unobservable credit spread inputs used value derivatives year ended december 2014 net unrealized loss level 3 derivatives 183 million 2014 primarily attributable impact decrease commodity prices certain commodity derivatives decrease equity prices certain equity derivatives impact changes foreign exchange rates certain currency derivatives largely offset impact tighter credit spreads decrease interest rates certain credit derivatives transfers level 3 derivatives 2014 primarily reflected transfers certain credit derivative liabilities level 2 principally due unobservable credit spread inputs becoming significant valuation derivatives transfers certain equity derivative liabilities level 2 primarily due reduced transparency volatility inputs used value derivatives transfers level 3 derivatives 2014 primarily reflected transfers certain equity derivative liabilities level 2 principally due unobservable correlation inputs longer significant valuation derivatives transfers certain credit derivative assets level 2 principally due unobservable credit spread inputs longer significant net risk certain portfolios otc derivatives tables present fair values otc derivative assets liabilities tenor major product type goldman sachs group inc subsidiaries notes consolidated financial statements tables • tenor based expected duration mortgagerelated credit derivatives generally remaining contractual maturity derivatives • counterparty netting within product type tenor category included within product type tenor category • counterparty netting across product types within tenor category included “counterparty netting within tenors” counterparty netting across tenor categories netting reflected “crosstenor counterparty netting” credit derivatives firm enters broad array credit derivatives locations around world facilitate client transactions manage credit risk associated marketmaking investing lending activities credit derivatives actively managed based firm’s net risk position credit derivatives individually negotiated contracts various settlement payment conventions credit events include failure pay bankruptcy acceleration indebtedness restructuring repudiation dissolution reference entity firm enters following types credit derivatives • credit default swaps singlename credit default swaps protect buyer loss principal one bonds loans mortgages reference obligations event issuer reference entity reference obligations suffers credit event buyer protection pays initial periodic premium seller receives protection period contract credit event defined contract seller protection makes payments buyer protection however credit event occurs seller protection required make payment buyer protection calculated accordance terms contract • credit indices baskets tranches credit derivatives may reference basket singlename credit default swaps broadbased index credit event occurs one underlying reference obligations protection seller pays protection buyer payment typically prorata portion transaction’s total notional amount based underlying defaulted reference obligation certain transactions credit risk basket index separated various portions tranches different levels subordination junior tranches cover initial defaults losses exceed notional amount junior tranches excess loss covered next senior tranche capital structure • total return swaps total return swap transfers risks relating economic performance reference obligation protection buyer protection seller typically protection buyer receives protection seller floating rate interest protection reduction fair value reference obligation return protection seller receives cash flows associated reference obligation plus increase fair value reference obligation • credit options credit option writer assumes obligation purchase sell reference obligation specified price credit spread option purchaser buys right assume obligation sell reference obligation purchase option writer payments credit options depend either particular credit spread price reference obligation firm economically hedges exposure written credit derivatives primarily entering offsetting purchased credit derivatives identical underliers substantially firm’s purchased credit derivative transactions financial institutions subject stringent collateral thresholds addition upon occurrence specified trigger event firm may take possession reference obligations underlying particular written credit derivative consequently may upon liquidation reference obligations recover amounts underlying reference obligations event default december 2015 written purchased credit derivatives total gross notional amounts 92348 billion 96868 billion respectively total net notional purchased protection 4520 billion december 2014 written purchased credit derivatives total gross notional amounts 122 trillion 128 trillion respectively total net notional purchased protection 5935 billion substantially firm’s written purchased credit derivatives credit default swaps goldman sachs group inc subsidiaries notes consolidated financial statements tables present certain information credit derivatives tables • fair values exclude effects netting receivable balances payable balances enforceable netting agreements netting cash received posted enforceable credit support agreements therefore representative firm’s credit exposure • tenor based expected duration mortgagerelated credit derivatives remaining contractual maturity credit derivatives • credit spread underlier together tenor contract indicators paymentperformance risk firm less likely pay otherwise required perform credit spread tenor lower • offsetting purchased credit derivatives represent notional amount purchased credit derivatives economically hedge written credit derivatives identical underliers included “offsetting” • purchased credit derivatives represent notional amount purchased credit derivatives included “offsetting” impact credit spreads derivatives ongoing basis firm realizes gains losses relating changes credit risk unwind derivative contracts changes credit mitigants net gainloss including hedges attributable impact changes credit exposure credit spreads counterparty firm’s derivatives 9 million 2015 135 million 2014 66 million 2013 bifurcated embedded derivatives table presents fair value notional amount derivatives bifurcated related borrowings derivatives recorded fair value primarily consist interest rate equity commodity products included “unsecured shortterm borrowings” “unsecured longterm borrowings” related borrowings see note 8 information goldman sachs group inc subsidiaries notes consolidated financial statements derivatives creditrelated contingent features certain firm’s derivatives transacted bilateral agreements counterparties may require firm post collateral terminate transactions based changes firm’s credit ratings firm assesses impact bilateral agreements determining collateral termination payments would occur assuming downgrade rating agencies downgrade one rating agency depending agency’s relative ratings firm time downgrade may impact comparable impact downgrade rating agencies table presents aggregate fair value net derivative liabilities agreements excluding application collateral posted reduce liabilities related aggregate fair value assets posted collateral additional collateral termination payments could called reporting date counterparties event onenotch twonotch downgrade firm’s credit ratings hedge accounting firm applies hedge accounting certain interest rate swaps used manage interest rate exposure certain fixedrate unsecured longterm shortterm borrowings certain fixedrate certificates deposit ii certain foreign currency forward contracts foreign currencydenominated debt used manage foreign currency exposures firm’s net investment certain nonus operations qualify hedge accounting hedging instrument must highly effective reducing risk exposure hedged additionally firm must formally document hedging relationship inception test hedging relationship least quarterly basis ensure hedging instrument continues highly effective life hedging relationship fair value hedges firm designates certain interest rate swaps fair value hedges interest rate swaps hedge changes fair value attributable designated benchmark interest rate eg london interbank offered rate libor overnight index swap rate ois effectively converting substantial portion fixedrate obligations floatingrate obligations firm applies statistical method utilizes regression analysis assessing effectiveness fair value hedging relationships achieving offsetting changes fair values hedging instrument risk hedged ie interest rate risk interest rate swap considered highly effective offsetting changes fair value attributable changes hedged risk regression analysis results coefficient determination 80 greater slope 80 125 qualifying fair value hedges gains losses derivatives included “interest expense” change fair value hedged item attributable risk hedged reported adjustment carrying value subsequently amortized interest expense remaining life gains losses resulting hedge ineffectiveness included “interest expense” derivative longer designated hedge remaining difference carrying value par value hedged item amortized interest expense remaining life hedged item using effective interest method see note 23 information interest income interest expense table presents gainslosses interest rate derivatives accounted hedges related hedged borrowings bank deposits hedge ineffectiveness derivatives primarily consists amortization prepaid credit spreads resulting passage time goldman sachs group inc subsidiaries notes consolidated financial statements net investment hedges firm seeks reduce impact fluctuations foreign exchange rates net investments certain nonus operations use foreign currency forward contracts foreign currencydenominated debt foreign currency forward contracts designated hedges effectiveness hedge assessed based overall changes fair value forward contracts ie based changes forward rates foreign currencydenominated debt designated hedge effectiveness hedge assessed based changes spot rates qualifying net investment hedges gains losses hedging instruments extent effective included “currency translation” within consolidated statements comprehensive income table presents gainslosses net investment hedging gainloss related ineffectiveness gainloss reclassified earnings accumulated comprehensive incomeloss material 2015 2014 2013 december 2015 december 2014 firm designated 220 billion 136 billion respectively foreign currencydenominated debt included “unsecured longterm borrowings” “unsecured shortterm borrowings” hedges net investments nonus subsidiaries cash flow hedges 2013 firm designated certain commoditiesrelated swap forward contracts cash flow hedges swap forward contracts hedged firm’s exposure variability cash flows associated forecasted sales certain energy commodities one firm’s consolidated investments fourth quarter 2014 firm dedesignated swaps forward contracts cash flow hedges became probable hedged forecasted sales would occur prior dedesignation firm applied statistical method utilized regression analysis changes forecasted cash flows assessing hedge effectiveness subject quantitative criteria firm’s fair value hedging relationships described effective portion gainslosses recognized cash flow hedges included “cash flow hedges” within consolidated statements comprehensive income gainslosses reclassified earnings accumulated comprehensive income gainslosses related hedge ineffectiveness included “other principal transactions” within consolidated statements earnings gainslosses material 2014 2013 gainslosses excluded assessment hedge effectiveness 2014 2013 goldman sachs group inc subsidiaries notes consolidated financial statements note 8 fair value option financial assets financial liabilities fair value addition cash derivative instruments included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” firm accounts certain financial assets financial liabilities fair value primarily fair value option primary reasons electing fair value option • reflect economic events earnings timely basis • mitigate volatility earnings using different measurement attributes eg transfers financial instruments owned accounted financings recorded fair value whereas related secured financing would recorded accrual basis absent electing fair value option • address simplification costbenefit considerations eg accounting hybrid financial instruments fair value entirety versus bifurcation embedded derivatives hedge accounting debt hosts hybrid financial instruments contain bifurcatable embedded derivatives require settlement physical delivery nonfinancial assets eg physical commodities firm elects bifurcate embedded derivative associated debt derivative accounted fair value host contract accounted amortized cost adjusted effective portion fair value hedges firm elect bifurcate entire hybrid financial instrument accounted fair value fair value option financial assets financial liabilities accounted fair value fair value option include • repurchase agreements substantially resale agreements • securities borrowed loaned within fixed income currency commodities client execution • substantially secured financings including transfers assets accounted financings rather sales • certain unsecured shortterm borrowings consisting promissory notes commercial paper certain hybrid financial instruments • certain unsecured longterm borrowings including certain prepaid commodity transactions certain hybrid financial instruments • certain receivables customers counterparties including transfers assets accounted secured loans rather purchases certain margin loans • certain time deposits issued firm’s bank subsidiaries deposits stated maturity eligible fair value option election including structured certificates deposit hybrid financial instruments • certain subordinated liabilities issued consolidated vies financial assets financial liabilities fair value generally valued based discounted cash flow techniques incorporate inputs reasonable levels price transparency generally classified level 2 inputs observable valuation adjustments may made liquidity counterparty firm’s credit quality see information significant inputs used value financial assets financial liabilities fair value including ranges significant unobservable inputs used value level 3 instruments within categories ranges represent significant unobservable inputs used valuation type financial assets financial liabilities fair value ranges weighted averages inputs representative appropriate inputs use calculating fair value one instrument example highest yield presented secured financings appropriate valuing specific agreement category may appropriate valuing agreements category accordingly ranges inputs presented represent uncertainty possible ranges fair value measurements firm’s level 3 financial assets financial liabilities goldman sachs group inc subsidiaries notes consolidated financial statements resale repurchase agreements securities borrowed loaned significant inputs valuation resale repurchase agreements securities borrowed loaned funding spreads amount timing expected future cash flows interest rates december 2015 december 2014 firm level 3 resale agreements securities borrowed securities loaned december 2015 december 2014 firm’s level 3 repurchase agreements material see note 10 information collateralized agreements financings secured financings significant inputs valuation secured financings fair value amount timing expected future cash flows interest rates funding spreads fair value collateral delivered firm determined using amount timing expected future cash flows market prices market yields recovery assumptions frequency additional collateral calls ranges significant unobservable inputs used value level 3 secured financings follows december 2015 • yield 06 100 weighted average 27 • duration 16 88 years weighted average 28 years december 2014 • funding spreads 210 bps 325 bps weighted average 278 bps • yield 11 100 weighted average 31 • duration 07 38 years weighted average 26 years generally increases funding spreads yield duration isolation would result lower fair value measurement due distinctive nature firm’s level 3 secured financings interrelationship inputs necessarily uniform across financings see note 10 information collateralized agreements financings unsecured shortterm longterm borrowings significant inputs valuation unsecured shortterm longterm borrowings fair value amount timing expected future cash flows interest rates credit spreads firm well commodity prices case prepaid commodity transactions inputs used value embedded derivative component hybrid financial instruments consistent inputs used value firm’s derivative instruments see note 7 information derivatives see notes 15 16 information unsecured shortterm longterm borrowings respectively certain firm’s unsecured shortterm longterm instruments included level 3 substantially hybrid financial instruments significant unobservable inputs used value hybrid financial instruments primarily relate embedded derivative component borrowings inputs incorporated firm’s derivative disclosures related unobservable inputs note 7 receivables customers counterparties receivables customers counterparties fair value primarily comprised transfers assets accounted secured loans rather purchases significant inputs valuation receivables commodity prices interest rates amount timing expected future cash flows funding spreads december 2015 december 2014 firm’s level 3 receivables customers counterparties material deposits significant inputs valuation time deposits interest rates amount timing future cash flows inputs used value embedded derivative component hybrid financial instruments consistent inputs used value firm’s derivative instruments see note 7 information derivatives see note 14 information deposits firm’s deposits included level 3 hybrid financial instruments significant unobservable inputs used value hybrid financial instruments primarily relate embedded derivative component deposits inputs incorporated firm’s derivative disclosures related unobservable inputs note 7 goldman sachs group inc subsidiaries notes consolidated financial statements fair value financial assets financial liabilities level tables present level within fair value hierarchy financial assets financial liabilities accounted fair value primarily fair value option tables • securities segregated regulatory purposes include segregated securities accounted fair value fair value option consists securities borrowed resale agreements • level 1 financial assets fair value include us treasury securities segregated regulatory purposes accounted fair value us gaap • financial assets shown positive amounts financial liabilities shown negative amounts transfers levels fair value hierarchy transfers levels fair value hierarchy reported beginning reporting period occur transfers financial assets financial liabilities level 1 level 2 2015 2014 table presents information transfers level 2 level 3 goldman sachs group inc subsidiaries notes consolidated financial statements level 3 rollforward table presents changes fair value financial assets financial liabilities accounted fair value categorized level 3 end year table • financial asset financial liability transferred level 3 reporting period entire gain loss period included level 3 level 3 financial assets increases shown positive amounts decreases shown negative amounts level 3 financial liabilities increases shown negative amounts decreases shown positive amounts • level 3 financial assets liabilities frequently economically hedged cash instruments derivatives accordingly gains losses reported level 3 partially offset gains losses attributable level 1 2 3 cash instruments derivatives result gains losses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources • net unrealized gainslosses relate instruments still held yearend • year ended december 2015 net realized unrealized gains level 3 financial liabilities 858 million reflecting 75 million realized gains 783 million unrealized gains include gainslosses approximately 841 million 28 million 11 million reported “market making” “other principal transactions” “interest expense” respectively • year ended december 2014 net realized unrealized losses level 3 financial liabilities 716 million reflecting 93 million realized losses 623 million unrealized losses include gainslosses approximately 150 million 833 million 33 million reported “market making” “other principal transactions” “interest expense” respectively • see “level 3 rollforward commentary” explanation net unrealized gainslosses level 3 financial assets liabilities activity related transfers level 3 goldman sachs group inc subsidiaries notes consolidated financial statements level 3 rollforward commentary year ended december 2015 net unrealized gain level 3 financial assets liabilities 785 million reflecting 2 million gains financial assets 783 million gains financial liabilities 2015 primarily reflected gains certain hybrid financial instruments included unsecured shortterm longterm borrowings principally due decrease global equity prices impact wider credit spreads changes interest foreign exchange rates transfers level 3 financial liabilities 2015 primarily reflected transfers certain hybrid financial instruments included unsecured shortterm longterm borrowings level 2 principally due reduced transparency certain correlation volatility inputs used value instruments transfers level 3 unsecured longterm borrowings level 3 unsecured shortterm borrowings neared maturity transfers level 3 financial liabilities 2015 primarily reflected transfers certain hybrid financial instruments included unsecured shortterm longterm borrowings certain secured financings level 2 principally due increased transparency certain correlation volatility funding spread inputs used value instruments transfers level 3 unsecured shortterm borrowings level 3 unsecured longterm borrowings neared maturity transfers certain subordinated liabilities included liabilities accrued expenses level 2 principally due increased price transparency result market transactions related underlying investments year ended december 2014 net unrealized loss level 3 financial assets liabilities 621 million reflecting 2 million gains financial assets 623 million losses financial liabilities 2014 primarily reflected losses certain subordinated liabilities included liabilities accrued expenses principally due changes market value related underlying investments certain hybrid financial instruments included unsecured shortterm borrowings principally due increase global equity prices transfers level 3 financial assets 2014 primarily reflected transfers certain secured loans included receivables customers counterparties level 2 principally due unobservable inputs significant net risk portfolio transfers level 3 financial liabilities 2014 primarily reflected transfers certain hybrid financial instruments included unsecured longterm shortterm borrowings level 2 principally due unobservable inputs significant valuation instruments transfers level 3 unsecured longterm borrowings level 3 unsecured shortterm borrowings neared maturity transfers level 3 financial liabilities 2014 primarily reflected transfers certain hybrid financial instruments included unsecured longterm shortterm borrowings level 2 principally due increased transparency certain correlation volatility inputs used value instruments transfers certain hybrid financial instruments included unsecured shortterm borrowings level 2 principally due certain unobservable inputs significant valuation hybrid financial instruments transfers level 3 unsecured shortterm borrowings level 3 unsecured longterm borrowings neared maturity goldman sachs group inc subsidiaries notes consolidated financial statements gains losses financial assets financial liabilities accounted fair value fair value option table presents gains losses recognized result firm electing apply fair value option certain financial assets financial liabilities gains losses included “market making” “other principal transactions” table also includes gains losses embedded derivative component hybrid financial instruments included unsecured shortterm borrowings unsecured longterm borrowings deposits gains losses would recognized us gaap even firm elected account entire hybrid financial instrument fair value amounts table exclude contractual interest included “interest income” “interest expense” instruments hybrid financial instruments see note 23 information interest income interest expense 1 includes gainslosses embedded derivative component hybrid financial instruments 339 million 2015 122 billion 2014 104 billion 2013 respectively 2 includes gainslosses embedded derivative component hybrid financial instruments 653 million 2015 697 million 2014 902 million 2013 respectively 3 includes gainslosses certain subordinated liabilities issued consolidated vies gainslosses 2013 also includes gains certain insurance contracts 4 primarily consists gainslosses resale repurchase agreements securities borrowed receivables customers counterparties deposits secured financings excluding gains losses instruments accounted fair value option described “market making” “other principal transactions” primarily represent gains losses “financial instruments owned fair value” “financial instruments sold yet purchased fair value” loans lending commitments table presents difference aggregate fair value aggregate contractual principal amount loans longterm receivables fair value option elected 1 aggregate contractual principal amount loans exceeds related fair value primarily firm regularly purchases loans distressed loans values significantly contractual principal amounts december 2015 december 2014 fair value unfunded lending commitments fair value option elected liability 211 million 402 million respectively related total contractual amount lending commitments 1401 billion 2619 billion respectively see note 18 information lending commitments longterm debt instruments aggregate contractual principal amount longterm secured financings fair value option elected exceeded related fair value 362 million 203 million december 2015 december 2014 respectively aggregate contractual principal amount unsecured longterm borrowings fair value option elected exceeded related fair value 112 billion 163 million december 2015 december 2014 respectively amounts include principal nonprincipalprotected longterm borrowings impact credit spreads loans lending commitments estimated net gain attributable changes instrumentspecific credit spreads loans lending commitments fair value option elected 751 million 2015 183 billion 2014 269 billion 2013 respectively changes fair value loans lending commitments primarily attributable changes instrumentspecific credit spreads substantially firm’s performing loans lending commitments floatingrate goldman sachs group inc subsidiaries notes consolidated financial statements impact credit spreads borrowings table presents net gainslosses attributable impact changes firm’s credit spreads borrowings fair value option elected firm calculates fair value borrowings discounting future cash flows rate incorporates firm’s credit spreads note 9 loans receivable loans receivable comprised loans held investment accounted amortized cost net allowance loan losses interest loans receivable recognized life loan recorded accrual basis table presents details loans receivable december 2015 december 2014 fair value loans receivable 4519 billion 2890 billion respectively december 2015 loans carried fair value included fair value hierarchy 2391 billion 2128 billion would classified level 2 level 3 respectively december 2014 loans carried fair value included fair value hierarchy 1375 billion 1515 billion would classified level 2 level 3 respectively firm also extends lending commitments held investment accounted accrual basis december 2015 december 2014 lending commitments 9392 billion 6622 billion respectively substantially extended corporate borrowers carrying value estimated fair value lending commitments liabilities 291 million 332 billion respectively december 2015 199 million 186 billion respectively december 2014 commitments included firm’s fair value hierarchy would primarily classified level 3 december 2015 december 2014 following description captions table • corporate loans corporate loans include term loans revolving lines credit letter credit facilities bridge loans principally used operating liquidity general corporate purposes connection acquisitions corporate loans may secured unsecured depending loan purpose risk profile borrower factors • loans private wealth management clients loans firm’s private wealth management clients include loans used clients finance private asset purchases employ leverage strategic investments real financial assets bridge cash flow timing gaps provide liquidity needs loans primarily secured securities assets • loans backed commercial real estate loans backed commercial real estate include loans extended firm directly indirectly secured hotels retail stores multifamily housing complexes commercial industrial properties loans backed commercial real estate also include loans purchased firm • loans backed residential real estate loans backed residential real estate include loans extended firm clients warehouse assets directly indirectly secured residential real estate loans backed residential real estate also include loans purchased firm • loans primarily include loans extended clients warehouse assets directly indirectly secured consumer loans including auto loans private student loans assets goldman sachs group inc subsidiaries notes consolidated financial statements loans receivable includes purchased credit impaired pci loans pci loans represent acquired loans pools loans evidence credit deterioration subsequent origination probable acquisition firm able collect contractually required payments loans acquired within reporting period least two common risk characteristics one relates credit risk eligible pooled together considered single unit account pci loans initially recorded acquisition price difference acquisition price expected cash flows accretable yield recognized life loans pools loans effective yield method expected cash flows pci loans determined using various inputs assumptions including default rates loss severities recoveries amount timing prepayments macroeconomic indicators december 2015 carrying value loans 212 billion including 116 billion 941 million 23 million related loans backed commercial real estate residential real estate consumer loans respectively outstanding principal balance accretable yield related loans 554 billion 234 million respectively december 2015 fair value related expected cash flows contractually required cash flows pci loans time acquisition 227 billion 250 billion 647 billion respectively firm pci loans december 2014 credit quality firm’s risk assessment process includes evaluating credit quality loans receivable loans receivable excluding pci loans firm performs credit reviews include initial ongoing analyses borrowers credit review independent analysis capacity willingness borrower meet financial obligations resulting internal credit rating determination internal credit ratings also incorporates assumptions respect nature outlook borrower’s industry economic environment firm also assigns regulatory risk rating loans based definitions provided us federal bank regulatory agencies loans determined impaired probable firm able collect principal interest due contractual terms loan time loans placed nonaccrual status accrued uncollected interest reversed interest income interest subsequently collected recognized cash basis extent loan balance deemed collectible otherwise cash received used reduce outstanding loan balance december 2015 december 2014 impaired loans receivable excluding pci loans nonaccrual status 223 million 59 million respectively pci loans firm’s risk assessment process includes reviewing certain key metrics delinquency status collateral values credit scores risk factors determined firm cannot reasonably estimate expected cash flows pci loans pools loans placed nonaccrual status table presents gross loans receivable excluding pci loans 212 billion assigned credit rating equivalent related lending commitments firm’s internally determined public rating agency equivalent regulatory risk rating noncriticizedpass loans lending commitments represent loans lending commitments performing andor demonstrate adverse characteristics likely result credit loss goldman sachs group inc subsidiaries notes consolidated financial statements allowance losses loans lending commitments firm’s allowance loan losses comprised portfolio level reserves specific loan level reserves pci loans described • portfolio level reserves determined loans excluding pci loans deemed impaired aggregating groups loans similar risk characteristics estimating probable loss inherent portfolio • specific loan level reserves determined loans excluding pci loans exhibit credit quality weakness therefore individually evaluated impairment • reserves pci loans recorded determined expected cash flows reassessed quarterly basis lower used establish current effective yield loans pools loans expected cash flows determined significantly higher used establish current effective yield increases initially recognized reduction previously recorded allowances loan losses remaining increases recognized interest income prospectively life loan pools loans increase effective yield allowance loan losses determined using various inputs including industry default loss data current macroeconomic indicators borrower’s capacity meet financial obligations borrower’s country risk loan seniority collateral type management’s estimate loan losses entails judgment loan collectability reporting dates uncertainties inherent judgments management uses best information available determine estimate future adjustments allowance may necessary based among things changes economic environment variances actual results original assumptions used loans charged allowance loan losses deemed uncollectible december 2015 december 2014 substantially firm’s loans receivable evaluated impairment portfolio level firm also records allowance losses lending commitments held investment accounted accrual basis allowance determined using methodology allowance loan losses also taking consideration probability drawdowns funding included “other liabilities accrued expenses” consolidated statements financial condition december 2015 december 2014 substantially lending commitments evaluated impairment portfolio level table presents changes allowance loan losses allowance losses lending commitments provision losses loans lending commitments included “other principal transactions” consolidated statements earnings december 2015 december 2014 substantially allowance loan losses allowance losses lending commitments related corporate loans corporate lending commitments primarily determined portfolio level firm allowance losses pci loans december 2015 pci loans december 2014 goldman sachs group inc subsidiaries notes consolidated financial statements note 10 collateralized agreements financings collateralized agreements securities purchased agreements resell resale agreements securities borrowed collateralized financings securities sold agreements repurchase agreements securities loaned secured financings firm enters transactions order among things facilitate client activities invest excess cash acquire securities cover short positions finance certain firm activities collateralized agreements financings presented netbycounterparty basis legal right setoff exists interest collateralized agreements collateralized financings recognized life transaction included “interest income” “interest expense” respectively see note 23 information interest income interest expense table presents carrying value resale repurchase agreements securities borrowed loaned transactions 1 substantially resale agreements repurchase agreements carried fair value fair value option see note 8 information valuation techniques significant inputs used determine fair value 2 december 2015 december 2014 6980 billion 6677 billion securities borrowed 466 million 765 million securities loaned fair value respectively resale repurchase agreements resale agreement transaction firm purchases financial instruments seller typically exchange cash simultaneously enters agreement resell substantially financial instruments seller stated price plus accrued interest future date repurchase agreement transaction firm sells financial instruments buyer typically exchange cash simultaneously enters agreement repurchase substantially financial instruments buyer stated price plus accrued interest future date financial instruments purchased sold resale repurchase agreements typically include us government federal agency investmentgrade sovereign obligations firm receives financial instruments purchased resale agreements makes delivery financial instruments sold repurchase agreements mitigate credit exposure firm monitors market value financial instruments daily basis delivers obtains additional collateral due changes market value financial instruments appropriate resale agreements firm typically requires collateral fair value approximately equal carrying value relevant assets consolidated statements financial condition even though repurchase resale agreements including “repos reversestomaturity” involve legal transfer ownership financial instruments accounted financing arrangements require financial instruments repurchased resold maturity agreement repotomaturity transaction firm transfers security agreement repurchase security maturity date repurchase agreement matches maturity date underlying security prior january 2015 repostomaturity accounted sales firm repostomaturity december 2015 december 2014 see note 3 information changes accounting repostomaturity became effective january 2015 goldman sachs group inc subsidiaries notes consolidated financial statements securities borrowed loaned transactions securities borrowed transaction firm borrows securities counterparty exchange cash securities firm returns securities counterparty returns cash securities interest generally paid periodically life transaction securities loaned transaction firm lends securities counterparty exchange cash securities counterparty returns securities firm returns cash securities posted collateral interest generally paid periodically life transaction firm receives securities borrowed makes delivery securities loaned mitigate credit exposure firm monitors market value securities daily basis delivers obtains additional collateral due changes market value securities appropriate securities borrowed transactions firm typically requires collateral fair value approximately equal carrying value securities borrowed transaction securities borrowed loaned within fixed income currency commodities client execution recorded fair value fair value option see note 8 information securities borrowed loaned accounted fair value securities borrowed loaned within securities services recorded based amount cash collateral advanced received plus accrued interest arrangements generally terminated demand exhibit little sensitivity changes interest rates therefore carrying value arrangements approximates fair value arrangements carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 8 arrangements included firm’s fair value hierarchy would classified level 2 december 2015 december 2014 offsetting arrangements tables present gross net resale repurchase agreements securities borrowed loaned transactions related amount counterparty netting included consolidated statements financial condition tables also present amounts offset consolidated statements financial condition including counterparty netting meet criteria netting us gaap fair value cash securities collateral received posted subject enforceable credit support agreements 1 december 2015 december 2014 firm 1340 billion 604 billion respectively securities received resale agreements 554 billion 708 billion respectively securities borrowed transactions segregated satisfy certain regulatory requirements securities included “cash securities segregated regulatory purposes” goldman sachs group inc subsidiaries notes consolidated financial statements tables • substantially gross carrying values arrangements subject enforceable netting agreements • firm received posted collateral credit support agreements yet determined agreements enforceable related collateral netted gross carrying value repurchase agreements securities loaned tables present gross carrying value repurchase agreements securities loaned class collateral pledged table presents gross carrying value repurchase agreements securities loaned maturity date table • repurchase agreements securities loaned repayable prior maturity option firm reflected contractual maturity dates • repurchase agreements securities loaned redeemable prior maturity option holders reflected earliest dates options become exercisable secured financings addition repurchase agreements securities loaned transactions firm funds certain assets use secured financings pledges financial instruments assets collateral transactions secured financings consist • liabilities consolidated vies • transfers assets accounted financings rather sales primarily collateralized central bank financings pledged commodities bank loans mortgage whole loans • structured financing arrangements secured financings include arrangements nonrecourse december 2015 december 2014 nonrecourse secured financings 220 billion 194 billion respectively firm elected apply fair value option substantially secured financings use fair value eliminates noneconomic volatility earnings would arise using different measurement attributes see note 8 information secured financings accounted fair value goldman sachs group inc subsidiaries notes consolidated financial statements secured financings recorded fair value recorded based amount cash received plus accrued interest generally approximates fair value financings carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 8 financings included firm’s fair value hierarchy would primarily classified level 2 december 2015 december 2014 tables present information secured financings 1 includes 334 million 974 million related transfers financial assets accounted financings rather sales december 2015 december 2014 respectively financings collateralized financial assets included “financial instruments owned fair value” 336 million 995 million december 2015 december 2014 respectively 2 includes 1498 billion 1024 billion secured financings collateralized financial instruments owned fair value december 2015 december 2014 respectively includes 876 billion 1170 billion secured financings collateralized financial instruments received collateral repledged december 2015 december 2014 respectively tables • shortterm secured financings include financings maturing within one year financial statement date financings redeemable within one year financial statement date option holder • weighted average interest rates exclude secured financings fair value include effect hedging activities see note 7 information hedging activities table presents secured financings maturity date table • longterm secured financings repayable prior maturity option firm reflected contractual maturity dates • longterm secured financings redeemable prior maturity option holders reflected earliest dates options become exercisable collateral received pledged firm receives cash securities eg us government federal agency sovereign corporate obligations well equities convertible debentures collateral primarily connection resale agreements securities borrowed derivative transactions customer margin loans firm obtains cash securities collateral upfront contingent basis derivative instruments collateralized agreements reduce credit exposure individual counterparties many cases firm permitted deliver repledge financial instruments received collateral entering repurchase agreements securities loaned transactions primarily connection secured client financing activities firm also permitted deliver repledge financial instruments connection secured financings collateralized derivative transactions firm customer settlement requirements goldman sachs group inc subsidiaries notes consolidated financial statements firm also pledges certain financial instruments owned fair value connection repurchase agreements securities loaned transactions secured financings assets primarily real estate cash connection secured financings counterparties may right deliver repledge table presents financial instruments fair value received collateral available delivered repledged delivered repledged firm 1 december 2015 december 2014 amounts exclude 1340 billion 604 billion respectively securities received resale agreements 554 billion 708 billion respectively securities borrowed transactions contractually right delivered repledged segregated satisfy certain regulatory requirements table presents information assets pledged note 11 securitization activities firm securitizes residential commercial mortgages corporate bonds loans types financial assets selling assets securitization vehicles eg trusts corporate entities limited liability companies resecuritization firm acts underwriter beneficial interests sold investors firm’s residential mortgage securitizations primarily connection government agency securitizations beneficial interests issued securitization entities debt equity securities give investors rights receive portions specified cash inflows securitization vehicle include senior subordinated interests principal interest andor cash inflows proceeds sale beneficial interests used pay transferor financial assets sold securitization vehicle purchase securities serve collateral firm accounts securitization sale relinquished control transferred assets prior securitization firm accounts assets pending transfer fair value therefore typically recognize significant gains losses upon transfer assets net revenues underwriting activities recognized connection sales underlying beneficial interests investors transfers assets accounted sales assets remain “financial instruments owned fair value” transfer accounted collateralized financing related interest expense recognized life transaction see notes 10 23 information collateralized financings interest expense respectively firm generally receives cash exchange transferred assets may also continuing involvement transferred assets including ownership beneficial interests securitized financial assets primarily form senior subordinated securities firm may also purchase senior subordinated securities issued securitization vehicles typically vies connection secondary marketmaking activities primary risks included beneficial interests firm’s continuing involvement securitization vehicles performance underlying collateral position firm’s investment capital structure securitization vehicle market yield security substantially interests accounted fair value included “financial instruments owned fair value” classified level 2 fair value hierarchy see notes 5 8 information fair value measurements goldman sachs group inc subsidiaries notes consolidated financial statements table presents amount financial assets securitized cash flows received retained interests securitization entities firm continuing involvement tables present firm’s continuing involvement nonconsolidated securitization entities firm sold assets well total outstanding principal amount transferred assets firm continuing involvement tables • outstanding principal amount presented purpose providing information size securitization entities firm continuing involvement representative firm’s risk loss • retained purchased interests firm’s risk loss limited fair value interests • purchased interests represent senior subordinated interests purchased connection secondary marketmaking activities securitization entities firm also holds retained interests • substantially total outstanding principal amount total fair value retained interests december 2015 relate securitizations 2012 thereafter substantially total outstanding principal amount total fair value retained interests december 2014 relate securitizations 2011 thereafter addition interests tables firm continuing involvement form derivative transactions commitments certain nonconsolidated vies carrying value derivatives commitments net asset 92 million 115 million december 2015 december 2014 respectively notional amounts derivatives commitments included maximum exposure loss nonconsolidated vie table note 12 goldman sachs group inc subsidiaries notes consolidated financial statements table presents weighted average key economic assumptions used measuring fair value mortgagebacked retained interests sensitivity fair value immediate adverse changes 10 20 assumptions table • amounts reflect benefit financial instruments held mitigate risks inherent retained interests • changes fair value based adverse variation assumptions generally cannot extrapolated relationship change assumptions change fair value usually linear • impact change particular assumption calculated independently changes assumption practice simultaneous changes assumptions might magnify counteract sensitivities disclosed • constant prepayment rate included positions key assumption determination fair value • discount rate retained interests relate us government agencyissued collateralized mortgage obligations include credit loss • expected credit loss assumptions reflected discount rate remainder retained interests firm retained interests reflected table fair value 44 million weighted average life 35 years december 2015 fair value 59 million weighted average life 36 years december 2014 due nature current fair value certain retained interests weighted average assumptions constant prepayment discount rates related sensitivity adverse changes meaningful december 2015 december 2014 firm’s maximum exposure adverse changes value interests carrying value 44 million 59 million december 2015 december 2014 respectively note 12 variable interest entities vies generally finance purchase assets issuing debt equity securities either collateralized indexed assets held vie debt equity securities issued vie may include tranches varying levels subordination firm’s involvement vies includes securitization financial assets described note 11 investments loans types vies described see note 11 additional information securitization activities including definition beneficial interests see note 3 firm’s consolidation policies including definition vie firm principally involved vies following business activities mortgagebacked vies corporate cdo clo vies firm sells residential commercial mortgage loans securities mortgagebacked vies corporate bonds loans corporate cdo clo vies may retain beneficial interests assets sold vies firm purchases sells beneficial interests issued mortgagebacked corporate cdo clo vies connection marketmaking activities addition firm may enter derivatives certain vies primarily interest rate swaps typically variable interests firm generally enters derivatives counterparties mitigate risk derivatives vies certain mortgagebacked corporate cdo clo vies usually referred synthetic cdos creditlinked note vies synthetically create exposure beneficial interests issue entering credit derivatives rather purchasing underlying assets credit derivatives may reference single asset index portfoliobasket assets indices see note 7 information credit derivatives vies use funds sale beneficial interests premiums received credit derivative counterparties purchase securities serve collateralize beneficial interest holders andor credit derivative counterparty vies may enter derivatives primarily interest rate swaps typically variable interests firm may counterparty derivatives vies generally enters derivatives counterparties mitigate risk goldman sachs group inc subsidiaries notes consolidated financial statements real estate creditrelated investing vies firm purchases equity debt securities issued makes loans vies hold real estate performing nonperforming debt distressed loans equity securities firm typically sell assets enter derivatives vies assetbacked vies firm structures vies issue notes clients purchases sells beneficial interests issued assetbacked vies connection marketmaking activities addition firm may enter derivatives certain assetbacked vies primarily total return swaps collateral assets held vies firm pays vie return due note holders receives return collateral assets owned vie firm generally removed total return swap counterparty firm generally enters derivatives counterparties mitigate risk derivatives vies firm typically sell assets assetbacked vies structures principalprotected note vies firm structures vies issue principalprotected notes clients vies portfolios assets principally exposure hedge funds substantially principal protection notes issued vies provided asset portfolio rebalancing required terms notes firm enters total return swaps vies firm pays vie return due principalprotected note holders receives return assets owned vie firm may enter derivatives counterparties mitigate risk derivatives enters vies firm also obtains funding vies primarily includes nonconsolidated powerrelated investment fund vies firm purchases debt equity securities issued vies hold powerrelated assets may provide commitments vies firm also makes equity investments certain investment fund vies manages entitled receive fees vies firm typically sell assets enter derivatives vies vie consolidation analysis variable interest vie investment eg debt equity securities interest eg derivatives loans lending commitments vie absorb portions vie’s expected losses andor receive portions vie’s expected residual returns firm’s variable interests vies include senior subordinated debt residential commercial mortgagebacked assetbacked securitization entities cdos clos loans lending commitments limited general partnership interests preferred common equity derivatives may include foreign currency equity andor credit risk guarantees certain fees firm receives investment funds certain interest rate foreign currency credit derivatives firm enters vies variable interests create rather absorb risk enterprise controlling financial interest vie known primary beneficiary consolidates vie firm determines whether primary beneficiary vie performing analysis principally considers • variable interest holder power direct activities vie significantly impact vie’s economic performance • variable interest holder obligation absorb losses right receive benefits vie could potentially significant vie • vie’s purpose design including risks vie designed create pass variable interest holders • vie’s capital structure • terms vie variable interest holders parties involved vie • relatedparty relationships firm reassesses initial evaluation whether entity vie certain reconsideration events occur firm reassesses determination whether primary beneficiary vie ongoing basis based current facts circumstances goldman sachs group inc subsidiaries notes consolidated financial statements nonconsolidated vies table presents information nonconsolidated vies firm holds variable interests 1 assets vies maximum exposure loss include 408 billion 502 million respectively december 2015 357 billion 662 million respectively december 2014 related cdos backed mortgage obligations 2 includes 152 billion 164 billion december 2015 december 2014 respectively related commitments derivative transactions vies firm transferred assets firm’s exposure obligations vies generally limited interests entities certain instances firm provides guarantees including derivative guarantees vies holders variable interests vies table nonconsolidated vies aggregated based principal business activity nature firm’s variable interests take different forms described rows maximum exposure loss table • maximum exposure loss excludes benefit offsetting financial instruments held mitigate risks associated variable interests • retained purchased interests loans investments maximum exposure loss carrying value interests • commitments guarantees derivatives maximum exposure loss notional amount represent anticipated losses also reduced unrealized losses already recorded result maximum exposure loss exceeds liabilities recorded commitments guarantees derivatives provided vies carrying values firm’s variable interests nonconsolidated vies included consolidated statement financial condition follows • substantially assets held firm related mortgagebacked corporate cdo clo vies included “financial instruments owned fair value” substantially liabilities held firm related corporate cdo clo vies included “financial instruments sold yet purchased fair value” • substantially assets held firm related assetbacked vies included “financial instruments owned fair value” “loans receivable” substantially liabilities held firm related assetbacked vies included “financial instruments sold yet purchased fair value” • substantially assets held firm related real estate creditrelated investing vies included “financial instruments owned fair value” “loans receivable” “other assets” substantially liabilities held firm related real estate creditrelated investing vies included “other liabilities accrued expenses” “financial instruments sold yet purchased fair value” • substantially assets held firm related vies included “financial instruments owned fair value” goldman sachs group inc subsidiaries notes consolidated financial statements consolidated vies table presents carrying amount classification assets liabilities consolidated vies excluding benefit offsetting financial instruments held mitigate risks associated firm’s variable interests table • consolidated vies aggregated based principal business activity assets liabilities presented net intercompany eliminations majority assets principalprotected notes vies intercompany eliminated consolidation • vies firm holds majority voting interest excluded vie meets definition business ii vie’s assets used purposes settlement obligations • substantially assets used settle obligations vie liabilities real estate creditrelated investing vies cdos mortgagebacked assetbacked vies recourse general credit firm note 13 assets generally less liquid nonfinancial assets table presents assets type 1 excludes investments accounted fair value fair value option firm would otherwise apply equity method accounting 659 billion 662 billion december 2015 december 2014 respectively included “financial instruments owned fair value” firm generally elected fair value option investments acquired fair value option became available 2 includes 581 million 461 million investments qualified affordable housing projects december 2015 december 2014 respectively 3 includes 196 billion assets classified held sale related certain firm’s consolidated investments europe goldman sachs group inc subsidiaries notes consolidated financial statements assets held sale fourth quarter 2015 firm classified certain consolidated investments europe within investing lending segment held sale december 2015 assets liabilities related investments included “other assets” “other liabilities accrued expenses” respectively assets related investments 196 billion december 2015 substantially consisted “property leasehold improvements equipment” liabilities related investments 783 million december 2015 substantially consisted “other secured financings” carried fair value fair value option property leasehold improvements equipment property leasehold improvements equipment table net accumulated depreciation amortization 777 billion 898 billion december 2015 december 2014 respectively property leasehold improvements equipment included 593 billion 581 billion december 2015 december 2014 respectively related property leasehold improvements equipment firm uses connection operations remainder held investment entities including vies consolidated firm substantially property equipment depreciated straightline basis useful life asset leasehold improvements amortized straightline basis useful life improvement term lease whichever shorter certain costs software developed obtained internal use capitalized amortized straightline basis useful life software goodwill identifiable intangible assets tables present carrying values goodwill identifiable intangible assets goodwill cost acquired companies excess fair value net assets including identifiable intangible assets acquisition date goodwill assessed impairment annually fourth quarter frequently events occur circumstances change indicate impairment may exist assessing goodwill impairment first qualitative factors assessed determine whether likely fair value reporting unit less carrying amount results qualitative assessment conclusive quantitative goodwill test performed quantitative goodwill test consists two steps • first step compares estimated fair value reporting unit estimated net book value including goodwill identifiable intangible assets reporting unit’s estimated fair value exceeds estimated net book value goodwill impaired • estimated fair value reporting unit less estimated net book value second step goodwill test performed measure amount impairment equal excess carrying amount goodwill fair value goodwill tested impairment using quantitative test fourth quarter 2015 estimated fair value reporting units exceeded respective net book value accordingly goodwill impaired step two quantitative goodwill test performed estimate fair value reporting unit relative value technique used firm believes market participants would use technique value firm’s reporting units relative value technique applies observable pricetoearnings multiples pricetobook multiples projected return equity comparable competitors reporting units’ net earnings net book value net book value reporting unit reflects allocation total shareholders’ equity represents estimated amount total shareholders’ equity required support activities reporting unit currently applicable regulatory capital requirements goldman sachs group inc subsidiaries notes consolidated financial statements identifiable intangible assets table presents gross carrying amount accumulated amortization net carrying amount identifiable intangible assets weighted average remaining useful lives 1 primarily includes commoditiesrelated transportation rights 2 primarily includes intangible assets related acquired leases substantially firm’s identifiable intangible assets considered finite useful lives amortized estimated useful lives using straightline method based economic usage certain commoditiesrelated intangibles tables present details amortization identifiable intangible assets impairments firm tests property leasehold improvements equipment identifiable intangible assets impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable extent carrying value asset exceeds projected undiscounted cash flows expected result use eventual disposal asset group firm determines asset impaired records impairment equal difference estimated fair value carrying value asset group addition firm recognize impairment prior sale asset carrying value asset exceeds estimated fair value 2015 firm recorded impairments 103 million substantially attributable consolidated investments included firm’s investing lending segment impairments generally reflected challenging market conditions certain companies energy industry resulting continued low energy commodity prices impairments consisted 81 million related property leasehold improvements equipment included “depreciation amortization” 22 million related assets included “other expenses” 2014 primarily result deterioration market operating conditions related certain firm’s consolidated investments firm’s exchangetraded fund lead market maker lmm rights firm determined certain assets impaired recorded impairments 360 million included “depreciation amortization” impairments consisted 268 million related property leasehold improvements equipment substantially attributable consolidated investment latin america 70 million related identifiable intangible assets primarily attributable firm’s lmm rights 22 million related goodwill result sale metro international trade services metro impairments related property leasehold improvements equipment goodwill included within firm’s investing lending segment impairments related identifiable intangible assets principally included within firm’s institutional client services segment impairments represented excess carrying values assets estimated fair values substantially calculated using level 3 measurements fair values calculated using combination discounted cash flow analyses relative value analyses including estimated cash flows expected result use eventual disposition assets goldman sachs group inc subsidiaries notes consolidated financial statements note 14 deposits table presents deposits held us nonus offices substantially interestbearing substantially us deposits held goldman sachs bank usa gs bank usa substantially nonus deposits held goldman sachs international bank gsib table presents maturities time deposits held us nonus offices 1 includes 192 billion greater 100000 741 million matures within three months 730 million matures within three six months 326 million matures within six twelve months 127 million matures twelve months 2 includes 698 billion greater 100000 3 includes 1468 billion time deposits accounted fair value fair value option see note 8 information deposits accounted fair value december 2015 december 2014 deposits include 5451 billion 4929 billion respectively savings demand deposits stated maturity recorded based amount cash received plus accrued interest approximates fair value addition firm designates certain derivatives fair value hedges convert substantially time deposits accounted fair value fixedrate obligations floatingrate obligations accordingly carrying value time deposits approximated fair value december 2015 december 2014 savings demand deposits time deposits carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 8 deposits included firm’s fair value hierarchy would classified level 2 december 2015 december 2014 note 15 shortterm borrowings table presents details firm’s shortterm borrowings see note 10 information secured financings unsecured shortterm borrowings include portion unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holder firm accounts promissory notes commercial paper certain hybrid financial instruments fair value fair value option see note 8 information unsecured shortterm borrowings accounted fair value carrying value unsecured shortterm borrowings recorded fair value generally approximates fair value due shortterm nature obligations unsecured shortterm borrowings carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 8 borrowings included firm’s fair value hierarchy substantially would classified level 2 december 2015 december 2014 table presents details firm’s unsecured shortterm borrowings 1 includes 2411 billion 2382 billion december 2015 december 2014 respectively issued group inc 2 weighted average interest rates borrowings include effect hedging activities exclude financial instruments accounted fair value fair value option see note 7 information hedging activities goldman sachs group inc subsidiaries notes consolidated financial statements note 16 longterm borrowings table presents details firm’s longterm borrowings see note 10 information secured financings tables present unsecured longterm borrowings extending 2061 consisting principally senior borrowings 1 interest rates us dollardenominated debt ranged 160 1004 weighted average rate 489 155 1004 weighted average rate 508 december 2015 december 2014 respectively interest rates nonus dollardenominated debt ranged 040 1300 weighted average rate 381 002 1300 weighted average rate 406 december 2015 december 2014 respectively 2 floating interest rates generally based libor ois equitylinked indexed instruments included floatingrate obligations table presents unsecured longterm borrowings maturity date 1 includes 834 billion adjustments carrying value certain unsecured longterm borrowings resulting application hedge accounting year maturity follows 436 million 2017 614 million 2018 407 million 2019 443 million 2020 644 billion 2021 thereafter table • unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holders excluded table included unsecured shortterm borrowings • unsecured longterm borrowings repayable prior maturity option firm reflected contractual maturity dates • unsecured longterm borrowings redeemable prior maturity option holders reflected earliest dates options become exercisable firm designates certain derivatives fair value hedges convert majority amount fixedrate unsecured longterm borrowings accounted fair value floatingrate obligations accordingly excluding cumulative impact changes firm’s credit spreads carrying value unsecured longterm borrowings approximated fair value december 2015 december 2014 see note 7 information hedging activities unsecured longterm borrowings firm elect fair value option cumulative impact due changes firm’s credit spreads would increase less 1 increase 2 carrying value borrowings december 2015 december 2014 respectively borrowings accounted fair value fair value option fair value accordance us gaap fair value included firm’s fair value hierarchy notes 6 8 borrowings included firm’s fair value hierarchy substantially would classified level 2 december 2015 december 2014 goldman sachs group inc subsidiaries notes consolidated financial statements tables present unsecured longterm borrowings giving effect hedging activities converted majority amount fixedrate obligations floatingrate obligations 1 weighted average interest rates aggregate amounts 273 433 related fixedrate obligations 184 related floatingrate obligations 268 509 related fixedrate obligations 201 related floatingrate obligations december 2015 december 2014 respectively rates exclude financial instruments accounted fair value fair value option subordinated borrowings unsecured longterm borrowings include subordinated debt junior subordinated debt junior subordinated debt junior right payment subordinated borrowings junior senior borrowings december 2015 december 2014 subordinated debt maturities ranging 2017 2045 2017 2038 respectively tables present subordinated borrowings 1 weighted average interest rates giving effect fair value hedges used convert fixedrate obligations floatingrate obligations see note 7 information hedging activities see information interest rates junior subordinated debt 2 par amount carrying amount subordinated debt issued group inc 1747 billion 2025 billion respectively december 2015 1368 billion 1667 billion respectively december 2014 junior subordinated debt junior subordinated debt held 2012 trusts 2012 vesey street investment trust murray street investment trust together 2012 trusts issued aggregate 225 billion senior guaranteed trust securities third parties proceeds offering used purchase 175 billion junior subordinated debt issued group inc pays interest semiannually fixed annual rate 4647 matures march 9 2017 500 million junior subordinated debt issued group inc pays interest semiannually fixed annual rate 4404 matures september 1 2016 2014 firm exchanged 175 million senior guaranteed trust securities held firm 175 million junior subordinated debt held murray street investment trust following exchange senior guaranteed trust securities junior subordinated debt extinguished 2012 trusts purchased junior subordinated debt goldman sachs capital ii goldman sachs capital iii apex trusts apex trusts used proceeds sales purchase shares group inc’s perpetual noncumulative preferred stock series e series e preferred stock perpetual noncumulative preferred stock series f series f preferred stock see note 19 information series e series f preferred stock 2012 trusts required pay distributions senior guaranteed trust securities amounts dates scheduled receive interest junior subordinated debt hold required redeem respective senior guaranteed trust securities upon maturity earlier redemption junior subordinated debt hold firm right defer payments junior subordinated debt subject limitations deferral period firm permitted among things pay dividends make certain repurchases common preferred stock however group inc fully unconditionally guarantees payment distribution redemption amounts due senior basis senior guaranteed trust securities issued 2012 trusts 2012 trusts unable make scheduled distributions holders senior guaranteed trust securities guarantee group inc would obligated make payments 158 billion 500 million junior subordinated debt held 2012 trusts benefit investors included “unsecured longterm borrowings” “unsecured shortterm borrowings” respectively consolidated statements financial condition classified subordinated borrowings goldman sachs group inc subsidiaries notes consolidated financial statements apex trusts 2012 trusts delaware statutory trusts sponsored firm whollyowned finance subsidiaries firm regulatory legal purposes consolidated accounting purposes firm covenanted favor holders group inc’s 6345 junior subordinated debt due february 15 2034 subject certain exceptions firm redeem purchase capital securities issued apex trusts shares group inc’s series e series f preferred stock prior specified dates 2022 price exceeds maximum amount determined reference net cash proceeds firm received sale qualifying securities junior subordinated debt issued connection trust preferred securities group inc issued 284 billion junior subordinated debt 2004 goldman sachs capital trust delaware statutory trust issued 275 billion guaranteed preferred beneficial interests trust preferred securities third parties 85 million common beneficial interests group inc used proceeds issuances purchase junior subordinated debt group inc 2014 first quarter 2015 firm purchased 143 billion par amount trust preferred securities delivered securities along 442 million common beneficial interests trust exchange corresponding par amount junior subordinated debt following exchanges trust preferred securities common beneficial interests junior subordinated debt extinguished subsequent extinguishments outstanding par amount junior subordinated debt held trust 136 billion outstanding par amount trust preferred securities common beneficial interests issued trust 132 billion 408 million respectively trust whollyowned finance subsidiary firm regulatory legal purposes consolidated accounting purposes firm pays interest semiannually junior subordinated debt annual rate 6345 debt matures february 15 2034 coupon rate payment dates applicable beneficial interests interest rate payment dates junior subordinated debt firm right time defer payment interest junior subordinated debt therefore cause payment trust’s preferred beneficial interests deferred case ten consecutive semiannual periods deferral period firm permitted among things pay dividends make certain repurchases common stock trust permitted pay distributions common beneficial interests held group inc unless dividends payable preferred beneficial interests paid full note 17 liabilities accrued expenses table presents liabilities accrued expenses type 1 primarily relates consolidated investment funds 2 substantially increase december 2014 december 2015 relates provisions agreement principle residential mortgagebacked securities working group us financial fraud enforcement task force rmbs working group see note 27 information agreement principle 3 includes 783 million liabilities classified held sale related certain firm’s consolidated investments europe see note 13 information goldman sachs group inc subsidiaries notes consolidated financial statements note 18 commitments contingencies guarantees commitments table presents firm’s commitments type table presents firm’s commitments period expiration commitments extend credit firm’s commitments extend credit agreements lend fixed termination dates depend satisfaction contractual conditions borrowing commitments presented net amounts syndicated third parties total commitment amount necessarily reflect actual future cash flows firm may syndicate substantial additional portions commitments addition commitments expire unused reduced cancelled counterparty’s request december 2015 december 2014 9392 billion 6622 billion respectively firm’s lending commitments held investment accounted accrual basis see note 9 information commitments addition december 2015 december 2014 992 billion 312 billion respectively firm’s lending commitments held sale accounted lower cost fair value firm accounts remaining commitments extend credit fair value losses generally recorded net fees “other principal transactions” goldman sachs group inc subsidiaries notes consolidated financial statements commercial lending firm’s commercial lending commitments extended investmentgrade noninvestmentgrade corporate borrowers commitments investmentgrade corporate borrowers principally used operating liquidity general corporate purposes firm also extends lending commitments connection contingent acquisition financing types corporate lending well commercial real estate financing commitments extended contingent acquisition financing often intended shortterm nature borrowers often seek replace funding sources sumitomo mitsui financial group inc smfg provides firm credit loss protection certain approved loan commitments primarily investmentgrade commercial lending commitments notional amount loan commitments 2703 billion 2751 billion december 2015 december 2014 respectively credit loss protection loan commitments provided smfg generally limited 95 first loss firm realizes commitments maximum approximately 950 million addition subject satisfaction certain conditions upon firm’s request smfg provide protection 70 additional losses commitments maximum 113 billion 768 million protection provided december 2015 december 2014 firm also uses financial instruments mitigate credit risks related certain commitments covered smfg instruments primarily include credit default swaps reference similar underlying instrument entity credit default swaps reference market index warehouse financing firm provides financing clients warehouse financial assets arrangements secured warehoused assets primarily consisting consumer corporate loans contingent forward starting resale securities borrowing agreementsforward starting repurchase secured lending agreements firm enters resale securities borrowing agreements repurchase secured lending agreements settle future date generally within three business days firm also enters commitments provide contingent financing clients counterparties resale agreements firm’s funding commitments depends satisfaction contractual conditions resale agreement commitments expire unused letters credit firm commitments letters credit issued various banks firm provides counterparties lieu securities cash satisfy various collateral margin deposit requirements investment commitments firm’s investment commitments 605 billion 516 billion december 2015 december 2014 respectively include commitments invest private equity real estate assets directly funds firm raises manages amounts 286 billion 287 billion december 2015 december 2014 respectively relate commitments invest funds managed firm commitments called would funded market value date investment leases firm contractual obligations longterm noncancelable lease agreements office space expiring various dates 2069 certain agreements subject periodic escalation provisions increases real estate taxes charges table presents future minimum rental payments net minimum sublease rentals rent charged operating expense 249 million 2015 309 million 2014 324 million 2013 operating leases include office space held excess current requirements rent expense relating space held growth included “occupancy” firm records liability based fair value remaining lease rentals reduced potential existing sublease rentals leases firm ceased using space management concluded firm derive future economic benefits costs terminate lease end term recognized measured fair value termination goldman sachs group inc subsidiaries notes consolidated financial statements contingencies legal proceedings see note 27 information legal proceedings including certain mortgagerelated matters agreements firm entered toll statute limitations certain mortgagerelated contingencies multiple areas focus regulators governmental agencies others within mortgage market may impact originators issuers servicers investors remains significant uncertainty surrounding nature extent potential exposure participants market firm significant originator residential mortgage loans firm purchase loans originated others generally received loanlevel representations period 2005 2008 firm sold approximately 10 billion loans governmentsponsored enterprises approximately 11 billion loans third parties addition firm transferred 125 billion loans trusts mortgage securitization vehicles connection sales loans securitizations firm provided loan level representations andor assigned loan level representations party firm purchased loans firm’s exposure claims repurchase residential mortgage loans based alleged breaches representations depend number factors extent claims made within statute limitations taking consideration agreements toll statute limitations firm entered trustees representing trusts based upon large number defaults residential mortgages including sold securitized firm potential repurchase claims however firm position make meaningful estimate exposure time contingencies connection sale metro firm provided customary representations warranties indemnities breaches representations warranties buyer firm agreed provide indemnities buyer primarily relate potential liabilities legal regulatory proceedings arising conduct metro’s business firm owned guarantees tables present information certain derivatives meet definition guarantee securities lending indemnifications certain guarantees tables • maximum payout based notional amount contract represent anticipated losses • amounts exclude certain commitments issue standby letters credit included “commitments extend credit” see tables “commitments” summary firm’s commitments goldman sachs group inc subsidiaries notes consolidated financial statements derivative guarantees firm enters various derivatives meet definition guarantee us gaap including written equity commodity put options written currency contracts interest rate caps floors swaptions derivatives risk managed together derivatives meet definition guarantee therefore amounts tables reflect firm’s overall risk related derivative activities disclosures derivatives required may cash settled firm basis conclude probable counterparties held underlying instruments inception contract firm concluded conditions met certain large internationally active commercial investment bank counterparties central clearing counterparties certain counterparties accordingly firm included contracts tables addition see note 7 information credit derivatives meet definition guarantee included tables derivatives accounted fair value therefore carrying value considered best indication paymentperformance risk individual contracts however carrying values tables exclude effect counterparty cash collateral netting securities lending indemnifications firm capacity agency lender indemnifies securities lending customers losses incurred event borrowers return securities collateral held insufficient cover market value securities borrowed collateral held lenders connection securities lending indemnifications 3285 billion 2849 billion december 2015 december 2014 respectively contractual nature arrangements requires firm obtain collateral market value exceeds value securities lent borrower minimal performance risk associated guarantees financial guarantees ordinary course business firm provides financial guarantees obligations third parties eg standby letters credit guarantees enable clients complete transactions fundrelated guarantees represent obligations make payments beneficiaries guaranteed party fails fulfill obligation contractual arrangement beneficiary guarantees securities issued trusts firm established trusts including goldman sachs capital apex trusts 2012 trusts entities limited purpose issuing securities third parties lending proceeds firm entering contractual arrangements firm third parties related purpose firm consolidate entities see note 16 information transactions involving goldman sachs capital apex trusts 2012 trusts firm effectively provides full unconditional guarantee securities issued entities timely payment firm amounts due entities guarantee borrowing preferred stock related contractual arrangements sufficient cover payments due securities issued entities management believes unlikely circumstances occur nonperformance part paying agents service providers would make necessary firm make payments related entities required terms guarantee borrowing preferred stock related contractual arrangements connection certain expenses incurred entities indemnities guarantees service providers ordinary course business firm indemnifies guarantees certain service providers clearing custody agents trustees administrators specified potential losses connection acting agent providing services firm affiliates goldman sachs group inc subsidiaries notes consolidated financial statements firm may also liable clients parties losses arising custodial role caused acts omissions thirdparty service providers including subcustodians thirdparty brokers certain cases firm right seek indemnification thirdparty service providers certain relevant losses incurred firm addition firm member payment clearing settlement networks well securities exchanges around world may require firm meet obligations networks exchanges event member defaults loss scenarios connection prime brokerage clearing businesses firm agrees clear settle behalf clients transactions entered brokerage firms firm’s obligations respect transactions secured assets client’s account well proceeds received transactions cleared settled firm behalf client connection joint venture investments firm may issue loan guarantees may liable event fraud misappropriation environmental liabilities certain matters involving borrower firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements material liabilities related guarantees indemnifications recognized consolidated statements financial condition december 2015 december 2014 representations warranties indemnifications firm provides representations warranties counterparties connection variety commercial transactions occasionally indemnifies potential losses caused breach representations warranties firm may also provide indemnifications protecting changes adverse application certain us tax laws connection ordinarycourse transactions securities issuances borrowings derivatives addition firm may provide indemnifications counterparties protect event additional taxes owed payments withheld due either change adverse application certain nonus tax laws indemnifications generally standard contractual terms entered ordinary course business generally stated notional amounts included indemnifications contingencies triggering obligation indemnify expected occur firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements material liabilities related arrangements recognized consolidated statements financial condition december 2015 december 2014 guarantees subsidiaries group inc fully unconditionally guarantees securities issued gs finance corp whollyowned finance subsidiary firm group inc guaranteed payment obligations goldman sachs co gsco gs bank usa goldman sachs execution clearing lp gsec subject certain exceptions november 2008 firm contributed subsidiaries gs bank usa group inc agreed guarantee reimbursement certain losses including creditrelated losses relating assets held contributed entities addition group inc guarantees many obligations consolidated subsidiaries transactionbytransaction basis negotiated counterparties group inc unable develop estimate maximum payout subsidiary guarantees however guaranteed obligations also obligations consolidated subsidiaries group inc’s liabilities guarantor separately disclosed goldman sachs group inc subsidiaries notes consolidated financial statements note 19 shareholders’ equity common equity dividends declared per common share 255 2015 225 2014 205 2013 january 19 2016 group inc declared dividend 065 per common share paid march 30 2016 common shareholders record march 2 2016 firm’s share repurchase program intended help maintain appropriate level common equity share repurchase program effected primarily regular openmarket purchases may include repurchase plans designed comply rule 10b51 amounts timing determined primarily firm’s current projected capital position may also influenced general market conditions prevailing price trading volumes firm’s common stock prior repurchasing common stock firm must receive confirmation federal reserve board object capital actions table presents amount common stock repurchased firm share repurchase program pursuant terms certain sharebased compensation plans employees may remit shares firm may cancel restricted stock units rsus stock options satisfy minimum statutory employee tax withholding requirements exercise price stock options plans 2015 2014 2013 employees remitted 35217 shares 174489 shares 161211 shares total value 6 million 31 million 25 million firm cancelled 57 million 58 million 40 million rsus total value 103 billion 974 million 599 million plans firm also cancelled 20 million 156 million stock options total value 406 million 265 billion 2015 2014 respectively preferred equity tables present details perpetual preferred stock issued outstanding december 2015 1 april 2015 group inc issued 80000 shares series perpetual 5375 fixedtofloating rate noncumulative preferred stock series preferred stock goldman sachs group inc subsidiaries notes consolidated financial statements tables • share noncumulative series b series c series preferred stock issued outstanding redeemable firm’s option • share noncumulative series e series f preferred stock issued outstanding redeemable firm’s option subject certain covenant restrictions governing firm’s ability redeem purchase preferred stock without issuing common stock instruments equitylike characteristics see note 16 information replacement capital covenants applicable series e series f preferred stock • share noncumulative series preferred stock issued outstanding redeemable firm’s option beginning november 10 2017 • share noncumulative series j preferred stock issued outstanding redeemable firm’s option beginning may 10 2023 • share noncumulative series k preferred stock issued outstanding redeemable firm’s option beginning may 10 2024 • share noncumulative series l preferred stock issued outstanding redeemable firm’s option beginning may 10 2019 • share noncumulative series preferred stock issued outstanding redeemable firm’s option beginning may 10 2020 • shares preferred stock par value 001 per share applicable share preferred stock represented specified number depositary shares prior redeeming preferred stock firm must receive confirmation federal reserve board object capital actions series preferred stock pari passu preference firm’s common stock liquidation dividends series preferred stock excluding series l series preferred stock declared payable quarterly arrears dividends series l series preferred stock declared payable semiannually arrears issuance date excluding may 10 2019 may 10 2020 respectively quarterly thereafter firm’s ability declare pay dividends purchase redeem otherwise acquire common stock subject certain restrictions event firm fails pay set aside full dividends preferred stock latest completed dividend period table presents dividend rates firm’s perpetual preferred stock december 2015 table presents preferred dividends declared firm’s preferred stock january 8 2016 group inc declared dividends 23958 38750 25556 37188 34375 39844 per share series preferred stock series b preferred stock series c preferred stock series preferred stock series preferred stock series j preferred stock series k preferred stock respectively paid february 10 2016 preferred shareholders record january 26 2016 addition firm declared dividends 101111 per share series e preferred stock series f preferred stock paid march 1 2016 preferred shareholders record february 15 2016 goldman sachs group inc subsidiaries notes consolidated financial statements accumulated comprehensive loss tables present accumulated comprehensive loss net tax type note 20 regulation capital adequacy federal reserve board primary regulator group inc bank holding company bank holding company act 1956 bhc act financial holding company amendments bhc act bank holding company firm subject consolidated regulatory capital requirements calculated accordance revised riskbased capital leverage regulations federal reserve board subject certain transitional provisions revised capital framework riskbased capital requirements expressed capital ratios compare measures regulatory capital riskweighted assets rwas failure comply requirements could result restrictions imposed firm’s regulators firm’s capital levels also subject qualitative judgments regulators components capital risk weightings factors furthermore certain firm’s subsidiaries subject separate regulations capital requirements described capital framework regulations revised capital framework largely based basel committee’s final capital framework strengthening international capital standards basel iii also implement certain provisions doddfrank act revised capital framework firm “advanced approach” banking organization december 2015 firm calculated common equity tier 1 cet1 tier 1 capital total capital ratios accordance standardized approach market risk rules set revised capital framework together standardized capital rules ii advanced approach market risk rules set revised capital framework together basel iii advanced rules lower ratio calculated ii ratio firm’s compliance minimum ratio requirements assessed ratios calculated accordance basel iii advanced rules lower calculated accordance standardized capital rules therefore basel iii advanced ratios applied firm december 2015 capital ratios apply firm change future reporting periods result regulatory requirements december 2014 firm calculated cet1 tier 1 capital total capital ratios using revised capital framework regulatory capital rwas calculated accordance basel capital accord basel committee incorporating market risk requirements set revised capital framework adjusted certain items related capital deductions phasein capital deductions hybrid capital rules ii basel iii advanced rules lower ratio calculated ii ratio firm’s compliance minimum ratio requirements assessed ratios calculated accordance basel iii advanced rules lower calculated accordance hybrid capital rules therefore basel iii advanced ratios applied firm december 2014 goldman sachs group inc subsidiaries notes consolidated financial statements regulatory capital ratios table presents minimum ratios required firm december 2015 1 order meet quantitative requirements “wellcapitalized” federal reserve board’s regulations firm must meet higher required minimum total capital ratio 100 2 tier 1 leverage ratio defined tier 1 capital divided quarterly average adjusted total assets includes adjustments goodwill identifiable intangible assets certain investments nonconsolidated financial institutions certain aspects revised capital framework’s requirements phase time transitional provisions include introduction capital buffers including surcharges certain deductions regulatory capital investments nonconsolidated financial institutions deductions regulatory capital required phased ratably per year 2014 2018 residual amounts deducted transitional period subject risk weighting addition junior subordinated debt issued trusts phased regulatory capital minimum cet1 tier 1 total capital ratios apply firm increase transitional provisions phase capital buffers including surcharges introduced definition riskweighted assets december 2015 rwas calculated accordance standardized capital rules basel iii advanced rules following comparison rwa calculations rules • rwas credit risk accordance standardized capital rules calculated different manner basel iii advanced rules primary difference standardized capital rules contemplate use internal models compute exposure credit risk derivatives securities financing transactions whereas basel iii advanced rules permit use models subject supervisory approval addition credit rwas calculated accordance standardized capital rules utilize prescribed riskweights depend largely type counterparty rather internal assessments creditworthiness counterparties • rwas market risk accordance standardized capital rules basel iii advanced rules generally consistent • rwas operational risk required standardized capital rules whereas basel iii advanced rules include requirement december 2014 firm calculated rwas accordance basel iii advanced rules hybrid capital rules described credit risk credit rwas calculated based upon measures exposure risk weighted following description calculation credit rwas accordance standardized capital rules basel iii advanced rules hybrid capital rules • credit rwas calculated accordance standardized capital rules firm utilizes prescribed riskweights depend largely type counterparty eg whether counterparty sovereign bank brokerdealer entity exposure measure derivatives based combination positive net current exposure percentage notional amount derivative exposure measure securities financing transactions calculated reflect adjustments potential price volatility size depends factors type maturity security whether denominated currency side financing transaction firm utilizes specific required formulaic approaches measure exposure securitizations equities • credit rwas calculated accordance basel iii advanced rules firm given permission regulators compute riskweights wholesale retail credit exposures accordance advanced internal ratingsbased approach based internal assessments creditworthiness counterparties key inputs probability default loss given default effective maturity firm utilizes internal models measure exposure derivatives securities financing transactions eligible margin loans revised capital framework requires bank holding company obtain prior written agreement regulators using internal models purposes firm utilizes specific required formulaic approaches measure exposure securitizations equities • credit rwas calculated accordance hybrid capital rules firm utilized prescribed riskweights depending among things type counterparty exposure measure derivatives based combination positive net current exposure percentage notional amount derivative exposure measure securities financing transactions based carrying value without application potential price volatility adjustments required standardized capital rules goldman sachs group inc subsidiaries notes consolidated financial statements market risk market rwas calculated based measures exposure include valueatrisk var stressed var incremental risk comprehensive risk based internal models standardized measurement method specific risk market risk regulatory capital rules require bank holding company obtain prior written agreement regulators using internal model calculate riskbased capital requirement following information regarding measures exposure market rwas calculated accordance standardized capital rules basel iii advanced rules hybrid capital rules • var potential loss value inventory positions well certain financial assets financial liabilities due adverse market movements defined time horizon specified confidence level risk management purposes regulatory capital calculations firm uses single var model captures risks including related interest rates equity prices currency rates commodity prices however var used regulatory capital requirements regulatory var differs risk management var due different time horizons confidence levels 10day 99 regulatory var vs oneday 95 risk management var well differences scope positions var calculated addition daily trading net revenues used determine risk management var exceptions ie comparing daily trading net revenues var measure calculated end prior business day include intraday activity whereas federal reserve board’s regulatory capital rules require intraday activity excluded daily trading net revenues calculating regulatory var exceptions intraday activity includes bidoffer net revenues likely positive nature result may differences number var exceptions amount daily trading net revenues calculated regulatory var compared amounts calculated risk management var firm’s positional losses observed single day exceed 99 oneday regulatory var 2015 exceed 99 oneday regulatory var three occasions 2014 change var multiplier used calculate market rwas • stressed var potential loss value inventory positions well certain financial assets financial liabilities period significant market stress • incremental risk potential loss value nonsecuritized inventory positions due default credit migration issuers financial instruments oneyear time horizon • comprehensive risk potential loss value due price risk defaults within firm’s credit correlation positions • specific risk loss position could result factors broad market movements including event risk default risk idiosyncratic risk standardized measurement method used determine specific risk rwas applying supervisory defined riskweighting factors applicable netting performed operational risk operational rwas required included basel iii advanced rules firm given permission regulators calculate operational rwas accordance “advanced measurement approach” therefore utilizes internal riskbased model quantify operational rwas consolidated regulatory capital ratios capital ratios rwas ratios calculated accordance basel iii advanced rules lower calculated accordance standardized rules december 2015 therefore lower ratios applied firm date ratios calculated accordance basel iii advanced rules lower calculated accordance hybrid capital rules december 2014 therefore lower ratios applied firm date goldman sachs group inc subsidiaries notes consolidated financial statements table presents ratios calculated accordance standardized basel iii advanced rules december 2015 december 2014 ratios calculated accordance standardized capital rules applicable january 2015 december 2014 ratios presented table comparative purposes table • deductions goodwill identifiable intangible assets net deferred tax liabilities include goodwill 366 billion 365 billion december 2015 december 2014 respectively identifiable intangible assets 196 million 40 491 million 103 million 20 515 million december 2015 december 2014 respectively net associated deferred tax liabilities 104 billion 961 million december 2015 december 2014 respectively goodwill fully deducted cet1 deduction identifiable intangible assets required phased cet1 ratably five years 2014 2018 balance deducted transitional period risk weighted • deductions investments nonconsolidated financial institutions represent amount firm’s investments capital nonconsolidated financial institutions exceed certain prescribed thresholds deduction investments required phased cet1 ratably five years 2014 2018 december 2015 december 2014 cet1 reflects 40 20 deduction respectively balance deducted transitional period risk weighted • deduction investments covered funds represents firm’s aggregate investments applicable covered funds permitted volcker rule purchased december 2013 substantially investments covered funds purchased connection firm’s marketmaking activities deduction became effective july 2015 subject transition period see note 6 information volcker rule • adjustments within cet1 tier 1 capital primarily include accumulated comprehensive loss credit valuation adjustments derivative liabilities debt valuation adjustments overfunded portion firm’s defined benefit pension plan obligation net associated deferred tax liabilities disallowed deferred tax assets required credit riskbased deductions items generally required phased cet1 ratably five years 2014 2018 december 2015 december 2014 cet1 reflects 40 20 deductions respectively balance deducted cet1 transitional period generally deducted tier 1 capital within adjustments goldman sachs group inc subsidiaries notes consolidated financial statements • junior subordinated debt issued trusts reflected tier 1 capital 25 tier 2 capital 75 december 2015 percentages 50 tier 1 tier 2 capital december 2014 junior subordinated debt issued trusts reduced amount trust preferred securities purchased firm fully phased tier 1 capital tier 2 capital 2016 tier 2 capital 2022 see note 16 additional information firm’s junior subordinated debt issued trusts trust preferred securities purchased firm • qualifying subordinated debt represents subordinated debt issued group inc original term maturity five years greater outstanding amount subordinated debt qualifying tier 2 capital reduced upon reaching remaining maturity five years see note 16 additional information firm’s subordinated debt tables present changes cet1 tier 1 capital tier 2 capital period ended december 2015 period december 31 2013 december 31 2014 1 represents increased phasein deductions 20 40 effective january 2015 1 includes 366 billion related transition revised capital framework january 1 2014 well 479 million related firm’s application basel iii advanced rules april 1 2014 2 includes 219 million related transition revised capital framework january 1 2014 well 224 million related firm’s application basel iii advanced rules april 1 2014 3 includes 2 million related transition revised capital framework january 1 2014 well 195 million related firm’s application basel iii advanced rules april 1 2014 table “change cet1 related transition revised capital framework” primarily reflects change treatment equity investments certain nonconsolidated entities revised capital framework requires portion investments exceed certain prescribed thresholds treated deductions cet1 remainder riskweighted subject applicable transitional provisions december 2013 accordance previous capital regulations equity investments treated deductions goldman sachs group inc subsidiaries notes consolidated financial statements tables present components rwas calculated accordance standardized basel iii advanced rules december 2015 december 2014 1 represents resale repurchase agreements securities borrowed loaned transactions 2 includes receivables assets cash equivalents table presents changes rwas calculated accordance standardized basel iii advanced rules period ended december 2015 1 represents increased phasein deductions 20 40 effective january 2015 standardized credit rwas december 2015 decreased 5258 billion compared december 2014 reflecting decreases derivatives securities financing transactions primarily due lower exposures decreases partially offset increase lending activity standardized market rwas december 2015 decreased 4253 billion compared december 2014 primarily due decreased specific risk result reduced risk exposures basel iii advanced credit rwas december 2015 increased 1614 billion compared december 2014 primarily reflecting increase lending activity increase partially offset decrease rwas related derivatives due lower counterparty credit risk basel iii advanced market rwas december 2015 decreased 4190 billion compared december 2014 primarily due decreased specific risk result reduced risk exposures basel iii advanced operational rwas december 2015 increased 3310 billion compared december 2014 substantially associated mortgagerelated legal matters regulatory proceedings goldman sachs group inc subsidiaries notes consolidated financial statements see “definition riskweighted assets” description calculations credit rwas market rwas operational rwas including differences calculation credit rwas standardized capital rules basel iii advanced rules table presents changes rwas december 31 2013 december 31 2014 december 31 2013 firm subject capital regulations federal reserve board based basel committee’s basel capital accord including revised market risk capital requirements 1 includes 2667 billion rwa changes related transition revised capital framework january 1 2014 4243 billion changes calculation credit rwas accordance basel iii advanced rules related firm’s application basel iii advanced rules april 1 2014 credit rwas december 2014 increased 5970 billion compared december 2013 primarily due increased risk weightings related counterparty credit risk derivative exposures inclusion rwas equity investments certain nonconsolidated entities resulting transition revised capital framework market rwas december 2014 decreased 2010 billion compared december 2013 primarily due decrease stressed var reflecting reduced fixed income equities exposures operational rwas december 2014 increased 9749 billion compared december 2013 substantially due transition revised capital framework bank subsidiaries regulatory capital ratios gs bank usa fdicinsured new york statechartered bank member federal reserve system supervised regulated federal reserve board fdic new york state department financial services consumer financial protection bureau subject regulatory capital requirements calculated substantially manner applicable bank holding companies purposes assessing adequacy capital gs bank usa calculates capital ratios accordance riskbased capital leverage requirements applicable state member banks requirements based revised capital framework described gs bank usa advanced approach banking organization revised capital framework regulatory framework prompt corrective action applicable gs bank usa order meet quantitative requirements “wellcapitalized” depository institution gs bank usa must meet higher minimum requirements minimum ratios table presents minimum ratios “wellcapitalized” minimum ratios required gs bank usa december 2015 gs bank usa compliance minimum capital requirements “wellcapitalized” minimum ratios december 2015 december 2014 gs bank usa’s capital levels prompt corrective action classification also subject qualitative judgments regulators components capital risk weightings factors failure comply capital requirements could result restrictions imposed gs bank usa’s regulators goldman sachs group inc subsidiaries notes consolidated financial statements december 2015 similar firm gs bank usa required calculate cet1 tier 1 capital total capital ratios accordance standardized capital rules basel iii advanced rules lower ratio calculated accordance standardized capital rules basel iii advanced rules ratio gs bank usa’s compliance minimum ratio requirements assessed ratios calculated accordance standardized capital rules lower calculated accordance basel iii advanced rules therefore standardized capital ratios applied gs bank usa december 2015 capital ratios apply gs bank usa change future reporting periods result regulatory requirements december 2014 gs bank usa required calculate cet1 tier 1 capital total capital ratios accordance basel iii advanced rules hybrid capital rules lower ratio calculated accordance basel iii advanced rules hybrid capital rules ratio gs bank usa’s compliance minimum ratio requirements assessed ratios calculated accordance hybrid capital rules lower calculated accordance basel iii advanced rules therefore hybrid capital ratios applied gs bank usa december 2014 table presents ratios gs bank usa calculated accordance standardized basel iii advanced rules december 2015 december 2014 hybrid capital rules december 2014 ratios calculated accordance standardized capital rules applicable january 2015 december 2014 ratios presented table comparative purposes firm’s principal nonus bank subsidiary gsib whollyowned credit institution regulated prudential regulation authority pra financial conduct authority fca subject minimum capital requirements december 2015 december 2014 gsib compliance regulatory capital requirements goldman sachs group inc subsidiaries notes consolidated financial statements brokerdealer subsidiaries us regulated brokerdealer subsidiaries firm’s us regulated brokerdealer subsidiaries include gsco gsec gsco gsec registered us brokerdealers futures commission merchants subject regulatory capital requirements including imposed sec us commodity futures trading commission cftc chicago mercantile exchange financial industry regulatory authority inc finra national futures association rule 15c31 sec rule 117 cftc specify uniform minimum net capital requirements defined registrants also effectively require significant part registrants’ assets kept relatively liquid form gsco gsec elected calculate minimum capital requirements accordance “alternative net capital requirement” permitted rule 15c31 december 2015 december 2014 gsco regulatory net capital defined rule 15c31 1475 billion 1483 billion respectively exceeded amount required 1237 billion 1246 billion respectively december 2015 december 2014 gsec regulatory net capital defined rule 15c31 171 billion 167 billion respectively exceeded amount required 159 billion 153 billion respectively addition alternative minimum net capital requirements gsco also required hold tentative net capital excess 1 billion net capital excess 500 million accordance market credit risk standards appendix e rule 15c31 gsco also required notify sec event tentative net capital less 5 billion december 2015 december 2014 gsco tentative net capital net capital excess minimum notification requirements nonus regulated brokerdealer subsidiaries firm’s principal nonus regulated brokerdealer subsidiaries include goldman sachs international gsi goldman sachs japan co ltd gsjcl gsi firm’s uk brokerdealer regulated pra fca gsjcl firm’s japanese brokerdealer regulated japan’s financial services agency certain nonus subsidiaries firm also subject capital adequacy requirements promulgated authorities countries operate december 2015 december 2014 subsidiaries compliance local capital adequacy requirements restrictions payments group inc’s ability withdraw capital regulated subsidiaries limited minimum equity capital requirements applicable subsidiaries provisions applicable law regulations regulatory restrictions limit ability subsidiaries declare pay dividends without prior regulatory approval even relevant subsidiary would satisfy equity capital requirements applicable giving effect dividend example federal reserve board fdic new york state department financial services authority prohibit limit payment dividends banking organizations supervise including gs bank usa relevant regulator’s opinion payment dividend would constitute unsafe unsound practice light financial condition banking organization december 2015 december 2014 group inc required maintain 4809 billion 3362 billion respectively minimum equity capital regulated subsidiaries order satisfy regulatory requirements subsidiaries increased requirement primarily result higher regulatory capital requirements gs bank usa reflecting implementation standardized capital rules deposits gs bank usa insured fdic extent provided law federal reserve board requires gs bank usa maintain cash reserves federal reserve bank new york amount deposited gs bank usa held federal reserve bank new york 4936 billion 3868 billion december 2015 december 2014 respectively exceeded required reserve amounts 4925 billion 3857 billion december 2015 december 2014 respectively goldman sachs group inc subsidiaries notes consolidated financial statements note 21 earnings per common share basic earnings per common share eps calculated dividing net earnings applicable common shareholders weighted average number common shares outstanding common shares outstanding includes common stock rsus future service required condition delivery underlying common stock diluted eps includes determinants basic eps addition reflects dilutive effect common stock deliverable stock options warrants rsus future service required condition delivery underlying common stock table presents computations basic diluted eps table unvested sharebased awards nonforfeitable rights dividends dividend equivalents treated separate class securities calculating eps impact applying methodology reduction basic eps 005 2015 2014 2013 diluted eps computations table include antidilutive rsus common shares underlying antidilutive stock options 60 million 2015 2014 2013 note 22 transactions affiliated funds firm formed numerous nonconsolidated investment funds thirdparty investors firm generally acts investment manager funds entitled receive management fees certain cases advisory fees incentive fees funds additionally firm invests alongside thirdparty investors certain funds tables present fees earned affiliated funds fees receivable affiliated funds aggregate carrying value firm’s interests affiliated funds december 2015 december 2014 firm outstanding guarantees behalf funds 300 million 304 million respectively amount primarily related guarantee firm voluntarily provided connection financing agreement thirdparty lender executed one firm’s real estate funds covered volcker rule december 2015 december 2014 firm outstanding loans commitments extend credit affiliated funds volcker rule restricts firm providing financial support covered funds defined rule expiration applicable conformance period general matter ordinary course business firm expect provide additional voluntary financial support covered funds may choose respect funds subject volcker rule however event support provided amount expected material addition ordinary course business firm may also engage activities affiliated funds including among others securities lending trade execution market making custody acquisition bridge financing see note 18 firm’s investment commitments related funds goldman sachs group inc subsidiaries notes consolidated financial statements note 23 interest income interest expense interest recorded life instrument accrual basis based contractual interest rates table presents firm’s sources interest income interest expense 1 includes rebates paid interest income securities borrowed 2 includes interest income customer debit balances interestearning assets 3 includes rebates received interestbearing liabilities interest expense customer credit balances note 24 income taxes provision income taxes income taxes provided using asset liability method deferred tax assets liabilities recognized temporary differences financial reporting tax bases assets liabilities firm reports interest expense related income tax matters “provision taxes” income tax penalties “other expenses” tables present components provision taxes reconciliation us federal statutory income tax rate firm’s effective income tax rate 1 includes impact settlement state local examinations 1 includes impact permanently reinvested earnings 2 includes impact settlement state local examinations 3 substantially nondeductible legal expenses relate provisions agreement principle rmbs working group see note 27 information agreement principle goldman sachs group inc subsidiaries notes consolidated financial statements deferred income taxes deferred income taxes reflect net tax effects temporary differences financial reporting tax bases assets liabilities temporary differences result taxable deductible amounts future years measured using tax rates laws effect differences expected reverse valuation allowances established reduce deferred tax assets amount likely realized primarily relate ability utilize losses various tax jurisdictions tax assets liabilities presented component “other assets” “other liabilities accrued expenses” respectively table presents significant components deferred tax assets liabilities excluding impact netting within tax jurisdictions firm recorded deferred tax assets 426 million 336 million december 2015 december 2014 respectively connection us federal state local foreign net operating loss carryforwards firm also recorded valuation allowance 24 million 26 million december 2015 december 2014 respectively related net operating loss carryforwards december 2015 us federal foreign net operating loss carryforwards 106 million 148 billion respectively utilized us federal net operating loss carryforward begin expire 2016 foreign net operating loss carryforwards carried forward indefinitely state local net operating loss carryforwards 798 million begin expire 2016 carryforwards expire material impact firm’s results operations firm foreign tax credit carryforwards related net deferred income tax assets december 2015 december 2014 firm capital loss carryforwards related net deferred income tax assets december 2015 december 2014 valuation allowance increased 9 million 2015 decreased 119 million 2014 increase 2015 primarily due increase deferred tax assets firm expect realize benefit decrease 2014 primarily due decrease deferred tax assets firm expect realize benefit firm permanently reinvests eligible earnings certain foreign subsidiaries accordingly accrue us income taxes would arise earnings repatriated december 2015 december 2014 policy resulted unrecognized net deferred tax liability 566 billion 466 billion respectively attributable reinvested earnings 2855 billion 2488 billion respectively goldman sachs group inc subsidiaries notes consolidated financial statements unrecognized tax benefits firm recognizes tax positions financial statements likely position sustained examination relevant taxing authority based technical merits position meets standard measured largest amount benefit likely realized settlement liability established differences positions taken tax return amounts recognized financial statements accrued liability interest expense related income tax matters income tax penalties 101 million december 2015 december 2014 firm recognized interest expense income tax penalties 17 million 45 million 53 million 2015 2014 2013 respectively reasonably possible unrecognized tax benefits could change significantly twelve months subsequent december 2015 due potential audit settlements however time possible estimate potential change table presents changes liability unrecognized tax benefits liability included “other liabilities accrued expenses” see note 17 information regulatory tax examinations firm subject examination us internal revenue service irs taxing authorities jurisdictions firm significant business operations united kingdom japan hong kong korea various states new york tax years examination vary jurisdiction firm expect completion audits material impact firm’s financial condition may material operating results particular period depending part operating results period table presents earliest tax years remain subject examination major jurisdiction us federal examinations fiscal 2008 calendar 2010 finalized settlement subject review joint committee taxation examinations 2011 2012 began 2013 firm accepted compliance assurance process program irs 2013 2014 2015 2016 tax years program allows firm work irs identify resolve potential us federal tax issues filing tax returns 2013 tax year first year examined program 2013 2014 remain subject postfiling review new york state city examinations fiscal 2007 calendar 2010 began 2013 new york state city examinations 2011 2014 began 2015 years including subsequent years table remain open examination taxing authorities firm believes liability unrecognized tax benefits established adequate relation potential additional assessments goldman sachs group inc subsidiaries notes consolidated financial statements note 25 business segments firm reports activities following four business segments investment banking institutional client services investing lending investment management basis presentation reporting segments certain firm’s business lines aggregated similar economic characteristics similar following areas nature services provide ii methods distribution iii types clients serve iv regulatory environments operate cost drivers firm taken whole compensation headcount levels business activity broadly similar firm’s business segments compensation benefits expenses firm’s segments reflect among factors overall performance firm well performance individual businesses consequently pretax margins one segment firm’s business may significantly affected performance firm’s business segments firm allocates assets including allocations global core liquid assets cash secured client financing assets revenues expenses among four business segments due integrated nature segments estimates judgments made allocating certain assets revenues expenses allocation process based manner management currently views performance segments transactions segments based specific criteria approximate thirdparty rates total operating expenses include charitable contributions allocated individual business segments management believes information table provides reasonable representation segment’s contribution consolidated pretax earnings total assets 1 net revenues related firm’s consolidated investments previously reported net revenues within investing lending reported equity securities debt securities loans results activities 391 million 2015 longer significant principally due sale metro fourth quarter 2014 reclassifications made previously reported amounts conform current presentation 2 includes net provisions litigation regulatory proceedings 401 billion 337 billion related agreement principle rmbs working group 2015 754 million 2014 962 million 2013 see note 27 information agreement principle 3 includes charitable contributions allocated firm’s segments 148 million 2015 137 million 2014 155 million 2013 4 includes 37 million realized gains availableforsale securities goldman sachs group inc subsidiaries notes consolidated financial statements segment information presented table prepared according following methodologies • revenues expenses directly associated segment included determining pretax earnings • net revenues firm’s segments include allocations interest income interest expense specific securities commodities positions relation cash generated funding requirements underlying positions net interest included segment net revenues consistent way management assesses segment performance • overhead expenses directly allocable specific segments allocated ratably based direct segment expenses table presents amounts net interest income segment included net revenues table presents amounts depreciation amortization expense segment included pretax earnings geographic information due highly integrated nature international financial markets firm manages businesses based profitability enterprise whole methodology allocating profitability geographic regions dependent estimates management judgment significant portion firm’s activities require crossborder coordination order facilitate needs firm’s clients geographic results generally allocated follows • investment banking location client investment banking team • institutional client services fixed income currency commodities client execution equities excluding securities services location marketmaking desk securities services location primary market underlying security • investing lending investing location investment lending location client • investment management location sales team table presents total net revenues pretax earnings net earnings firm geographic region allocated based methodology referred well percentage total net revenues pretax earnings net earnings excluding corporate geographic region table asia includes australia new zealand 1 includes charitable contributions allocated firm’s geographic regions 2 includes provisions 337 billion recorded 2015 agreement principle rmbs working group see note 27 information agreement principle goldman sachs group inc subsidiaries notes consolidated financial statements note 26 credit concentrations credit concentrations may arise market making client facilitation investing underwriting lending collateralized transactions may impacted changes economic industry political factors firm seeks mitigate credit risk actively monitoring exposures obtaining collateral counterparties deemed appropriate firm’s activities expose many different industries counterparties firm routinely executes high volume transactions asset managers investment funds commercial banks brokers dealers clearing houses exchanges results significant credit concentrations ordinary course business firm may also subject concentration credit risk particular counterparty borrower issuer including sovereign issuers particular clearing house exchange table presents credit concentrations cash instruments held firm 1 included “financial instruments owned fair value” “cash securities segregated regulatory purposes” december 2015 december 2014 firm credit exposure counterparty exceeded 2 total assets reduce credit exposures firm may enter agreements counterparties permit firm offset receivables payables counterparties andor enable firm obtain collateral upfront contingent basis collateral obtained firm related derivative assets principally cash held firm thirdparty custodian collateral obtained firm related resale agreements securities borrowed transactions primarily us government federal agency obligations nonus government agency obligations see note 10 information collateralized agreements financings table presents us government federal agency obligations nonus government agency obligations collateralize resale agreements securities borrowed transactions including “cash securities segregated regulatory purposes” firm’s primary credit exposure transactions counterparty transaction firm would exposed collateral issuer event counterparty default 1 principally consists securities issued governments france united kingdom japan germany goldman sachs group inc subsidiaries notes consolidated financial statements note 27 legal proceedings firm involved number judicial regulatory arbitration proceedings including described concerning matters arising connection conduct firm’s businesses many proceedings early stages many cases seek indeterminate amount damages asc 450 event “reasonably possible” “the chance future event events occurring remote less likely” event “remote” “the chance future event events occurring slight” thus references upper end range reasonably possible loss cases firm able estimate range reasonably possible loss mean upper end range loss cases firm believes risk loss slight respect matters described management able estimate range reasonably possible loss actual potential plaintiffs claimed amount money damages ii firm threatened sued purchasers underwriting indemnified party firm believes pay judgment iii purchasers demanding firm repurchase securities management estimated upper end range reasonably possible loss equal case amount money damages claimed b case ii difference initial sales price securities firm sold underwriting estimated lowest subsequent price securities c case iii price purchasers paid securities less estimated value december 2015 relevant securities cases ii iii taking account factors believed relevant particular matter matters type date hereof firm estimated upper end range reasonably possible aggregate loss matters described management able estimate range reasonably possible aggregate loss approximately 20 billion excess aggregate reserves matters management generally unable estimate range reasonably possible loss matters included estimate including actual potential plaintiffs claimed amount money damages except instances management otherwise determine appropriate amount ii matters early stages iii matters relate regulatory investigations reviews except instances management otherwise determine appropriate amount iv uncertainty likelihood class certified ultimate size class v uncertainty outcome pending appeals motions vi significant factual issues resolved andor vii novel legal issues presented example firm’s potential liabilities respect future mortgagerelated “putback” claims described may ultimately result increase firm’s liabilities included management’s estimate reasonably possible loss another example firm’s potential liabilities respect investigations reviews described “regulatory investigations reviews related litigation” also generally included management’s estimate reasonably possible loss however management believe based currently available information outcomes matters material adverse effect firm’s financial condition though outcomes could material firm’s operating results particular period depending part upon operating results period see note 18 information mortgagerelated contingencies goldman sachs group inc subsidiaries notes consolidated financial statements mortgagerelated matters beginning april 2010 number purported securities law class actions filed us district court southern district new york challenging adequacy group inc’s public disclosure among things firm’s activities cdo market firm’s conflict interest management sec investigation led gsco entering consent agreement sec settling claims made gsco sec connection abacus 2007ac1 cdo offering abacus 2007ac1 transaction pursuant gsco paid 550 million disgorgement civil penalties consolidated amended complaint filed july 25 2011 names defendants group inc certain officers employees group inc affiliates generally alleges violations sections 10b 20a exchange act seeks unspecified damages june 21 2012 district court dismissed claims based group inc’s disclosing received “wells” notice staff sec related abacus 2007ac1 transaction permitted plaintiffs’ claims proceed district court granted class certification september 24 2015 appellate court granted defendants’ petition review january 26 2016 february 1 2016 district court stayed proceedings district court pending appellate court’s decision june 2012 board received demand shareholder board investigate take action relating firm’s mortgagerelated activities stock sales certain directors executives firm february 15 2013 shareholder filed putative shareholder derivative action new york supreme court new york county group inc certain current former directors employees based activities stock sales derivative complaint includes allegations breach fiduciary duty unjust enrichment abuse control gross mismanagement corporate waste seeks among things unspecified monetary damages disgorgement profits certain corporate governance disclosure reforms may 28 2013 group inc informed shareholder board completed investigation determined refuse demand june 20 2013 shareholder made books records demand requesting materials relating board’s determination parties agreed stay proceedings putative derivative action pending resolution books records demand addition board received books records demands several shareholders materials relating among subjects firm’s mortgage servicing foreclosure activities participation federal programs providing assistance financial institutions homeowners loan sales fannie mae freddie mac mortgagerelated activities conflicts management gsco goldman sachs mortgage company gs mortgage securities corp three current former goldman sachs employees defendants putative class action commenced december 11 2008 us district court southern district new york brought behalf purchasers various mortgage passthrough certificates assetbacked certificates issued various securitization trusts established firm underwritten gsco 2007 june 3 2010 another investor filed separate putative class action asserting substantively similar allegations relating one offering thereafter moved amend amended complaint add claims respect two additional offerings december 30 2015 district court preliminarily approved settlement covering actions firm paid full amount proposed settlement escrow account september 30 2010 class action filed us district court southern district new york gsco group inc two former gsco employees behalf investors 823 million notes issued 2006 2007 two synthetic cdos hudson mezzanine 20061 20062 november 2 2015 parties reached settlement principle subject documentation court approval firm reserved full amount proposed settlement goldman sachs group inc subsidiaries notes consolidated financial statements various alleged purchasers counterparties providers credit enhancement involved transactions relating mortgage passthrough certificates cdos mortgagerelated products including aca financial guaranty corp aozora bank ltd basis yield alpha fund master charles schwab corporation cifg assurance north america inc fdic receiver guaranty bank ikb deutsche industriebank ag massachusetts mutual life insurance company texas county district retirement system tennessee consolidated retirement system filed complaints state federal court firm affiliates generally alleging offering documents securities purchased contained untrue statements material fact material omissions generally seeking rescission andor damages certain complaints allege fraud seek punitive damages certain complaints also name firms defendants norges bank investment management selective insurance company threatened assert claims various types firm connection sale mortgagerelated securities firm entered agreements one entities toll relevant statute limitations date hereof aggregate amount mortgagerelated securities sold plaintiffs active threatened cases described preceding two paragraphs plaintiffs seeking rescission securities approximately 33 billion reflect adjustment subsequent paydowns distributions residual value securities statutory interest adjustments may claimed amount include potential claims purchasers mortgagerelated offerings described claims dismissed firm entered agreements deutsche bank national trust company us bank national association toll relevant statute limitations respect claims repurchase residential mortgage loans based alleged breaches representations related 111 billion original notional face amount securitizations issued trusts act trustees group inc litton loan servicing lp litton ocwen financial corporation arrow corporate member holdings llc arrow former subsidiary group inc defendants putative class action pending since january 23 2013 us district court southern district new york generally challenging procurement manner scope “forceplaced” hazard insurance arranged litton homeowners failed arrange insurance required mortgages complaint asserts claims breach contract breach fiduciary duty misappropriation conversion unjust enrichment violation florida unfair practices law seeks unspecified compensatory punitive damages well declaratory injunctive relief amended complaint filed november 19 2013 added additional plaintiff rico claims september 29 2014 court denied without prejudice leave renew later date group inc’s motion sever claims certain defendants february 2 2016 defendants’ motion dismiss action preempted “filedrate doctrine” recent second circuit decision granted respect certain plaintiffs january 15 2016 group inc arrow added defendants putative class action us district court northern district california based substantially similar allegations asserting rico claims violations california’s unfair competition law seeking similar relief february 10 2016 group inc litton arrow plaintiffs action pending southern district new york reached settlement principle subject documentation court approval would resolve remaining claims actions goldman sachs group inc subsidiaries notes consolidated financial statements january 14 2016 firm announced agreement principle subject definitive documentation resolve ongoing investigation residential mortgagebacked securities working group us financial fraud enforcement task force agreement principle resolve actual potential civil claims us department justice new york illinois attorneys general national credit union administration conservator several failed credit unions federal home loan banks chicago seattle relating firm’s securitization underwriting sale residential mortgagebacked securities 2005 2007 terms agreement principle firm pay 239 billion civil monetary penalty make 875 million cash payments provide 180 billion consumer relief consumer relief form principal forgiveness underwater homeowners distressed borrowers financing construction rehabilitation preservation affordable housing support debt restructuring foreclosure prevention housing quality improvement programs well land banks firm established reserve estimated obligations agreement principle see also “regulatory investigations reviews related litigation” firm also received continues receive requests information andor subpoenas engaged discussions federal state local regulators law enforcement authorities part inquiries investigations relating mortgagerelated securitization process subprime mortgages cdos synthetic mortgagerelated products sales communications particular transactions involving products servicing foreclosure activities may subject firm actions including litigation penalties fines firm may subject additional putative shareholder derivative actions purported class actions rescission “putback” claims litigation additional investor shareholder demands additional regulatory investigations actions respect mortgagerelated offerings loan sales cdos servicing foreclosure activities see note 18 information regarding mortgagerelated contingencies described note 27 gt advanced technologies securities litigation gsco among underwriters named defendants several putative securities class actions filed october 2014 us district court district new hampshire addition underwriters defendants include certain directors officers gt advanced technologies inc gt advanced technologies underwriters complaints generally allege misstatements omissions connection december 2013 offerings gt advanced technologies approximately 86 million common stock 214 million principal amount convertible senior notes assert claims federal securities laws seek compensatory damages unspecified amount rescission july 20 2015 plaintiffs filed consolidated amended complaint october 7 2015 defendants moved dismiss gsco underwrote 3479769 shares common stock 75 million principal amount notes aggregate offering price approximately 105 million october 6 2014 gt advanced technologies filed chapter 11 bankruptcy fireeye securities litigation gsco among underwriters named defendants several putative securities class actions filed beginning june 2014 california superior court county santa clara addition underwriters defendants include fireeye inc fireeye certain directors officers complaints generally allege misstatements omissions connection offering materials march 2014 offering approximately 115 billion fireeye common stock assert claims federal securities laws seek compensatory damages unspecified amount rescission august 11 2015 court overruled defendants’ demurrers sought consolidated amended complaint dismissed november 16 2015 plaintiffs moved class certification january 6 2016 fireeye director officer defendants filed motion judgment pleadings lack subject matter jurisdiction gsco underwrote 2100000 shares total offering price approximately 172 million goldman sachs group inc subsidiaries notes consolidated financial statements cobalt international energy securities litigation cobalt international energy inc cobalt certain officers directors including employees affiliates group inc served directors cobalt affiliates shareholders cobalt including group inc underwriters including gsco certain offerings cobalt’s securities defendants putative securities class action filed november 30 2014 us district court southern district texas consolidated amended complaint filed may 1 2015 asserts claims federal securities laws seeks compensatory rescissory damages unspecified amounts alleges material misstatements omissions concerning cobalt connection 167 billion february 2012 offering cobalt common stock 138 billion december 2012 offering cobalt’s convertible notes 100 billion january 2013 offering cobalt’s common stock 133 billion may 2013 offering cobalt’s common stock 130 billion may 2014 offering cobalt’s convertible notes consolidated amended complaint alleges among others group inc gsco liable controlling persons respect five offerings consolidated amended complaint also seeks damages gsco connection acting underwriter 14430000 shares common stock representing aggregate offering price approximately 465 million 690 million principal amount convertible notes approximately 508 million principal amount convertible notes february 2012 december 2012 may 2014 offerings respectively aggregate offering price approximately 166 billion january 19 2016 court granted leave replead underwriter defendants’ motions dismiss claims plaintiffs purchased cobalt securities april 30 2013 denied motions dismiss respects solazyme inc securities litigation gsco among underwriters named defendants putative securities class action filed june 24 2015 us district court northern district california addition underwriters defendants include solazyme inc solazyme certain directors officers underwriters complaints generally allege misstatements omissions connection march 2014 offerings solazyme approximately 63 million common stock 150 million principal amount convertible senior subordinated notes assert claims federal securities laws seek compensatory damages unspecified amount rescission plaintiffs filed amended complaint december 15 2015 defendants moved dismiss february 12 2016 gsco underwrote 3450000 shares common stock 150 million principal amount notes aggregate offering price approximately 187 million employmentrelated matters september 15 2010 putative class action filed us district court southern district new york three female former employees alleging group inc gsco systematically discriminated female employees respect compensation promotion assignments mentoring performance evaluations complaint alleges class consisting female employees employed specified levels specified areas group inc gsco since july 2002 asserts claims federal new york city discrimination laws complaint seeks class action status injunctive relief unspecified amounts compensatory punitive damages july 17 2012 district court issued decision granting part group inc’s gsco’s motion strike certain plaintiffs’ class allegations ground plaintiffs lacked standing pursue certain equitable remedies denying group inc’s gsco’s motion strike plaintiffs’ class allegations entirety premature march 21 2013 us court appeals second circuit held arbitration compelled one named plaintiffs managing director party arbitration agreement firm march 10 2015 magistrate judge district judge assigned remaining plaintiffs’ may 2014 motion class certification recommended motion denied respects august 3 2015 magistrate judge denied plaintiffs’ motion reconsideration recommendation granted plaintiffs’ motion intervene two female individuals one employed firm september 2010 current employee firm august 17 2015 defendants appealed magistrate judge’s decision intervention september 28 2015 defendants moved dismiss claims intervenor current employee firm lack standing investment management services group inc certain affiliates parties various civil litigation arbitration proceedings disputes clients relating losses allegedly sustained result firm’s investment management services claims generally seek among things restitution compensatory damages cases punitive damages goldman sachs group inc subsidiaries notes consolidated financial statements financial advisory services group inc certain affiliates time parties various civil litigation arbitration proceedings disputes clients third parties relating firm’s financial advisory activities claims generally seek among things compensatory damages cases punitive damages certain cases allege firm appropriately disclose deal conflicts interest credit derivatives antitrust matters december 4 2015 european commission announced closed antitrust proceedings banks including group inc involved european commission’s investigation announced april 2011 numerous financial services companies connection supply data related credit default swaps connection profit sharing fee arrangements clearing credit default swaps including potential anticompetitive practices gsco among numerous defendants putative antitrust class actions relating credit derivatives filed beginning may 2013 consolidated us district court southern district new york october 29 2015 court preliminarily approved settlement among gsco plaintiffs firm reserved full amount proposed settlement libyarelated litigation gsi defendant action filed january 21 2014 high court justice london libyan investment authority relating nine derivative transactions plaintiff gsi seeking among things rescission transactions unspecified equitable compensation damages exceeding 1 billion december 4 2014 libyan investment authority filed amended statement claim municipal securities matters gsco along cases financial services firms named municipalities municipalowned entities stateowned agencies instrumentalities nonprofit entities number finra arbitrations federal court cases based gsco’s role underwriter claimants’ issuances aggregate approximately 19 billion auction rate securities 2003 2007 brokerdealer respect auctions securities claimants generally allege gsco failed disclose practice placing cover bids auctions andor failed inform claimant deterioration auction rate market beginning fall 2007 result claimant forced engage series expensive refinancing conversion transactions failure auction market february 2008 certain claimants also allege gsco advised enter continue interest rate swaps connection auction rate securities issuances causing incur additional losses claims include breach fiduciary duty fraudulent concealment negligent misrepresentation breach contract violations exchange act state securities laws breach duties rules municipal securities rulemaking board nasd certain arbitrations enjoined accordance exclusive forum selection clauses transaction documents addition gsco filed motions finra panels dismiss arbitrations one granted filed motions dismiss two proceedings pending federal court one granted appealed one denied gsco also reached settlements principle five actions one action voluntarily dismissed us treasury securitiesrelated litigation gsco among primary dealers named defendants several putative class actions relating market us treasury securities filed beginning july 2015 consolidated us district court southern district new york complaints generally allege defendants violated federal antitrust laws commodity exchange act connection alleged conspiracy manipulate whenissued market auctions us treasury securities well related futures options seek declaratory injunctive relief treble damages unspecified amount restitution goldman sachs group inc subsidiaries notes consolidated financial statements commoditiesrelated litigation gsco gsi j aron company metro previously consolidated subsidiary group inc sold fourth quarter 2014 among defendants number putative class actions filed beginning august 1 2013 consolidated us district court southern district new york complaints generally allege violations federal antitrust laws state laws connection storage aluminum trading complaints seek declaratory injunctive equitable relief well unspecified monetary damages including treble damages august 29 2014 court granted goldman sachs defendants’ motion dismiss certain plaintiffs appealed september 24 2014 remaining plaintiffs sought amend complaints october 2014 march 26 2015 court granted part denied part plaintiffs’ motions leave amend complaints rejecting monopolization claims state law claims permitting antitrust conspiracy claims certain parallel state law unjust enrichment claims proceed court directed remaining plaintiffs file amended complaints april 9 2015 gs power metro gsi among defendants named putative class actions filed beginning may 23 2014 us district court southern district new york based similar alleged violations federal antitrust laws connection management zinc storage facilities january 7 2016 court granted defendants’ motion dismiss gsi among defendants named putative class actions relating trading platinum palladium filed beginning november 25 2014 us district court southern district new york complaints generally allege defendants violated federal antitrust laws commodity exchange act connection alleged conspiracy manipulate benchmark physical platinum palladium prices seek declaratory injunctive relief well treble damages unspecified amount july 27 2015 plaintiffs filed second amended consolidated complaint september 21 2015 defendants moved dismiss isdafixrelated litigation group inc among defendants named several putative class actions relating trading interest rate derivatives filed beginning september 2014 us district court southern district new york second consolidated amended complaint filed february 12 2015 asserts claims federal antitrust laws state common law connection alleged conspiracy manipulate isdafix benchmark seeks declaratory injunctive relief well treble damages unspecified amount defendants moved dismiss second consolidated amended complaint april 13 2015 currenciesrelated litigation gsco group inc among defendants named several putative antitrust class actions relating trading foreign exchange markets filed beginning december 2013 us district court southern district new york complaints generally allege defendants violated federal antitrust laws connection alleged conspiracy manipulate foreign currency exchange markets seek declaratory injunctive relief well treble damages unspecified amount february 13 2014 cases consolidated one action beginning february 2015 gsco group inc named defendants separate putative class actions filed us district court southern district new york consolidated antitrust class actions described august 13 2015 december 15 2015 court preliminarily approved settlement among gsco group inc plaintiffs consolidated action firm paid full amount proposed settlement escrow account june 3 2015 gsco group inc among defendants named putative class action filed us district court southern district new york behalf certain erisa employee benefit plans claims brought gsco group inc amended complaint filed november 16 2015 generally alleges defendants violated erisa connection alleged conspiracy manipulate foreign currency exchange markets caused losses erisa plans defendants provided foreign exchange services otherwise authorized execution foreign exchange services plaintiffs moved leave file second amended complaint containing substantially allegations plaintiffs seek declaratory injunctive relief well restitution disgorgement unspecified amount goldman sachs group inc subsidiaries notes consolidated financial statements group inc gsco goldman sachs canada inc among defendants named putative class actions related trading foreign exchange markets filed beginning september 2015 superior court justice ontario canada superior court quebec canada behalf direct indirect purchasers foreign exchange instruments traded canada complaints generally allege conspiracy manipulate foreign currency exchange markets assert claims canada’s competition act common law ontario quebec complaints seek among things compensatory damages amounts 1 billion canadian dollars 100 million canadian dollars respectively well restitution 50 million canadian dollars punitive exemplary aggravated damages interest rate swap antitrust litigation group inc gsco gsi gs bank usa goldman sachs financial markets lp among defendants named putative antitrust class action relating trading interest rate swaps filed november 25 2015 us district court southern district new york complaint generally alleges conspiracy among dealers brokers since least january 1 2008 preclude exchange trading interest rate swaps complaint seeks declaratory injunctive relief well treble damages unspecified amount compensationrelated litigation june 9 2015 group inc certain current former directors named defendants purported shareholder derivative action court chancery state delaware derivative complaint alleges excessive compensation paid directors since 2012 derivative complaint includes allegations breach fiduciary duty unjust enrichment seeks among things unspecified monetary damages disgorgement director compensation reform firm’s stock incentive plan september 30 2015 defendants moved dismiss regulatory investigations reviews related litigation group inc certain affiliates subject number investigations reviews cases received subpoenas requests documents information various governmental regulatory bodies selfregulatory organizations litigation relating various matters relating firm’s businesses operations including • 2008 financial crisis • public offering process • firm’s investment management financial advisory services • conflicts interest • research practices including research independence interactions research analysts firm personnel including investment banking personnel well third parties • transactions involving municipal securities including wallcross procedures conflict interest disclosure respect state municipal clients trading structuring municipal derivative instruments connection municipal offerings political contribution rules municipal advisory services possible impact credit default swap transactions municipal issuers • offering auction sales trading clearance corporate government securities currencies commodities financial products related sales communications activities including compliance sec’s short sale rule algorithmic highfrequency quantitative trading firm’s us alternative trading system dark pool futures trading options trading whenissued trading transaction reporting technology systems controls securities lending practices trading clearance credit derivative instruments commodities activities metals storage private placement practices allocations trading securities trading activities communications connection establishment benchmark rates currency rates isdafix benchmark rates • compliance us foreign corrupt practices act • firm’s hiring compensation practices • firm’s system risk management controls • insider trading potential misuse dissemination material nonpublic information regarding corporate governmental developments effectiveness firm’s insider trading controls information barriers goldman sachs cooperating regulatory investigations reviews goldman sachs group inc subsidiaries notes consolidated financial statements note 28 employee benefit plans firm sponsors various pension plans certain postretirement benefit plans primarily healthcare life insurance firm also provides certain benefits former inactive employees prior retirement defined benefit pension plans postretirement plans employees certain nonus subsidiaries participate various defined benefit pension plans generally provide benefits based years credited service percentage employee’s eligible compensation firm maintains defined benefit pension plan certain uk employees april 2008 uk defined benefit plan closed new participants allows existing participants continue accrue benefits 2015 firm notified plan participants uk defined benefit plan longer accrue future benefit accruals march 31 2016 nonus plans material impact firm’s consolidated results operations firm also maintains defined benefit pension plan substantially us employees hired prior november 1 2003 november 2004 plan closed new participants frozen existing participants addition firm maintains unfunded postretirement benefit plans provide medical life insurance eligible retirees dependents covered programs plans material impact firm’s consolidated results operations firm recognizes funded status defined benefit pension postretirement plans measured difference fair value plan assets benefit obligation consolidated statements financial condition december 2015 “other assets” “other liabilities accrued expenses” included 329 million related overfunded pension plans 561 million respectively related plans december 2014 “other assets” “other liabilities accrued expenses” included 273 million related overfunded pension plans 739 million respectively related plans defined contribution plans firm contributes employersponsored us nonus defined contribution plans firm’s contribution plans 231 million 2015 223 million 2014 219 million 2013 note 29 employee incentive plans cost employee services received exchange sharebased award generally measured based grantdate fair value award sharebased awards require future service ie vested awards including awards granted retirementeligible employees expensed immediately sharebased awards require future service amortized relevant service period expected forfeitures included determining sharebased employee compensation expense firm pays cash dividend equivalents outstanding rsus dividend equivalents paid rsus generally charged retained earnings dividend equivalents paid rsus expected forfeited included compensation expense firm accounts tax benefit related dividend equivalents paid rsus increase additional paidin capital firm generally issues new shares common stock upon delivery sharebased awards certain cases primarily related conflicted employment outlined applicable award agreements firm may cash settle sharebased compensation awards accounted equity instruments awards whose terms allow cash settlement additional paidin capital adjusted extent difference value award time cash settlement grantdate value award stock incentive plan firm sponsors stock incentive plan goldman sachs amended restated stock incentive plan 2015 sip provides grants rsus restricted stock dividend equivalent rights incentive stock options nonqualified stock options stock appreciation rights sharebased awards may subject performance conditions may 21 2015 shareholders approved 2015 sip 2015 sip replaced goldman sachs amended restated stock incentive plan 2013 sip previously effect applies awards granted date approval december 2015 838 million shares available grant 2015 sip shares common stock underlying awards granted 2015 sip 2013 sip delivered due forfeiture termination cancellation surrendered withheld shares become available delivered 2015 sip shares available grant also subject adjustment certain changes corporate structure permitted 2015 sip 2015 sip scheduled terminate date annual meeting shareholders occurs 2019 goldman sachs group inc subsidiaries notes consolidated financial statements restricted stock units firm grants rsus employees 2015 sip valued based closing price underlying shares date grant taking account liquidity discount applicable postvesting delivery transfer restrictions rsus generally vest underlying shares common stock deliver outlined applicable award agreements employee award agreements generally provide vesting accelerated certain circumstances retirement death disability conflicted employment delivery underlying shares common stock conditioned grantees satisfying certain vesting requirements outlined award agreements table presents activity related rsus 1 weighted average grantdate fair value rsus granted 2015 2014 2013 16019 15140 12259 respectively fair value rsus granted 2015 2014 2013 includes liquidity discount 92 138 137 respectively reflect postvesting delivery transfer restrictions 4 years 2 aggregate fair value awards vested 2015 2014 2013 240 billion 239 billion 226 billion respectively 3 includes rsus cash settled 4 includes restricted stock subject future service requirements december 2015 december 2014 6354 20651 shares respectively first quarter 2016 firm granted employees 150 million yearend rsus 40 million rsus require future service condition delivery related shares common stock awards subject additional conditions outlined award agreements generally shares underlying awards net required withholding tax deliver threeyear period subject postvesting delivery transfer restrictions january 2021 grants included table stock options stock options generally vest outlined applicable stock option agreement general options expire tenth anniversary grant date although may subject earlier termination cancellation certain circumstances accordance terms applicable stock option agreement sip effect time grant table presents activity related outstanding stock options granted 2005 2008 total intrinsic value options exercised 2015 2014 2013 531 million 203 billion 26 million respectively table presents options outstanding december 2015 440 million total unrecognized compensation cost related nonvested sharebased compensation arrangements cost expected recognized weighted average period 154 years table presents sharebased compensation related excess tax benefit 1 represents net tax benefit recognized additional paidin capital stock options exercised delivery common stock underlying sharebased awards dividend equivalents paid rsus goldman sachs group inc subsidiaries notes consolidated financial statements note 30 parent company supplemental disclosures cash payments thirdparty interest net capitalized interest 354 billion 431 billion 278 billion 2015 2014 2013 respectively cash payments income taxes net refunds 128 billion 235 billion 321 billion 2015 2014 2013 respectively noncash activity 2015 group inc exchanged 262 million trust preferred securities common beneficial interests held group inc 296 million group inc’s junior subordinated debt held issuing trusts following exchange junior subordinated debt extinguished 2015 group inc exchanged 612 billion financial instruments owned fair value held group inc 520 billion loans 918 million equity certain subsidiaries 2015 group inc repurchased 60 million common stock settlement occurred cash paid 2016 2014 group inc exchanged 158 billion trust preferred securities common beneficial interests senior guaranteed trust securities held group inc 187 billion group inc’s junior subordinated debt held issuing trusts following exchange junior subordinated debt extinguished 1 primarily includes overnight loans proceeds used satisfy shortterm obligations group inc 2 includes 492 billion 588 billion fair value 2015 2014 respectively 3 includes 1619 billion 1166 billion fair value 2015 2014 respectively 4 unsecured longterm borrowings subsidiaries maturity date 218 billion 2017 254 million 2018 108 million 2019 217 million 2020 109 billion 2021thereafter goldman sachs group inc subsidiaries supplemental financial information quarterly results unaudited tables present firm’s unaudited quarterly results 2015 2014 quarterly results prepared accordance us gaap reflect adjustments opinion management necessary fair statement results adjustments normal recurring nature timing magnitude changes firm’s discretionary compensation accruals included operating expenses significant effect results given quarter common stock price range table presents high low sales prices per share firm’s common stock february 5 2016 9307 holders record firm’s common stock february 5 2016 last reported sales price firm’s common stock new york stock exchange 15647 per share common stock performance following graph table compare performance investment firm’s common stock december 31 2010 last trading day firm’s 2011 fiscal year december 31 2015 sp 500 index sp 500 financials index graph table assume 100 invested december 31 2010 firm’s common stock sp 500 index sp 500 financials index dividends reinvested date payment without payment commissions performance shown represents past performance considered indication future performance goldman sachs group inc subsidiaries supplemental financial information selected financial data 1 impact adopting asu 201503 reduction total assets total liabilities 398 million 383 million 350 million 203 million december 2014 december 2013 december 2012 december 2011 respectively see note 3 consolidated financial statements information asu 201503 goldman sachs group inc subsidiaries supplemental financial information statistical disclosures distribution assets liabilities shareholders’ equity table presents summary consolidated average balances interest rates assets liabilities interest classified us nonus based location legal entity assets liabilities held 1 derivative instruments commodities included noninterestearning assets noninterestbearing liabilities 2 primarily consists certain receivables customers counterparties cash securities segregated regulatory purposes 3 impact adopting asu 201503 reduction average total assets average total liabilities 402 million 382 million year ended december 2014 december 2013 respectively see note 3 consolidated financial statements information asu 201503 4 interest rates include effects interest rate swaps accounted hedges 5 substantially consists certain payables customers counterparties goldman sachs group inc subsidiaries supplemental financial information changes net interest income volume rate analysis table presents analysis effect net interest income volume rate changes analysis changes due volumerate variance allocated volume goldman sachs group inc subsidiaries supplemental financial information deposits table presents summary firm’s interestbearing deposits shortterm borrowed funds table presents summary firm’s securities loaned securities sold agreements repurchase shortterm borrowings generally mature within one year financial statement date include borrowings redeemable option holder within one year financial statement date 1 includes shortterm secured financings 1423 billion 1556 billion 1729 billion december 2015 december 2014 december 2013 respectively 2 weighted average interest rates borrowings include effect hedging activities loan portfolio table presents summary firm’s loans receivable loans receivable classified us nonus based location legal entity loans held allowance loan losses table presents changes allowance loan losses table provisions allowance loan losses primarily relate corporate loans extended private wealth management clients held legal entities located us goldman sachs group inc subsidiaries supplemental financial information maturities sensitivity changes interest rates table presents firm’s gross loans receivable tenor distribution loans receivable fixed floating interest rates crossborder outstandings crossborder outstandings based federal financial institutions examination council’s ffiec guidelines reporting crossborder information represent amounts firm may able obtain foreign country due countryspecific events including unfavorable economic political conditions economic social instability changes government policies credit exposure represents potential loss due default deterioration credit quality counterparty issuer securities instruments firm holds measured based potential loss event nonpayment counterparty credit exposure reduced effect risk mitigants netting agreements counterparties permit firm offset receivables payables counterparties obtaining collateral counterparties table include effects risk mitigants represent firm’s credit exposure table presents crossborder outstandings commitments country crossborder outstandings exceed 075 consolidated assets accordance ffiec guidelines include cash receivables securities purchased agreements resell securities borrowed cash financial instruments exclude derivative instruments securities purchased agreements resell securities borrowed presented gross without reduction related securities collateral held margin loans included receivables presented based amount collateral advanced counterparty substantially commitments tables consist commitments extend credit forward starting resale securities borrowing agreements goldman sachs group inc subsidiaries item 9item 8 financial statements supplementary data management’s report internal control financial reporting management goldman sachs group inc together consolidated subsidiaries firm responsible establishing maintaining adequate internal control financial reporting firm’s internal control financial reporting process designed supervision firm’s principal executive principal financial officers provide reasonable assurance regarding reliability financial reporting preparation firm’s financial statements external reporting purposes accordance us generally accepted accounting principles december 31 2016 management conducted assessment firm’s internal control financial reporting based framework established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso based assessment management determined firm’s internal control financial reporting december 31 2016 effective internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance us generally accepted accounting principles receipts expenditures made accordance authorizations management directors firm provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition firm’s assets could material effect financial statements firm’s internal control financial reporting december 31 2016 audited pricewaterhousecoopers llp independent registered public accounting firm stated report appearing page 109 expresses unqualified opinion effectiveness firm’s internal control financial reporting december 31 2016 report independent registered public accounting firm board directors shareholders goldman sachs group inc opinion accompanying consolidated statements financial condition related consolidated statements earnings statements comprehensive income statements changes shareholders’ equity statements cash flows present fairly material respects financial position goldman sachs group inc subsidiaries company december 31 2016 2015 results operations cash flows three years period ended december 31 2016 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2016 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing page 108 responsibility express opinions financial statements company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp new york new york february 24 2017 goldman sachs group inc subsidiaries consolidated statements earnings accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements comprehensive income accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements financial condition accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements changes shareholders’ equity accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements cash flows supplemental disclosures cash payments interest net capitalized interest 714 billion 482 billion 643 billion cash payments income taxes net refunds 106 billion 265 billion 305 billion 2016 2015 2014 respectively cash flows related common stock repurchased includes common stock repurchased prior period settlement occurred current period excludes common stock repurchased current period settlement occurred following period noncash activities 2016 • impact adoption asu 201502 net reduction total assets liabilities approximately 200 million see note 3 information • firm sold assets liabilities 181 billion 697 million respectively previously classified held sale exchange 111 billion financial instruments • firm exchanged 104 billion apex 131 billion series e series f preferred stock see note 19 information • firm exchanged 127 million senior guaranteed trust securities 124 million firm’s junior subordinated debt noncash activities 2015 • firm exchanged 262 million trust preferred securities common beneficial interests 296 million firm’s junior subordinated debt noncash activities 2014 • firm exchanged 158 billion trust preferred securities common beneficial interests senior guaranteed trust securities 187 billion firm’s junior subordinated debt • firm sold certain consolidated investments provided seller financing resulted noncash increase loans receivable 115 million accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries notes consolidated financial statements note 1 description business goldman sachs group inc group inc parent company delaware corporation together consolidated subsidiaries collectively firm leading global investment banking securities investment management firm provides wide range financial services substantial diversified client base includes corporations financial institutions governments individuals founded 1869 firm headquartered new york maintains offices major financial centers around world firm reports activities following four business segments investment banking firm provides broad range investment banking services diverse group corporations financial institutions investment funds governments services include strategic advisory assignments respect mergers acquisitions divestitures corporate defense activities restructurings spinoffs risk management debt equity underwriting public offerings private placements including local crossborder transactions acquisition financing well derivative transactions directly related activities institutional client services firm facilitates client transactions makes markets fixed income equity currency commodity products primarily institutional clients corporations financial institutions investment funds governments firm also makes markets clears client transactions major stock options futures exchanges worldwide provides financing securities lending prime brokerage services institutional clients investing lending firm invests originates loans provide financing clients investments loans typically longerterm nature firm makes investments consolidated directly indirectly funds firm manages debt securities loans public private equity securities infrastructure real estate entities firm also makes unsecured loans individuals online platform investment management firm provides investment management services offers investment products primarily separately managed accounts commingled vehicles mutual funds private investment funds across major asset classes diverse set institutional individual clients firm also offers wealth advisory services including portfolio management financial counseling brokerage transaction services highnetworth individuals families note 2 basis presentation consolidated financial statements prepared accordance accounting principles generally accepted united states us gaap include accounts group inc entities firm controlling financial interest intercompany transactions balances eliminated references 2016 2015 2014 refer firm’s years ended dates context requires december 31 2016 december 31 2015 december 31 2014 respectively reference future year refers year ending december 31 year certain reclassifications made previously reported amounts conform current presentation goldman sachs group inc subsidiaries notes consolidated financial statements note 3 significant accounting policies firm’s significant accounting policies include measure fair value assets liabilities accounting goodwill identifiable intangible assets consolidate entity see notes 5 8 policies fair value measurements note 13 policies goodwill identifiable intangible assets note 12 policies consolidation accounting significant accounting policies either described included following footnotes consolidation firm consolidates entities firm controlling financial interest firm determines whether controlling financial interest entity first evaluating whether entity voting interest entity variable interest entity vie voting interest entities voting interest entities total equity investment risk sufficient enable entity finance activities independently ii equity holders power direct activities entity significantly impact economic performance obligation absorb losses entity right receive residual returns entity usual condition controlling financial interest voting interest entity ownership majority voting interest firm controlling majority voting interest voting interest entity consolidated variable interest entities vie entity lacks one characteristics voting interest entity firm controlling financial interest vie firm variable interest interests provide power direct activities vie significantly impact vie’s economic performance ii obligation absorb losses vie right receive benefits vie could potentially significant vie see note 12 information vies equitymethod investments firm controlling financial interest entity exert significant influence entity’s operating financial policies investment accounted either equity method accounting ii fair value electing fair value option available us gaap significant influence generally exists firm owns 20 50 entity’s common stock insubstance common stock general firm accounts investments acquired fair value option became available fair value certain cases firm applies equity method accounting new investments strategic nature closely related firm’s principal business activities firm significant degree involvement cash flows operations investee costbenefit considerations less significant see note 13 information equitymethod investments goldman sachs group inc subsidiaries notes consolidated financial statements investment funds firm formed numerous investment funds thirdparty investors funds typically organized limited partnerships limited liability companies firm acts general partner manager generally firm hold majority economic interests funds usually voting interest entities generally consolidated thirdparty investors typically rights terminate funds remove firm general partner manager investments funds generally measured net asset value nav included “financial instruments owned fair value” see notes 6 18 22 information investments funds use estimates preparation consolidated financial statements requires management make certain estimates assumptions important relate fair value measurements accounting goodwill identifiable intangible assets provisions losses may arise litigation regulatory proceedings including governmental investigations tax audits allowance losses loans lending commitments held investment estimates assumptions based best available information actual results could materially different revenue recognition financial assets financial liabilities fair value financial instruments owned fair value financial instruments sold yet purchased fair value recorded fair value either fair value option accordance us gaap addition firm elected account certain financial assets financial liabilities fair value electing fair value option fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date financial assets marked bid prices financial liabilities marked offer prices fair value measurements include transaction costs fair value gains losses generally included “market making” positions institutional client services “other principal transactions” positions investing lending see notes 5 8 information fair value measurements investment banking fees financial advisory assignments underwriting revenues recognized earnings services related underlying transaction completed terms assignment expenses associated transactions deferred related revenue recognized assignment otherwise concluded expenses associated financial advisory assignments recorded noncompensation expenses net client reimbursements underwriting revenues presented net related expenses investment management firm earns management fees incentive fees investment management services management fees mutual funds calculated percentage daily net asset value received monthly management fees hedge funds separately managed accounts calculated percentage monthend net asset value generally received quarterly management fees private equity funds calculated percentage monthly invested capital commitments received quarterly semiannually annually depending fund management fees recognized period related service provided incentive fees calculated percentage fund’s separately managed account’s return excess return specified benchmark performance target incentive fees generally based investment performance 12month period life fund fees based performance 12month period subject adjustment prior end measurement period fees based investment performance life fund future investment underperformance may require fees previously distributed firm returned fund incentive fees recognized material contingencies resolved management incentive fee revenues included “investment management” revenues firm makes payments brokers advisors related placement firm’s investment funds payments calculated based either percentage management fee investment fund’s net asset value firm principal arrangement costs recorded gross basis included “brokerage clearing exchange distribution fees” firm agent arrangement costs recorded net basis “investment management” revenues goldman sachs group inc subsidiaries notes consolidated financial statements commissions fees firm earns “commissions fees” executing clearing client transactions stock options futures markets well overthecounter otc transactions commissions fees recognized day trade executed transfers assets transfers assets accounted sales firm relinquished control assets transferred transfers assets accounted sales gains losses recognized net revenues assets liabilities arise firm’s continuing involvement transferred assets initially recognized fair value transfers assets accounted sales assets generally remain “financial instruments owned fair value” transfer accounted collateralized financing related interest expense recognized life transaction see note 10 information transfers assets accounted collateralized financings note 11 information transfers assets accounted sales cash equivalents firm defines cash equivalents highly liquid overnight deposits held ordinary course business december 2016 december 2015 “cash equivalents” included 1115 billion 1471 billion respectively cash due banks 11056 billion 7873 billion respectively interestbearing deposits banks firm segregates cash regulatory purposes related client activity december 2016 december 2015 1465 billion 1833 billion respectively “cash equivalents” segregated regulatory purposes see “recent accounting developments” information addition firm segregates securities regulatory purposes related client activity see note 10 information segregated securities receivables payables brokers dealers clearing organizations receivables payables brokers dealers clearing organizations accounted cost plus accrued interest generally approximates fair value receivables payables carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 8 receivables payables included firm’s fair value hierarchy substantially would classified level 2 december 2016 december 2015 receivables customers counterparties receivables customers counterparties generally relate collateralized transactions receivables primarily comprised customer margin loans certain transfers assets accounted secured loans rather purchases fair value collateral posted connection certain derivative transactions substantially receivables accounted amortized cost net estimated uncollectible amounts certain firm’s receivables customers counterparties accounted fair value fair value option changes fair value generally included “market making” revenues see note 8 information receivables customers counterparties accounted fair value fair value option addition december 2016 december 2015 firm’s receivables customers counterparties included 260 billion 235 billion respectively loans held sale accounted lower cost fair value see note 5 overview firm’s fair value measurement policies december 2016 december 2015 carrying value receivables accounted fair value generally approximated fair value receivables carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 8 receivables included firm’s fair value hierarchy substantially would classified level 2 december 2016 december 2015 interest receivables customers counterparties recognized life transaction included “interest income” payables customers counterparties payables customers counterparties primarily consist customer credit balances related firm’s prime brokerage activities payables customers counterparties accounted cost plus accrued interest generally approximates fair value payables carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 8 payables included firm’s fair value hierarchy substantially would classified level 2 december 2016 december 2015 interest payables customers counterparties recognized life transaction included “interest expense” goldman sachs group inc subsidiaries notes consolidated financial statements offsetting assets liabilities reduce credit exposures derivatives securities financing transactions firm may enter master netting agreements similar arrangements collectively netting agreements counterparties permit offset receivables payables counterparties netting agreement contract counterparty permits net settlement multiple transactions counterparty including upon exercise termination rights nondefaulting party upon exercise termination rights transactions governed netting agreement terminated net settlement amount calculated addition firm receives posts cash securities collateral respect derivatives securities financing transactions subject terms related credit support agreements similar arrangements collectively credit support agreements enforceable credit support agreement grants nondefaulting party exercising termination rights right liquidate collateral apply proceeds amounts owed order assess enforceability firm’s right setoff netting credit support agreements firm evaluates various factors including applicable bankruptcy laws local statutes regulatory provisions jurisdiction parties agreement derivatives reported netbycounterparty basis ie net payable receivable derivative assets liabilities given counterparty consolidated statements financial condition legal right setoff exists enforceable netting agreement resale repurchase agreements securities borrowed loaned transactions term currency presented netbycounterparty basis consolidated statements financial condition transactions meet certain settlement criteria subject netting agreements consolidated statements financial condition derivatives reported net cash collateral received posted enforceable credit support agreements transacted enforceable netting agreement consolidated statements financial condition resale repurchase agreements securities borrowed loaned reported net related cash securities received posted collateral see note 10 information collateral received pledged including rights deliver repledge collateral see notes 7 10 information offsetting foreign currency translation assets liabilities denominated nonus currencies translated rates exchange prevailing date consolidated statements financial condition revenues expenses translated average rates exchange period foreign currency remeasurement gains losses transactions nonfunctional currencies recognized earnings gains losses translation financial statements nonus operation functional currency us dollar included net hedges taxes consolidated statements comprehensive income recent accounting developments revenue contracts customers asc 606 may 2014 fasb issued asu 201409 “revenue contracts customers topic 606” asu amended provides comprehensive guidance recognition revenue customers arising transfer goods services guidance accounting certain contract costs new disclosures asu effective firm january 2018 modified retrospective approach retrospectively periods presented firm’s implementation efforts include identifying revenues costs within scope asu reviewing contracts analyzing changes existing revenue recognition policies result adopting asu firm may among things required recognize incentive fees earlier firm’s current revenue recognition policy defers recognition contingencies resolved firm may also required change current presentation certain costs net presentation within net revenues gross basis vice versa based implementation work date firm currently expect asu material impact financial condition results operations cash flows date adoption measuring financial assets financial liabilities consolidated collateralized financing entity asc 810 august 2014 fasb issued asu 201413 “consolidation topic 810 measuring financial assets financial liabilities consolidated collateralized financing entity cfe” asu provides alternative reflect changes fair value financial assets financial liabilities cfe measuring either fair value assets liabilities whichever observable provides new disclosure requirements electing approach firm adopted asu january 2016 adoption asu materially affect firm’s financial condition results operations cash flows goldman sachs group inc subsidiaries notes consolidated financial statements amendments consolidation analysis asc 810 february 2015 fasb issued asu 201502 “consolidation topic 810 amendments consolidation analysis” asu eliminates deferral requirements asu 200917 “consolidations topic 810 improvements financial reporting enterprises involved variable interest entities” certain interests investment funds provides scope exception certain investments money market funds also makes several modifications consolidation guidance vies general partners’ investments limited partnerships well modifications evaluation whether limited partnerships vies voting interest entities firm adopted asu january 2016 using modified retrospective approach impact adoption net reduction total assets total liabilities approximately 200 million substantially included “financial instruments owned fair value” “other liabilities accrued expenses” respectively adoption asu impact firm’s results operations see note 12 information adoption simplifying presentation debt issuance costs asc 835 april 2015 fasb issued asu 201503 “interest imputation interest subtopic 83530 simplifying presentation debt issuance costs” asu simplifies presentation debt issuance costs requiring costs related recognized debt liability presented statements financial condition direct reduction carrying amount liability firm early adopted asu september 2015 using modified retrospective approach adoption asu materially affect firm’s financial condition results operations cash flows improvements employee sharebased payment accounting asc 718 march 2016 fasb issued asu 201609 “compensation stock compensation topic 718 improvements employee sharebased payment accounting” asu includes requirement tax effect related settlement sharebased awards recorded income tax benefit expense statements earnings rather directly additional paidincapital change impact total shareholders’ equity required adopted prospectively addition asu modifies classification certain sharebased payment activities within statements cash flows change generally required applied retrospectively asu also allows forfeitures recorded occur rather estimated vesting period change required applied modified retrospective basis firm adopted asu january 2017 impact restricted stock unit rsu deliveries option exercises first quarter 2017 estimated reduction provision taxes approximately 450 million recognized condensed consolidated statements earnings amount may vary future periods depending upon among things number rsus delivered change value since grant prior adoption asu amount would recorded directly additional paidincapital provisions asu material impact firm’s financial condition results operations cash flows simplifying accounting measurementperiod adjustments asc 805 september 2015 fasb issued asu 201516 “business combinations topic 805 simplifying accounting measurementperiod adjustments” asu eliminates requirement acquirer business combination account measurementperiod adjustments retrospectively firm adopted asu january 2016 adoption asu materially affect firm’s financial condition results operations cash flows recognition measurement financial assets financial liabilities asc 825 january 2016 fasb issued asu 201601 “financial instruments topic 825 recognition measurement financial assets financial liabilities” asu amends certain aspects recognition measurement presentation disclosure financial instruments includes requirement present separately comprehensive income changes fair value attributable firm’s credit spreads debt valuation adjustment dva net tax financial liabilities fair value option elected goldman sachs group inc subsidiaries notes consolidated financial statements asu effective firm january 2018 early adoption permitted modified retrospective approach requirements related dva january 2016 firm early adopted asu requirements related dva reclassified cumulative dva gain 305 million net tax retained earnings accumulated comprehensive loss firm expect adoption remaining provisions asu material impact financial condition results operations cash flows leases asc 842 february 2016 fasb issued asu 201602 “leases topic 842” asu requires leases longer one year lessee recognize statements financial condition rightofuse asset representing right use underlying asset lease term lease liability representing liability make lease payments also requires finance leases lessee recognize interest expense lease liability separately amortization rightofuse asset statements earnings operating leases amounts recognized combined expense addition asu requires expanded disclosures nature terms lease agreements asu effective firm january 2019 modified retrospective approach early adoption permitted firm’s implementation efforts include reviewing existing leases service contracts may include embedded leases firm expects gross consolidated statements financial condition upon recognition rightofuse assets lease liabilities expect amount gross material impact financial condition measurement credit losses financial instruments asc 326 june 2016 fasb issued asu 201613 “financial instruments credit losses topic 326 measurement credit losses financial instruments” asu amends several aspects measurement credit losses financial instruments including replacing existing incurred credit loss model models current expected credit losses cecl model amending certain aspects accounting purchased financial assets deterioration credit quality since origination cecl allowance losses financial assets measured amortized cost reflect management’s estimate credit losses remaining expected life financial assets expected credit losses newly recognized financial assets well changes expected credit losses period would recognized earnings certain purchased financial assets deterioration credit quality since origination initial allowance would recorded expected credit losses recognized increase purchase price rather expense expected credit losses including losses offbalancesheet exposures lending commitments measured based historical experience current conditions forecasts affect collectability reported amount asu effective firm january 2020 modified retrospective approach early adoption permitted january 2019 adoption asu result earlier recognition credit losses increase recorded allowance certain purchased loans deterioration credit quality since origination corresponding increase gross carrying value impact adoption asu firm’s financial condition results operations cash flows depend among things economic environment type financial assets held firm date adoption classification certain cash receipts cash payments asc 230 august 2016 fasb issued asu 201615 “statement cash flows topic 230 classification certain cash receipts cash payments” asu provides guidance disclosure classification certain items within statement cash flows asu effective firm january 2018 retrospective approach early adoption permitted since asu impacts classification statements cash flows adoption affect firm’s cash equivalents clarifying definition business asc 805 january 2017 fasb issued asu 201701 “business combinations topic 805 clarifying definition business” asu amends definition business provides threshold must considered determine whether transaction asset acquisition business combination asu effective firm january 2018 prospective approach early adoption permitted firm still evaluating effect asu financial condition results operations cash flows goldman sachs group inc subsidiaries notes consolidated financial statements restricted cash asc 230 november 2016 fasb issued asu 201618 “statement cash flows topic 230 restricted cash” asu requires cash segregated regulatory purposes included cash equivalents disclosed statements cash flows required applied retrospectively firm early adopted asu december 2016 reclassified cash segregated regulatory purposes “cash equivalents” disclosed consolidated statements cash flows impact adoption decrease 369 billion increase 909 million decrease 309 million years ended december 2016 december 2015 december 2014 respectively “net cash provided byused operating activities” december 2016 consistent presentation segregated cash consolidated statements cash flows asu firm reclassified amounts previously included “cash securities segregated regulatory purposes” “cash equivalents” “securities purchased agreements resell federal funds sold” “securities borrowed” “financial instruments owned fair value” consolidated statements financial condition previously reported amounts consolidated statements financial condition notes consolidated financial statements conformed current presentation note 4 financial instruments owned fair value financial instruments sold yet purchased fair value financial instruments owned fair value financial instruments sold yet purchased fair value accounted fair value either fair value option accordance us gaap see note 8 information financial assets financial liabilities accounted fair value primarily fair value option table presents firm’s financial instruments owned fair value financial instruments sold yet purchased fair value table money market instruments include commercial paper certificates deposit time deposits substantially money market instruments maturity less one year gains losses market making principal transactions table presents “market making” revenues major product type well “other principal transactions” revenues goldman sachs group inc subsidiaries notes consolidated financial statements table • gainslosses include realized unrealized gains losses primarily related firm’s financial instruments owned fair value financial instruments sold yet purchased fair value including derivative nonderivative financial instruments • gainslosses exclude related interest income interest expense see note 23 information interest income interest expense • gainslosses principal transactions included firm’s investing lending segment see note 25 net revenues including net interest income product type investing lending well amount net interest income included investing lending • gainslosses representative manner firm manages business activities many firm’s marketmaking client facilitation strategies utilize financial instruments across various product types accordingly gains losses one product type frequently offset gains losses product types example firm’s longerterm derivatives across product types sensitive changes interest rates may economically hedged interest rate swaps similarly significant portion firm’s cash instruments derivatives across product types exposure foreign currencies may economically hedged foreign currency contracts note 5 fair value measurements fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date financial assets marked bid prices financial liabilities marked offer prices fair value measurements include transaction costs firm measures certain financial assets financial liabilities portfolio ie based net exposure market andor credit risks best evidence fair value quoted price active market quoted prices active markets available fair value determined reference prices similar instruments quoted prices recent transactions less active markets internally developed models primarily use marketbased independently sourced inputs including limited interest rates volatilities equity debt prices foreign exchange rates commodity prices credit spreads funding spreads ie spread difference interest rate borrower could finance given financial instrument relative benchmark interest rate us gaap threelevel fair value hierarchy disclosure fair value measurements hierarchy prioritizes inputs valuation techniques used measure fair value giving highest priority level 1 inputs lowest priority level 3 inputs financial instrument’s level hierarchy based lowest level input significant fair value measurement evaluating significance valuation input firm considers among factors portfolio’s net risk exposure input fair value hierarchy follows level 1 inputs unadjusted quoted prices active markets firm access measurement date identical unrestricted assets liabilities level 2 inputs valuation techniques observable either directly indirectly level 3 one inputs valuation techniques significant unobservable fair values substantially firm’s financial assets financial liabilities based observable prices inputs classified levels 1 2 fair value hierarchy certain level 2 level 3 financial assets financial liabilities may require appropriate valuation adjustments market participant would require arrive fair value factors counterparty firm’s credit quality funding risk transfer restrictions liquidity bidoffer spreads valuation adjustments generally based market evidence see notes 6 8 information fair value measurements cash instruments derivatives financial assets financial liabilities accounted fair value primarily fair value option including information unrealized gains losses related level 3 financial assets financial liabilities transfers level 3 respectively goldman sachs group inc subsidiaries notes consolidated financial statements table presents financial assets financial liabilities accounted fair value fair value option accordance us gaap counterparty cash collateral netting represents impact derivatives netting across levels fair value hierarchy netting among positions classified level included level table total assets includes 835 billion 836 billion december 2016 december 2015 respectively carried fair value amounts generally approximate fair value table presents summary level 3 financial assets level 3 financial assets december 2016 slightly decreased compared december 2015 primarily reflecting decrease level 3 derivative assets decrease level 3 derivative assets primarily attributable settlements transfers level 3 certain credit derivative assets see notes 6 8 information level 3 financial assets note 6 cash instruments cash instruments include us government federal agency obligations nonus government agency obligations mortgagebacked loans securities corporate loans debt securities equities convertible debentures investments funds nav nonderivative financial instruments owned financial instruments sold yet purchased see types cash instruments included level fair value hierarchy valuation techniques significant inputs used determine fair values see note 5 overview firm’s fair value measurement policies level 1 cash instruments level 1 cash instruments include certain money market instruments us government obligations nonus government obligations certain government agency obligations certain corporate debt securities actively traded listed equities instruments valued using quoted prices identical unrestricted instruments active markets firm defines active markets equity instruments based average daily trading volume absolute terms relative market capitalization instrument firm defines active markets debt instruments based average daily trading volume number days trading activity level 2 cash instruments level 2 cash instruments include money market instruments government agency obligations certain nonus government obligations mortgagebacked loans securities corporate loans debt securities state municipal obligations debt obligations restricted less liquid listed equities commodities certain lending commitments valuations level 2 cash instruments verified quoted prices recent trading activity identical similar instruments broker dealer quotations alternative pricing sources reasonable levels price transparency consideration given nature quotations eg indicative firm relationship recent market activity prices provided alternative pricing sources goldman sachs group inc subsidiaries notes consolidated financial statements valuation adjustments typically made level 2 cash instruments cash instrument subject transfer restrictions andor ii premiums liquidity discounts market participant would require arrive fair value valuation adjustments generally based market evidence level 3 cash instruments level 3 cash instruments one significant valuation inputs observable absent evidence contrary level 3 cash instruments initially valued transaction price considered best initial estimate fair value subsequently firm uses methodologies determine fair value vary based type instrument valuation inputs assumptions changed corroborated substantive observable evidence including values realized sales financial assets valuation techniques significant inputs level 3 cash instruments valuation techniques level 3 cash instruments vary instrument generally based discounted cash flow techniques valuation techniques nature significant inputs used determine fair values type level 3 cash instrument described loans securities backed commercial real estate loans securities backed commercial real estate directly indirectly collateralized single commercial real estate property portfolio properties may include tranches varying levels subordination significant inputs generally determined based relative value analyses include • transaction prices underlying collateral instruments similar underlying collateral basis price difference prices • market yields implied transactions similar related assets andor current levels changes market indices cmbx index tracks performance commercial mortgage bonds • measure expected future cash flows default scenario recovery rates implied value underlying collateral mainly driven current performance underlying collateral capitalization rates multiples recovery rates expressed percentage notional face value instrument reflect benefit credit enhancements certain instruments • timing expected future cash flows duration certain cases may incorporate impact unobservable inputs eg prepayment speeds loans securities backed residential real estate loans securities backed residential real estate directly indirectly collateralized portfolios residential real estate may include tranches varying levels subordination significant inputs generally determined based relative value analyses incorporate comparisons instruments similar collateral risk profiles significant inputs include • transaction prices underlying collateral instruments similar underlying collateral • market yields implied transactions similar related assets • cumulative loss expectations driven default rates home price projections residential property liquidation timelines related costs subsequent recoveries • duration driven underlying loan prepayment speeds residential property liquidation timelines corporate loans debt securities corporate loans debt securities includes bank loans bridge loans corporate debt securities significant inputs generally determined based relative value analyses incorporate comparisons prices credit default swaps reference similar underlying instrument entity debt instruments issuer observable prices broker quotations available significant inputs include • market yields implied transactions similar related assets andor current levels trends market indices cdx lcdx indices track performance corporate credit loans respectively • current performance recovery assumptions firm uses credit default swaps value related cash instrument cost borrowing underlying reference obligation • duration equities convertible debentures equities convertible debentures include private equity investments real estate recent thirdparty completed pending transactions eg merger proposals tender offers debt restructurings considered best evidence change fair value available following valuation methodologies used appropriate • industry multiples primarily ebitda multiples public comparables • transactions similar instruments goldman sachs group inc subsidiaries notes consolidated financial statements • discounted cash flow techniques • thirdparty appraisals firm also considers changes outlook relevant industry financial performance issuer compared projected performance significant inputs include • market transaction multiples • discount rates growth rates capitalization rates • equity instruments debtlike features market yields implied transactions similar related assets current performance recovery assumptions duration cash instruments cash instruments consists nonus government agency obligations state municipal obligations debt obligations significant inputs generally determined based relative value analyses incorporate comparisons prices credit default swaps reference similar underlying instrument entity debt instruments issuer observable prices broker quotations available significant inputs include • market yields implied transactions similar related assets andor current levels trends market indices • current performance recovery assumptions firm uses credit default swaps value related cash instrument cost borrowing underlying reference obligation • duration fair value cash instruments level tables present cash instrument assets liabilities fair value level within fair value hierarchy tables • cash instrument assets liabilities included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” respectively • cash instrument assets shown positive amounts cash instrument liabilities shown negative amounts goldman sachs group inc subsidiaries notes consolidated financial statements tables • total cash instrument assets include collateralized debt obligations cdos collateralized loan obligations clos backed real estate corporate obligations 461 million 405 million level 2 624 million 774 million level 3 december 2016 december 2015 respectively • level 3 equities convertible debenture assets include 944 billion 769 billion private equity investments 374 million 308 million investments real estate entities 451 million 552 million convertible debentures december 2016 december 2015 respectively • money market instruments include commercial paper certificates deposit time deposits significant unobservable inputs table presents amount level 3 assets ranges weighted averages significant unobservable inputs used value firm’s level 3 cash instruments table • ranges represent significant unobservable inputs used valuation type cash instrument • weighted averages calculated weighting input relative fair value cash instruments • ranges weighted averages inputs representative appropriate inputs use calculating fair value one cash instrument example highest multiple private equity investments appropriate valuing specific private equity investment may appropriate valuing private equity investment accordingly ranges inputs represent uncertainty possible ranges fair value measurements firm’s level 3 cash instruments • increases yield discount rate capitalization rate duration cumulative loss rate used valuation firm’s level 3 cash instruments would result lower fair value measurement increases recovery rate basis multiples growth rate would result higher fair value measurement due distinctive nature firm’s level 3 cash instruments interrelationship inputs necessarily uniform within product type • equities convertible debentures include private equity investments real estate entities growth rate includes longterm growth rate compound annual growth rate • basis points growth rate significant valuation level 3 assets december 2016 • loans securities backed commercial residential real estate corporate loans debt securities cash instruments valued using discounted cash flows equities convertible debentures valued using market comparables discounted cash flows • fair value one instrument may determined using multiple valuation techniques example market comparables discounted cash flows may used together determine fair value therefore level 3 balance encompasses techniques transfers levels fair value hierarchy transfers levels fair value hierarchy reported beginning reporting period occur see “level 3 rollforward” information transfers level 2 level 3 2016 transfers level 2 level 1 cash instruments 135 million reflecting transfers public equity securities due decreased market activity instruments transfers level 1 level 2 cash instruments 2016 267 million reflecting transfers public equity securities due increased market activity instruments goldman sachs group inc subsidiaries notes consolidated financial statements 2015 transfers level 2 level 1 cash instruments 260 million reflecting transfers public equity securities primarily due decreased market activity instruments transfers level 1 level 2 cash instruments 2015 283 million reflecting transfers public equity securities due increased market activity instruments level 3 rollforward table presents summary changes fair value level 3 cash instrument assets liabilities table • changes fair value presented cash instrument assets liabilities categorized level 3 end period • net unrealized gainslosses relate instruments still held periodend • purchases include originations secondary purchases • cash instrument asset liability transferred level 3 reporting period entire gain loss period included level 3 level 3 cash instrument assets increases shown positive amounts decreases shown negative amounts level 3 cash instrument liabilities increases shown negative amounts decreases shown positive amounts • level 3 cash instruments frequently economically hedged level 1 level 2 cash instruments andor level 1 level 2 level 3 derivatives accordingly gains losses reported level 3 partially offset gains losses attributable level 1 level 2 cash instruments andor level 1 level 2 level 3 derivatives result gains losses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources table disaggregates product type information cash instrument assets included summary table goldman sachs group inc subsidiaries notes consolidated financial statements level 3 rollforward commentary year ended december 2016 net realized unrealized gains level 3 cash instrument assets 971 million reflecting 574 million net realized gains 397 million net unrealized gains 2016 include gainslosses approximately 311 million 625 million 657 million reported “market making” “other principal transactions” “interest income” respectively net unrealized gain level 3 cash instrument assets 397 million 2016 primarily reflected gains private equity investments principally driven strong corporate performance companyspecific events transfers level 3 2016 primarily reflected transfers certain private equity investments corporate loans debt securities loans securities backed commercial real estate level 2 principally due reduced price transparency result lack market evidence including fewer market transactions instruments transfers level 3 2016 primarily reflected transfers certain private equity investments corporate loans debt securities loans securities backed residential real estate level 2 principally due increased price transparency result market evidence including market transactions instruments year ended december 2015 net realized unrealized gains level 3 cash instrument assets 166 billion reflecting 957 million net realized gains 701 million net unrealized gains 2015 include gainslosses approximately 142 million 108 billion 718 million reported “market making” “other principal transactions” “interest income” respectively net unrealized gain level 3 cash instrument assets 701 million 2015 primarily reflected gains private equity investments principally driven companyspecific events strong corporate performance transfers level 3 2015 primarily reflected transfers certain corporate loans debt securities private equity investments loans securities backed commercial real estate level 2 principally due reduced price transparency result lack market evidence including fewer market transactions instruments transfers level 3 2015 primarily reflected transfers certain private equity investments corporate loans debt securities loans securities backed residential real estate level 2 principally due increased price transparency result market evidence including market transactions instruments transfers certain corporate loans debt securities level 2 principally due certain unobservable yield duration inputs significant valuation instruments investments funds net asset value per share cash instruments fair value include investments funds measured nav investment fund firm uses nav measure fair value fund investments fund investment readily determinable fair value ii nav investment fund calculated manner consistent measurement principles investment company accounting including measurement investments fair value firm’s investments funds nav primarily consist investments firmsponsored private equity credit real estate hedge funds firm coinvests thirdparty investors private equity funds primarily invest broad range industries worldwide including leveraged buyouts recapitalizations growth investments distressed investments credit funds generally invest loans fixed income instruments focused providing private highyield capital leveraged management buyout transactions recapitalizations financings refinancings acquisitions restructurings private equity firms private family companies corporate issuers real estate funds invest globally primarily real estate companies loan portfolios debt recapitalizations property private equity credit real estate funds primarily closedend funds firm’s investments generally eligible redemption distributions received funds underlying assets liquidated distributed firm also invests hedge funds primarily multidisciplinary hedge funds employ fundamental bottomup investment approach across various asset classes strategies firm’s investments hedge funds primarily include interests underlying assets illiquid nature proceeds redemptions received underlying assets liquidated distributed goldman sachs group inc subsidiaries notes consolidated financial statements many funds described “covered funds” defined volcker rule us doddfrank wall street reform consumer protection act doddfrank act board governors federal reserve system federal reserve board extended conformance period investments relationships covered funds place prior december 2013 july 2017 december 2016 permitted banking entities apply extension additional five years legacy “illiquid funds” defined volcker rule firm applied extension substantially investments relationships covered funds table extent firm receive extension firm required sell interests funds july 2017 occurs firm likely receive value interests significantly less carrying value could limited secondary market investments firm may unable sell orderly transactions table presents fair value firm’s investments funds nav related unfunded commitments note 7 derivatives hedging activities derivative activities derivatives instruments derive value underlying asset prices indices reference rates inputs combination factors derivatives may traded exchange exchangetraded may privately negotiated contracts usually referred otc derivatives certain firm’s otc derivatives cleared settled central clearing counterparties otccleared others bilateral contracts two counterparties bilateral otc marketmaking market maker firm enters derivative transactions provide liquidity clients facilitate transfer hedging risks role firm typically acts principal required commit capital provide execution maintains inventory response anticipation client demand risk management firm also enters derivatives actively manage risk exposures arise marketmaking investing lending activities derivative cash instruments firm’s holdings exposures hedged many cases either portfolio riskspecific basis opposed instrumentbyinstrument basis offsetting impact economic hedging reflected business segment related revenues addition firm may enter derivatives designated hedges us gaap derivatives used manage interest rate exposure certain fixedrate unsecured longterm shortterm borrowings deposits manage foreign currency exposure net investment certain nonus operations firm enters various types derivatives including • futures forwards contracts commit counterparties purchase sell financial instruments commodities currencies future • swaps contracts require counterparties exchange cash flows currency interest payment streams amounts exchanged based specific terms contract reference specified rates financial instruments commodities currencies indices • options contracts option purchaser right obligation purchase sell option writer financial instruments commodities currencies within defined time period specified price derivatives reported netbycounterparty basis ie net payable receivable derivative assets liabilities given counterparty legal right setoff exists enforceable netting agreement counterparty netting derivatives accounted fair value net cash collateral received posted enforceable credit support agreements cash collateral netting derivative assets liabilities included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” respectively realized unrealized gains losses derivatives designated hedges asc 815 included “market making” “other principal transactions” note 4 goldman sachs group inc subsidiaries notes consolidated financial statements tables present gross fair value notional amount derivative contracts major product type amounts counterparty cash collateral netting consolidated statements financial condition well cash securities collateral posted received enforceable credit support agreements meet criteria netting us gaap tables • gross fair values exclude effects counterparty netting collateral therefore representative firm’s exposure • firm received posted collateral credit support agreements yet determined agreements enforceable related collateral netted • notional amounts represent sum gross long short derivative contracts provide indication volume firm’s derivative activity represent anticipated losses • total gross fair value derivatives includes derivative assets derivative liabilities 1992 billion 2079 billion respectively december 2016 derivative assets derivative liabilities 1709 billion 1816 billion respectively december 2015 subject enforceable netting agreement subject netting agreement firm yet determined enforceable goldman sachs group inc subsidiaries notes consolidated financial statements clearing organization adopted rule change first quarter 2017 requires transactions considered settled day certain clearing organizations allow similar treatment extent transactions clearing organizations considered settled impact would reduction gross interest rate credit derivative assets liabilities corresponding decrease counterparty cash collateral netting impact consolidated statements financial condition valuation techniques derivatives firm’s level 2 level 3 derivatives valued using derivative pricing models eg discounted cash flow models correlation models incorporate option pricing methodologies monte carlo simulations price transparency derivatives generally characterized product type described • interest rate general key inputs used value interest rate derivatives transparent even longdated contracts interest rate swaps options denominated currencies leading industrialized nations characterized high trading volumes tight bidoffer spreads interest rate derivatives reference indices inflation index shape yield curve eg 10year swap rate vs 2year swap rate complex key inputs generally observable • credit price transparency credit default swaps including single names baskets credits varies market underlying reference entity obligation credit default swaps reference indices large corporates major sovereigns generally exhibit price transparency credit default swaps underliers price transparency varies based credit rating cost borrowing underlying reference obligations availability underlying reference obligations delivery upon default issuer credit default swaps reference loans assetbacked securities emerging market debt instruments tend less price transparency reference corporate bonds addition complex credit derivatives sensitive correlation two underlying reference obligations generally less price transparency • currency prices currency derivatives based exchange rates leading industrialized nations including longer tenors generally transparent primary difference price transparency developed emerging market currency derivatives emerging markets tend observable contracts shorter tenors • commodity derivatives include transactions referenced energy eg oil natural gas metals eg precious base soft commodities eg agricultural price transparency varies based underlying commodity delivery location tenor product quality eg diesel fuel compared unleaded gasoline general price transparency commodity derivatives greater contracts shorter tenors contracts closely aligned major andor benchmark commodity indices • equity price transparency equity derivatives varies market underlier options indices common stock corporates included major equity indices exhibit price transparency equity derivatives generally observable market prices except contracts long tenors reference prices differ significantly current market prices complex equity derivatives sensitive correlation two individual stocks generally less price transparency liquidity essential observability product types transaction volumes decline previously transparent prices inputs may become unobservable conversely even highly structured products may times trading volumes large enough provide observability prices inputs see note 5 overview firm’s fair value measurement policies level 1 derivatives level 1 derivatives include shortterm contracts future delivery securities underlying security level 1 instrument exchangetraded derivatives actively traded valued quoted market price level 2 derivatives level 2 derivatives include otc derivatives significant valuation inputs corroborated market evidence exchangetraded derivatives actively traded andor valued using models calibrate marketclearing levels otc derivatives goldman sachs group inc subsidiaries notes consolidated financial statements selection particular model value derivative depends contractual terms specific risks inherent instrument well availability pricing information market derivatives trade liquid markets model selection involve significant management judgment outputs models calibrated marketclearing levels valuation models require variety inputs contractual terms market prices yield curves discount rates including derived interest rates collateral received posted specified credit support agreements collateralized derivatives credit curves measures volatility prepayment rates loss severity rates correlations inputs significant inputs valuations level 2 derivatives verified market transactions broker dealer quotations alternative pricing sources reasonable levels price transparency consideration given nature quotations eg indicative firm relationship recent market activity prices provided alternative pricing sources level 3 derivatives level 3 derivatives valued using models utilize observable level 1 andor level 2 inputs well unobservable level 3 inputs significant unobservable inputs used value firm’s level 3 derivatives described • majority firm’s interest rate currency derivatives classified within level 3 significant unobservable inputs include correlations certain currencies interest rates eg correlation euro inflation euro interest rates specific interest rate volatilities • level 3 credit derivatives significant unobservable inputs include illiquid credit spreads upfront credit points unique specific reference obligations reference entities recovery rates certain correlations required value credit derivatives eg likelihood default underlying reference obligation relative one another • level 3 commodity derivatives significant unobservable inputs include volatilities options strike prices differ significantly current market prices spreads certain products product quality physical location commodity aligned benchmark indices • level 3 equity derivatives significant unobservable inputs generally include equity volatility inputs options longdated andor strike prices differ significantly current market prices addition valuation certain structured trades requires use level 3 correlation inputs correlation price performance two individual stocks correlation price performance basket stocks another asset class commodities subsequent initial valuation level 3 derivative firm updates level 1 level 2 inputs reflect observable market changes resulting gains losses recorded level 3 level 3 inputs changed corroborated evidence similar market transactions thirdparty pricing services andor broker dealer quotations empirical market data circumstances firm cannot verify model value reference market transactions possible different valuation model could produce materially different estimate fair value see information significant unobservable inputs used valuation level 3 derivatives valuation adjustments valuation adjustments integral determining fair value derivative portfolios used adjust midmarket valuations produced derivative pricing models appropriate exit price valuation adjustments incorporate bidoffer spreads cost liquidity credit valuation adjustments funding valuation adjustments account credit funding risk inherent uncollateralized portion derivative portfolios firm also makes funding valuation adjustments collateralized derivatives terms agreement permit firm deliver repledge collateral received marketbased inputs generally used calibrating valuation adjustments marketclearing levels addition derivatives include significant unobservable inputs firm makes model exit price adjustments account valuation uncertainty present transaction goldman sachs group inc subsidiaries notes consolidated financial statements fair value derivatives level tables present fair value derivatives gross basis level major product type well impact netting included consolidated statements financial condition tables • gross fair values exclude effects counterparty netting collateral netting therefore representative firm’s exposure • counterparty netting reflected level extent receivable payable balances netted within level included counterparty netting within levels counterparty netting across levels netting reflected crosslevel counterparty netting • derivative assets shown positive amounts derivative liabilities shown negative amounts significant unobservable inputs table presents amount level 3 assets liabilities ranges averages medians significant unobservable inputs used value firm’s level 3 derivatives table • derivative assets shown positive amounts derivative liabilities shown negative amounts • ranges represent significant unobservable inputs used valuation type derivative • averages represent arithmetic average inputs weighted relative fair value notional respective financial instruments average greater median indicates majority inputs average example difference average median credit spreads oil spread inputs indicates majority inputs fall lower end range goldman sachs group inc subsidiaries notes consolidated financial statements • ranges averages medians inputs representative appropriate inputs use calculating fair value one derivative example highest correlation interest rate derivatives appropriate valuing specific interest rate derivative may appropriate valuing interest rate derivative accordingly ranges inputs represent uncertainty possible ranges fair value measurements firm’s level 3 derivatives • interest rates currencies equities derivatives valued using option pricing models credit derivatives valued using option pricing correlation discounted cash flow models commodities derivatives valued using option pricing discounted cash flow models • fair value one instrument may determined using multiple valuation techniques example option pricing models discounted cash flows models typically used together determine fair value therefore level 3 balance encompasses techniques • correlation within currencies equities includes crossproduct correlation • natural gas spread represents spread per million british thermal units natural gas • oil spread represents spread per barrel oil refined products range significant unobservable inputs following information ranges significant unobservable inputs used value firm’s level 3 derivative instruments • correlation ranges correlation cover variety underliers within one market eg equity index equity single stock names across markets eg correlation interest rate foreign exchange rate well across regions generally crossproduct correlation inputs used value complex instruments lower correlation inputs assets within derivative product type • volatility ranges volatility cover numerous underliers across variety markets maturities strike prices example volatility equity indices generally lower volatility single stocks • credit spreads upfront credit points recovery rates ranges credit spreads upfront credit points recovery rates cover variety underliers index single names regions sectors maturities credit qualities highyield investmentgrade broad range population gives rise width ranges significant unobservable inputs • commodity prices spreads ranges commodity prices spreads cover variability products maturities delivery locations sensitivity fair value measurement changes significant unobservable inputs following description directional sensitivity firm’s level 3 fair value measurements changes significant unobservable inputs isolation • correlation general contracts holder benefits convergence underlying asset index prices eg interest rates credit spreads foreign exchange rates inflation rates equity prices increase correlation results higher fair value measurement • volatility general purchased options increase volatility results higher fair value measurement • credit spreads upfront credit points recovery rates general fair value purchased credit protection increases credit spreads upfront credit points increase recovery rates decrease credit spreads upfront credit points recovery rates strongly related distinctive risk factors underlying reference obligations include reference entityspecific factors leverage volatility industry marketbased risk factors borrowing costs liquidity underlying reference obligation macroeconomic conditions • commodity prices spreads general contracts holder receiving commodity increase spread price difference benchmark index due differences quality delivery location price results higher fair value measurement due distinctive nature firm’s level 3 derivatives interrelationship inputs necessarily uniform within product type goldman sachs group inc subsidiaries notes consolidated financial statements level 3 rollforward table presents summary changes fair value level 3 derivatives table • changes fair value presented derivative assets liabilities categorized level 3 end period • net unrealized gainslosses relate instruments still held periodend • derivative transferred level 3 reporting period entire gain loss period included level 3 transfers levels reported beginning reporting period occur • positive amounts transfers level 3 negative amounts transfers level 3 represent net transfers derivative assets negative amounts transfers level 3 positive amounts transfers level 3 represent net transfers derivative liabilities • derivative level 1 andor level 2 inputs classified level 3 entirety least one significant level 3 input • one significant level 3 input entire gain loss adjusting observable inputs ie level 1 level 2 inputs classified level 3 • gains losses reported level 3 resulting changes level 1 level 2 inputs frequently offset gains losses attributable level 1 level 2 derivatives andor level 1 level 2 level 3 cash instruments result gainslosses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources table disaggregates product type information level 3 derivatives included summary table goldman sachs group inc subsidiaries notes consolidated financial statements level 3 rollforward commentary year ended december 2016 net realized unrealized gains level 3 derivatives 740 million reflecting 37 million net realized losses 777 million net unrealized gains 2016 include gainslosses approximately 980 million 240 million reported “market making” “other principal transactions” respectively net unrealized gain level 3 derivatives 777 million year ended december 2016 primarily attributable gains certain equity derivatives reflecting impact increase equity prices transfers level 3 derivatives 2016 primarily reflected transfers certain interest rate derivative assets level 2 principally due reduced transparency certain unobservable inputs used value derivatives transfers certain credit derivative assets level 2 primarily due unobservable credit spread inputs becoming significant net risk certain portfolios transfers level 3 derivatives 2016 primarily reflected transfers certain credit derivatives assets level 2 primarily due unobservable credit spread inputs longer significant net risk certain portfolios year ended december 2015 net realized unrealized gains level 3 derivative assets liabilities 746 million reflecting 67 million net realized gains 679 million net unrealized gains 2015 include gains approximately 518 million 228 million reported “market making” “other principal transactions” respectively net unrealized gain level 3 derivatives 679 million 2015 primarily attributable gains certain credit derivatives reflecting impact wider credit spreads changes foreign exchange interest rates transfers level 3 derivatives 2015 primarily reflected transfers certain credit derivative assets level 2 primarily due unobservable credit spread inputs becoming significant valuations derivatives transfers certain interest rate derivative liabilities level 2 primarily due certain unobservable inputs becoming significant valuations derivatives transfers level 3 derivatives 2015 primarily reflected transfers certain credit derivative assets level 2 principally due increased transparency reduced significance certain unobservable credit spread inputs used value derivatives otc derivatives table presents fair values otc derivative assets liabilities tenor major product type goldman sachs group inc subsidiaries notes consolidated financial statements table • tenor based expected duration mortgagerelated credit derivatives generally remaining contractual maturity derivatives • counterparty netting within product type tenor category included within product type tenor category • counterparty netting across product types within tenor category included counterparty netting within tenors counterparty netting across tenor categories netting reflected crosstenor counterparty netting credit derivatives firm enters broad array credit derivatives locations around world facilitate client transactions manage credit risk associated marketmaking investing lending activities credit derivatives actively managed based firm’s net risk position credit derivatives individually negotiated contracts various settlement payment conventions credit events include failure pay bankruptcy acceleration indebtedness restructuring repudiation dissolution reference entity firm enters following types credit derivatives • credit default swaps singlename credit default swaps protect buyer loss principal one bonds loans mortgages reference obligations event issuer reference entity reference obligations suffers credit event buyer protection pays initial periodic premium seller receives protection period contract credit event defined contract seller protection makes payments buyer protection however credit event occurs seller protection required make payment buyer protection calculated accordance terms contract • credit options credit option writer assumes obligation purchase sell reference obligation specified price credit spread option purchaser buys right assume obligation sell reference obligation purchase option writer payments credit options depend either particular credit spread price reference obligation • credit indices baskets tranches credit derivatives may reference basket singlename credit default swaps broadbased index credit event occurs one underlying reference obligations protection seller pays protection buyer payment typically prorata portion transaction’s total notional amount based underlying defaulted reference obligation certain transactions credit risk basket index separated various portions tranches different levels subordination junior tranches cover initial defaults losses exceed notional amount junior tranches excess loss covered next senior tranche capital structure • total return swaps total return swap transfers risks relating economic performance reference obligation protection buyer protection seller typically protection buyer receives protection seller floating rate interest protection reduction fair value reference obligation return protection seller receives cash flows associated reference obligation plus increase fair value reference obligation firm economically hedges exposure written credit derivatives primarily entering offsetting purchased credit derivatives identical underliers substantially firm’s purchased credit derivative transactions financial institutions subject stringent collateral thresholds addition upon occurrence specified trigger event firm may take possession reference obligations underlying particular written credit derivative consequently may upon liquidation reference obligations recover amounts underlying reference obligations event default december 2016 written purchased credit derivatives total gross notional amounts 69047 billion 73398 billion respectively total net notional purchased protection 4351 billion december 2015 written purchased credit derivatives total gross notional amounts 92348 billion 96868 billion respectively total net notional purchased protection 4520 billion substantially firm’s written purchased credit derivatives credit default swaps goldman sachs group inc subsidiaries notes consolidated financial statements table presents certain information credit derivatives table • fair values exclude effects netting receivable balances payable balances enforceable netting agreements netting cash received posted enforceable credit support agreements therefore representative firm’s credit exposure • tenor based expected duration mortgagerelated credit derivatives remaining contractual maturity credit derivatives • credit spread underlier together tenor contract indicators paymentperformance risk firm less likely pay otherwise required perform credit spread tenor lower • offsetting purchased credit derivatives represent notional amount purchased credit derivatives economically hedge written credit derivatives identical underliers included offsetting • purchased credit derivatives represent notional amount purchased credit derivatives included offsetting impact credit spreads derivatives ongoing basis firm realizes gains losses relating changes credit risk unwind derivative contracts changes credit mitigants net gain including hedges attributable impact changes credit exposure credit spreads counterparty firm’s derivatives 85 million 2016 9 million 2015 135 million 2014 bifurcated embedded derivatives table presents fair value notional amount derivatives bifurcated related borrowings derivatives recorded fair value primarily consist interest rate equity commodity products included “unsecured shortterm borrowings” “unsecured longterm borrowings” related borrowings see note 8 information derivatives creditrelated contingent features certain firm’s derivatives transacted bilateral agreements counterparties may require firm post collateral terminate transactions based changes firm’s credit ratings firm assesses impact bilateral agreements determining collateral termination payments would occur assuming downgrade rating agencies downgrade one rating agency depending agency’s relative ratings firm time downgrade may impact comparable impact downgrade rating agencies goldman sachs group inc subsidiaries notes consolidated financial statements table presents aggregate fair value net derivative liabilities agreements excluding application collateral posted reduce liabilities related aggregate fair value assets posted collateral additional collateral termination payments could called reporting date counterparties event onenotch twonotch downgrade firm’s credit ratings hedge accounting firm applies hedge accounting certain interest rate swaps used manage interest rate exposure certain fixedrate unsecured longterm shortterm borrowings certain fixedrate certificates deposit ii certain foreign currency forward contracts foreign currencydenominated debt used manage foreign currency exposures firm’s net investment certain nonus operations qualify hedge accounting hedging instrument must highly effective reducing risk exposure hedged additionally firm must formally document hedging relationship inception test hedging relationship least quarterly basis ensure hedging instrument continues highly effective life hedging relationship fair value hedges firm designates certain interest rate swaps fair value hedges interest rate swaps hedge changes fair value attributable designated benchmark interest rate eg london interbank offered rate libor overnight index swap rate ois effectively converting substantial portion fixedrate obligations floatingrate obligations firm applies statistical method utilizes regression analysis assessing effectiveness fair value hedging relationships achieving offsetting changes fair values hedging instrument risk hedged ie interest rate risk interest rate swap considered highly effective offsetting changes fair value attributable changes hedged risk regression analysis results coefficient determination 80 greater slope 80 125 qualifying fair value hedges gains losses derivatives included “interest expense” change fair value hedged item attributable risk hedged reported adjustment carrying value subsequently amortized interest expense remaining life gains losses resulting hedge ineffectiveness included “interest expense” derivative longer designated hedge remaining difference carrying value par value hedged item amortized interest expense remaining life hedged item using effective interest method see note 23 information interest income interest expense table presents gainslosses interest rate derivatives accounted hedges related hedged borrowings deposits hedge ineffectiveness derivatives primarily consists amortization prepaid credit spreads resulting passage time net investment hedges firm seeks reduce impact fluctuations foreign exchange rates net investments certain nonus operations use foreign currency forward contracts foreign currencydenominated debt foreign currency forward contracts designated hedges effectiveness hedge assessed based overall changes fair value forward contracts ie based changes forward rates foreign currencydenominated debt designated hedge effectiveness hedge assessed based changes spot rates qualifying net investment hedges gains losses hedging instruments extent effective included “currency translation” consolidated statements comprehensive income goldman sachs group inc subsidiaries notes consolidated financial statements table presents gainslosses net investment hedging gainloss related ineffectiveness material 2016 2015 2014 gain reclassified earnings accumulated comprehensive income 167 million 2016 material 2015 2014 december 2016 december 2015 firm designated 169 billion 220 billion respectively foreign currencydenominated debt included “unsecured longterm borrowings” “unsecured shortterm borrowings” hedges net investments nonus subsidiaries note 8 fair value option financial assets financial liabilities fair value addition cash derivative instruments included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” firm accounts certain financial assets financial liabilities fair value primarily fair value option primary reasons electing fair value option • reflect economic events earnings timely basis • mitigate volatility earnings using different measurement attributes eg transfers financial instruments owned accounted financings recorded fair value whereas related secured financing would recorded accrual basis absent electing fair value option • address simplification costbenefit considerations eg accounting hybrid financial instruments fair value entirety versus bifurcation embedded derivatives hedge accounting debt hosts hybrid financial instruments contain bifurcatable embedded derivatives require settlement physical delivery nonfinancial assets eg physical commodities firm elects bifurcate embedded derivative associated debt derivative accounted fair value host contract accounted amortized cost adjusted effective portion fair value hedges firm elect bifurcate entire hybrid financial instrument accounted fair value fair value option financial assets financial liabilities accounted fair value fair value option include • repurchase agreements substantially resale agreements • securities borrowed loaned within fixed income currency commodities client execution • substantially secured financings including transfers assets accounted financings rather sales • certain unsecured shortterm borrowings consisting commercial paper certain hybrid financial instruments • certain unsecured longterm borrowings including certain prepaid commodity transactions certain hybrid financial instruments • certain receivables customers counterparties including transfers assets accounted secured loans rather purchases certain margin loans • certain time deposits issued firm’s bank subsidiaries deposits stated maturity eligible fair value option election including structured certificates deposit hybrid financial instruments • certain subordinated liabilities consolidated vies goldman sachs group inc subsidiaries notes consolidated financial statements fair value financial assets financial liabilities level table presents level within fair value hierarchy financial assets financial liabilities accounted fair value primarily fair value option table financial assets shown positive amounts financial liabilities shown negative amounts valuation techniques significant inputs financial assets financial liabilities fair value generally valued based discounted cash flow techniques incorporate inputs reasonable levels price transparency generally classified level 2 inputs observable valuation adjustments may made liquidity counterparty firm’s credit quality see information significant inputs used value financial assets financial liabilities fair value including ranges significant unobservable inputs used value level 3 instruments within categories ranges represent significant unobservable inputs used valuation type financial assets financial liabilities fair value ranges weighted averages inputs representative appropriate inputs use calculating fair value one instrument example highest yield presented secured financings appropriate valuing specific agreement category may appropriate valuing agreements category accordingly ranges inputs presented represent uncertainty possible ranges fair value measurements firm’s level 3 financial assets financial liabilities resale repurchase agreements securities borrowed loaned significant inputs valuation resale repurchase agreements securities borrowed loaned funding spreads amount timing expected future cash flows interest rates december 2016 december 2015 firm level 3 resale agreements securities borrowed securities loaned december 2016 december 2015 firm’s level 3 repurchase agreements material see note 10 information collateralized agreements financings goldman sachs group inc subsidiaries notes consolidated financial statements secured financings significant inputs valuation secured financings fair value amount timing expected future cash flows interest rates funding spreads fair value collateral delivered firm determined using amount timing expected future cash flows market prices market yields recovery assumptions frequency additional collateral calls ranges significant unobservable inputs used value level 3 secured financings follows december 2016 • yield 04 166 weighted average 35 • duration 01 57 years weighted average 23 years december 2015 • yield 06 100 weighted average 27 • duration 16 88 years weighted average 28 years generally increases funding spreads yield duration isolation would result lower fair value measurement due distinctive nature firm’s level 3 secured financings interrelationship inputs necessarily uniform across financings see note 10 information collateralized agreements financings unsecured shortterm longterm borrowings significant inputs valuation unsecured shortterm longterm borrowings fair value amount timing expected future cash flows interest rates credit spreads firm well commodity prices case prepaid commodity transactions inputs used value embedded derivative component hybrid financial instruments consistent inputs used value firm’s derivative instruments see note 7 information derivatives see notes 15 16 information unsecured shortterm longterm borrowings respectively certain firm’s unsecured shortterm longterm borrowings included level 3 substantially hybrid financial instruments significant unobservable inputs used value hybrid financial instruments primarily relate embedded derivative component borrowings inputs incorporated firm’s derivative disclosures related unobservable inputs note 7 receivables customers counterparties receivables customers counterparties fair value primarily comprised transfers assets accounted secured loans rather purchases significant inputs valuation receivables commodity prices interest rates amount timing expected future cash flows funding spreads december 2016 december 2015 firm’s level 3 receivables customers counterparties material deposits significant inputs valuation time deposits interest rates amount timing future cash flows inputs used value embedded derivative component hybrid financial instruments consistent inputs used value firm’s derivative instruments see note 7 information derivatives see note 14 information deposits firm’s deposits included level 3 hybrid financial instruments significant unobservable inputs used value hybrid financial instruments primarily relate embedded derivative component deposits inputs incorporated firm’s derivative disclosures related unobservable inputs note 7 transfers levels fair value hierarchy transfers levels fair value hierarchy reported beginning reporting period occur transfers financial assets financial liabilities level 1 level 2 2016 2015 see “level 3 rollforward” information transfers level 2 level 3 goldman sachs group inc subsidiaries notes consolidated financial statements level 3 rollforward table presents summary changes fair value level 3 financial assets financial liabilities accounted fair value table • changes fair value presented financial assets liabilities categorized level 3 end period • net unrealized gainslosses relate instruments still held periodend • financial asset financial liability transferred level 3 reporting period entire gain loss period included level 3 level 3 financial assets increases shown positive amounts decreases shown negative amounts level 3 financial liabilities increases shown negative amounts decreases shown positive amounts • level 3 financial assets liabilities frequently economically hedged cash instruments derivatives accordingly gains losses reported level 3 partially offset gains losses attributable level 1 2 3 cash instruments derivatives result gains losses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources table disaggregates consolidated statements financial condition line items information financial liabilities included summary table goldman sachs group inc subsidiaries notes consolidated financial statements level 3 rollforward commentary year ended december 2016 net realized unrealized losses level 3 financial liabilities 106 million reflecting 99 million net realized losses 7 million net unrealized losses 2016 include losses approximately 21 million 10 million reported “market making” “interest expense” respectively consolidated statements earnings losses 75 million reported “debt valuation adjustment” consolidated statements comprehensive income net unrealized loss level 3 financial liabilities 7 million 2016 primarily reflected losses certain hybrid financial instruments included unsecured shortterm borrowings principally due increase global equity prices losses certain hybrid financial instruments included deposits principally due impact increase market value underlying assets partially offset gains certain hybrid financial instruments included unsecured longterm borrowings principally due changes foreign exchange rates transfers level 3 financial liabilities 2016 primarily reflected transfers certain hybrid financial instruments included unsecured shortterm longterm borrowings level 2 principally due reduced transparency certain inputs including correlation volatility inputs used value instruments transfers level 3 financial liabilities 2016 primarily reflected transfers certain hybrid financial instruments included unsecured shortterm longterm borrowings level 2 principally due increased transparency correlation volatility inputs used value instruments year ended december 2015 net realized unrealized gains level 3 financial liabilities 858 million reflecting 75 million net realized gains 783 million net unrealized gains 2015 include gainslosses approximately 841 million 28 million 11 million reported “market making” “other principal transactions” “interest expense” respectively net unrealized gain level 3 financial liabilities 783 million 2015 primarily reflected gains certain hybrid financial instruments included unsecured shortterm longterm borrowings principally due decrease global equity prices impact wider credit spreads changes interest foreign exchange rates transfers level 3 financial liabilities 2015 primarily reflected transfers certain hybrid financial instruments included unsecured shortterm longterm borrowings level 2 principally due reduced transparency certain correlation volatility inputs used value instruments transfers level 3 unsecured longterm borrowings level 3 unsecured shortterm borrowings neared maturity transfers level 3 financial liabilities 2015 primarily reflected transfers certain hybrid financial instruments included unsecured shortterm longterm borrowings certain secured financings level 2 principally due increased transparency certain correlation volatility funding spread inputs used value instruments transfers level 3 unsecured shortterm borrowings level 3 unsecured longterm borrowings neared maturity transfers certain subordinated liabilities included liabilities accrued expenses level 2 principally due increased price transparency result market transactions related underlying investments goldman sachs group inc subsidiaries notes consolidated financial statements gains losses financial assets financial liabilities accounted fair value fair value option table presents gains losses recognized earnings result firm electing apply fair value option certain financial assets financial liabilities gains losses included “market making” “other principal transactions” table also includes gains losses embedded derivative component hybrid financial instruments included unsecured shortterm borrowings unsecured longterm borrowings deposits gains losses would recognized us gaap even firm elected account entire hybrid financial instrument fair value table • gainslosses exclude contractual interest included “interest income” “interest expense” instruments hybrid financial instruments see note 23 information interest income interest expense • unsecured shortterm borrowings includes gainslosses embedded derivative component hybrid financial instruments 105 billion 2016 339 million 2015 122 billion 2014 respectively • unsecured longterm borrowings includes gainslosses embedded derivative component hybrid financial instruments 737 million 2016 653 million 2015 697 million 2014 respectively • liabilities accrued expenses includes gainslosses certain subordinated liabilities consolidated vies • primarily consists gainslosses receivables customers counterparties deposits secured financings excluding gains losses instruments accounted fair value option described “market making” “other principal transactions” primarily represent gains losses “financial instruments owned fair value” “financial instruments sold yet purchased fair value” loans lending commitments table presents difference aggregate fair value aggregate contractual principal amount loans longterm receivables fair value option elected table aggregate contractual principal amount loans nonaccrual status andor 90 days past due excludes loans carried zero fair value considered uncollectible exceeds related fair value primarily firm regularly purchases loans distressed loans values significantly contractual principal amounts december 2016 december 2015 fair value unfunded lending commitments fair value option elected liability 80 million 211 million respectively related total contractual amount lending commitments 719 billion 1401 billion respectively see note 18 information lending commitments goldman sachs group inc subsidiaries notes consolidated financial statements longterm debt instruments aggregate contractual principal amount longterm secured financings fair value option elected exceeded related fair value 361 million 362 million december 2016 december 2015 respectively aggregate contractual principal amount unsecured longterm borrowings fair value option elected exceeded related fair value 156 billion 112 billion december 2016 december 2015 respectively amounts include principal nonprincipalprotected longterm borrowings impact credit spreads loans lending commitments estimated net gain attributable changes instrumentspecific credit spreads loans lending commitments fair value option elected 281 million 2016 751 million 2015 183 billion 2014 respectively firm generally calculates fair value loans lending commitments fair value option elected discounting future cash flows rate incorporates instrumentspecific credit spreads floatingrate loans lending commitments substantially changes fair value attributable changes instrumentspecific credit spreads whereas fixedrate loans lending commitments changes fair value also attributable changes interest rates debt valuation adjustment firm calculates fair value financial liabilities fair value option elected discounting future cash flows rate incorporates firm’s credit spreads net dva financial liabilities loss 844 million 544 million net tax 2016 included “debt valuation adjustment” consolidated statements comprehensive income gainslosses reclassified earnings accumulated comprehensive loss upon extinguishment financial liabilities material 2016 note 9 loans receivable loans receivable comprised loans held investment accounted amortized cost net allowance loan losses interest loans receivable recognized life loan recorded accrual basis table presents details loans receivable december 2016 december 2015 fair value loans receivable 4980 billion 4519 billion respectively december 2016 loans carried fair value included fair value hierarchy 2840 billion 2140 billion would classified level 2 level 3 respectively december 2015 loans carried fair value included fair value hierarchy 2391 billion 2128 billion would classified level 2 level 3 respectively firm also extends lending commitments held investment accounted accrual basis december 2016 december 2015 lending commitments 9805 billion 9392 billion respectively substantially commitments extended corporate borrowers primarily related firm’s relationship lending activities carrying value estimated fair value lending commitments liabilities 327 million 255 billion respectively december 2016 291 million 332 billion respectively december 2015 december 2016 lending commitments carried fair value included fair value hierarchy 110 billion 145 billion would classified level 2 level 3 respectively december 2015 lending commitments carried fair value included fair value hierarchy 135 billion 197 billion would classified level 2 level 3 respectively goldman sachs group inc subsidiaries notes consolidated financial statements following description captions table • corporate loans corporate loans include term loans revolving lines credit letter credit facilities bridge loans principally used operating liquidity general corporate purposes connection acquisitions corporate loans may secured unsecured depending loan purpose risk profile borrower factors loans receivable related firm’s relationship lending activities reported within corporate loans • loans private wealth management clients loans firm’s private wealth management clients include loans used clients finance private asset purchases employ leverage strategic investments real financial assets bridge cash flow timing gaps provide liquidity needs loans primarily secured securities assets • loans backed commercial real estate loans backed commercial real estate include loans extended firm directly indirectly secured hotels retail stores multifamily housing complexes commercial industrial properties loans backed commercial real estate also include loans purchased firm • loans backed residential real estate loans backed residential real estate include loans extended firm clients warehouse assets directly indirectly secured residential real estate loans backed residential real estate also include loans purchased firm • loans primarily include loans extended clients warehouse assets directly indirectly secured consumer loans including auto loans private student loans assets loans also includes unsecured loans individuals made firm’s online platform loans receivable includes purchased credit impaired pci loans pci loans represent acquired loans pools loans evidence credit deterioration subsequent origination probable acquisition firm able collect contractually required payments loans acquired within reporting period least two common risk characteristics one relates credit risk eligible pooled together considered single unit account pci loans initially recorded acquisition price difference acquisition price expected cash flows accretable yield recognized interest income life loans pools loans effective yield method expected cash flows pci loans determined using various inputs assumptions including default rates loss severities recoveries amount timing prepayments macroeconomic indicators december 2016 gross carrying value pci loans 397 billion including 144 billion 251 billion 18 million related loans backed commercial real estate loans backed residential real estate consumer loans respectively outstanding principal balance accretable yield related loans 852 billion 526 million respectively december 2016 time acquisition fair value related expected cash flows contractually required cash flows pci loans acquired 2016 251 billion 282 billion 639 billion respectively december 2015 gross carrying value pci loans 212 billion including 116 billion 941 million 23 million related loans backed commercial real estate loans backed residential real estate consumer loans respectively outstanding principal balance accretable yield related loans 554 billion 234 million respectively december 2015 time acquisition fair value related expected cash flows contractually required cash flows pci loans acquired 2015 227 billion 250 billion 647 billion respectively goldman sachs group inc subsidiaries notes consolidated financial statements credit quality firm’s risk assessment process includes evaluating credit quality loans receivable loans receivable excluding pci loans firm performs credit reviews include initial ongoing analyses borrowers credit review independent analysis capacity willingness borrower meet financial obligations resulting internal credit rating determination internal credit ratings also incorporates assumptions respect nature outlook borrower’s industry economic environment firm also assigns regulatory risk rating loans based definitions provided us federal bank regulatory agencies table presents gross loans receivable excluding pci loans 397 billion 212 billion december 2016 december 2015 respectively assigned credit rating equivalent related lending commitments firm’s internally determined public rating agency equivalent regulatory risk rating noncriticizedpass loans lending commitments represent loans lending commitments performing andor demonstrate adverse characteristics likely result credit loss firm enters economic hedges mitigate credit risk certain loans receivable commercial lending commitments held investment related firm’s relationship lending activities hedges accounted fair value see note 18 information commercial lending commitments associated hedges loans receivable excluding pci loans determined impaired probable firm able collect principal interest due contractual terms loan time loans generally placed nonaccrual status accrued uncollected interest reversed interest income interest subsequently collected recognized cash basis extent loan balance deemed collectible otherwise cash received used reduce outstanding loan balance certain circumstances firm may also modify original terms loan agreement granting concession borrower experiencing financial difficulty modifications considered troubled debt restructurings typically include interest rate reductions payment extensions modification loan covenants loans modified troubled debt restructuring considered impaired subject specific loanlevel reserves december 2016 december 2015 gross carrying value impaired loans receivable excluding pci loans nonaccrual status 404 million 223 million respectively december 2016 loans included 142 million corporate loans modified troubled debt restructuring firm 144 million lending commitments related loans december 2015 pci loans firm’s risk assessment process includes reviewing certain key metrics delinquency status collateral values credit scores risk factors determined firm cannot reasonably estimate expected cash flows pci loans pools loans placed nonaccrual status goldman sachs group inc subsidiaries notes consolidated financial statements allowance losses loans lending commitments firm’s allowance loan losses comprised specific loanlevel reserves portfolio level reserves pci loans described • specific loanlevel reserves determined loans excluding pci loans exhibit credit quality weakness therefore individually evaluated impairment • portfolio level reserves determined loans excluding pci loans deemed impaired aggregating groups loans similar risk characteristics estimating probable loss inherent portfolio • reserves pci loans recorded determined expected cash flows reassessed quarterly basis lower used establish current effective yield loans pools loans expected cash flows determined significantly higher used establish current effective yield increases initially recognized reduction previously recorded allowances loan losses remaining increases recognized interest income prospectively life loan pools loans increase effective yield allowance loan losses determined using various inputs including industry default loss data current macroeconomic indicators borrower’s capacity meet financial obligations borrower’s country risk loan seniority collateral type management’s estimate loan losses entails judgment loan collectability reporting dates uncertainties inherent judgments management uses best information available determine estimate future adjustments allowance may necessary based among things changes economic environment variances actual results original assumptions used loans charged allowance loan losses deemed uncollectible december 2016 december 2015 substantially firm’s loans receivable evaluated impairment portfolio level firm also records allowance losses lending commitments held investment accounted accrual basis allowance determined using methodology allowance loan losses also taking consideration probability drawdowns funding included “other liabilities accrued expenses” december 2016 december 2015 substantially lending commitments evaluated impairment portfolio level table presents changes allowance loan losses allowance losses lending commitments table • provision losses loans lending commitments included “other principal transactions” substantially provision related corporate loans corporate lending commitments • represents reduction allowance related loans lending commitments transferred held sale • december 2016 december 2015 substantially allowance loan losses allowance losses lending commitments related corporate loans corporate lending commitments primarily determined portfolio level • firm’s allowance losses pci loans december 2016 material allowance losses pci loans december 2015 goldman sachs group inc subsidiaries notes consolidated financial statements note 10 collateralized agreements financings collateralized agreements securities purchased agreements resell resale agreements securities borrowed collateralized financings securities sold agreements repurchase agreements securities loaned secured financings firm enters transactions order among things facilitate client activities invest excess cash acquire securities cover short positions finance certain firm activities collateralized agreements financings presented netbycounterparty basis legal right setoff exists interest collateralized agreements collateralized financings recognized life transaction included “interest income” “interest expense” respectively see note 23 information interest income interest expense table presents carrying value resale repurchase agreements securities borrowed loaned transactions table • substantially resale agreements repurchase agreements carried fair value fair value option see note 8 information valuation techniques significant inputs used determine fair value • december 2016 december 2015 8240 billion 7534 billion securities borrowed 265 billion 466 million securities loaned fair value respectively resale repurchase agreements resale agreement transaction firm purchases financial instruments seller typically exchange cash simultaneously enters agreement resell substantially financial instruments seller stated price plus accrued interest future date repurchase agreement transaction firm sells financial instruments buyer typically exchange cash simultaneously enters agreement repurchase substantially financial instruments buyer stated price plus accrued interest future date even though repurchase resale agreements including “repos reversestomaturity” involve legal transfer ownership financial instruments accounted financing arrangements require financial instruments repurchased resold maturity agreement financial instruments purchased sold resale repurchase agreements typically include us government federal agency investmentgrade sovereign obligations firm receives financial instruments purchased resale agreements makes delivery financial instruments sold repurchase agreements mitigate credit exposure firm monitors market value financial instruments daily basis delivers obtains additional collateral due changes market value financial instruments appropriate resale agreements firm typically requires collateral fair value approximately equal carrying value relevant assets consolidated statements financial condition goldman sachs group inc subsidiaries notes consolidated financial statements securities borrowed loaned transactions securities borrowed transaction firm borrows securities counterparty exchange cash securities firm returns securities counterparty returns cash securities interest generally paid periodically life transaction securities loaned transaction firm lends securities counterparty exchange cash securities counterparty returns securities firm returns cash securities posted collateral interest generally paid periodically life transaction firm receives securities borrowed makes delivery securities loaned mitigate credit exposure firm monitors market value securities daily basis delivers obtains additional collateral due changes market value securities appropriate securities borrowed transactions firm typically requires collateral fair value approximately equal carrying value securities borrowed transaction securities borrowed loaned within fixed income currency commodities client execution recorded fair value fair value option see note 8 information securities borrowed loaned accounted fair value securities borrowed loaned within securities services recorded based amount cash collateral advanced received plus accrued interest arrangements generally terminated demand exhibit little sensitivity changes interest rates therefore carrying value arrangements approximates fair value arrangements carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 8 arrangements included firm’s fair value hierarchy would classified level 2 december 2016 december 2015 offsetting arrangements table presents gross net resale repurchase agreements securities borrowed loaned transactions related amount counterparty netting included consolidated statements financial condition table also presents amounts offset consolidated statements financial condition including counterparty netting meet criteria netting us gaap fair value cash securities collateral received posted subject enforceable credit support agreements table • substantially gross carrying values arrangements subject enforceable netting agreements • firm received posted collateral credit support agreements yet determined agreements enforceable related collateral netted goldman sachs group inc subsidiaries notes consolidated financial statements gross carrying value repurchase agreements securities loaned table presents gross carrying value repurchase agreements securities loaned class collateral pledged table presents gross carrying value repurchase agreements securities loaned maturity date table • repurchase agreements securities loaned repayable prior maturity option firm reflected contractual maturity dates • repurchase agreements securities loaned redeemable prior maturity option holder reflected earliest dates options become exercisable secured financings addition repurchase agreements securities loaned transactions firm funds certain assets use secured financings pledges financial instruments assets collateral transactions secured financings consist • liabilities consolidated vies • transfers assets accounted financings rather sales primarily collateralized central bank financings pledged commodities bank loans mortgage whole loans • structured financing arrangements secured financings include arrangements nonrecourse december 2016 december 2015 nonrecourse secured financings 254 billion 220 billion respectively firm elected apply fair value option substantially secured financings use fair value eliminates noneconomic volatility earnings would arise using different measurement attributes see note 8 information secured financings accounted fair value secured financings recorded fair value recorded based amount cash received plus accrued interest generally approximates fair value financings carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 8 financings included firm’s fair value hierarchy would primarily classified level 2 december 2016 december 2015 goldman sachs group inc subsidiaries notes consolidated financial statements table presents information secured financings table • shortterm secured financings include financings maturing within one year financial statement date financings redeemable within one year financial statement date option holder • weighted average interest rates exclude secured financings fair value include effect hedging activities see note 7 information hedging activities • total secured financings include 285 million 334 million related transfers financial assets accounted financings rather sales december 2016 december 2015 respectively financings collateralized financial assets 285 million 336 million december 2016 december 2015 respectively primarily included “financial instruments owned fair value” • secured financings collateralized financial instruments include 1365 billion 1498 billion secured financings collateralized financial instruments owned fair value december 2016 december 2015 respectively include 618 billion 876 billion secured financings collateralized financial instruments received collateral repledged december 2016 december 2015 respectively table presents secured financings maturity date table • longterm secured financings repayable prior maturity option firm reflected contractual maturity dates • longterm secured financings redeemable prior maturity option holder reflected earliest dates options become exercisable collateral received pledged firm receives cash securities eg us government federal agency sovereign corporate obligations well equities convertible debentures collateral primarily connection resale agreements securities borrowed derivative transactions customer margin loans firm obtains cash securities collateral upfront contingent basis derivative instruments collateralized agreements reduce credit exposure individual counterparties many cases firm permitted deliver repledge financial instruments received collateral entering repurchase agreements securities loaned transactions primarily connection secured client financing activities firm also permitted deliver repledge financial instruments connection secured financings collateralized derivative transactions firm customer settlement requirements firm also pledges certain financial instruments owned fair value connection repurchase agreements securities loaned transactions secured financings assets substantially real estate cash connection secured financings counterparties may right deliver repledge goldman sachs group inc subsidiaries notes consolidated financial statements table presents financial instruments fair value received collateral available delivered repledged delivered repledged firm table december 2016 december 2015 collateral available delivered repledged excludes 1547 billion 1894 billion respectively securities received resale agreements securities borrowed transactions contractually right delivered repledged segregated regulatory purposes table presents information assets pledged firm also segregated 1529 billion 1956 billion securities included “financial instruments owned fair value” december 2016 december 2015 respectively regulatory purposes see note 3 information segregated cash note 11 securitization activities firm securitizes residential commercial mortgages corporate bonds loans types financial assets selling assets securitization vehicles eg trusts corporate entities limited liability companies resecuritization firm acts underwriter beneficial interests sold investors firm’s residential mortgage securitizations primarily connection government agency securitizations beneficial interests issued securitization entities debt equity securities give investors rights receive portions specified cash inflows securitization vehicle include senior subordinated interests principal interest andor cash inflows proceeds sale beneficial interests used pay transferor financial assets sold securitization vehicle purchase securities serve collateral firm accounts securitization sale relinquished control transferred assets prior securitization firm accounts assets pending transfer fair value therefore typically recognize significant gains losses upon transfer assets net revenues underwriting activities recognized connection sales underlying beneficial interests investors transfers assets accounted sales assets remain “financial instruments owned fair value” transfer accounted collateralized financing related interest expense recognized life transaction see notes 10 23 information collateralized financings interest expense respectively firm generally receives cash exchange transferred assets may also continuing involvement transferred assets including ownership beneficial interests securitized financial assets primarily form senior subordinated securities firm may also purchase senior subordinated securities issued securitization vehicles typically vies connection secondary marketmaking activities primary risks included beneficial interests firm’s continuing involvement securitization vehicles performance underlying collateral position firm’s investment capital structure securitization vehicle market yield security interests primarily accounted fair value classified level 2 fair value hierarchy beneficial interests accounted fair value carried amounts approximate fair value see notes 5 8 information fair value measurements table presents amount financial assets securitized cash flows received retained interests securitization entities firm continuing involvement end period goldman sachs group inc subsidiaries notes consolidated financial statements table presents firm’s continuing involvement nonconsolidated securitization entities firm sold assets well total outstanding principal amount transferred assets firm continuing involvement table • outstanding principal amount presented purpose providing information size securitization entities firm continuing involvement representative firm’s risk loss • retained purchased interests firm’s risk loss limited carrying value interests • purchased interests represent senior subordinated interests purchased connection secondary marketmaking activities securitization entities firm also holds retained interests • substantially total outstanding principal amount total retained interests december 2016 december 2015 relate securitizations 2012 thereafter • fair value retained interests 158 billion 116 billion december 2016 december 2015 respectively addition interests table firm continuing involvement form derivative transactions commitments certain nonconsolidated vies carrying value derivatives commitments net asset 48 million 92 million december 2016 december 2015 respectively notional amounts derivatives commitments included maximum exposure loss nonconsolidated vie table note 12 table presents weighted average key economic assumptions used measuring fair value mortgagebacked retained interests sensitivity fair value immediate adverse changes 10 20 assumptions table • amounts reflect benefit financial instruments held mitigate risks inherent retained interests • changes fair value based adverse variation assumptions generally cannot extrapolated relationship change assumptions change fair value usually linear • impact change particular assumption calculated independently changes assumption practice simultaneous changes assumptions might magnify counteract sensitivities disclosed • constant prepayment rate included positions key assumption determination fair value • discount rate retained interests relate us government agencyissued collateralized mortgage obligations include credit loss • expected credit loss assumptions reflected discount rate remainder retained interests firm retained interests reflected table fair value 56 million weighted average life 35 years december 2016 fair value 44 million weighted average life 35 years december 2015 due nature current fair value certain retained interests weighted average assumptions constant prepayment discount rates related sensitivity adverse changes meaningful december 2016 december 2015 firm’s maximum exposure adverse changes value interests carrying value 56 million 44 million december 2016 december 2015 respectively goldman sachs group inc subsidiaries notes consolidated financial statements note 12 variable interest entities variable interest vie investment eg debt equity securities interest eg derivatives loans lending commitments absorb portions vie’s expected losses andor receive portions vie’s expected residual returns firm’s variable interests vies include senior subordinated debt residential commercial mortgagebacked assetbacked securitization entities cdos clos loans lending commitments limited general partnership interests preferred common equity derivatives may include foreign currency equity andor credit risk guarantees certain fees firm receives investment funds certain interest rate foreign currency credit derivatives firm enters vies variable interests create rather absorb risk vies generally finance purchase assets issuing debt equity securities either collateralized indexed assets held vie debt equity securities issued vie may include tranches varying levels subordination firm’s involvement vies includes securitization financial assets described note 11 investments loans types vies described see note 11 additional information securitization activities including definition beneficial interests see note 3 firm’s consolidation policies including definition vie consolidation analysis enterprise controlling financial interest vie known primary beneficiary consolidates vie firm determines whether primary beneficiary vie performing analysis principally considers • variable interest holder power direct activities vie significantly impact vie’s economic performance • variable interest holder obligation absorb losses right receive benefits vie could potentially significant vie • vie’s purpose design including risks vie designed create pass variable interest holders • vie’s capital structure • terms vie variable interest holders parties involved vie • relatedparty relationships firm reassesses initial evaluation whether entity vie certain reconsideration events occur firm reassesses determination whether primary beneficiary vie ongoing basis based current facts circumstances vie activities firm principally involved vies following business activities mortgagebacked vies corporate cdo clo vies firm sells residential commercial mortgage loans securities mortgagebacked vies corporate bonds loans corporate cdo clo vies may retain beneficial interests assets sold vies firm purchases sells beneficial interests issued mortgagebacked corporate cdo clo vies connection marketmaking activities addition firm may enter derivatives certain vies primarily interest rate swaps typically variable interests firm generally enters derivatives counterparties mitigate risk derivatives vies certain mortgagebacked corporate cdo clo vies usually referred synthetic cdos creditlinked note vies synthetically create exposure beneficial interests issue entering credit derivatives rather purchasing underlying assets credit derivatives may reference single asset index portfoliobasket assets indices see note 7 information credit derivatives vies use funds sale beneficial interests premiums received credit derivative counterparties purchase securities serve collateralize beneficial interest holders andor credit derivative counterparty vies may enter derivatives primarily interest rate swaps typically variable interests firm may counterparty derivatives vies generally enters derivatives counterparties mitigate risk goldman sachs group inc subsidiaries notes consolidated financial statements real estate creditrelated investing vies firm purchases equity debt securities issued makes loans vies hold real estate performing nonperforming debt distressed loans equity securities firm typically sell assets enter derivatives vies assetbacked vies firm structures vies issue notes clients purchases sells beneficial interests issued assetbacked vies connection marketmaking activities addition firm may enter derivatives certain assetbacked vies primarily total return swaps collateral assets held vies firm pays vie return due note holders receives return collateral assets owned vie firm generally removed total return swap counterparty firm generally enters derivatives counterparties mitigate risk derivatives vies firm typically sell assets assetbacked vies structures principalprotected note vies firm structures vies issue principalprotected notes clients vies portfolios assets principally exposure hedge funds substantially principal protection notes issued vies provided asset portfolio rebalancing required terms notes firm enters total return swaps vies firm pays vie return due principalprotected note holders receives return assets owned vie firm may enter derivatives counterparties mitigate risk derivatives enters vies firm also obtains funding vies investments funds vies firm makes equity investments certain investment fund vies manages entitled receive fees vies firm typically sell assets enter derivatives vies primarily includes nonconsolidated powerrelated vies firm purchases debt equity securities issued vies hold powerrelated assets may provide commitments vies adoption asu 201502 firm adopted asu 201502 january 1 2016 upon adoption certain firm’s investments entities previously classified voting interest entities classified vies include investments certain limited partnership entities deconsolidated upon adoption certain fee interests considered significant interests guidance firm longer deemed controlling financial interest entities see note 3 information adoption asu 201502 nonconsolidated vies result adoption january 1 2016 “investments funds other” nonconsolidated vies included 1070 billion “assets vies” 543 million “carrying value variable interests assets” 559 million “maximum exposure loss” related investments limited partnership entities previously classified nonconsolidated voting interest entities consolidated vies result adoption january 1 2016 “real estate creditrelated investing” consolidated vies included 302 million assets substantially included “financial instruments owned fair value” 122 million liabilities included “other liabilities accrued expenses” primarily related investments limited partnership entities previously classified consolidated voting interest entities goldman sachs group inc subsidiaries notes consolidated financial statements nonconsolidated vies table presents summary nonconsolidated vies firm holds variable interests firm’s exposure obligations vies generally limited interests entities certain instances firm provides guarantees including derivative guarantees vies holders variable interests vies nature firm’s variable interests take different forms described rows maximum exposure loss table • maximum exposure loss excludes benefit offsetting financial instruments held mitigate risks associated variable interests • retained purchased interests loans investments maximum exposure loss carrying value interests • commitments guarantees derivatives maximum exposure loss notional amount represent anticipated losses also reduced unrealized losses already recorded result maximum exposure loss exceeds liabilities recorded commitments guarantees derivatives provided vies • total maximum exposure loss commitments guarantees derivatives include 128 billion 152 billion december 2016 december 2015 respectively related transactions vies firm transferred assets table disaggregates principal business activity information nonconsolidated vies included summary table mortgagebacked includes assets vies 154 billion 408 billion maximum exposure loss 279 million 502 million december 2016 december 2015 respectively related cdos backed mortgage obligations goldman sachs group inc subsidiaries notes consolidated financial statements carrying values firm’s variable interests nonconsolidated vies included consolidated statements financial condition follows • mortgagebacked december 2016 substantially assets included “financial instruments owned fair value” “loans receivable” “receivables customers counterparties” december 2015 assets included “financial instruments owned fair value” • corporate cdos clos december 2016 december 2015 assets included “financial instruments owned fair value” liabilities included “financial instruments sold yet purchased fair value” • real estate creditrelated investing december 2016 december 2015 assets included “financial instruments owned fair value” “loans receivable” “other assets” liabilities included “financial instruments sold yet purchased fair value” “other liabilities accrued expenses” • assetbacked december 2016 december 2015 assets included “financial instruments owned fair value” “loans receivable” liabilities included “financial instruments sold yet purchased fair value” • investments funds december 2016 december 2015 substantially assets included “financial instruments owned fair value” liabilities included “financial instruments sold yet purchased fair value” consolidated vies table presents summary carrying amount classification assets liabilities consolidated vies table • assets liabilities presented net intercompany eliminations exclude benefit offsetting financial instruments held mitigate risks associated firm’s variable interests • vies firm holds majority voting interest excluded vie meets definition business ii vie’s assets used purposes settlement obligations • substantially assets used settle obligations vie goldman sachs group inc subsidiaries notes consolidated financial statements table disaggregates principal business activity information consolidated vies included summary table • majority assets principalprotected notes vies intercompany eliminated consolidation • liabilities real estate creditrelated investing vies cdos mortgagebacked assetbacked vies recourse general credit firm note 13 assets generally less liquid nonfinancial assets table presents assets type table • equitymethod investments exclude investments accounted fair value fair value option firm would otherwise apply equity method accounting 792 billion 659 billion december 2016 december 2015 respectively included “financial instruments owned fair value” firm generally elected fair value option investments acquired fair value option became available • decrease miscellaneous receivables december 2015 december 2016 reflects sale assets previously classified held sale related certain firm’s consolidated investments miscellaneous receivables includes 682 million 581 million investments qualified affordable housing projects december 2016 december 2015 respectively property leasehold improvements equipment property leasehold improvements equipment table net accumulated depreciation amortization 768 billion 777 billion december 2016 december 2015 respectively property leasehold improvements equipment included 596 billion 593 billion december 2016 december 2015 respectively related property leasehold improvements equipment firm uses connection operations remainder held investment entities including vies consolidated firm substantially property equipment depreciated straightline basis useful life asset leasehold improvements amortized straightline basis useful life improvement term lease whichever shorter capitalized costs software developed obtained internal use amortized straightline basis three years goodwill identifiable intangible assets tables present carrying values goodwill identifiable intangible assets goldman sachs group inc subsidiaries notes consolidated financial statements goodwill cost acquired companies excess fair value net assets including identifiable intangible assets acquisition date goodwill assessed impairment annually fourth quarter frequently events occur circumstances change indicate impairment may exist assessing goodwill impairment first qualitative factors assessed determine whether likely fair value reporting unit less carrying amount results qualitative assessment conclusive quantitative goodwill test performed quantitative goodwill test consists two steps • first step compares estimated fair value reporting unit estimated net book value including goodwill identifiable intangible assets reporting unit’s estimated fair value exceeds estimated net book value goodwill impaired estimate fair value reporting unit relative value technique used firm believes market participants would use technique value firm’s reporting units relative value technique applies observable pricetoearnings multiples pricetobook multiples projected return equity comparable competitors reporting units’ net earnings net book value net book value reporting unit reflects allocation total shareholders’ equity represents estimated amount total shareholders’ equity required support activities reporting unit currently applicable regulatory capital requirements • estimated fair value reporting unit less estimated net book value second step goodwill test performed measure amount impairment equal excess carrying amount goodwill fair value fourth quarter 2016 firm assessed goodwill impairment using qualitative assessment multiple factors assessed respect firm’s reporting units determine whether likely fair value reporting units less carrying amount qualitative assessment also considered changes since 2015 quantitative test accordance asc 350 firm considered following factors qualitative assessment performed fourth quarter evaluating whether likely fair value reporting unit less carrying amount • performance indicators 2016 firm’s net earnings pretax margin diluted earnings per common share return average common shareholders’ equity book value per common share increased compared 2015 addition firm’s overall cost structure declined reflecting impact expense savings initiatives • firm industry events entityspecific otherwise since 2015 quantitative goodwill test would significant negative impact valuation firm’s reporting units • macroeconomic indicators since 2015 quantitative goodwill test firm’s general operating environment improved concerns outlook global economic growth moderated • fair value indicators since 2015 quantitative goodwill test fair value indicators improved global equity prices increased credit spreads tightened addition publiclytraded industry participants including firm experienced increases stock price pricetobook multiples pricetoearnings multiples result qualitative assessment firm determined likely fair value reporting units exceeded respective carrying amount notwithstanding results qualitative assessment since 2015 quantitative goodwill test determined estimated fair value fixed income currency commodities client execution reporting unit substantially excess carrying value firm also performed quantitative test reporting unit fourth quarter 2016 quantitative test estimated fair value fixed income currency commodities client execution reporting unit substantially exceeded carrying value therefore firm determined goodwill reporting units impaired goldman sachs group inc subsidiaries notes consolidated financial statements identifiable intangible assets table presents gross carrying amount accumulated amortization net carrying amount identifiable intangible assets table • net carrying amount intangibles primarily includes intangible assets related acquired leases commodities transportation rights • 2016 2015 firm acquired 89 million primarily related acquired leases 67 million primarily related customer lists respectively intangible assets weighted average amortization period three years substantially firm’s identifiable intangible assets considered finite useful lives amortized estimated useful lives generally using straightline method tables present details amortization identifiable intangible assets impairments firm tests property leasehold improvements equipment identifiable intangible assets impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable extent carrying value asset exceeds projected undiscounted cash flows expected result use eventual disposal asset group firm determines asset impaired records impairment equal difference estimated fair value carrying value asset group addition firm recognize impairment prior sale asset carrying value asset exceeds estimated fair value 2016 2015 impairments material firm’s results operations financial condition 2014 primarily result deterioration market operating conditions related certain firm’s consolidated investments firm’s exchangetraded fund lead market maker lmm rights firm determined certain assets impaired recorded impairments 360 million included “depreciation amortization” impairments consisted 268 million related property leasehold improvements equipment substantially attributable consolidated investment latin america 70 million related identifiable intangible assets primarily attributable firm’s lmm rights 22 million related goodwill result sale metro international trade services metro impairments related property leasehold improvements equipment goodwill included within firm’s investing lending segment impairments related identifiable intangible assets principally included within firm’s institutional client services segment impairments represented excess carrying values assets estimated fair values substantially calculated using level 3 measurements fair values calculated using combination discounted cash flow analyses relative value analyses including estimated cash flows expected result use eventual disposition assets goldman sachs group inc subsidiaries notes consolidated financial statements note 14 deposits table presents types sources firm’s deposits april 2016 goldman sachs bank usa gs bank usa acquired ge capital bank’s online retail deposit platform assumed 1652 billion deposits consisting 876 billion online deposit accounts certificates deposit 776 billion brokered certificates deposit table • substantially deposits interestbearing • savings demand deposits stated maturity • time deposits include 1378 billion 1468 billion december 2016 december 2015 respectively deposits accounted fair value fair value option see note 8 information deposits accounted fair value • time deposits weighted average maturity approximately 25 years 3 years december 2016 december 2015 respectively • deposit sweep programs represent longterm contractual agreements several us brokerdealers sweep client cash fdicinsured deposits • deposits insured fdic december 2016 december 2015 approximately 6991 billion 5548 billion respectively table presents deposits held us nonus offices substantially us deposits held gs bank usa substantially nonus deposits held goldman sachs international bank gsib table presents maturities time deposits held us nonus offices december 2016 deposits us nonus offices include 205 billion 853 billion respectively time deposits greater 250000 firm’s savings demand deposits recorded based amount cash received plus accrued interest approximates fair value addition firm designates certain derivatives fair value hedges convert majority time deposits accounted fair value fixedrate obligations floatingrate obligations accordingly carrying value time deposits approximated fair value december 2016 december 2015 savings demand deposits time deposits carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 8 deposits included firm’s fair value hierarchy would classified level 2 december 2016 december 2015 note 15 shortterm borrowings table presents details firm’s shortterm borrowings see note 10 information secured financings unsecured shortterm borrowings include portion unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holder goldman sachs group inc subsidiaries notes consolidated financial statements firm accounts commercial paper certain hybrid financial instruments fair value fair value option see note 8 information unsecured shortterm borrowings accounted fair value carrying value unsecured shortterm borrowings recorded fair value generally approximates fair value due shortterm nature obligations unsecured shortterm borrowings carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 8 borrowings included firm’s fair value hierarchy substantially would classified level 2 december 2016 december 2015 table presents details firm’s unsecured shortterm borrowings table • current portion unsecured longterm borrowings includes 2153 billion 2411 billion december 2016 december 2015 respectively issued group inc • weighted average interest rates borrowings include effect hedging activities exclude financial instruments accounted fair value fair value option see note 7 information hedging activities note 16 longterm borrowings table presents details firm’s longterm borrowings see note 10 information secured financings table presents unsecured longterm borrowings extending 2056 consisting principally senior borrowings table • floating interest rates generally based libor ois equitylinked indexed instruments included floatingrate obligations • interest rates us dollardenominated debt ranged 160 1004 weighted average rate 457 160 1004 weighted average rate 489 december 2016 december 2015 respectively • interest rates nonus dollardenominated debt ranged 002 1300 weighted average rate 305 040 1300 weighted average rate 381 december 2016 december 2015 respectively table presents unsecured longterm borrowings maturity date table • unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holder excluded included unsecured shortterm borrowings goldman sachs group inc subsidiaries notes consolidated financial statements • unsecured longterm borrowings repayable prior maturity option firm reflected contractual maturity dates • unsecured longterm borrowings redeemable prior maturity option holder reflected earliest dates options become exercisable • unsecured longterm borrowings include 743 billion adjustments carrying value certain unsecured longterm borrowings resulting application hedge accounting year maturity follows 386 million 2018 295 million 2019 355 million 2020 586 million 2021 581 billion 2022 thereafter firm designates certain derivatives fair value hedges convert portion fixedrate unsecured longterm borrowings accounted fair value floatingrate obligations see note 7 information hedging activities table presents unsecured longterm borrowings giving effect hedging activities table weighted average interest rates aggregate amounts 287 390 related fixedrate obligations 197 related floatingrate obligations 273 433 related fixedrate obligations 184 related floatingrate obligations december 2016 december 2015 respectively rates exclude financial instruments accounted fair value fair value option december 2016 december 2015 carrying value unsecured longterm borrowings firm elect fair value option approximated fair value borrowings accounted fair value fair value option fair value accordance us gaap fair value included firm’s fair value hierarchy notes 6 8 borrowings included firm’s fair value hierarchy substantially would classified level 2 december 2016 december 2015 subordinated borrowings unsecured longterm borrowings include subordinated debt junior subordinated debt junior subordinated debt junior right payment subordinated borrowings junior senior borrowings december 2016 december 2015 subordinated debt maturities ranging 2018 2045 subordinated debt matures within one year financial statement date included “unsecured shortterm borrowings” table presents subordinated borrowings table • par amount carrying amount subordinated debt issued group inc 1484 billion 1739 billion respectively december 2016 1747 billion 2025 billion respectively december 2015 • rate weighted average interest rate borrowings including effect fair value hedges used convert fixedrate obligations floatingrate obligations see note 7 information hedging activities junior subordinated debt junior subordinated debt held trusts 2012 vesey street investment trust vesey street trust murray street investment trust murray street trust issued aggregate 225 billion senior guaranteed trust securities third parties proceeds used purchase junior subordinated debt issued group inc goldman sachs capital ii goldman sachs capital iii apex trusts apex trusts used proceeds purchase shares group inc’s perpetual noncumulative preferred stock series e series e preferred stock perpetual noncumulative preferred stock series f series f preferred stock senior guaranteed trust securities issued vesey street trust related junior subordinated debt matured third quarter 2016 december 2016 145 billion senior guaranteed trust securities issued murray street trust related junior subordinated debt pays interest semiannually fixed annual rate 4647 matures march 9 2017 outstanding goldman sachs group inc subsidiaries notes consolidated financial statements murray street trust required redeem senior guaranteed trust securities upon maturity junior subordinated debt holds firm right defer payments junior subordinated debt subject limitations deferral period firm permitted among things pay dividends make certain repurchases common preferred stock however group inc fully unconditionally guarantees payment distribution redemption amounts due senior basis senior guaranteed trust securities junior subordinated debt held murray street trust included “unsecured shortterm borrowings” classified subordinated borrowings apex trusts murray street trust delaware statutory trusts sponsored firm whollyowned finance subsidiaries firm regulatory legal purposes consolidated accounting purposes firm covenanted favor holders group inc’s 6345 junior subordinated debt due february 15 2034 subject certain exceptions firm redeem purchase capital securities issued apex trusts shares group inc’s series e series f preferred stock shares group inc’s series perpetual noncumulative preferred stock redemption purchase results less 253 million aggregate liquidation preference outstanding prior specified dates 2022 price exceeds maximum amount determined reference net cash proceeds firm received sale qualifying securities 2016 firm exchanged par amount 132 billion apex issued apex trusts corresponding redemption value series e series f preferred stock permitted covenants referenced junior subordinated debt issued connection trust preferred securities group inc issued 284 billion junior subordinated debt 2004 goldman sachs capital trust delaware statutory trust issued 275 billion guaranteed preferred beneficial interests trust preferred securities third parties 85 million common beneficial interests group inc used proceeds issuances purchase junior subordinated debt group inc 2014 first quarter 2015 firm purchased 143 billion par amount trust preferred securities delivered securities along 442 million common beneficial interests trust exchange corresponding par amount junior subordinated debt following exchanges trust preferred securities common beneficial interests junior subordinated debt extinguished subsequent extinguishments outstanding par amount junior subordinated debt held trust 136 billion outstanding par amount trust preferred securities common beneficial interests issued trust 132 billion 408 million respectively trust whollyowned finance subsidiary firm regulatory legal purposes consolidated accounting purposes firm pays interest semiannually junior subordinated debt annual rate 6345 debt matures february 15 2034 coupon rate payment dates applicable beneficial interests interest rate payment dates junior subordinated debt firm right time defer payment interest junior subordinated debt therefore cause payment trust’s preferred beneficial interests deferred case ten consecutive semiannual periods deferral period firm permitted among things pay dividends make certain repurchases common stock trust permitted pay distributions common beneficial interests held group inc unless dividends payable preferred beneficial interests paid full goldman sachs group inc subsidiaries notes consolidated financial statements note 17 liabilities accrued expenses table presents liabilities accrued expenses type table decrease accrued expenses december 2015 december 2016 reflects payments related settlement agreement residential mortgagebacked securities working group us financial fraud enforcement task force rmbs working group well sale liabilities previously classified held sale related certain firm’s consolidated investments note 18 commitments contingencies guarantees commitments table presents firm’s commitments type table presents firm’s commitments period expiration commitments extend credit firm’s commitments extend credit agreements lend fixed termination dates depend satisfaction contractual conditions borrowing commitments presented net amounts syndicated third parties total commitment amount necessarily reflect actual future cash flows firm may syndicate substantial additional portions commitments addition commitments expire unused reduced cancelled counterparty’s request december 2016 december 2015 9805 billion 9392 billion respectively firm’s lending commitments held investment accounted accrual basis see note 9 information commitments addition december 2016 december 2015 687 billion 992 billion respectively firm’s lending commitments held sale accounted lower cost fair value firm accounts remaining commitments extend credit fair value losses generally recorded net fees “other principal transactions” goldman sachs group inc subsidiaries notes consolidated financial statements commercial lending firm’s commercial lending commitments extended investmentgrade noninvestmentgrade corporate borrowers commitments investmentgrade corporate borrowers principally used operating liquidity general corporate purposes firm also extends lending commitments connection contingent acquisition financing types corporate lending well commercial real estate financing commitments extended contingent acquisition financing often intended shortterm nature borrowers often seek replace funding sources sumitomo mitsui financial group inc smfg provides firm credit loss protection certain approved loan commitments primarily investmentgrade commercial lending commitments notional amount loan commitments 2688 billion 2703 billion december 2016 december 2015 respectively credit loss protection loan commitments provided smfg generally limited 95 first loss firm realizes commitments maximum approximately 950 million addition subject satisfaction certain conditions upon firm’s request smfg provide protection 70 additional losses commitments maximum 113 billion 768 million protection provided december 2016 december 2015 firm also uses financial instruments mitigate credit risks related certain commitments covered smfg instruments primarily include credit default swaps reference similar underlying instrument entity credit default swaps reference market index warehouse financing firm provides financing clients warehouse financial assets arrangements secured warehoused assets primarily consisting consumer corporate loans contingent forward starting resale securities borrowing agreementsforward starting repurchase secured lending agreements firm enters resale securities borrowing agreements repurchase secured lending agreements settle future date generally within three business days firm also enters commitments provide contingent financing clients counterparties resale agreements firm’s funding commitments depends satisfaction contractual conditions resale agreement commitments expire unused letters credit firm commitments letters credit issued various banks firm provides counterparties lieu securities cash satisfy various collateral margin deposit requirements investment commitments firm’s investment commitments include commitments invest private equity real estate assets directly funds firm raises manages investment commitments include 210 billion 286 billion december 2016 december 2015 respectively related commitments invest funds managed firm commitments called would funded market value date investment leases firm contractual obligations longterm noncancelable lease agreements office space expiring various dates 2069 certain agreements subject periodic escalation provisions increases real estate taxes charges table presents future minimum rental payments net minimum sublease rentals rent charged operating expense 244 million 2016 249 million 2015 309 million 2014 operating leases include office space held excess current requirements rent expense relating space held growth included “occupancy” firm records liability based fair value remaining lease rentals reduced potential existing sublease rentals leases firm ceased using space management concluded firm derive future economic benefits costs terminate lease end term recognized measured fair value termination 2016 firm incurred exit costs approximately 68 million related excess office space goldman sachs group inc subsidiaries notes consolidated financial statements contingencies legal proceedings see note 27 information legal proceedings including certain mortgagerelated matters agreements firm entered toll statute limitations certain mortgagerelated contingencies multiple areas focus regulators governmental agencies others within mortgage market may impact originators issuers servicers investors remains significant uncertainty surrounding nature extent potential exposure participants market firm significant originator residential mortgage loans firm purchase loans originated others generally received loanlevel representations period 2005 2008 firm sold approximately 10 billion loans governmentsponsored enterprises approximately 11 billion loans third parties addition firm transferred 125 billion loans trusts mortgage securitization vehicles connection sales loans securitizations firm provided loanlevel representations andor assigned loanlevel representations party firm purchased loans firm’s exposure claims repurchase residential mortgage loans based alleged breaches representations depend number factors extent claims made within statute limitations taking consideration agreements toll statute limitations firm entered trustees representing certain trusts based upon large number defaults residential mortgages including sold securitized firm potential repurchase claims however firm position make meaningful estimate exposure time contingencies connection sale metro firm agreed provide indemnities buyer primarily relate fundamental representations warranties potential liabilities legal regulatory proceedings arising conduct metro’s business firm owned connection settlement agreement rmbs working group firm agreed provide 180 billion consumer relief form principal forgiveness underwater homeowners distressed borrowers financing construction rehabilitation preservation affordable housing support debt restructuring foreclosure prevention housing quality improvement programs well land banks guarantees table presents information certain derivatives meet definition guarantee securities lending indemnifications certain guarantees table • maximum payout based notional amount contract represent anticipated losses • amounts exclude certain commitments issue standby letters credit included “commitments extend credit” see tables “commitments” summary firm’s commitments goldman sachs group inc subsidiaries notes consolidated financial statements derivative guarantees firm enters various derivatives meet definition guarantee us gaap including written equity commodity put options written currency contracts interest rate caps floors swaptions derivatives risk managed together derivatives meet definition guarantee therefore amounts table reflect firm’s overall risk related derivative activities disclosures derivatives required may cash settled firm basis conclude probable counterparties held underlying instruments inception contract firm concluded conditions met certain large internationally active commercial investment bank counterparties central clearing counterparties certain counterparties accordingly firm included contracts table addition see note 7 information credit derivatives meet definition guarantee included table derivatives accounted fair value therefore carrying value considered best indication paymentperformance risk individual contracts however carrying values table exclude effect counterparty cash collateral netting securities lending indemnifications firm capacity agency lender indemnifies securities lending customers losses incurred event borrowers return securities collateral held insufficient cover market value securities borrowed collateral held lenders connection securities lending indemnifications 3433 billion 3285 billion december 2016 december 2015 respectively contractual nature arrangements requires firm obtain collateral market value exceeds value securities lent borrower minimal performance risk associated guarantees financial guarantees ordinary course business firm provides financial guarantees obligations third parties eg standby letters credit guarantees enable clients complete transactions fundrelated guarantees represent obligations make payments beneficiaries guaranteed party fails fulfill obligation contractual arrangement beneficiary guarantees securities issued trusts firm established trusts including goldman sachs capital apex trusts murray street trust entities limited purpose issuing securities third parties lending proceeds firm entering contractual arrangements firm third parties related purpose firm consolidate entities see note 16 information transactions involving goldman sachs capital apex trusts murray street trust firm effectively provides full unconditional guarantee securities issued entities timely payment firm amounts due entities guarantee borrowing preferred stock related contractual arrangements sufficient cover payments due securities issued entities management believes unlikely circumstances occur nonperformance part paying agents service providers would make necessary firm make payments related entities required terms guarantee borrowing preferred stock related contractual arrangements connection certain expenses incurred entities indemnities guarantees service providers ordinary course business firm indemnifies guarantees certain service providers clearing custody agents trustees administrators specified potential losses connection acting agent providing services firm affiliates firm may also liable clients parties losses arising custodial role caused acts omissions thirdparty service providers including subcustodians thirdparty brokers certain cases firm right seek indemnification thirdparty service providers certain relevant losses incurred firm addition firm member payment clearing settlement networks well securities exchanges around world may require firm meet obligations networks exchanges event member defaults loss scenarios goldman sachs group inc subsidiaries notes consolidated financial statements connection firm’s prime brokerage clearing businesses firm agrees clear settle behalf clients transactions entered brokerage firms firm’s obligations respect transactions secured assets client’s account well proceeds received transactions cleared settled firm behalf client connection joint venture investments firm may issue loan guarantees may liable event fraud misappropriation environmental liabilities certain matters involving borrower firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements material liabilities related guarantees indemnifications recognized consolidated statements financial condition december 2016 december 2015 representations warranties indemnifications firm provides representations warranties counterparties connection variety commercial transactions occasionally indemnifies potential losses caused breach representations warranties firm may also provide indemnifications protecting changes adverse application certain us tax laws connection ordinarycourse transactions securities issuances borrowings derivatives addition firm may provide indemnifications counterparties protect event additional taxes owed payments withheld due either change adverse application certain nonus tax laws indemnifications generally standard contractual terms entered ordinary course business generally stated notional amounts included indemnifications contingencies triggering obligation indemnify expected occur firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements material liabilities related arrangements recognized consolidated statements financial condition december 2016 december 2015 guarantees subsidiaries group inc fully unconditionally guarantees securities issued gs finance corp whollyowned finance subsidiary firm group inc guaranteed payment obligations goldman sachs co gsco gs bank usa subject certain exceptions addition group inc guarantees many obligations consolidated subsidiaries transactionbytransaction basis negotiated counterparties group inc unable develop estimate maximum payout subsidiary guarantees however guaranteed obligations also obligations consolidated subsidiaries group inc’s liabilities guarantor separately disclosed note 19 shareholders’ equity common equity dividends declared per common share 260 2016 255 2015 225 2014 january 17 2017 group inc declared dividend 065 per common share paid march 30 2017 common shareholders record march 2 2017 firm’s share repurchase program intended help maintain appropriate level common equity share repurchase program effected primarily regular openmarket purchases may include repurchase plans designed comply rule 10b51 amounts timing determined primarily firm’s current projected capital position may also influenced general market conditions prevailing price trading volumes firm’s common stock prior repurchasing common stock firm must receive confirmation federal reserve board object capital actions table presents amount common stock repurchased firm share repurchase program goldman sachs group inc subsidiaries notes consolidated financial statements pursuant terms certain sharebased compensation plans employees may remit shares firm may cancel rsus stock options satisfy minimum statutory employee tax withholding requirements exercise price stock options plans 2016 2015 2014 49374 shares 35217 shares 174489 shares remitted total value 7 million 6 million 31 million firm cancelled 61 million 57 million 58 million rsus total value 921 million 103 billion 974 million plans firm also cancelled 55 million 20 million 156 million stock options total value 111 billion 406 million 265 billion 2016 2015 2014 respectively preferred equity tables present details perpetual preferred stock issued outstanding december 2016 tables • shares par value 001 per share applicable share represented specified number depositary shares • earliest redemption date represents date share noncumulative preferred stock redeemable firm’s option • redemption price per share series f preferred stock liquidation preference plus declared unpaid dividends redemption price per share series preferred stock liquidation preference plus accrued unpaid dividends share noncumulative series e series f preferred stock issued outstanding redeemable firm’s option subject certain covenant restrictions governing firm’s ability redeem preferred stock without issuing common stock instruments equitylike characteristics see note 16 information replacement capital covenants applicable series e series f preferred stock • february 2016 group inc issued 27000 shares series n perpetual 630 noncumulative preferred stock series n preferred stock • july 2016 group inc issued 26000 shares series perpetual 530 fixedtofloating rate noncumulative preferred stock series preferred stock • prior redeeming preferred stock firm must receive confirmation federal reserve board object capital actions • series preferred stock pari passu preference firm’s common stock liquidation • dividends series preferred stock excluding series l series preferred stock declared payable quarterly arrears dividends series l series preferred stock declared payable semiannually arrears issuance date excluding may 10 2019 may 10 2020 november 10 2026 respectively quarterly thereafter • firm’s ability declare pay dividends purchase redeem otherwise acquire common stock subject certain restrictions event firm fails pay set aside full dividends preferred stock latest completed dividend period goldman sachs group inc subsidiaries notes consolidated financial statements 2016 firm delivered par amount 132 billion fair value 104 billion apex trusts exchange 9833 shares series e preferred stock 3385 shares series f preferred stock total redemption value 132 billion net carrying value 131 billion following exchange shares series e series f preferred stock cancelled difference fair value apex net carrying value preferred stock time cancellation 266 million 2016 recorded “preferred stock dividends” along preferred dividends declared firm’s preferred stock see note 16 information apex table presents dividend rates firm’s perpetual preferred stock december 2016 table presents preferred dividends declared firm’s preferred stock table total preferred dividend amounts series e series f preferred stock 2016 include prorated dividends 86667 per share related 4861 shares series e preferred stock 1639 shares series f preferred stock cancelled 2016 january 10 2017 group inc declared dividends 23958 38750 25556 37188 34375 39844 39375 per share series preferred stock series b preferred stock series c preferred stock series preferred stock series preferred stock series j preferred stock series k preferred stock series n preferred stock respectively paid february 10 2017 preferred shareholders record january 26 2017 addition firm declared dividends 100000 per share series e preferred stock series f preferred stock paid march 1 2017 preferred shareholders record february 14 2017 accumulated comprehensive loss table presents accumulated comprehensive loss net tax type table beginning balance accumulated comprehensive loss current period adjusted reflect impact reclassifying cumulative debt valuation adjustment net tax retained earnings accumulated comprehensive loss see note 3 information adoption asu 201601 see note 8 information debt valuation adjustment goldman sachs group inc subsidiaries notes consolidated financial statements note 20 regulation capital adequacy federal reserve board primary regulator group inc bank holding company bank holding company act 1956 bhc act financial holding company amendments bhc act bank holding company firm subject consolidated regulatory capital requirements calculated accordance revised riskbased capital leverage regulations federal reserve board subject certain transitional provisions revised capital framework riskbased capital requirements expressed capital ratios compare measures regulatory capital riskweighted assets rwas failure comply capital requirements could result restrictions imposed firm’s regulators firm’s capital levels also subject qualitative judgments regulators components capital risk weightings factors furthermore certain firm’s subsidiaries subject separate regulations capital requirements described capital framework regulations revised capital framework largely based basel committee banking supervision’s basel committee capital framework strengthening international capital standards basel iii also implement certain provisions doddfrank act revised capital framework firm “advanced approach” banking organization firm calculates common equity tier 1 cet1 tier 1 capital total capital ratios accordance standardized approach market risk rules set revised capital framework together standardized capital rules ii advanced approach market risk rules set revised capital framework together basel iii advanced rules lower ratio calculated ii ratio firm’s compliance minimum ratio requirements assessed ratios calculated accordance basel iii advanced rules lower calculated accordance standardized capital rules therefore basel iii advanced ratios applied firm december 2016 december 2015 capital ratios apply firm change future reporting periods result regulatory requirements regulatory capital ratios table presents minimum ratios required firm table • minimum ratios december 2016 reflect 25 phasein capital conservation buffer 0625 ii 25 phasein global systemically important bank gsib buffer 075 iii countercyclical capital buffer zero percent described • order meet quantitative requirements “wellcapitalized” federal reserve board’s regulations firm must meet higher required minimum total capital ratio 100 • tier 1 leverage ratio defined tier 1 capital divided quarterly average adjusted total assets includes adjustments goodwill identifiable intangible assets certain investments nonconsolidated financial institutions certain aspects revised capital framework’s requirements phase time transitional provisions include capital buffers certain deductions regulatory capital investments nonconsolidated financial institutions deductions regulatory capital required phased ratably per year 2014 2018 residual amounts deducted transitional period subject risk weighting addition junior subordinated debt issued trusts phased regulatory capital minimum cet1 tier 1 total capital ratios apply firm increase capital buffers phased capital conservation buffer consists entirely capital qualifies cet1 began phase january 1 2016 continue increments 0625 per year reaches 25 rwas january 1 2019 goldman sachs group inc subsidiaries notes consolidated financial statements gsib buffer extension capital conservation buffer phases ratably beginning january 1 2016 becoming fully effective january 1 2019 must consist entirely capital qualifies cet1 buffer must calculated using two methodologies higher reflected firm’s minimum riskbased capital ratios first calculation based upon basel committee’s methodology among factors relies upon measures size activity complexity gsib method one second calculation uses similar inputs includes measure reliance shortterm wholesale funding method two firm’s gsib buffer 30 using financial data primarily december 2014 buffer updated annually based financial data end prior year applicable following year revised capital framework also provides countercyclical capital buffer extension capital conservation buffer 25 consisting entirely cet1 intended counteract systemic vulnerabilities december 2016 federal reserve board set countercyclical capital buffer zero percent failure meet capital levels inclusive buffers could result limitations firm’s ability distribute capital including share repurchases dividend payments make certain discretionary compensation payments definition riskweighted assets rwas calculated accordance standardized capital rules basel iii advanced rules following comparison rwa calculations rules • rwas credit risk accordance standardized capital rules calculated different manner basel iii advanced rules primary difference standardized capital rules contemplate use internal models compute exposure credit risk derivatives securities financing transactions whereas basel iii advanced rules permit use models subject supervisory approval addition credit rwas calculated accordance standardized capital rules utilize prescribed riskweights depend largely type counterparty rather internal assessments creditworthiness counterparties • rwas market risk accordance standardized capital rules basel iii advanced rules generally consistent • rwas operational risk required standardized capital rules whereas basel iii advanced rules include requirement credit risk credit rwas calculated based upon measures exposure risk weighted following description calculation credit rwas accordance standardized capital rules basel iii advanced rules • credit rwas calculated accordance standardized capital rules firm utilizes prescribed riskweights depend largely type counterparty eg whether counterparty sovereign bank brokerdealer entity exposure measure derivatives based combination positive net current exposure percentage notional amount derivative exposure measure securities financing transactions calculated reflect adjustments potential price volatility size depends factors type maturity security whether denominated currency side financing transaction firm utilizes specific required formulaic approaches measure exposure securitizations equities • credit rwas calculated accordance basel iii advanced rules firm given permission regulators compute riskweights wholesale retail credit exposures accordance advanced internal ratingsbased approach based internal assessments creditworthiness counterparties key inputs probability default loss given default effective maturity firm utilizes internal models measure exposure derivatives securities financing transactions eligible margin loans revised capital framework requires bank holding company obtain prior written agreement regulators using internal models purposes firm utilizes specific required formulaic approaches measure exposure securitizations equities goldman sachs group inc subsidiaries notes consolidated financial statements market risk market rwas calculated based measures exposure include valueatrisk var stressed var incremental risk comprehensive risk based internal models standardized measurement method specific risk market risk regulatory capital rules require bank holding company obtain prior written agreement regulators using internal model calculate riskbased capital requirement following information regarding measures exposure market rwas calculated accordance standardized capital rules basel iii advanced rules • var potential loss value inventory positions well certain financial assets financial liabilities due adverse market movements defined time horizon specified confidence level risk management purposes regulatory capital calculations firm uses single var model captures risks including related interest rates equity prices currency rates commodity prices however var used regulatory capital requirements regulatory var differs risk management var due different time horizons confidence levels 10day 99 regulatory var vs oneday 95 risk management var well differences scope positions var calculated addition daily trading net revenues used determine risk management var exceptions ie comparing daily trading net revenues var measure calculated end prior business day include intraday activity whereas federal reserve board’s regulatory capital rules require intraday activity excluded daily trading net revenues calculating regulatory var exceptions intraday activity includes bidoffer net revenues likely positive nature result may differences number var exceptions amount daily trading net revenues calculated regulatory var compared amounts calculated risk management var firm’s positional losses observed single day exceeded 99 oneday regulatory var two occasions 2016 exceed 99 oneday regulatory var 2015 change var multiplier used calculate market rwas • stressed var potential loss value inventory positions well certain financial assets financial liabilities period significant market stress • incremental risk potential loss value nonsecuritized inventory positions due default credit migration issuers financial instruments oneyear time horizon • comprehensive risk potential loss value due price risk defaults within firm’s credit correlation positions • specific risk loss position could result factors broad market movements including event risk default risk idiosyncratic risk standardized measurement method used determine specific risk rwas applying supervisory defined riskweighting factors applicable netting performed operational risk operational rwas required included basel iii advanced rules firm given permission regulators calculate operational rwas accordance “advanced measurement approach” therefore utilizes internal riskbased model quantify operational rwas consolidated regulatory capital ratios capital ratios rwas ratios calculated accordance basel iii advanced rules lower calculated accordance standardized rules december 2016 december 2015 therefore lower ratios applied firm dates goldman sachs group inc subsidiaries notes consolidated financial statements table presents ratios calculated accordance standardized basel iii advanced rules table • deductions goodwill identifiable intangible assets net deferred tax liabilities include goodwill 367 billion 366 billion december 2016 december 2015 respectively identifiable intangible assets 257 million 60 429 million 196 million 40 491 million december 2016 december 2015 respectively net associated deferred tax liabilities 105 billion 104 billion december 2016 december 2015 respectively goodwill fully deducted cet1 deduction identifiable intangible assets required phased cet1 ratably five years 2014 2018 balance deducted transitional period risk weighted • deductions investments nonconsolidated financial institutions represent amount firm’s investments capital nonconsolidated financial institutions exceed certain prescribed thresholds deduction investments required phased cet1 ratably five years 2014 2018 december 2016 december 2015 cet1 reflects 60 40 deduction respectively balance deducted transitional period risk weighted • deduction investments covered funds represents firm’s aggregate investments applicable covered funds permitted volcker rule purchased december 2013 substantially investments covered funds purchased connection firm’s marketmaking activities deduction subject transition period see note 6 information volcker rule • adjustments within cet1 tier 1 capital primarily include accumulated comprehensive loss credit valuation adjustments derivative liabilities overfunded portion firm’s defined benefit pension plan obligation net associated deferred tax liabilities disallowed deferred tax assets required credit riskbased deductions items generally required phased cet1 ratably five years 2014 2018 december 2016 december 2015 cet1 reflects 60 40 deductions respectively balance deducted cet1 transitional period generally deducted tier 1 capital within adjustments goldman sachs group inc subsidiaries notes consolidated financial statements • december 2016 junior subordinated debt issued trusts fully phased tier 1 capital 60 included tier 2 capital 40 fully phased regulatory capital december 2015 junior subordinated debt issued trusts reflected tier 1 capital 25 tier 2 capital 75 junior subordinated debt issued trusts reduced amount trust preferred securities purchased firm fully phased tier 2 capital 2022 rate 10 per year see note 16 additional information firm’s junior subordinated debt issued trusts trust preferred securities purchased firm • qualifying subordinated debt subordinated debt issued group inc original maturity five years greater outstanding amount subordinated debt qualifying tier 2 capital reduced upon reaching remaining maturity five years see note 16 additional information firm’s subordinated debt tables present changes cet1 tier 1 capital tier 2 capital year ended december 2016 year ended december 2015 change deductions transitional provisions tables represent increased phasein deductions 40 60 effective january 1 2016 year ended december 2016 20 40 effective january 1 2015 year ended december 2015 goldman sachs group inc subsidiaries notes consolidated financial statements tables present components rwas calculated accordance standardized basel iii advanced rules tables • securities financing transactions represent resale repurchase agreements securities borrowed loaned transactions • primarily includes receivables assets cash equivalents table presents changes rwas calculated accordance standardized basel iii advanced rules year ended december 2016 increased deductions transitional provisions represent increased phasein deductions 40 60 effective january 1 2016 standardized credit rwas december 2016 decreased 871 billion compared december 2015 primarily reflecting decrease derivatives principally due reduced exposures decrease receivables included credit rwas reflecting impact firm client activity decrease partially offset increases commitments guarantees loans principally due increased lending activity equity investments principally due increased exposures impact market movements standardized market rwas december 2016 decreased 1873 billion compared december 2015 primarily reflecting decrease specific risk result reduced risk exposures basel iii advanced credit rwas december 2016 increased 601 billion compared december 2015 primarily reflecting increase commitments guarantees loans principally due increased lending activity increase equity investments principally due increased exposures impact market movements increases partially offset decrease derivatives principally due lower counterparty credit risk reduced exposure basel iii advanced market rwas december 2016 decreased 1851 billion compared december 2015 primarily reflecting decrease specific risk result reduced risk exposures basel iii advanced operational rwas december 2016 decreased 1550 billion compared december 2015 reflecting decrease frequency certain events incorporated within firm’s riskbased model goldman sachs group inc subsidiaries notes consolidated financial statements table presents changes rwas calculated accordance standardized basel iii advanced rules year ended december 2015 increased deductions transitional provisions represent increased phasein deductions 20 40 effective january 1 2015 standardized credit rwas december 2015 decreased 5258 billion compared december 2014 reflecting decreases derivatives securities financing transactions primarily due lower exposures decreases partially offset increase lending activity standardized market rwas december 2015 decreased 4253 billion compared december 2014 primarily due decreased specific risk result reduced risk exposures basel iii advanced credit rwas december 2015 increased 1614 billion compared december 2014 primarily reflecting increase lending activity increase partially offset decrease rwas related derivatives due lower counterparty credit risk basel iii advanced market rwas december 2015 decreased 4190 billion compared december 2014 primarily due decreased specific risk result reduced risk exposures basel iii advanced operational rwas december 2015 increased 3310 billion compared december 2014 substantially associated mortgagerelated legal matters regulatory proceedings see “definition riskweighted assets” description calculations credit rwas market rwas operational rwas including differences calculation credit rwas standardized capital rules basel iii advanced rules bank subsidiaries regulatory capital ratios gs bank usa fdicinsured new york statechartered bank member federal reserve system supervised regulated federal reserve board fdic new york state department financial services nydfs consumer financial protection bureau subject regulatory capital requirements calculated substantially manner applicable bank holding companies purposes assessing adequacy capital gs bank usa calculates capital ratios accordance riskbased capital leverage requirements applicable state member banks requirements based revised capital framework described gs bank usa advanced approach banking organization revised capital framework regulatory framework prompt corrective action applicable gs bank usa order meet quantitative requirements “wellcapitalized” depository institution gs bank usa must meet higher minimum requirements minimum ratios table presents minimum ratios “wellcapitalized” minimum ratios required gs bank usa gs bank usa compliance minimum capital requirements “wellcapitalized” minimum ratios december 2016 december 2015 table minimum ratios december 2016 reflect 25 phasein capital conservation buffer 0625 countercyclical capital buffer described 0 gs bank usa’s capital levels prompt corrective action classification also subject qualitative judgments regulators components capital risk weightings factors failure comply capital requirements including breach buffers discussed could result restrictions imposed gs bank usa’s regulators goldman sachs group inc subsidiaries notes consolidated financial statements similar firm gs bank usa required calculate cet1 tier 1 capital total capital ratios accordance standardized capital rules basel iii advanced rules lower ratio calculated accordance standardized capital rules basel iii advanced rules ratio gs bank usa’s compliance minimum ratio requirements assessed ratios calculated accordance standardized capital rules lower calculated accordance basel iii advanced rules therefore standardized capital ratios applied gs bank usa december 2016 december 2015 capital ratios apply gs bank usa change future reporting periods result regulatory requirements table presents ratios gs bank usa calculated accordance standardized basel iii advanced rules increase gs bank usa’s standardized advanced capital ratios december 2015 december 2016 primarily due increase common equity tier 1 capital principally due net earnings 2016 firm’s principal nonus bank subsidiary gsib whollyowned credit institution regulated prudential regulation authority pra financial conduct authority fca subject minimum capital requirements december 2016 december 2015 gsib compliance regulatory capital requirements brokerdealer subsidiaries us regulated brokerdealer subsidiaries gsco firm’s primary us regulated brokerdealer subsidiary subject regulatory capital requirements including imposed sec financial industry regulatory authority inc finra addition gsco registered futures commission merchant subject regulatory capital requirements imposed cftc chicago mercantile exchange national futures association rule 15c31 sec rule 117 cftc specify uniform minimum net capital requirements defined registrants also effectively require significant part registrants’ assets kept relatively liquid form gsco elected calculate minimum capital requirements accordance “alternative net capital requirement” permitted rule 15c31 december 2016 december 2015 gsco regulatory net capital defined rule 15c31 1717 billion 1475 billion respectively exceeded amount required 1466 billion 1237 billion respectively addition alternative minimum net capital requirements gsco also required hold tentative net capital excess 1 billion net capital excess 500 million accordance market credit risk standards appendix e rule 15c31 gsco also required notify sec event tentative net capital less 5 billion december 2016 december 2015 gsco tentative net capital net capital excess minimum notification requirements goldman sachs execution clearing lp gsec also one firm’s primary us regulated brokerdealer subsidiaries prior transferring substantially clearing business gsco 2016 december 2015 gsec regulatory net capital calculated accordance “alternative net capital requirement” permitted rule 15c31 171 billion exceeded amount required 159 billion goldman sachs group inc subsidiaries notes consolidated financial statements nonus regulated brokerdealer subsidiaries firm’s principal nonus regulated brokerdealer subsidiaries include goldman sachs international gsi goldman sachs japan co ltd gsjcl gsi firm’s uk brokerdealer regulated pra fca gsjcl firm’s japanese brokerdealer regulated japan’s financial services agency certain nonus subsidiaries firm also subject capital adequacy requirements promulgated authorities countries operate december 2016 december 2015 subsidiaries compliance local capital adequacy requirements restrictions payments group inc’s ability withdraw capital regulated subsidiaries limited minimum equity capital requirements applicable subsidiaries provisions applicable law regulations regulatory restrictions limit ability subsidiaries declare pay dividends without prior regulatory approval eg amount dividends may paid gs bank usa limited lesser amounts calculated recent earnings test undivided profits test even relevant subsidiary would satisfy equity capital requirements applicable giving effect dividend example federal reserve board fdic nydfs authority prohibit limit payment dividends banking organizations supervise including gs bank usa relevant regulator’s opinion payment dividend would constitute unsafe unsound practice light financial condition banking organization december 2016 december 2015 group inc required maintain 4649 billion 4809 billion respectively minimum equity capital regulated subsidiaries order satisfy regulatory requirements subsidiaries deposits gs bank usa insured fdic extent provided law federal reserve board requires gs bank usa maintain cash reserves federal reserve bank new york amount deposited gs bank usa held federal reserve bank new york 7424 billion 4936 billion december 2016 december 2015 respectively exceeded required reserve amounts 7409 billion 4925 billion december 2016 december 2015 respectively increase amount deposited gs bank usa held federal reserve bank new york december 2015 december 2016 primarily result acquisition ge capital bank’s online deposit platform april 2016 see note 14 information acquisition note 21 earnings per common share basic earnings per common share eps calculated dividing net earnings applicable common shareholders weighted average number common shares outstanding rsus future service required condition delivery underlying common stock collectively basic shares diluted eps includes determinants basic eps addition reflects dilutive effect common stock deliverable stock options rsus future service required condition delivery underlying common stock table presents computations basic diluted eps table unvested sharebased awards nonforfeitable rights dividends dividend equivalents treated separate class securities calculating eps impact applying methodology reduction basic eps 005 2016 2015 2014 diluted eps computations table include antidilutive rsus common shares underlying antidilutive stock options 28 million 2016 60 million 2015 2014 goldman sachs group inc subsidiaries notes consolidated financial statements note 22 transactions affiliated funds firm formed numerous nonconsolidated investment funds thirdparty investors firm generally acts investment manager funds entitled receive management fees certain cases advisory fees incentive fees funds additionally firm invests alongside thirdparty investors certain funds tables present fees earned affiliated funds fees receivable affiliated funds aggregate carrying value firm’s interests affiliated funds firm may periodically determine waive certain management fees selected money market funds management fees 104 million waived year ended december 2016 volcker rule restricts firm providing financial support covered funds defined rule expiration applicable conformance period general matter ordinary course business firm expect provide additional voluntary financial support covered funds may choose respect funds subject volcker rule however event support provided amount expected material december 2016 december 2015 firm outstanding guarantee permitted volcker rule behalf funds 300 million firm voluntarily provided guarantee connection financing agreement thirdparty lender executed one firm’s real estate funds covered volcker rule december 2016 december 2015 except noted firm provided additional financial support affiliated funds addition ordinary course business firm may also engage activities affiliated funds including among others securities lending trade execution market making custody acquisition bridge financing see note 18 firm’s investment commitments related funds note 23 interest income interest expense interest recorded life instrument accrual basis based contractual interest rates table presents firm’s sources interest income interest expense table • securities borrowed securities purchased agreements resell federal funds sold includes rebates paid interest income securities borrowed • interest income includes interest income customer debit balances interestearning assets • interest expense includes rebates received interestbearing liabilities interest expense customer credit balances goldman sachs group inc subsidiaries notes consolidated financial statements note 24 income taxes provision income taxes income taxes provided using asset liability method deferred tax assets liabilities recognized temporary differences financial reporting tax bases assets liabilities firm reports interest expense related income tax matters “provision taxes” income tax penalties “other expenses” tables present components provision taxes reconciliation us federal statutory income tax rate firm’s effective income tax rate table 2016 2015 state local current taxes includes impact settlements state local examinations table • nonus operations includes impact permanently reinvested earnings • state local taxes net us federal income tax effects 2016 2015 includes impact settlements state local examinations • substantially nondeductible legal expenses 2015 relate provisions settlement agreement rmbs working group deferred income taxes deferred income taxes reflect net tax effects temporary differences financial reporting tax bases assets liabilities temporary differences result taxable deductible amounts future years measured using tax rates laws effect differences expected reverse valuation allowances established reduce deferred tax assets amount likely realized primarily relate ability utilize losses various tax jurisdictions tax assets liabilities presented component “other assets” “other liabilities accrued expenses” respectively table presents significant components deferred tax assets liabilities excluding impact netting within tax jurisdictions firm recorded deferred tax assets 427 million 426 million december 2016 december 2015 respectively connection us federal state local foreign net operating loss carryforwards firm also recorded valuation allowance 67 million 24 million december 2016 december 2015 respectively related net operating loss carryforwards goldman sachs group inc subsidiaries notes consolidated financial statements december 2016 us federal state local net operating loss carryforwards 207 million 800 million respectively utilized us federal net operating loss carryforward state local net operating loss carryforward begin expire 2017 carryforwards expire material impact firm’s results operations december 2016 foreign net operating loss carryforwards 139 billion substantially expire firm foreign tax credit carryforwards related net deferred income tax assets december 2016 december 2015 firm capital loss carryforwards related net deferred income tax assets december 2016 december 2015 valuation allowance increased 42 million 2016 increased 9 million 2015 increases 2016 2015 primarily due increase deferred tax assets firm expect realize benefit firm permanently reinvests eligible earnings certain foreign subsidiaries accordingly accrue us income taxes would arise earnings repatriated december 2016 december 2015 policy resulted unrecognized net deferred tax liability 618 billion 566 billion respectively attributable reinvested earnings 3124 billion 2855 billion respectively unrecognized tax benefits firm recognizes tax positions consolidated financial statements likely position sustained examination relevant taxing authority based technical merits position meets standard measured largest amount benefit likely realized settlement liability established differences positions taken tax return amounts recognized consolidated financial statements accrued liability interest expense related income tax matters income tax penalties 141 million 101 million december 2016 december 2015 respectively firm recognized interest expense income tax penalties 27 million 17 million 45 million 2016 2015 2014 respectively reasonably possible unrecognized tax benefits could change significantly twelve months subsequent december 2016 due potential audit settlements however time possible estimate potential change table presents changes liability unrecognized tax benefits liability included “other liabilities accrued expenses” see note 17 information regulatory tax examinations firm subject examination us internal revenue service irs taxing authorities jurisdictions firm significant business operations united kingdom japan hong kong various states new york tax years examination vary jurisdiction firm expect completion audits material impact firm’s financial condition may material operating results particular period depending part operating results period table presents earliest tax years remain subject examination major jurisdiction second quarter 2016 joint committee taxation finalized review us federal examinations fiscal 2008 calendar 2010 completion review material impact firm’s effective income tax rate examinations 2011 2012 began 2013 firm accepted compliance assurance process program irs tax years 2013 2017 program allows firm work irs identify resolve potential us federal tax issues filing tax returns 2013 2015 tax years remain subject postfiling review goldman sachs group inc subsidiaries notes consolidated financial statements new york state city examinations firm excluding gs bank usa fiscal 2007 calendar 2010 ongoing new york state city examinations gs bank usa completed 2014 2016 firm concluded examinations japan tax authorities related 2010 2013 2016 firm concluded examinations hong kong tax authorities related 2006 completion examinations material impact firm’s effective income tax rate years including subsequent years table remain open examination taxing authorities firm believes liability unrecognized tax benefits established adequate relation potential additional assessments note 25 business segments firm reports activities following four business segments investment banking institutional client services investing lending investment management basis presentation reporting segments certain firm’s business lines aggregated similar economic characteristics similar following areas nature services provide ii methods distribution iii types clients serve iv regulatory environments operate cost drivers firm taken whole compensation headcount levels business activity broadly similar firm’s business segments compensation benefits expenses firm’s segments reflect among factors overall performance firm well performance individual businesses consequently pretax margins one segment firm’s business may significantly affected performance firm’s business segments firm allocates assets including allocations global core liquid assets cash secured client financing assets revenues expenses among four business segments due integrated nature segments estimates judgments made allocating certain assets revenues expenses allocation process based manner management currently views performance segments transactions segments based specific criteria approximate thirdparty rates table presents firm’s net revenues pretax earnings total assets segment management believes information provides reasonable representation segment’s contribution consolidated pretax earnings total assets goldman sachs group inc subsidiaries notes consolidated financial statements table • revenues expenses directly associated segment included determining pretax earnings • net revenues firm’s segments include allocations interest income interest expense specific securities commodities positions relation cash generated funding requirements underlying positions net interest included segment net revenues consistent way management assesses segment performance • overhead expenses directly allocable specific segments allocated ratably based direct segment expenses • operating expenses allocated firm’s segments except charitable contributions 114 million 2016 148 million 2015 137 million 2014 • total operating expenses includes net provisions litigation regulatory proceedings 396 million 2016 401 billion 337 billion related settlement agreement rmbs working group 2015 754 million 2014 table presents amounts net interest income segment included net revenues table presents amounts depreciation amortization expense segment included pretax earnings geographic information due highly integrated nature international financial markets firm manages businesses based profitability enterprise whole methodology allocating profitability geographic regions dependent estimates management judgment significant portion firm’s activities require crossborder coordination order facilitate needs firm’s clients geographic results generally allocated follows • investment banking location client investment banking team • institutional client services fixed income currency commodities client execution equities excluding securities services location marketmaking desk securities services location primary market underlying security • investing lending investing location investment lending location client • investment management location sales team table presents total net revenues pretax earnings net earnings firm geographic region allocated based methodology referred well percentage total net revenues pretax earnings net earnings excluding corporate geographic region table asia includes australia new zealand goldman sachs group inc subsidiaries notes consolidated financial statements table • americas pretax earnings includes provisions 337 billion recorded 2015 settlement agreement rmbs working group • corporate pretax earnings includes charitable contributions allocated firm’s geographic regions • substantially amounts americas attributable us note 26 credit concentrations credit concentrations may arise market making client facilitation investing underwriting lending collateralized transactions may impacted changes economic industry political factors firm seeks mitigate credit risk actively monitoring exposures obtaining collateral counterparties deemed appropriate firm’s activities expose many different industries counterparties firm routinely executes high volume transactions asset managers investment funds commercial banks brokers dealers clearing houses exchanges results significant credit concentrations ordinary course business firm may also subject concentration credit risk particular counterparty borrower issuer including sovereign issuers particular clearing house exchange table presents credit concentrations cash instruments held firm amounts table included “financial instruments owned fair value” december 2016 december 2015 firm credit exposure counterparty exceeded 2 total assets reduce credit exposures firm may enter agreements counterparties permit firm offset receivables payables counterparties andor enable firm obtain collateral upfront contingent basis collateral obtained firm related derivative assets principally cash held firm thirdparty custodian collateral obtained firm related resale agreements securities borrowed transactions primarily us government federal agency obligations nonus government agency obligations see note 10 information collateralized agreements financings table presents us government federal agency obligations nonus government agency obligations collateralize resale agreements securities borrowed transactions firm’s primary credit exposure transactions counterparty transaction firm would exposed collateral issuer event counterparty default table nonus government agency obligations primarily consists securities issued governments france uk japan germany goldman sachs group inc subsidiaries notes consolidated financial statements note 27 legal proceedings firm involved number judicial regulatory arbitration proceedings including described concerning matters arising connection conduct firm’s businesses many proceedings early stages many cases seek indeterminate amount damages asc 450 event “reasonably possible” “the chance future event events occurring remote less likely” event “remote” “the chance future event events occurring slight” thus references upper end range reasonably possible loss cases firm able estimate range reasonably possible loss mean upper end range loss cases firm believes risk loss slight respect matters described management able estimate range reasonably possible loss actual potential plaintiffs claimed amount money damages ii firm threatened sued purchasers securities offering indemnified party firm believes pay full amount judgment iii purchasers demanding firm repurchase securities management estimated upper end range reasonably possible loss equal case amount money damages claimed b case ii difference initial sales price securities firm sold offering estimated lowest subsequent price securities prior action commenced c case iii price purchasers paid securities less estimated value december 2016 relevant securities cases ii iii taking account factors believed relevant particular matter matters type date hereof firm estimated upper end range reasonably possible aggregate loss matters described management able estimate range reasonably possible aggregate loss approximately 18 billion excess aggregate reserves matters management generally unable estimate range reasonably possible loss matters included estimate including actual potential plaintiffs claimed amount money damages except instances management otherwise determine appropriate amount ii matters early stages iii matters relate regulatory investigations reviews except instances management otherwise determine appropriate amount iv uncertainty likelihood class certified ultimate size class v uncertainty outcome pending appeals motions vi significant factual issues resolved andor vii novel legal issues presented example firm’s potential liabilities respect future mortgagerelated “putback” claims described may ultimately result increase firm’s liabilities included management’s estimate reasonably possible loss another example firm’s potential liabilities respect investigations reviews described “regulatory investigations reviews related litigation” also generally included management’s estimate reasonably possible loss however management believe based currently available information outcomes matters material adverse effect firm’s financial condition though outcomes could material firm’s operating results particular period depending part upon operating results period see note 18 information mortgagerelated contingencies goldman sachs group inc subsidiaries notes consolidated financial statements mortgagerelated matters beginning april 2010 number purported securities law class actions filed us district court southern district new york challenging adequacy group inc’s public disclosure among things firm’s activities cdo market firm’s conflict interest management sec investigation led gsco entering consent agreement sec settling claims made gsco sec connection abacus 2007ac1 cdo offering abacus 2007ac1 transaction pursuant gsco paid 550 million disgorgement civil penalties consolidated amended complaint filed july 25 2011 names defendants group inc certain officers employees group inc affiliates generally alleges violations sections 10b 20a exchange act seeks unspecified damages june 21 2012 district court dismissed claims based group inc’s disclosing received “wells” notice staff sec related abacus 2007ac1 transaction permitted plaintiffs’ claims proceed district court granted class certification september 24 2015 appellate court granted defendants’ petition review january 26 2016 february 1 2016 district court stayed proceedings district court pending appellate court’s decision june 2012 board received demand shareholder board investigate take action relating firm’s mortgagerelated activities stock sales certain directors executives firm february 15 2013 shareholder filed putative shareholder derivative action new york supreme court new york county group inc certain current former directors employees based activities stock sales derivative complaint includes allegations breach fiduciary duty unjust enrichment abuse control gross mismanagement corporate waste seeks among things unspecified monetary damages disgorgement profits certain corporate governance disclosure reforms may 28 2013 group inc informed shareholder board completed investigation determined refuse demand june 20 2013 shareholder made books records demand requesting materials relating board’s determination parties agreed stay proceedings putative derivative action pending resolution books records demand addition board received books records demands several shareholders materials relating among subjects firm’s mortgage servicing foreclosure activities participation federal programs providing assistance financial institutions homeowners loan sales fannie mae freddie mac mortgagerelated activities conflicts management various alleged purchasers mortgage passthrough certificates mortgagerelated products including massachusetts mutual life insurance company fdic receiver guaranty bank filed complaints state federal court firm affiliates generally alleging offering documents securities purchased contained untrue statements material fact material omissions generally seeking rescission andor damages certain complaints allege fraud seek punitive damages certain complaints also name firms defendants date hereof aggregate amount mortgagerelated securities sold plaintiffs active cases described preceding paragraph plaintiffs seeking rescission securities approximately 261 million reflect adjustment subsequent paydowns distributions residual value securities statutory interest adjustments may claimed amount include potential claims purchasers mortgagerelated offerings described claims dismissed firm entered agreements deutsche bank national trust company us bank national association toll relevant statute limitations respect claims repurchase residential mortgage loans based alleged breaches representations related 111 billion original notional face amount securitizations issued trusts act trustees firm received subpoenas requests information engaged discussions certain regulators law enforcement agencies entered settlement agreements part inquiries investigations relating mortgagerelated matters goldman sachs group inc subsidiaries notes consolidated financial statements gt advanced technologies securities litigation gsco among underwriters named defendants several putative securities class actions filed october 2014 us district court district new hampshire addition underwriters defendants include certain directors officers gt advanced technologies inc gt underwriters complaints generally allege misstatements omissions connection december 2013 offerings gt approximately 86 million common stock 214 million principal amount convertible senior notes assert claims federal securities laws seek compensatory damages unspecified amount rescission july 20 2015 plaintiffs filed consolidated amended complaint october 7 2015 defendants moved dismiss gsco underwrote 3479769 shares common stock 75 million principal amount notes aggregate offering price approximately 105 million october 6 2014 gt filed chapter 11 bankruptcy sunedison bankruptcy litigation gs bank usa among defendants named adversary proceeding filed october 20 2016 us bankruptcy court southern district new york arising bankruptcy sunedison complaint alleges amounts transferred liens granted sunedison secured creditors including gs bank usa prior filing bankruptcy fraudulent preferential transfers plaintiffs seek recoup transfers avoid liens disallow certain claims secured creditors gs bank usa received prefiling payments sunedison aggregating 169 million subject recoupment claims holds 75 million secured debt subject avoidance disallowance claims defendants moved dismiss november 22 2016 currenciesrelated litigation gsco group inc among defendants named putative class action filed us district court southern district new york september 26 2016 behalf putative indirect purchasers foreign exchange instruments complaint generally alleges defendants violated federal antitrust laws connection alleged conspiracy manipulate foreign currency exchange markets asserts claims federal state antitrust laws seeks injunctive relief well treble damages unspecified amount defendants moved dismiss january 23 2017 group inc gsco gs canada among defendants named putative class actions related trading foreign exchange markets filed beginning september 2015 superior court justice ontario canada superior court quebec canada behalf direct indirect purchasers foreign exchange instruments traded canada complaints generally allege conspiracy manipulate foreign currency exchange markets assert claims canada’s competition act common law ontario quebec complaints seek among things compensatory damages amounts 1 billion canadian dollars 100 million canadian dollars respectively well restitution 50 million canadian dollars punitive exemplary aggravated damages december 2016 courts preliminarily approved settlement claims goldman sachs defendants firm paid full amount proposed settlement trust pending final settlement approval financial advisory services group inc certain affiliates time parties various civil litigation arbitration proceedings disputes clients third parties relating firm’s financial advisory activities claims generally seek among things compensatory damages cases punitive damages certain cases allege firm appropriately disclose deal conflicts interest goldman sachs group inc subsidiaries notes consolidated financial statements cobalt international energy securities litigation cobalt international energy inc cobalt certain officers directors including employees affiliates group inc served directors cobalt affiliates shareholders cobalt including group inc underwriters including gsco certain offerings cobalt’s securities defendants putative securities class action filed november 30 2014 us district court southern district texas consolidated amended complaint filed may 1 2015 asserts claims federal securities laws seeks compensatory rescissory damages unspecified amounts alleges material misstatements omissions concerning cobalt connection 167 billion february 2012 offering cobalt common stock 138 billion december 2012 offering cobalt’s convertible notes 100 billion january 2013 offering cobalt’s common stock 133 billion may 2013 offering cobalt’s common stock 130 billion may 2014 offering cobalt’s convertible notes consolidated amended complaint alleges among others group inc gsco liable controlling persons respect five offerings consolidated amended complaint also seeks damages gsco connection acting underwriter 14430000 shares common stock representing aggregate offering price approximately 465 million 690 million principal amount convertible notes approximately 508 million principal amount convertible notes february 2012 december 2012 may 2014 offerings respectively aggregate offering price approximately 166 billion january 19 2016 court granted leave replead underwriter defendants’ motions dismiss claims plaintiffs purchased cobalt securities april 30 2013 denied motions dismiss respects november 3 2016 plaintiffs moved class certification cobalt certain officers directors including employees affiliates group inc served directors cobalt certain shareholders cobalt including funds affiliated group inc affiliates shareholders including group inc defendants putative shareholder derivative actions filed beginning may 6 2016 texas district court harris county director officer defendants including employees affiliates group inc served directors cobalt petitions generally allege breached fiduciary duties state law making materially false misleading statements concerning cobalt shareholder defendants affiliates including group inc several affiliated funds original petition also alleges breached fiduciary duties selling cobalt securities common stock offerings described basis inside information petitions seek among things unspecified monetary damages disgorgement proceeds sale cobalt common stock defendants moved dismiss original petition july 8 2016 adeptus health securities litigation gsco among underwriters named defendants several putative securities class actions filed beginning october 2016 us district court eastern district texas addition underwriters defendants include adeptus health inc adeptus sponsor certain directors officers adeptus underwriters complaints generally allege misstatements omissions connection 124 million june 2014 initial public offering 154 million may 2015 secondary equity offering 411 million july 2015 secondary equity offering 175 million june 2016 secondary equity offering complaints assert claims federal securities laws seek among things unspecified monetary damages gsco underwrote 169 million shares common stock june 2014 initial public offering representing aggregate offering price approximately 37 million 962378 shares common stock may 2015 offering representing aggregate offering price approximately 61 million 176 million shares common stock july 2015 offering representing aggregate offering price approximately 184 million shares common stock june 2016 offering representing aggregate offering price approximately 175 million goldman sachs group inc subsidiaries notes consolidated financial statements investment management services group inc certain affiliates parties various civil litigation arbitration proceedings disputes clients relating losses allegedly sustained result firm’s investment management services claims generally seek among things restitution compensatory damages cases punitive damages terraform global sunedison securities litigation gsco among underwriters placement agents initial purchasers named defendants several putative class actions individual actions filed beginning october 2015 relating 675 million july 2015 initial public offering common stock terraform global inc terraform global august 2015 public offering 650 million sunedison inc sunedison convertible preferred stock june 2015 private placement 335 million terraform global class units august 2015 rule 144a offering 810 million principal amount terraform global senior notes sunedison terraform global’s controlling shareholder sponsor beginning october 2016 pending cases transferred us district court southern district new york january 16 2017 certain plaintiffs filed consolidated amended complaint relating terraform global’s initial public offering defendants also include terraform global sunedison certain directors officers complaints generally allege misstatements omissions connection offerings assert claims federal securities laws certain actions state laws seek compensatory damages unspecified amount well rescission rescissory damages terraform global sold 154800 class units representing aggregate offering price approximately 155 million individual plaintiffs gsco underwriter sold 138890 shares sunedison convertible preferred stock offering representing aggregate offering price approximately 139 million sold 2340000 shares terraform global common stock initial public offering representing aggregate offering price approximately 35 million gsco initial purchaser sold approximately 49 million principal amount terraform global senior notes rule 144a offering april 21 2016 sunedison filed chapter 11 bankruptcy valeant pharmaceuticals international securities litigation gsco goldman sachs canada inc gs canada among underwriters initial purchasers named defendants putative class action filed march 2 2016 superior court quebec canada addition underwriters initial purchasers defendants include valeant pharmaceuticals international inc valeant certain directors officers valeant’s auditor gsco gs canada complaint generally alleges misstatements omissions connection offering materials june 2013 public offering 23 billion common stock june 2013 rule 144a offering 32 billion principal amount senior notes november 2013 rule 144a offering 900 million principal amount senior notes complaint asserts claims quebec securities act civil code quebec seeks compensatory damages unspecified amount gsco among initial purchasers named defendants putative class action filed june 24 2016 us district court district new jersey addition initial purchasers valeant’s rule 144a debt offerings defendants include valeant certain directors officers valeant’s auditor underwriters common stock offering gsco participate gsco complaint generally alleges misstatements omissions connection june 2013 november 2013 rule 144a offerings described asserts claims federal securities laws seeks rescission compensatory damages unspecified amount defendants moved dismiss september 13 2016 gsco gs canada sole underwriters sold 27058824 shares common stock june 2013 offering representing aggregate offering price approximately 23 billion initial purchasers sold approximately 13 billion 293 million principal amount senior notes june 2013 november 2013 rule 144a offerings respectively goldman sachs group inc subsidiaries notes consolidated financial statements interest rate swap antitrust litigation group inc gsco gsi gs bank usa goldman sachs financial markets lp gsfm among defendants named putative antitrust class actions relating trading interest rate swaps filed beginning november 2015 consolidated us district court southern district new york second consolidated amended complaint filed december 9 2016 generally alleges conspiracy among defendants since least january 1 2007 preclude exchange trading interest rate swaps complaint seeks declaratory injunctive relief well treble damages unspecified amount defendants moved dismiss january 20 2017 group inc gsco gsi gs bank usa gsfm among defendants named antitrust actions relating trading interest rate swaps filed us district court southern district new york beginning april 2016 two operators swap execution facilities certain affiliates actions consolidated class action described pretrial proceedings second consolidated amended complaint filed december 9 2016 generally asserts claims federal state antitrust laws state common law connection alleged conspiracy among defendants preclude trading interest rate swaps plaintiffs’ respective swap execution facilities seeks declaratory injunctive relief well treble damages unspecified amount defendants moved dismiss january 20 2017 commoditiesrelated litigation gsi among defendants named putative class actions relating trading platinum palladium filed beginning november 25 2014 recently amended july 27 2015 us district court southern district new york complaints generally allege defendants violated federal antitrust laws commodity exchange act connection alleged conspiracy manipulate benchmark physical platinum palladium prices seek declaratory injunctive relief well treble damages unspecified amount september 21 2015 defendants moved dismiss employmentrelated matters september 15 2010 putative class action filed us district court southern district new york three female former employees alleging group inc gsco systematically discriminated female employees respect compensation promotion assignments mentoring performance evaluations complaint alleges class consisting female employees employed specified levels specified areas group inc gsco since july 2002 asserts claims federal new york city discrimination laws complaint seeks class action status injunctive relief unspecified amounts compensatory punitive damages july 17 2012 district court issued decision granting part group inc’s gsco’s motion strike certain plaintiffs’ class allegations ground plaintiffs lacked standing pursue certain equitable remedies denying group inc’s gsco’s motion strike plaintiffs’ class allegations entirety premature march 21 2013 us court appeals second circuit held arbitration compelled one named plaintiffs managing director party arbitration agreement firm march 10 2015 magistrate judge district judge assigned remaining plaintiffs’ may 2014 motion class certification recommended motion denied respects august 3 2015 magistrate judge denied plaintiffs’ motion reconsideration recommendation granted plaintiffs’ motion intervene two female individuals one employed firm september 2010 ceased employee firm subsequent magistrate judge’s decision june 6 2016 district court affirmed magistrate judge’s decision intervention september 28 2015 supplemental motion filed july 11 2016 second intervenor ceased employee defendants moved dismiss claims intervenors lack standing mootness us treasury securitiesrelated litigation gsco among primary dealers named defendants several putative class actions relating market us treasury securities filed beginning july 2015 consolidated us district court southern district new york complaints generally allege defendants violated federal antitrust laws commodity exchange act connection alleged conspiracy manipulate whenissued market auctions us treasury securities well related futures options seek declaratory injunctive relief treble damages unspecified amount restitution goldman sachs group inc subsidiaries notes consolidated financial statements isdafixrelated litigation group inc among defendants named several putative class actions relating trading interest rate derivatives filed beginning september 2014 recently amended february 12 2015 us district court southern district new york plaintiffs assert claims federal antitrust laws state common law connection alleged conspiracy manipulate isdafix benchmarks seek declaratory injunctive relief well treble damages unspecified amount december 19 2016 court preliminarily approved settlement claims group inc firm paid full amount proposed settlement escrow fund regulatory investigations reviews related litigation group inc certain affiliates subject number investigations reviews cases received subpoenas requests documents information various governmental regulatory bodies selfregulatory organizations litigation shareholder requests relating various matters relating firm’s businesses operations including • 2008 financial crisis • public offering process • firm’s investment management financial advisory services • conflicts interest • research practices including research independence interactions research analysts firm personnel including investment banking personnel well third parties • transactions involving governmentrelated financings matters including related 1malaysia development berhad 1mdb sovereign wealth fund malaysia municipal securities including wallcross procedures conflict interest disclosure respect state municipal clients trading structuring municipal derivative instruments connection municipal offerings political contribution rules municipal advisory services possible impact credit default swap transactions municipal issuers • offering auction sales trading clearance corporate government securities currencies commodities financial products related sales communications activities including compliance sec’s short sale rule algorithmic highfrequency quantitative trading firm’s us alternative trading system dark pool futures trading options trading whenissued trading transaction reporting technology systems controls securities lending practices trading clearance credit derivative instruments interest rate swaps commodities activities metals storage private placement practices allocations trading securities trading activities communications connection establishment benchmark rates currency rates • compliance us foreign corrupt practices act • firm’s hiring compensation practices • firm’s system risk management controls • insider trading potential misuse dissemination material nonpublic information regarding corporate governmental developments effectiveness firm’s insider trading controls information barriers firm cooperating governmental regulatory investigations reviews note 28 employee benefit plans firm sponsors various pension plans certain postretirement benefit plans primarily healthcare life insurance firm also provides certain benefits former inactive employees prior retirement defined benefit pension plans postretirement plans employees certain nonus subsidiaries participate various defined benefit pension plans generally provide benefits based years credited service percentage employee’s eligible compensation firm maintains defined benefit pension plan certain uk employees april 2008 uk defined benefit plan closed new participants frozen existing participants march 31 2016 nonus plans material impact firm’s consolidated results operations goldman sachs group inc subsidiaries notes consolidated financial statements firm also maintains defined benefit pension plan substantially us employees hired prior november 1 2003 november 2004 plan closed new participants frozen existing participants addition firm maintains unfunded postretirement benefit plans provide medical life insurance eligible retirees dependents covered programs plans material impact firm’s consolidated results operations firm recognizes funded status defined benefit pension postretirement plans measured difference fair value plan assets benefit obligation consolidated statements financial condition december 2016 “other assets” “other liabilities accrued expenses” included 72 million related overfunded pension plans 592 million respectively related plans december 2015 “other assets” “other liabilities accrued expenses” included 329 million related overfunded pension plans 561 million respectively related plans defined contribution plans firm contributes employersponsored us nonus defined contribution plans firm’s contribution plans 236 million 2016 231 million 2015 223 million 2014 note 29 employee incentive plans cost employee services received exchange sharebased award generally measured based grantdate fair value award sharebased awards require future service ie vested awards including awards granted retirementeligible employees expensed immediately sharebased awards require future service amortized relevant service period expected forfeitures included determining sharebased employee compensation expense see note 3 information adoption asu 201609 firm pays cash dividend equivalents outstanding rsus dividend equivalents paid rsus generally charged retained earnings dividend equivalents paid rsus expected forfeited included compensation expense firm accounts tax benefit related dividend equivalents paid rsus increase additional paidin capital firm generally issues new shares common stock upon delivery sharebased awards certain cases primarily related conflicted employment outlined applicable award agreements firm may cash settle sharebased compensation awards accounted equity instruments awards whose terms allow cash settlement additional paidin capital adjusted extent difference value award time cash settlement grantdate value award stock incentive plan firm sponsors stock incentive plan goldman sachs amended restated stock incentive plan 2015 sip provides grants rsus restricted stock dividend equivalent rights incentive stock options nonqualified stock options stock appreciation rights sharebased awards may subject performance conditions may 21 2015 shareholders approved 2015 sip 2015 sip replaced goldman sachs amended restated stock incentive plan 2013 sip previously effect applies awards granted date approval december 2016 730 million shares available grant 2015 sip shares common stock underlying awards granted 2015 sip 2013 sip delivered due forfeiture termination cancellation surrendered withheld shares become available delivered 2015 sip shares available grant also subject adjustment certain changes corporate structure permitted 2015 sip 2015 sip scheduled terminate date annual meeting shareholders occurs 2019 restricted stock units firm grants rsus employees 2015 sip valued based closing price underlying shares date grant taking account liquidity discount applicable postvesting delivery transfer restrictions rsus generally vest underlying shares common stock deliver outlined applicable award agreements employee award agreements generally provide vesting accelerated certain circumstances retirement death disability conflicted employment delivery underlying shares common stock conditioned grantees satisfying certain vesting requirements outlined award agreements goldman sachs group inc subsidiaries notes consolidated financial statements table presents activity related rsus table • weighted average grantdate fair value rsus granted 2016 2015 2014 13592 16019 15140 respectively fair value rsus granted 2016 2015 2014 includes liquidity discount 105 92 138 respectively reflect postvesting delivery transfer restrictions 4 years • aggregate fair value awards vested 2016 2015 2014 226 billion 240 billion 239 billion respectively • delivered rsus include rsus cash settled • rsus outstanding include restricted stock subject future service requirements december 2016 december 2015 39957 6354 shares respectively first quarter 2017 firm granted employees 84 million yearend rsus 32 million rsus require future service condition delivery related shares common stock awards subject additional conditions outlined award agreements generally shares underlying awards net required withholding tax deliver threeyear period subject postvesting delivery transfer restrictions january 2022 grants included table stock options stock options generally vest outlined applicable stock option agreement general options expire tenth anniversary grant date although may subject earlier termination cancellation certain circumstances accordance terms applicable stock option agreement sip effect time grant table presents activity related outstanding stock options granted 2006 2008 table • total intrinsic value options exercised 2016 2015 2014 436 million 531 million 203 billion respectively • options outstanding december 2016 consist 513 million options exercise price 7878 remaining life 200 years 283 million options exercise price 20416 remaining life 092 years table presents sharebased compensation related excess tax benefit table excess net tax benefit sharebased awards represents net tax benefit recognized additional paidin capital stock options exercised delivery common stock underlying sharebased awards dividend equivalents paid rsus following adoption asu 201609 amounts recognized prospectively income tax expense see note 3 information asu december 2016 381 million total unrecognized compensation cost related nonvested sharebased compensation arrangements cost expected recognized weighted average period 150 years goldman sachs group inc subsidiaries notes consolidated financial statements note 30 parent company group inc condensed statements earnings supplemental disclosure dividends nonbank subsidiaries include cash dividends 346 billion 229 billion 262 billion 2016 2015 2014 respectively group inc condensed statements financial condition supplemental disclosures loans receivables nonbank subsidiaries primarily includes overnight loans proceeds used satisfy shortterm obligations group inc december 2016 unsecured longterm borrowings subsidiaries maturity date 383 billion 2018 90 million 2019 100 million 2020 132 million 2021 108 billion 2022thereafter goldman sachs group inc subsidiaries notes consolidated financial statements group inc condensed statements cash flows supplemental disclosures cash payments thirdparty interest net capitalized interest 472 billion 354 billion 431 billion 2016 2015 2014 respectively cash payments income taxes net refunds 61 million 128 billion 235 billion 2016 2015 2014 respectively cash flows related common stock repurchased includes common stock repurchased prior period settlement occurred current period excludes common stock repurchased current period settlement occurred following period noncash activities year ended december 2016 • group inc exchanged 104 billion apex 131 billion series e series f preferred stock see note 19 information • group inc exchanged 127 million senior guaranteed trust securities 124 million group inc’s junior subordinated debt noncash activities year ended december 2015 • group inc exchanged 262 million trust preferred securities common beneficial interests held group inc 296 million group inc’s junior subordinated debt • group inc exchanged 612 billion financial instruments owned fair value held group inc 520 billion loans 918 million equity certain subsidiaries noncash activities year ended december 2014 • group inc exchanged 158 billion trust preferred securities common beneficial interests senior guaranteed trust securities held group inc 187 billion group inc’s junior subordinated debt goldman sachs group inc subsidiaries supplemental financial information quarterly results unaudited tables present firm’s unaudited quarterly results 2016 2015 quarterly results prepared accordance us gaap reflect adjustments opinion management necessary fair statement results adjustments normal recurring nature timing magnitude changes firm’s discretionary compensation accruals included operating expenses significant effect results given quarter common stock price range table presents high low sales prices per share firm’s common stock february 10 2017 8177 holders record firm’s common stock february 10 2017 last reported sales price firm’s common stock new york stock exchange 24272 per share common stock performance graph table compare performance investment firm’s common stock december 31 2011 last trading day firm’s 2012 fiscal year december 31 2016 sp 500 index sp 500 financials index graph table assume 100 invested december 31 2011 firm’s common stock sp 500 index sp 500 financials index dividends reinvested date payment without payment commissions performance shown represents past performance considered indication future performance goldman sachs group inc subsidiaries supplemental financial information selected financial data table • impact adopting asu 201503 reduction total assets total liabilities 398 million 383 million 350 million december 2014 december 2013 december 2012 respectively see note 3 consolidated financial statements information asu 201503 • basic shares represent common shares outstanding restricted stock units granted employees future service requirements statistical disclosures distribution assets liabilities shareholders’ equity tables present summary average balances interest rates assets liabilities interest classified us nonus based location legal entity assets liabilities held goldman sachs group inc subsidiaries supplemental financial information goldman sachs group inc subsidiaries supplemental financial information tables • derivative instruments commodities included noninterestearning assets noninterestbearing liabilities • total interestearning assets primarily consists certain receivables customers counterparties • substantially total interestbearing liabilities consists certain payables customers counterparties • interest rates borrowings include effects interest rate swaps accounted hedges • impact adopting asu 201503 reduction average total assets average total liabilities 402 million year ended december 2014 see note 3 consolidated financial statements information asu • december 2016 firm reclassified amounts related cash securities segregated regulatory purposes previously included total interestearning assets total deposits banks total securities borrowed securities purchased agreements resell federal funds sold total financial instruments owned fair value firm also reclassified amounts related cash segregated regulatory purposes previously included noninterestearnings assets cash due banks previously reported amounts conformed current presentation see note 3 consolidated financial statements information reclassification changes net interest income volume rate analysis tables present analysis effect net interest income volume rate changes analysis changes due volumerate variance allocated volume goldman sachs group inc subsidiaries supplemental financial information deposits table presents summary firm’s interestbearing deposits december 2016 deposits us nonus offices include 256 billion 853 billion respectively time deposits greater 100000 table presents maturities time deposits held us offices goldman sachs group inc subsidiaries supplemental financial information shortterm borrowed funds table presents summary firm’s securities loaned securities sold agreements repurchase shortterm borrowings generally mature within one year financial statement date include borrowings redeemable option holder within one year financial statement date table • amounts outstanding yearend shortterm borrowings includes shortterm secured financings 1312 billion 1423 billion 1556 billion december 2016 december 2015 december 2014 respectively • weighted average interest rates borrowings include effect hedging activities loan portfolio table presents summary firm’s loans receivable loans receivable classified us nonus based location legal entity loans held allowance loan losses table presents changes allowance loan losses table provisions allowance loan losses primarily relate corporate loans extended private wealth management clients held legal entities located us goldman sachs group inc subsidiaries supplemental financial information maturities sensitivity changes interest rates table presents firm’s gross loans receivable tenor distribution loans receivable fixed floating interest rates crossborder outstandings crossborder outstandings based federal financial institutions examination council’s ffiec guidelines reporting crossborder information represent amounts firm may able obtain foreign country due countryspecific events including unfavorable economic political conditions economic social instability changes government policies credit exposure represents potential loss due default deterioration credit quality counterparty issuer securities instruments firm holds measured based potential loss event nonpayment counterparty credit exposure reduced effect risk mitigants netting agreements counterparties permit firm offset receivables payables counterparties obtaining collateral counterparties table include effects risk mitigants represent firm’s credit exposure table presents crossborder outstandings commitments country crossborder outstandings exceed 075 consolidated assets accordance ffiec guidelines include cash receivables securities purchased agreements resell securities borrowed cash financial instruments exclude derivative instruments securities purchased agreements resell securities borrowed presented gross without reduction related securities collateral held margin loans included receivables presented based amount collateral advanced counterparty substantially commitments tables consist commitments extend credit forward starting resale securities borrowing agreements beginning december 2016 securities purchased agreements resell securities borrowed transactions agency lenders presented based country underlying counterparty rather country agency lender amounts december 2015 december 2014 conformed current presentation goldman sachs group inc subsidiaries item 9item 8 financial statements supplementary data management’s report internal control financial reporting management goldman sachs group inc together consolidated subsidiaries firm responsible establishing maintaining adequate internal control financial reporting firm’s internal control financial reporting process designed supervision firm’s principal executive principal financial officers provide reasonable assurance regarding reliability financial reporting preparation firm’s financial statements external reporting purposes accordance us generally accepted accounting principles december 31 2017 management conducted assessment firm’s internal control financial reporting based framework established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso based assessment management determined firm’s internal control financial reporting december 31 2017 effective internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance us generally accepted accounting principles receipts expenditures made accordance authorizations management directors firm provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition firm’s assets could material effect financial statements firm’s internal control financial reporting december 31 2017 audited pricewaterhousecoopers llp independent registered public accounting firm stated report appearing page 103 expresses unqualified opinion effectiveness firm’s internal control financial reporting december 31 2017 report independent registered public accounting firm board directors shareholders goldman sachs group inc opinions financial statements internal control financial reporting audited accompanying consolidated statements financial condition goldman sachs group inc subsidiaries company december 31 2017 2016 related consolidated statements earnings comprehensive income changes shareholders’ equity cash flows three years period ended december 31 2017 including related notes collectively referred “consolidated financial statements” also audited company’s internal control financial reporting december 31 2017 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion consolidated financial statements referred present fairly material respects financial position company december 31 2017 2016 results operations cash flows three years period ended december 31 2017 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2017 based criteria established internal control integrated framework 2013 issued coso basis opinions company’s management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing page 102 responsibility express opinions company’s consolidated financial statements company’s internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits consolidated financial statements included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp new york new york february 23 2018 served company’s auditor since 1922 goldman sachs group inc subsidiaries consolidated statements earnings accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements comprehensive income accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements financial condition accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements changes shareholders’ equity accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements cash flows supplemental disclosures cash payments interest net capitalized interest 1117 billion 714 billion 482 billion cash payments income taxes net refunds 142 billion 106 billion 265 billion 2017 2016 2015 respectively cash flows related common stock repurchased includes common stock repurchased prior period settlement occurred current period excludes common stock repurchased current period settlement occurred following period noncash activities 2017 • firm exchanged 237 million trust preferred securities common beneficial interests 248 million firm’s junior subordinated debt noncash activities 2016 • impact adoption asu 201502 net reduction total assets total liabilities approximately 200 million see note 3 information • firm sold assets liabilities 181 billion 697 million respectively previously classified held sale exchange 111 billion financial instruments • firm exchanged 104 billion apex 131 billion series e series f preferred stock see note 19 information • firm exchanged 127 million senior guaranteed trust securities 124 million firm’s junior subordinated debt noncash activities 2015 • firm exchanged 262 million trust preferred securities common beneficial interests 296 million firm’s junior subordinated debt accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries notes consolidated financial statements note 1 description business goldman sachs group inc group inc parent company delaware corporation together consolidated subsidiaries collectively firm leading global investment banking securities investment management firm provides wide range financial services substantial diversified client base includes corporations financial institutions governments individuals founded 1869 firm headquartered new york maintains offices major financial centers around world firm reports activities following four business segments investment banking firm provides broad range investment banking services diverse group corporations financial institutions investment funds governments services include strategic advisory assignments respect mergers acquisitions divestitures corporate defense activities restructurings spinoffs risk management debt equity underwriting public offerings private placements including local crossborder transactions acquisition financing well derivative transactions directly related activities institutional client services firm facilitates client transactions makes markets fixed income equity currency commodity products primarily institutional clients corporations financial institutions investment funds governments firm also makes markets clears client transactions major stock options futures exchanges worldwide provides financing securities lending prime brokerage services institutional clients investing lending firm invests originates loans provide financing clients investments loans typically longerterm nature firm makes investments consolidated including merchant banking business special situations group debt securities loans public private equity securities infrastructure real estate entities investments made indirectly funds firm manages firm also makes unsecured secured loans retail clients digital platforms marcus goldman sachs marcus goldman sachs private bank select gs select respectively investment management firm provides investment management services offers investment products primarily separately managed accounts commingled vehicles mutual funds private investment funds across major asset classes diverse set institutional individual clients firm also offers wealth advisory services provided firm’s subsidiary ayco company lp including portfolio management financial planning counseling brokerage transaction services highnetworth individuals families note 2 basis presentation consolidated financial statements prepared accordance accounting principles generally accepted united states us gaap include accounts group inc entities firm controlling financial interest intercompany transactions balances eliminated references 2017 2016 2015 refer firm’s years ended dates context requires december 31 2017 december 31 2016 december 31 2015 respectively reference future year refers year ending december 31 year certain reclassifications made previously reported amounts conform current presentation goldman sachs group inc subsidiaries notes consolidated financial statements note 3 significant accounting policies firm’s significant accounting policies include measure fair value assets liabilities accounting goodwill identifiable intangible assets consolidate entity see notes 5 8 policies fair value measurements note 13 policies goodwill identifiable intangible assets note 12 policies consolidation accounting significant accounting policies either described included following footnotes consolidation firm consolidates entities firm controlling financial interest firm determines whether controlling financial interest entity first evaluating whether entity voting interest entity variable interest entity vie voting interest entities voting interest entities total equity investment risk sufficient enable entity finance activities independently ii equity holders power direct activities entity significantly impact economic performance obligation absorb losses entity right receive residual returns entity usual condition controlling financial interest voting interest entity ownership majority voting interest firm controlling majority voting interest voting interest entity consolidated variable interest entities vie entity lacks one characteristics voting interest entity firm controlling financial interest vie firm variable interest interests provide power direct activities vie significantly impact vie’s economic performance ii obligation absorb losses vie right receive benefits vie could potentially significant vie see note 12 information vies equitymethod investments firm controlling financial interest entity exert significant influence entity’s operating financial policies investment accounted either equity method accounting ii fair value electing fair value option available us gaap significant influence generally exists firm owns 20 50 entity’s common stock insubstance common stock general firm accounts investments acquired fair value option became available fair value certain cases firm applies equity method accounting new investments strategic nature closely related firm’s principal business activities firm significant degree involvement cash flows operations investee costbenefit considerations less significant see note 13 information equitymethod investments goldman sachs group inc subsidiaries notes consolidated financial statements investment funds firm formed numerous investment funds thirdparty investors funds typically organized limited partnerships limited liability companies firm acts general partner manager generally firm hold majority economic interests funds usually voting interest entities generally consolidated thirdparty investors typically rights terminate funds remove firm general partner manager investments funds generally measured net asset value nav included financial instruments owned see notes 6 18 22 information investments funds use estimates preparation consolidated financial statements requires management make certain estimates assumptions important relate fair value measurements accounting goodwill identifiable intangible assets income tax expense related tax cuts jobs act tax legislation provisions losses may arise litigation regulatory proceedings including governmental investigations allowance losses loans receivable lending commitments held investment provisions losses may arise tax audits estimates assumptions based best available information actual results could materially different revenue recognition financial assets financial liabilities fair value financial instruments owned financial instruments sold yet purchased recorded fair value either fair value option accordance us gaap addition firm elected account certain financial assets financial liabilities fair value electing fair value option fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date financial assets marked bid prices financial liabilities marked offer prices fair value measurements include transaction costs fair value gains losses generally included market making positions institutional client services principal transactions positions investing lending see notes 5 8 information fair value measurements investment banking fees financial advisory assignments underwriting revenues recognized earnings services related underlying transaction completed terms assignment expenses associated transactions deferred related revenue recognized assignment otherwise concluded expenses associated financial advisory assignments recorded noncompensation expenses net client reimbursements underwriting revenues presented net related expenses result adopting asu 201409 “revenue contracts customers topic 606” firm amend accounting policy recognition presentation certain investment banking revenues related expenses see “recent accounting developments” information investment management firm earns management fees incentive fees investment management services management fees mutual funds calculated percentage daily net asset value received monthly management fees hedge funds separately managed accounts calculated percentage monthend net asset value generally received quarterly management fees private equity funds calculated percentage monthly invested capital commitments received quarterly semiannually annually depending fund management fees recognized period related service provided incentive fees calculated percentage fund’s separately managed account’s return excess return specified benchmark performance target incentive fees generally based investment performance 12month period life fund fees based performance 12month period subject adjustment prior end measurement period fees based investment performance life fund future investment underperformance may require fees previously distributed firm returned fund incentive fees recognized material contingencies resolved management incentive fee revenues included investment management revenues firm makes payments brokers advisors related placement firm’s investment funds payments calculated based either percentage management fee investment fund’s net asset value firm principal arrangement costs recorded gross basis included brokerage clearing exchange distribution fees firm agent arrangement costs recorded net basis investment management revenues goldman sachs group inc subsidiaries notes consolidated financial statements result adopting asu 201409 firm amend accounting policy recognition presentation certain investment management revenues related expenses see “recent accounting developments” information commissions fees firm earns commissions fees executing clearing client transactions stock options futures markets well overthecounter otc transactions commissions fees recognized day trade executed transfers financial assets transfers financial assets accounted sales firm relinquished control assets transferred transfers financial assets accounted sales gains losses recognized net revenues assets liabilities arise firm’s continuing involvement transferred financial assets initially recognized fair value transfers financial assets accounted sales assets generally included financial instruments owned transfer accounted collateralized financing related interest expense recognized life transaction see note 10 information transfers financial assets accounted collateralized financings note 11 information transfers financial assets accounted sales cash equivalents firm defines cash equivalents highly liquid overnight deposits held ordinary course business december 2017 december 2016 cash equivalents included 1079 billion 1115 billion respectively cash due banks 9926 billion 11056 billion respectively interestbearing deposits banks firm segregates cash regulatory purposes related client activity december 2017 december 2016 1844 billion 1465 billion respectively cash equivalents segregated regulatory purposes see “recent accounting developments” information addition firm segregates securities regulatory purposes related client activity see note 10 information segregated securities receivables payables brokers dealers clearing organizations receivables payables brokers dealers clearing organizations accounted cost plus accrued interest generally approximates fair value receivables payables carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 8 receivables payables included firm’s fair value hierarchy substantially would classified level 2 december 2017 december 2016 receivables customers counterparties receivables customers counterparties generally relate collateralized transactions receivables primarily consist customer margin loans certain transfers assets accounted secured loans rather purchases fair value collateral posted connection certain derivative transactions substantially receivables accounted amortized cost net estimated uncollectible amounts certain firm’s receivables customers counterparties accounted fair value fair value option changes fair value generally included market making revenues see note 8 information receivables customers counterparties accounted fair value fair value option addition december 2017 december 2016 firm’s receivables customers counterparties included 463 billion 260 billion respectively loans held sale accounted lower cost fair value see note 5 overview firm’s fair value measurement policies december 2017 december 2016 carrying value receivables accounted fair value generally approximated fair value receivables carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 8 receivables included firm’s fair value hierarchy substantially would classified level 2 december 2017 december 2016 interest receivables customers counterparties recognized life transaction included interest income goldman sachs group inc subsidiaries notes consolidated financial statements payables customers counterparties payables customers counterparties primarily consist customer credit balances related firm’s prime brokerage activities payables customers counterparties accounted cost plus accrued interest generally approximates fair value payables carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 8 payables included firm’s fair value hierarchy substantially would classified level 2 december 2017 december 2016 interest payables customers counterparties recognized life transaction included interest expense offsetting assets liabilities reduce credit exposures derivatives securities financing transactions firm may enter master netting agreements similar arrangements collectively netting agreements counterparties permit offset receivables payables counterparties netting agreement contract counterparty permits net settlement multiple transactions counterparty including upon exercise termination rights nondefaulting party upon exercise termination rights transactions governed netting agreement terminated net settlement amount calculated addition firm receives posts cash securities collateral respect derivatives securities financing transactions subject terms related credit support agreements similar arrangements collectively credit support agreements enforceable credit support agreement grants nondefaulting party exercising termination rights right liquidate collateral apply proceeds amounts owed order assess enforceability firm’s right setoff netting credit support agreements firm evaluates various factors including applicable bankruptcy laws local statutes regulatory provisions jurisdiction parties agreement derivatives reported netbycounterparty basis ie net payable receivable derivative assets liabilities given counterparty consolidated statements financial condition legal right setoff exists enforceable netting agreement resale repurchase agreements securities borrowed loaned transactions term currency presented netbycounterparty basis consolidated statements financial condition transactions meet certain settlement criteria subject netting agreements consolidated statements financial condition derivatives reported net cash collateral received posted enforceable credit support agreements transacted enforceable netting agreement consolidated statements financial condition resale repurchase agreements securities borrowed loaned reported net related cash securities received posted collateral see note 10 information collateral received pledged including rights deliver repledge collateral see notes 7 10 information offsetting foreign currency translation assets liabilities denominated nonus currencies translated rates exchange prevailing date consolidated statements financial condition revenues expenses translated average rates exchange period foreign currency remeasurement gains losses transactions nonfunctional currencies recognized earnings gains losses translation financial statements nonus operation functional currency us dollar included net hedges taxes consolidated statements comprehensive income recent accounting developments revenue contracts customers asc 606 may 2014 fasb issued asu 201409 asu amended provides comprehensive guidance recognition revenue customers arising transfer goods services guidance accounting certain contract costs new disclosures firm adopted asu january 2018 modified retrospective approach result adopting asu firm among things delay recognition nonrefundable milestone payments financial advisory assignments completed recognize certain investment management fees earlier firm’s existing revenue recognition policies cumulative effect adopting asu january 1 2018 decrease retained earnings 53 million net tax goldman sachs group inc subsidiaries notes consolidated financial statements firm also prospectively change presentation certain costs net presentation within net revenues gross basis vice versa beginning 2018 certain underwriting expenses currently netted investment banking revenues certain distribution costs currently netted investment management revenues presented gross operating expenses soft dollar commissions currently reported gross operating expenses presented net within commissions fees impact asu depend nature firm’s activities adoption although changes presentation expected material impact firm’s results operations measuring financial assets financial liabilities consolidated collateralized financing entity asc 810 august 2014 fasb issued asu 201413 “consolidation topic 810 measuring financial assets financial liabilities consolidated collateralized financing entity cfe” asu provides alternative reflect changes fair value financial assets financial liabilities cfe measuring either fair value assets liabilities whichever observable provides new disclosure requirements electing approach firm adopted asu january 2016 adoption asu materially affect firm’s financial condition results operations cash flows amendments consolidation analysis asc 810 february 2015 fasb issued asu 201502 “consolidation topic 810 amendments consolidation analysis” asu eliminates deferral requirements asu 200917 “consolidations topic 810 improvements financial reporting enterprises involved variable interest entities” certain interests investment funds provides scope exception certain investments money market funds also makes several modifications consolidation guidance vies general partners’ investments limited partnerships well modifications evaluation whether limited partnerships vies voting interest entities firm adopted asu january 2016 using modified retrospective approach impact adoption net reduction total assets total liabilities approximately 200 million substantially included financial instruments owned liabilities accrued expenses respectively adoption asu impact firm’s results operations see note 12 information adoption simplifying accounting measurementperiod adjustments asc 805 september 2015 fasb issued asu 201516 “business combinations topic 805 simplifying accounting measurementperiod adjustments” asu eliminates requirement acquirer business combination account measurementperiod adjustments retrospectively firm adopted asu january 2016 adoption asu materially affect firm’s financial condition results operations cash flows recognition measurement financial assets financial liabilities asc 825 january 2016 fasb issued asu 201601 “financial instruments topic 825 recognition measurement financial assets financial liabilities” asu amends certain aspects recognition measurement presentation disclosure financial instruments includes requirement present separately comprehensive income changes fair value attributable firm’s credit spreads debt valuation adjustment dva net tax financial liabilities fair value option elected asu effective firm january 2018 early adoption permitted modified retrospective approach requirements related dva january 2016 firm early adopted asu requirements related dva reclassified cumulative dva gain 305 million net tax retained earnings accumulated comprehensive loss adoption remaining provisions asu january 2018 material impact firm’s financial condition results operations cash flows leases asc 842 february 2016 fasb issued asu 201602 “leases topic 842” asu requires leases longer one year lessee recognize statements financial condition rightofuse asset representing right use underlying asset lease term lease liability representing liability make lease payments also requires finance leases lessee recognize interest expense lease liability separately amortization rightofuse asset statements earnings operating leases amounts recognized combined expense also requires qualifying saleleaseback transactions seller recognize gain loss time control asset transferred instead amortizing lease period addition asu requires expanded disclosures nature terms lease agreements goldman sachs group inc subsidiaries notes consolidated financial statements asu effective firm january 2019 modified retrospective approach early adoption permitted firm’s implementation efforts include reviewing terms existing leases service contracts may include embedded leases based implementation efforts date firm expects gross consolidated statements financial condition upon recognition rightofuse assets lease liabilities expect amount gross material impact financial condition improvements employee sharebased payment accounting asc 718 march 2016 fasb issued asu 201609 “compensation stock compensation topic 718 improvements employee sharebased payment accounting” asu includes requirement tax effect related settlement sharebased awards recorded income tax benefit expense statements earnings rather directly additional paidin capital change impact total shareholders’ equity required adopted prospectively asu also allows forfeitures recorded occur rather estimated vesting period change required applied modified retrospective basis firm adopted asu january 2017 impact restricted stock unit rsu deliveries option exercises 2017 reduction provision taxes 719 million recognized consolidated statements earnings impact vary future periods depending upon among things number rsus delivered change value since grant prior adoption asu amount would recorded directly additional paidin capital firm also elected account forfeitures occur rather estimate forfeitures vesting period cumulative effect election upon adoption increase 35 million sharebased awards decrease 24 million net tax 11 million retained earnings addition asu modifies classification certain sharebased payment activities within statements cash flows result firm reclassified retrospective basis cash outflow 113 billion 120 billion related settlement sharebased awards satisfaction withholding tax requirements operating activities financing activities cash inflow 202 million 407 million excess tax benefits related sharebased awards financing activities operating activities 2016 2015 respectively measurement credit losses financial instruments asc 326 june 2016 fasb issued asu 201613 “financial instruments credit losses topic 326 measurement credit losses financial instruments” asu amends several aspects measurement credit losses financial instruments including replacing existing incurred credit loss model models current expected credit losses cecl model amending certain aspects accounting purchased financial assets deterioration credit quality since origination cecl allowance losses financial assets measured amortized cost reflects management’s estimate credit losses remaining expected life financial assets expected credit losses newly recognized financial assets well changes expected credit losses period would recognized earnings certain purchased financial assets deterioration credit quality since origination initial allowance would recorded expected credit losses recognized increase purchase price rather expense expected credit losses including losses offbalancesheet exposures lending commitments measured based historical experience current conditions forecasts affect collectability reported amount asu effective firm january 2020 modified retrospective approach early adoption permitted january 2019 adoption asu result earlier recognition credit losses increase recorded allowance certain purchased loans deterioration credit quality since origination corresponding increase gross carrying value impact adoption asu firm’s financial condition results operations cash flows depend among things economic environment type financial assets held firm date adoption classification certain cash receipts cash payments asc 230 august 2016 fasb issued asu 201615 “statement cash flows topic 230 classification certain cash receipts cash payments” asu provides guidance disclosure classification certain items within statements cash flows firm adopted asu january 2018 retrospective approach impact asu depend nature firm’s activities adoption although firm expect change classification material impact consolidated statements cash flows goldman sachs group inc subsidiaries notes consolidated financial statements restricted cash asc 230 november 2016 fasb issued asu 201618 “statement cash flows topic 230 restricted cash” asu requires cash segregated regulatory purposes included cash equivalents disclosed statements cash flows required applied retrospectively firm early adopted asu december 2016 reclassified cash segregated regulatory purposes cash equivalents disclosed consolidated statements cash flows impact adoption decrease 369 billion increase 909 million 2016 2015 respectively net cash provided operating activities addition december 2016 consistent presentation segregated cash consolidated statements cash flows asu firm reclassified amounts previously included cash securities segregated regulatory purposes cash equivalents securities purchased agreements resell securities borrowed financial instruments owned consolidated statements financial condition previously reported amounts consolidated statements cash flows notes consolidated financial statements conformed current presentation clarifying definition business asc 805 january 2017 fasb issued asu 201701 “business combinations topic 805 clarifying definition business” asu amends definition business provides threshold must considered determine whether transaction acquisition disposal asset business firm adopted asu january 2018 prospective approach impact asu depend nature firm’s activities adoption although firm expects fewer transactions treated acquisitions disposals businesses simplifying test goodwill impairment asc 350 january 2017 fasb issued asu 201704 “intangibles goodwill topic 350 simplifying test goodwill impairment” asu simplifies quantitative goodwill impairment test eliminating second step test asu impairment measured comparing estimated fair value reporting unit carrying value asu effective firm 2020 firm early adopted asu fourth quarter 2017 adoption asu material impact results firm’s goodwill impairment test clarifying scope asset derecognition guidance accounting partial sales nonfinancial assets asc 61020 february 2017 fasb issued asu 201705 “other income gains losses derecognition nonfinancial assets subtopic 61020 clarifying scope asset derecognition guidance accounting partial sales nonfinancial assets” asu clarifies scope guidance applicable sales nonfinancial assets also provides guidance accounting partial sales assets firm adopted asu january 2018 modified retrospective approach adoption asu impact firm’s financial condition results operations cash flows targeted improvements accounting hedging activities asc 815 august 2017 fasb issued asu 201712 “derivatives hedging topic 815 targeted improvements accounting hedging activities” asu amends certain rules hedging relationships expands types strategies eligible hedge accounting treatment closely align results hedge accounting risk management activities firm early adopted asu january 2018 adoption asu material impact firm’s financial condition results operations cash flows reclassification certain tax effects accumulated comprehensive income asc 220 february 2018 fasb issued asu 201802 “income statement reporting comprehensive income topic 220 reclassification certain tax effects accumulated comprehensive income” asu permits reporting entity reclassify income tax effects tax legislation items within accumulated comprehensive income retained earnings asu effective firm january 2019 retrospective modified retrospective approach early adoption permitted since asu permits reclassification within shareholders’ equity adoption asu material impact firm’s financial condition goldman sachs group inc subsidiaries notes consolidated financial statements note 4 financial instruments owned financial instruments sold yet purchased financial instruments owned financial instruments sold yet purchased accounted fair value either fair value option accordance us gaap see note 8 information financial assets financial liabilities fair value table presents firm’s financial instruments owned financial instruments sold yet purchased table • money market instruments includes commercial paper certificates deposit time deposits substantially maturity less one year • equity securities includes public private equities exchangetraded funds convertible debentures amounts include investments accounted fair value fair value option firm would otherwise apply equity method accounting 849 billion 792 billion december 2017 december 2016 respectively gains losses market making principal transactions table presents market making revenues major product type well principal transactions revenues table • gainslosses include realized unrealized gains losses primarily related firm’s financial instruments owned financial instruments sold yet purchased including derivative nonderivative financial instruments • gainslosses exclude related interest income interest expense see note 23 information interest income interest expense • gainslosses principal transactions included firm’s investing lending segment see note 25 net revenues including net interest income product type investing lending well amount net interest income included investing lending • gainslosses representative manner firm manages business activities many firm’s marketmaking client facilitation strategies utilize financial instruments across various product types accordingly gains losses one product type frequently offset gains losses product types example firm’s longerterm derivatives across product types sensitive changes interest rates may economically hedged interest rate swaps similarly significant portion firm’s cash instruments derivatives across product types exposure foreign currencies may economically hedged foreign currency contracts goldman sachs group inc subsidiaries notes consolidated financial statements note 5 fair value measurements fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date financial assets marked bid prices financial liabilities marked offer prices fair value measurements include transaction costs firm measures certain financial assets financial liabilities portfolio ie based net exposure market andor credit risks best evidence fair value quoted price active market quoted prices active markets available fair value determined reference prices similar instruments quoted prices recent transactions less active markets internally developed models primarily use marketbased independently sourced inputs including limited interest rates volatilities equity debt prices foreign exchange rates commodity prices credit spreads funding spreads ie spread difference interest rate borrower could finance given financial instrument relative benchmark interest rate us gaap threelevel hierarchy disclosure fair value measurements hierarchy prioritizes inputs valuation techniques used measure fair value giving highest priority level 1 inputs lowest priority level 3 inputs financial instrument’s level hierarchy based lowest level input significant fair value measurement evaluating significance valuation input firm considers among factors portfolio’s net risk exposure input fair value hierarchy follows level 1 inputs unadjusted quoted prices active markets firm access measurement date identical unrestricted assets liabilities level 2 inputs valuation techniques observable either directly indirectly level 3 one inputs valuation techniques significant unobservable fair values substantially firm’s financial assets financial liabilities based observable prices inputs classified levels 1 2 fair value hierarchy certain level 2 level 3 financial assets financial liabilities may require appropriate valuation adjustments market participant would require arrive fair value factors counterparty firm’s credit quality funding risk transfer restrictions liquidity bidoffer spreads valuation adjustments generally based market evidence see notes 6 8 information fair value measurements cash instruments derivatives financial assets financial liabilities fair value table presents financial assets financial liabilities accounted fair value fair value option accordance us gaap table • counterparty netting among positions classified level included level • counterparty cash collateral netting represents impact derivatives netting across levels fair value hierarchy goldman sachs group inc subsidiaries notes consolidated financial statements table presents summary level 3 financial assets level 3 financial assets december 2017 decreased compared december 2016 primarily reflecting decrease level 3 cash instruments see notes 6 8 information level 3 financial assets including information unrealized gains losses related level 3 financial assets financial liabilities transfers level 3 note 6 cash instruments cash instruments include us government agency obligations nonus government agency obligations mortgagebacked loans securities corporate loans debt securities equity securities investments funds nav nonderivative financial instruments owned financial instruments sold yet purchased see types cash instruments included level fair value hierarchy valuation techniques significant inputs used determine fair values see note 5 overview firm’s fair value measurement policies level 1 cash instruments level 1 cash instruments include certain money market instruments us government obligations nonus government obligations certain government agency obligations certain corporate debt securities actively traded listed equities instruments valued using quoted prices identical unrestricted instruments active markets firm defines active markets equity instruments based average daily trading volume absolute terms relative market capitalization instrument firm defines active markets debt instruments based average daily trading volume number days trading activity level 2 cash instruments level 2 cash instruments include money market instruments government agency obligations certain nonus government obligations mortgagebacked loans securities corporate loans debt securities state municipal obligations debt obligations restricted less liquid listed equities commodities certain lending commitments valuations level 2 cash instruments verified quoted prices recent trading activity identical similar instruments broker dealer quotations alternative pricing sources reasonable levels price transparency consideration given nature quotations eg indicative firm relationship recent market activity prices provided alternative pricing sources valuation adjustments typically made level 2 cash instruments cash instrument subject transfer restrictions andor ii premiums liquidity discounts market participant would require arrive fair value valuation adjustments generally based market evidence level 3 cash instruments level 3 cash instruments one significant valuation inputs observable absent evidence contrary level 3 cash instruments initially valued transaction price considered best initial estimate fair value subsequently firm uses methodologies determine fair value vary based type instrument valuation inputs assumptions changed corroborated substantive observable evidence including values realized sales financial assets valuation techniques significant inputs level 3 cash instruments valuation techniques level 3 cash instruments vary instrument generally based discounted cash flow techniques valuation techniques nature significant inputs used determine fair values type level 3 cash instrument described loans securities backed commercial real estate loans securities backed commercial real estate directly indirectly collateralized single commercial real estate property portfolio properties may include tranches varying levels subordination significant inputs generally determined based relative value analyses include goldman sachs group inc subsidiaries notes consolidated financial statements • transaction prices underlying collateral instruments similar underlying collateral • market yields implied transactions similar related assets andor current levels changes market indices cmbx index tracks performance commercial mortgage bonds • measure expected future cash flows default scenario recovery rates implied value underlying collateral mainly driven current performance underlying collateral capitalization rates multiples recovery rates expressed percentage notional face value instrument reflect benefit credit enhancements certain instruments • timing expected future cash flows duration certain cases may incorporate impact unobservable inputs eg prepayment speeds loans securities backed residential real estate loans securities backed residential real estate directly indirectly collateralized portfolios residential real estate may include tranches varying levels subordination significant inputs generally determined based relative value analyses incorporate comparisons instruments similar collateral risk profiles significant inputs include • transaction prices underlying collateral instruments similar underlying collateral • market yields implied transactions similar related assets • cumulative loss expectations driven default rates home price projections residential property liquidation timelines related costs subsequent recoveries • duration driven underlying loan prepayment speeds residential property liquidation timelines corporate loans debt securities corporate loans debt securities includes bank loans bridge loans corporate debt securities significant inputs generally determined based relative value analyses incorporate comparisons prices credit default swaps reference similar underlying instrument entity debt instruments issuer observable prices broker quotations available significant inputs include • market yields implied transactions similar related assets andor current levels trends market indices cdx lcdx indices track performance corporate credit loans respectively • current performance recovery assumptions firm uses credit default swaps value related cash instrument cost borrowing underlying reference obligation • duration equity securities equity securities includes private equity securities convertible debentures recent thirdparty completed pending transactions eg merger proposals tender offers debt restructurings considered best evidence change fair value available following valuation methodologies used appropriate • industry multiples primarily ebitda multiples public comparables • transactions similar instruments • discounted cash flow techniques • thirdparty appraisals firm also considers changes outlook relevant industry financial performance issuer compared projected performance significant inputs include • market transaction multiples • discount rates capitalization rates • equity securities debtlike features market yields implied transactions similar related assets current performance recovery assumptions duration cash instruments cash instruments consists nonus government agency obligations state municipal obligations debt obligations significant inputs generally determined based relative value analyses incorporate comparisons prices credit default swaps reference similar underlying instrument entity debt instruments issuer observable prices broker quotations available significant inputs include • market yields implied transactions similar related assets andor current levels trends market indices • current performance recovery assumptions firm uses credit default swaps value related cash instrument cost borrowing underlying reference obligation • duration goldman sachs group inc subsidiaries notes consolidated financial statements fair value cash instruments level tables present cash instrument assets liabilities fair value level within fair value hierarchy tables • cash instrument assets liabilities included financial instruments owned financial instruments sold yet purchased respectively • cash instrument assets shown positive amounts cash instrument liabilities shown negative amounts • money market instruments includes commercial paper certificates deposit time deposits • equity securities includes public private equities exchangetraded funds convertible debentures • december 2017 december 2016 substantially firm’s level 3 equity securities consisted private equity securities • total cash instrument assets included collateralized debt obligations cdos collateralized loan obligations clos backed real estate corporate obligations 918 million 461 million level 2 250 million 624 million level 3 december 2017 december 2016 respectively goldman sachs group inc subsidiaries notes consolidated financial statements significant unobservable inputs table presents amount level 3 assets ranges weighted averages significant unobservable inputs used value firm’s level 3 cash instruments table • ranges represent significant unobservable inputs used valuation type cash instrument • weighted averages calculated weighting input relative fair value cash instruments • ranges weighted averages inputs representative appropriate inputs use calculating fair value one cash instrument example highest multiple private equity securities appropriate valuing specific private equity security may appropriate valuing private equity security accordingly ranges inputs represent uncertainty possible ranges fair value measurements firm’s level 3 cash instruments • increases yield discount rate capitalization rate duration cumulative loss rate used valuation firm’s level 3 cash instruments would result lower fair value measurement increases recovery rate multiples would result higher fair value measurement due distinctive nature firm’s level 3 cash instruments interrelationship inputs necessarily uniform within product type • equity securities includes private equity securities convertible debentures • loans securities backed commercial residential real estate corporate loans debt securities cash instruments valued using discounted cash flows equity securities valued using market comparables discounted cash flows • fair value one instrument may determined using multiple valuation techniques example market comparables discounted cash flows may used together determine fair value therefore level 3 balance encompasses techniques • recovery rate significant valuation level 3 cash instrument assets december 2017 transfers levels fair value hierarchy transfers levels fair value hierarchy reported beginning reporting period occur see “level 3 rollforward” information transfers level 2 level 3 2017 transfers level 2 level 1 cash instruments 63 million reflecting transfers public equity securities due decreased market activity instruments transfers level 1 level 2 cash instruments 2017 154 million reflecting transfers public equity securities due increased market activity instruments 2016 transfers level 2 level 1 cash instruments 135 million reflecting transfers public equity securities due decreased market activity instruments transfers level 1 level 2 cash instruments 2016 267 million reflecting transfers public equity securities due increased market activity instruments goldman sachs group inc subsidiaries notes consolidated financial statements level 3 rollforward table presents summary changes fair value level 3 cash instrument assets liabilities table • changes fair value presented cash instrument assets liabilities classified level 3 end period • net unrealized gainslosses relates instruments still held periodend • purchases includes originations secondary purchases • cash instrument asset liability transferred level 3 reporting period entire gain loss period classified level 3 level 3 cash instrument assets increases shown positive amounts decreases shown negative amounts level 3 cash instrument liabilities increases shown negative amounts decreases shown positive amounts • level 3 cash instruments frequently economically hedged level 1 level 2 cash instruments andor level 1 level 2 level 3 derivatives accordingly gains losses classified level 3 partially offset gains losses attributable level 1 level 2 cash instruments andor level 1 level 2 level 3 derivatives result gains losses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources table disaggregates product type information cash instrument assets included summary table goldman sachs group inc subsidiaries notes consolidated financial statements level 3 rollforward commentary year ended december 2017 net realized unrealized gains level 3 cash instrument assets 156 billion reflecting 419 million net realized gains 114 billion net unrealized gains 2017 included gainslosses approximately 99 million 113 billion 532 million reported market making principal transactions interest income respectively net unrealized gains level 3 cash instrument assets 2017 primarily reflected gains private equity securities principally driven strong corporate performance companyspecific events transfers level 3 2017 primarily reflected transfers certain corporate loans debt securities private equity securities level 2 principally due reduced price transparency result lack market evidence including fewer market transactions instruments transfers level 3 2017 primarily reflected transfers certain corporate loans debt securities private equity securities level 2 principally due increased price transparency result market evidence including market transactions instruments transfers certain corporate loans debt securities level 2 principally due certain unobservable yield duration inputs longer significant valuation instruments year ended december 2016 net realized unrealized gains level 3 cash instrument assets 971 million reflecting 574 million net realized gains 397 million net unrealized gains 2016 included gainslosses approximately 311 million 625 million 657 million reported market making principal transactions interest income respectively net unrealized gains level 3 cash instrument assets 2016 primarily reflected gains private equity securities principally driven strong corporate performance companyspecific events transfers level 3 2016 primarily reflected transfers certain private equity securities corporate loans debt securities loans securities backed commercial real estate level 2 principally due reduced price transparency result lack market evidence including fewer market transactions instruments transfers level 3 2016 primarily reflected transfers certain private equity securities corporate loans debt securities loans securities backed residential real estate level 2 principally due increased price transparency result market evidence including market transactions instruments availableforsale securities table presents details cash instruments accounted availableforsale table • us government obligations classified level 1 fair value hierarchy december 2017 december 2016 • availableforsale securities includes corporate debt securities debt obligations securities backed commercial real estate money market instruments december 2017 substantially securities classified level 2 fair value hierarchy december 2016 securities primarily classified level 2 fair value hierarchy • gross unrealized gainslosses included accumulated comprehensive loss related availableforsale securities material goldman sachs group inc subsidiaries notes consolidated financial statements investments funds net asset value per share cash instruments fair value include investments funds measured nav investment fund firm uses nav measure fair value fund investments fund investment readily determinable fair value ii nav investment fund calculated manner consistent measurement principles investment company accounting including measurement investments fair value substantially firm’s investments funds nav consist investments firmsponsored private equity credit real estate hedge funds firm coinvests thirdparty investors private equity funds primarily invest broad range industries worldwide including leveraged buyouts recapitalizations growth investments distressed investments credit funds generally invest loans fixed income instruments focused providing private highyield capital leveraged management buyout transactions recapitalizations financings refinancings acquisitions restructurings private equity firms private family companies corporate issuers real estate funds invest globally primarily real estate companies loan portfolios debt recapitalizations property private equity credit real estate funds closedend funds firm’s investments generally eligible redemption distributions received funds underlying assets liquidated distributed firm also invests hedge funds primarily multidisciplinary hedge funds employ fundamental bottomup investment approach across various asset classes strategies firm’s investments hedge funds primarily include interests underlying assets illiquid nature proceeds redemptions received underlying assets liquidated distributed many funds described “covered funds” defined volcker rule us doddfrank wall street reform consumer protection act doddfrank act board governors federal reserve system federal reserve board frb extended conformance period july 2022 firm’s investments relationships certain legacy “illiquid funds” defined volcker rule place prior december 2013 extension applicable substantially firm’s remaining investments relationships covered funds table presents fair value firm’s investments funds nav related unfunded commitments note 7 derivatives hedging activities derivative activities derivatives instruments derive value underlying asset prices indices reference rates inputs combination factors derivatives may traded exchange exchangetraded may privately negotiated contracts usually referred otc derivatives certain firm’s otc derivatives cleared settled central clearing counterparties otccleared others bilateral contracts two counterparties bilateral otc goldman sachs group inc subsidiaries notes consolidated financial statements marketmaking market maker firm enters derivative transactions provide liquidity clients facilitate transfer hedging risks role firm typically acts principal required commit capital provide execution maintains inventory response anticipation client demand risk management firm also enters derivatives actively manage risk exposures arise marketmaking investing lending activities derivative cash instruments firm’s holdings exposures hedged many cases either portfolio riskspecific basis opposed instrumentbyinstrument basis offsetting impact economic hedging reflected business segment related revenues addition firm may enter derivatives designated hedges us gaap derivatives used manage interest rate exposure certain fixedrate unsecured longterm shortterm borrowings deposits manage foreign currency exposure net investment certain nonus operations firm enters various types derivatives including • futures forwards contracts commit counterparties purchase sell financial instruments commodities currencies future • swaps contracts require counterparties exchange cash flows currency interest payment streams amounts exchanged based specific terms contract reference specified rates financial instruments commodities currencies indices • options contracts option purchaser right obligation purchase sell option writer financial instruments commodities currencies within defined time period specified price derivatives reported netbycounterparty basis ie net payable receivable derivative assets liabilities given counterparty legal right setoff exists enforceable netting agreement counterparty netting derivatives accounted fair value net cash collateral received posted enforceable credit support agreements cash collateral netting derivative assets liabilities included financial instruments owned financial instruments sold yet purchased respectively realized unrealized gains losses derivatives designated hedges asc 815 included market making principal transactions note 4 tables present gross fair value notional amounts derivative contracts major product type amounts counterparty cash collateral netting consolidated statements financial condition well cash securities collateral posted received enforceable credit support agreements meet criteria netting us gaap goldman sachs group inc subsidiaries notes consolidated financial statements tables • gross fair values exclude effects counterparty netting collateral therefore representative firm’s exposure • firm received posted collateral credit support agreements yet determined agreements enforceable related collateral netted • notional amounts represent sum gross long short derivative contracts provide indication volume firm’s derivative activity represent anticipated losses • total gross fair value derivatives included derivative assets derivative liabilities 1124 billion 1300 billion respectively december 2017 derivative assets derivative liabilities 1992 billion 2079 billion respectively december 2016 subject enforceable netting agreement subject netting agreement firm yet determined enforceable 2017 pursuant rule change clearing organization election rules another clearing organization transactions clearing organizations considered settled day impact reflecting transactions two clearing organizations settled would reduction gross derivative assets liabilities december 2016 18908 billion 16604 billion respectively corresponding decrease counterparty cash collateral netting impact consolidated statements financial condition valuation techniques derivatives firm’s level 2 level 3 derivatives valued using derivative pricing models eg discounted cash flow models correlation models incorporate option pricing methodologies monte carlo simulations price transparency derivatives generally characterized product type described • interest rate general key inputs used value interest rate derivatives transparent even longdated contracts interest rate swaps options denominated currencies leading industrialized nations characterized high trading volumes tight bidoffer spreads interest rate derivatives reference indices inflation index shape yield curve eg 10year swap rate vs 2year swap rate complex key inputs generally observable • credit price transparency credit default swaps including single names baskets credits varies market underlying reference entity obligation credit default swaps reference indices large corporates major sovereigns generally exhibit price transparency credit default swaps underliers price transparency varies based credit rating cost borrowing underlying reference obligations availability underlying reference obligations delivery upon default issuer credit default swaps reference loans assetbacked securities emerging market debt instruments tend less price transparency reference corporate bonds addition complex credit derivatives sensitive correlation two underlying reference obligations generally less price transparency goldman sachs group inc subsidiaries notes consolidated financial statements • currency prices currency derivatives based exchange rates leading industrialized nations including longer tenors generally transparent primary difference price transparency developed emerging market currency derivatives emerging markets tend observable contracts shorter tenors • commodity derivatives include transactions referenced energy eg oil natural gas metals eg precious base soft commodities eg agricultural price transparency varies based underlying commodity delivery location tenor product quality eg diesel fuel compared unleaded gasoline general price transparency commodity derivatives greater contracts shorter tenors contracts closely aligned major andor benchmark commodity indices • equity price transparency equity derivatives varies market underlier options indices common stock corporates included major equity indices exhibit price transparency equity derivatives generally observable market prices except contracts long tenors reference prices differ significantly current market prices complex equity derivatives sensitive correlation two individual stocks generally less price transparency liquidity essential observability product types transaction volumes decline previously transparent prices inputs may become unobservable conversely even highly structured products may times trading volumes large enough provide observability prices inputs see note 5 overview firm’s fair value measurement policies level 1 derivatives level 1 derivatives include shortterm contracts future delivery securities underlying security level 1 instrument exchangetraded derivatives actively traded valued quoted market price level 2 derivatives level 2 derivatives include otc derivatives significant valuation inputs corroborated market evidence exchangetraded derivatives actively traded andor valued using models calibrate marketclearing levels otc derivatives selection particular model value derivative depends contractual terms specific risks inherent instrument well availability pricing information market derivatives trade liquid markets model selection involve significant management judgment outputs models calibrated marketclearing levels valuation models require variety inputs contractual terms market prices yield curves discount rates including derived interest rates collateral received posted specified credit support agreements collateralized derivatives credit curves measures volatility prepayment rates loss severity rates correlations inputs significant inputs valuations level 2 derivatives verified market transactions broker dealer quotations alternative pricing sources reasonable levels price transparency consideration given nature quotations eg indicative firm relationship recent market activity prices provided alternative pricing sources level 3 derivatives level 3 derivatives valued using models utilize observable level 1 andor level 2 inputs well unobservable level 3 inputs significant unobservable inputs used value firm’s level 3 derivatives described • majority firm’s interest rate currency derivatives classified level 3 significant unobservable inputs include correlations certain currencies interest rates eg correlation euro inflation euro interest rates specific interest rate volatilities • level 3 credit derivatives significant unobservable inputs include illiquid credit spreads upfront credit points unique specific reference obligations reference entities recovery rates certain correlations required value credit derivatives eg likelihood default underlying reference obligation relative one another • level 3 commodity derivatives significant unobservable inputs include volatilities options strike prices differ significantly current market prices spreads certain products product quality physical location commodity aligned benchmark indices goldman sachs group inc subsidiaries notes consolidated financial statements • level 3 equity derivatives significant unobservable inputs generally include equity volatility inputs options longdated andor strike prices differ significantly current market prices addition valuation certain structured trades requires use level 3 correlation inputs correlation price performance two individual stocks correlation price performance basket stocks another asset class commodities subsequent initial valuation level 3 derivative firm updates level 1 level 2 inputs reflect observable market changes resulting gains losses classified level 3 level 3 inputs changed corroborated evidence similar market transactions thirdparty pricing services andor broker dealer quotations empirical market data circumstances firm cannot verify model value reference market transactions possible different valuation model could produce materially different estimate fair value see information significant unobservable inputs used valuation level 3 derivatives valuation adjustments valuation adjustments integral determining fair value derivative portfolios used adjust midmarket valuations produced derivative pricing models appropriate exit price valuation adjustments incorporate bidoffer spreads cost liquidity credit valuation adjustments funding valuation adjustments account credit funding risk inherent uncollateralized portion derivative portfolios firm also makes funding valuation adjustments collateralized derivatives terms agreement permit firm deliver repledge collateral received marketbased inputs generally used calibrating valuation adjustments marketclearing levels addition derivatives include significant unobservable inputs firm makes model exit price adjustments account valuation uncertainty present transaction fair value derivatives level tables present fair value derivatives gross basis level major product type well impact netting included consolidated statements financial condition goldman sachs group inc subsidiaries notes consolidated financial statements tables • gross fair values exclude effects counterparty netting collateral netting therefore representative firm’s exposure • counterparty netting reflected level extent receivable payable balances netted within level included counterparty netting levels counterparty netting across levels netting included crosslevel counterparty netting • derivative assets shown positive amounts derivative liabilities shown negative amounts significant unobservable inputs table presents amount level 3 assets liabilities ranges averages medians significant unobservable inputs used value firm’s level 3 derivatives table • derivative assets shown positive amounts derivative liabilities shown negative amounts • ranges represent significant unobservable inputs used valuation type derivative • averages represent arithmetic average inputs weighted relative fair value notional respective financial instruments average greater median indicates majority inputs average example difference average median credit spreads oil spread inputs indicates majority inputs fall lower end range • ranges averages medians inputs representative appropriate inputs use calculating fair value one derivative example highest correlation interest rate derivatives appropriate valuing specific interest rate derivative may appropriate valuing interest rate derivative accordingly ranges inputs represent uncertainty possible ranges fair value measurements firm’s level 3 derivatives • interest rates currencies equities derivatives valued using option pricing models credit derivatives valued using option pricing correlation discounted cash flow models commodities derivatives valued using option pricing discounted cash flow models • fair value one instrument may determined using multiple valuation techniques example option pricing models discounted cash flows models typically used together determine fair value therefore level 3 balance encompasses techniques • correlation within currencies equities includes crossproduct type correlation • natural gas spread represents spread per million british thermal units natural gas • oil spread represents spread per barrel oil refined products range significant unobservable inputs following information ranges significant unobservable inputs used value firm’s level 3 derivative instruments • correlation ranges correlation cover variety underliers within one product type eg equity index equity single stock names across product types eg correlation interest rate currency well across regions generally crossproduct type correlation inputs used value complex instruments lower correlation inputs assets within derivative product type • volatility ranges volatility cover numerous underliers across variety markets maturities strike prices example volatility equity indices generally lower volatility single stocks • credit spreads upfront credit points recovery rates ranges credit spreads upfront credit points recovery rates cover variety underliers index single names regions sectors maturities credit qualities highyield investmentgrade broad range population gives rise width ranges significant unobservable inputs goldman sachs group inc subsidiaries notes consolidated financial statements • commodity prices spreads ranges commodity prices spreads cover variability products maturities delivery locations sensitivity fair value measurement changes significant unobservable inputs following description directional sensitivity firm’s level 3 fair value measurements changes significant unobservable inputs isolation • correlation general contracts holder benefits convergence underlying asset index prices eg interest rates credit spreads foreign exchange rates inflation rates equity prices increase correlation results higher fair value measurement • volatility general purchased options increase volatility results higher fair value measurement • credit spreads upfront credit points recovery rates general fair value purchased credit protection increases credit spreads upfront credit points increase recovery rates decrease credit spreads upfront credit points recovery rates strongly related distinctive risk factors underlying reference obligations include reference entityspecific factors leverage volatility industry marketbased risk factors borrowing costs liquidity underlying reference obligation macroeconomic conditions • commodity prices spreads general contracts holder receiving commodity increase spread price difference benchmark index due differences quality delivery location price results higher fair value measurement due distinctive nature firm’s level 3 derivatives interrelationship inputs necessarily uniform within product type level 3 rollforward table presents summary changes fair value level 3 derivatives table • changes fair value presented derivative assets liabilities classified level 3 end period • net unrealized gainslosses relates instruments still held periodend • derivative transferred level 3 reporting period entire gain loss period classified level 3 transfers levels reported beginning reporting period occur • positive amounts transfers level 3 negative amounts transfers level 3 represent net transfers derivative assets negative amounts transfers level 3 positive amounts transfers level 3 represent net transfers derivative liabilities • derivative level 1 andor level 2 inputs classified level 3 entirety least one significant level 3 input • one significant level 3 input entire gain loss adjusting observable inputs ie level 1 level 2 inputs classified level 3 • gains losses classified level 3 resulting changes level 1 level 2 inputs frequently offset gains losses attributable level 1 level 2 derivatives andor level 1 level 2 level 3 cash instruments result gainslosses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources goldman sachs group inc subsidiaries notes consolidated financial statements table disaggregates major product type information level 3 derivatives included summary table level 3 rollforward commentary year ended december 2017 net realized unrealized losses level 3 derivatives 555 million reflecting 119 million net realized losses 436 million net unrealized losses 2017 included losses 90 million 465 million reported market making principal transactions respectively net unrealized losses level 3 derivatives 2017 primarily attributable losses certain equity derivatives reflecting impact changes equity prices losses certain currency derivatives primarily reflecting impact changes foreign exchanges rates losses certain credit derivatives reflecting impact tighter credit spreads partially offset gains certain commodity derivatives reflecting impact increase commodity prices transfers level 3 derivatives 2017 material transfers level 3 derivatives 2017 primarily reflected transfers certain credit derivatives assets level 2 principally due certain unobservable inputs longer significant valuation derivatives year ended december 2016 net realized unrealized gains level 3 derivatives 740 million reflecting 37 million net realized losses 777 million net unrealized gains 2016 included gainslosses approximately 980 million 240 million reported market making principal transactions respectively net unrealized gains level 3 derivatives 2016 primarily attributable gains certain equity derivatives reflecting impact increase equity prices transfers level 3 derivatives 2016 primarily reflected transfers certain interest rate derivative assets level 2 principally due reduced transparency certain unobservable inputs used value derivatives transfers certain credit derivative assets level 2 primarily due unobservable credit spread inputs becoming significant net risk certain portfolios transfers level 3 derivatives 2016 primarily reflected transfers certain credit derivatives assets level 2 primarily due unobservable credit spread inputs longer significant net risk certain portfolios goldman sachs group inc subsidiaries notes consolidated financial statements otc derivatives table presents fair values otc derivative assets liabilities tenor major product type table • tenor based expected duration mortgagerelated credit derivatives generally remaining contractual maturity derivatives • counterparty netting within product type tenor category included within product type tenor category • counterparty netting across product types within tenor category included counterparty netting tenors counterparty netting across tenor categories netting included crosstenor counterparty netting credit derivatives firm enters broad array credit derivatives locations around world facilitate client transactions manage credit risk associated marketmaking investing lending activities credit derivatives actively managed based firm’s net risk position credit derivatives generally individually negotiated contracts various settlement payment conventions credit events include failure pay bankruptcy acceleration indebtedness restructuring repudiation dissolution reference entity firm enters following types credit derivatives • credit default swaps singlename credit default swaps protect buyer loss principal one bonds loans mortgages reference obligations event issuer reference entity reference obligations suffers credit event buyer protection pays initial periodic premium seller receives protection period contract credit event defined contract seller protection makes payments buyer protection however credit event occurs seller protection required make payment buyer protection calculated accordance terms contract • credit options credit option writer assumes obligation purchase sell reference obligation specified price credit spread option purchaser buys right assume obligation sell reference obligation purchase option writer payments credit options depend either particular credit spread price reference obligation goldman sachs group inc subsidiaries notes consolidated financial statements • credit indices baskets tranches credit derivatives may reference basket singlename credit default swaps broadbased index credit event occurs one underlying reference obligations protection seller pays protection buyer payment typically prorata portion transaction’s total notional amount based underlying defaulted reference obligation certain transactions credit risk basket index separated various portions tranches different levels subordination junior tranches cover initial defaults losses exceed notional amount junior tranches excess loss covered next senior tranche capital structure • total return swaps total return swap transfers risks relating economic performance reference obligation protection buyer protection seller typically protection buyer receives protection seller floating rate interest protection reduction fair value reference obligation return protection seller receives cash flows associated reference obligation plus increase fair value reference obligation firm economically hedges exposure written credit derivatives primarily entering offsetting purchased credit derivatives identical underliers substantially firm’s purchased credit derivative transactions financial institutions subject stringent collateral thresholds addition upon occurrence specified trigger event firm may take possession reference obligations underlying particular written credit derivative consequently may upon liquidation reference obligations recover amounts underlying reference obligations event default december 2017 written purchased credit derivatives total gross notional amounts 61104 billion 64337 billion respectively total net notional purchased protection 3233 billion december 2016 written purchased credit derivatives total gross notional amounts 69047 billion 73398 billion respectively total net notional purchased protection 4351 billion substantially firm’s written purchased credit derivatives credit default swaps table presents certain information credit derivatives table • fair values exclude effects netting receivable balances payable balances enforceable netting agreements netting cash received posted enforceable credit support agreements therefore representative firm’s credit exposure • tenor based expected duration mortgagerelated credit derivatives remaining contractual maturity credit derivatives • credit spread underlier together tenor contract indicators paymentperformance risk firm less likely pay otherwise required perform credit spread tenor lower • offsetting purchased credit derivatives represent notional amount purchased credit derivatives economically hedge written credit derivatives identical underliers included offsetting • purchased credit derivatives represent notional amount purchased credit derivatives included offsetting goldman sachs group inc subsidiaries notes consolidated financial statements impact credit spreads derivatives ongoing basis firm realizes gains losses relating changes credit risk unwind derivative contracts changes credit mitigants net gain including hedges attributable impact changes credit exposure credit spreads counterparty firm’s derivatives 66 million 2017 85 million 2016 9 million 2015 bifurcated embedded derivatives table presents fair value notional amount derivatives bifurcated related borrowings table derivatives recorded fair value primarily consist interest rate equity commodity products included unsecured shortterm borrowings unsecured longterm borrowings related borrowings see note 8 information derivatives creditrelated contingent features certain firm’s derivatives transacted bilateral agreements counterparties may require firm post collateral terminate transactions based changes firm’s credit ratings firm assesses impact bilateral agreements determining collateral termination payments would occur assuming downgrade rating agencies downgrade one rating agency depending agency’s relative ratings firm time downgrade may impact comparable impact downgrade rating agencies table presents aggregate fair value net derivative liabilities agreements excluding application collateral posted reduce liabilities related aggregate fair value assets posted collateral additional collateral termination payments could called counterparties event onenotch twonotch downgrade firm’s credit ratings hedge accounting firm applies hedge accounting certain interest rate swaps used manage interest rate exposure certain fixedrate unsecured longterm shortterm borrowings certain fixedrate certificates deposit ii certain foreign currency forward contracts foreign currencydenominated debt used manage foreign currency exposures firm’s net investment certain nonus operations qualify hedge accounting hedging instrument must highly effective reducing risk exposure hedged additionally firm must formally document hedging relationship inception test hedging relationship least quarterly basis ensure hedging instrument continues highly effective life hedging relationship fair value hedges firm designates certain interest rate swaps fair value hedges certain fixedrate unsecured longterm shortterm debt fixedrate certificates deposit interest rate swaps hedge changes fair value attributable designated benchmark interest rate eg london interbank offered rate libor overnight index swap rate effectively converting substantial portion fixedrate obligations floatingrate obligations firm applies statistical method utilizes regression analysis assessing effectiveness fair value hedging relationships achieving offsetting changes fair values hedging instrument risk hedged ie interest rate risk interest rate swap considered highly effective offsetting changes fair value attributable changes hedged risk regression analysis results coefficient determination 80 greater slope 80 125 goldman sachs group inc subsidiaries notes consolidated financial statements qualifying fair value hedges gains losses derivatives included interest expense change fair value hedged item attributable risk hedged reported adjustment carrying value subsequently amortized interest expense remaining life gains losses resulting hedge ineffectiveness included interest expense derivative longer designated hedge remaining difference carrying value par value hedged item amortized interest expense remaining life hedged item using effective interest method see note 23 information interest income interest expense table presents gainslosses interest rate derivatives accounted hedges related hedged borrowings deposits hedge ineffectiveness derivatives primarily consists amortization prepaid credit spreads resulting passage time net investment hedges firm seeks reduce impact fluctuations foreign exchange rates net investments certain nonus operations use foreign currency forward contracts foreign currencydenominated debt foreign currency forward contracts designated hedges effectiveness hedge assessed based overall changes fair value forward contracts ie based changes forward rates foreign currencydenominated debt designated hedge effectiveness hedge assessed based changes spot rates qualifying net investment hedges gains losses hedging instruments extent effective included currency translation table presents gainslosses net investment hedging gainloss related ineffectiveness material 2017 2016 2015 net gainloss reclassified earnings accumulated comprehensive income 41 million reflecting gain 205 million related hedges loss 164 million related net investments nonus operations 2017 28 million reflecting gain 167 million related hedges loss 139 million related net investments nonus operations 2016 material 2015 december 2017 december 2016 firm designated 181 billion 169 billion respectively foreign currencydenominated debt included unsecured longterm borrowings unsecured shortterm borrowings hedges net investments nonus subsidiaries note 8 fair value option financial assets financial liabilities fair value addition cash derivative instruments included financial instruments owned financial instruments sold yet purchased firm accounts certain financial assets financial liabilities fair value substantially accounted fair value fair value option primary reasons electing fair value option • reflect economic events earnings timely basis • mitigate volatility earnings using different measurement attributes eg transfers financial instruments owned accounted financings recorded fair value whereas related secured financing would recorded accrual basis absent electing fair value option • address simplification costbenefit considerations eg accounting hybrid financial instruments fair value entirety versus bifurcation embedded derivatives hedge accounting debt hosts goldman sachs group inc subsidiaries notes consolidated financial statements hybrid financial instruments contain bifurcatable embedded derivatives require settlement physical delivery nonfinancial assets eg physical commodities firm elects bifurcate embedded derivative associated debt derivative accounted fair value host contract accounted amortized cost adjusted effective portion fair value hedges firm elect bifurcate entire hybrid financial instrument accounted fair value fair value option financial assets financial liabilities accounted fair value fair value option include • repurchase agreements substantially resale agreements • securities borrowed loaned within fixed income currency commodities client execution ficc client execution • substantially secured financings including transfers assets accounted financings rather sales • certain unsecured shortterm longterm borrowings substantially hybrid financial instruments • certain receivables customers counterparties including transfers assets accounted secured loans rather purchases certain margin loans • certain time deposits issued firm’s bank subsidiaries deposits stated maturity eligible fair value option election including structured certificates deposit hybrid financial instruments • certain subordinated liabilities consolidated vies fair value financial assets financial liabilities level table presents level within fair value hierarchy financial assets financial liabilities fair value substantially accounted fair value fair value option table financial assets shown positive amounts financial liabilities shown negative amounts goldman sachs group inc subsidiaries notes consolidated financial statements valuation techniques significant inputs financial assets financial liabilities fair value generally valued based discounted cash flow techniques incorporate inputs reasonable levels price transparency generally classified level 2 inputs observable valuation adjustments may made liquidity counterparty firm’s credit quality see information significant inputs used value financial assets financial liabilities fair value including ranges significant unobservable inputs used value level 3 instruments within categories ranges represent significant unobservable inputs used valuation type financial assets financial liabilities fair value ranges weighted averages inputs representative appropriate inputs use calculating fair value one instrument example highest yield presented secured financings appropriate valuing specific agreement category may appropriate valuing agreements category accordingly ranges inputs presented represent uncertainty possible ranges fair value measurements firm’s level 3 financial assets financial liabilities resale repurchase agreements securities borrowed loaned significant inputs valuation resale repurchase agreements securities borrowed loaned funding spreads amount timing expected future cash flows interest rates december 2017 december 2016 firm level 3 resale agreements securities borrowed securities loaned december 2017 december 2016 firm’s level 3 repurchase agreements material see note 10 information collateralized agreements financings secured financings significant inputs valuation secured financings fair value amount timing expected future cash flows interest rates funding spreads fair value collateral delivered firm determined using amount timing expected future cash flows market prices market yields recovery assumptions frequency additional collateral calls ranges significant unobservable inputs used value level 3 secured financings follows december 2017 • yield 06 130 weighted average 33 • duration 07 110 years weighted average 27 years december 2016 • yield 04 166 weighted average 35 • duration 01 57 years weighted average 23 years generally increases funding spreads yield duration isolation would result lower fair value measurement due distinctive nature firm’s level 3 secured financings interrelationship inputs necessarily uniform across financings see note 10 information collateralized agreements financings unsecured shortterm longterm borrowings significant inputs valuation unsecured shortterm longterm borrowings fair value amount timing expected future cash flows interest rates credit spreads firm well commodity prices case prepaid commodity transactions inputs used value embedded derivative component hybrid financial instruments consistent inputs used value firm’s derivative instruments see note 7 information derivatives see notes 15 16 information unsecured shortterm longterm borrowings respectively certain firm’s unsecured shortterm longterm borrowings classified level 3 substantially hybrid financial instruments significant unobservable inputs used value hybrid financial instruments primarily relate embedded derivative component borrowings inputs incorporated firm’s derivative disclosures related unobservable inputs note 7 goldman sachs group inc subsidiaries notes consolidated financial statements receivables customers counterparties receivables customers counterparties fair value primarily consist transfers assets accounted secured loans rather purchases significant inputs valuation receivables commodity prices interest rates amount timing expected future cash flows funding spreads december 2017 december 2016 firm’s level 3 receivables customers counterparties material deposits significant inputs valuation time deposits interest rates amount timing future cash flows inputs used value embedded derivative component hybrid financial instruments consistent inputs used value firm’s derivative instruments see note 7 information derivatives note 14 information deposits firm’s deposits classified level 3 hybrid financial instruments significant unobservable inputs used value hybrid financial instruments primarily relate embedded derivative component deposits inputs incorporated firm’s derivative disclosures related unobservable inputs note 7 transfers levels fair value hierarchy transfers levels fair value hierarchy reported beginning reporting period occur transfers financial assets financial liabilities level 1 level 2 2017 2016 see “level 3 rollforward” information transfers level 2 level 3 level 3 rollforward table presents summary changes fair value level 3 financial assets financial liabilities accounted fair value table • changes fair value presented financial assets financial liabilities classified level 3 end period • net unrealized gainslosses relates instruments still held periodend • financial asset financial liability transferred level 3 reporting period entire gain loss period classified level 3 level 3 financial assets increases shown positive amounts decreases shown negative amounts level 3 financial liabilities increases shown negative amounts decreases shown positive amounts • level 3 financial assets financial liabilities frequently economically hedged cash instruments derivatives accordingly gains losses classified level 3 partially offset gains losses attributable level 1 2 3 cash instruments derivatives result gains losses included level 3 rollforward necessarily represent overall impact firm’s results operations liquidity capital resources goldman sachs group inc subsidiaries notes consolidated financial statements table disaggregates consolidated statements financial condition line items information financial liabilities included summary table level 3 rollforward commentary year ended december 2017 net realized unrealized losses level 3 financial liabilities 141 billion reflecting 362 million net realized losses 105 billion net unrealized losses 2017 included losses 120 billion 45 million 10 million reported market making principal transactions interest expense respectively consolidated statements earnings losses 149 million reported debt valuation adjustment consolidated statements comprehensive income net unrealized losses level 3 financial liabilities 2017 primarily reflected losses certain hybrid financial instruments included unsecured longterm shortterm borrowings principally due increase global equity prices impact tighter credit spreads losses certain hybrid financial instruments included deposits principally due impact increase market value underlying assets transfers level 3 financial liabilities 2017 primarily reflected transfers certain hybrid financial instruments included unsecured longterm borrowings level 2 principally due reduced transparency volatility inputs used value instruments transfers level 3 financial liabilities 2017 primarily reflected transfers certain hybrid financial instruments included unsecured longterm shortterm borrowings level 2 principally due increased transparency certain inputs used value instruments result market transactions similar instruments transfers certain hybrid financial instruments included deposits level 2 principally due increased transparency correlation volatility inputs used value instruments year ended december 2016 net realized unrealized losses level 3 financial liabilities 106 million reflecting 99 million net realized losses 7 million net unrealized losses 2016 included losses approximately 21 million 10 million reported market making interest expense respectively consolidated statements earnings losses 75 million reported debt valuation adjustment consolidated statements comprehensive income net unrealized losses level 3 financial liabilities 2016 primarily reflected losses certain hybrid financial instruments included unsecured shortterm borrowings principally due increase global equity prices losses certain hybrid financial instruments included deposits principally due impact increase market value underlying assets partially offset gains certain hybrid financial instruments included unsecured longterm borrowings principally due changes foreign exchange rates goldman sachs group inc subsidiaries notes consolidated financial statements transfers level 3 financial liabilities 2016 primarily reflected transfers certain hybrid financial instruments included unsecured shortterm longterm borrowings level 2 principally due reduced transparency certain inputs including correlation volatility inputs used value instruments transfers level 3 financial liabilities 2016 primarily reflected transfers certain hybrid financial instruments included unsecured shortterm longterm borrowings level 2 principally due increased transparency correlation volatility inputs used value instruments gains losses financial assets financial liabilities accounted fair value fair value option table presents gains losses recognized earnings result firm electing apply fair value option certain financial assets financial liabilities table • gainslosses included market making principal transactions • gainslosses exclude contractual interest included interest income interest expense instruments hybrid financial instruments see note 23 information interest income interest expense • gainslosses included unsecured shortterm borrowings substantially related embedded derivative component hybrid financial instruments 2017 2016 2015 gainslosses included unsecured longterm borrowings primarily related embedded derivative component hybrid financial instruments 2017 2016 2015 gains losses would recognized us gaap even firm elected account entire hybrid financial instrument fair value • liabilities accrued expenses includes gainslosses certain subordinated liabilities consolidated vies • primarily consists gainslosses receivables customers counterparties deposits secured financings excluding gains losses instruments accounted fair value option described market making principal transactions primarily represent gains losses financial instruments owned financial instruments sold yet purchased loans lending commitments table presents difference aggregate fair value aggregate contractual principal amount loans longterm receivables fair value option elected table aggregate contractual principal amount loans nonaccrual status andor 90 days past due excludes loans carried zero fair value considered uncollectible exceeds related fair value primarily firm regularly purchases loans distressed loans values significantly contractual principal amounts december 2017 december 2016 fair value unfunded lending commitments fair value option elected liability 31 million 80 million respectively related total contractual amount lending commitments 994 billion 719 billion respectively see note 18 information lending commitments longterm debt instruments difference aggregate contractual principal amount related fair value longterm secured financings fair value option elected material december 2017 aggregate contractual principal amount exceeded related fair value 361 million december 2016 aggregate contractual principal amount unsecured longterm borrowings fair value option elected exceeded related fair value 169 billion 156 billion december 2017 december 2016 respectively amounts include principal nonprincipalprotected longterm borrowings goldman sachs group inc subsidiaries notes consolidated financial statements impact credit spreads loans lending commitments estimated net gain attributable changes instrumentspecific credit spreads loans lending commitments fair value option elected 268 million 2017 281 million 2016 751 million 2015 firm generally calculates fair value loans lending commitments fair value option elected discounting future cash flows rate incorporates instrumentspecific credit spreads floatingrate loans lending commitments substantially changes fair value attributable changes instrumentspecific credit spreads whereas fixedrate loans lending commitments changes fair value also attributable changes interest rates debt valuation adjustment firm calculates fair value financial liabilities fair value option elected discounting future cash flows rate incorporates firm’s credit spreads table presents details net dva losses financial liabilities table • dva net tax included debt valuation adjustment consolidated statements comprehensive income • gainslosses reclassified earnings accumulated comprehensive loss upon extinguishment financial liabilities material 2017 2016 note 9 loans receivable loans receivable consists loans held investment accounted amortized cost net allowance loan losses interest loans receivable recognized life loan recorded accrual basis table presents details loans receivable december 2017 december 2016 fair value loans receivable 6629 billion 4980 billion respectively loans carried fair value included fair value hierarchy 3875 billion 2840 billion would classified level 2 2754 billion 2140 billion would classified level 3 december 2017 december 2016 respectively following description captions table • corporate loans corporate loans includes term loans revolving lines credit letter credit facilities bridge loans principally used operating liquidity general corporate purposes connection acquisitions corporate loans may secured unsecured depending loan purpose risk profile borrower factors loans receivable related firm’s relationship lending activities reported within corporate loans • loans private wealth management clients loans private wealth management pwm clients includes loans used clients finance private asset purchases employ leverage strategic investments real financial assets bridge cash flow timing gaps provide liquidity needs loans primarily secured securities assets • loans backed commercial real estate loans backed commercial real estate includes loans extended firm directly indirectly secured hotels retail stores multifamily housing complexes commercial industrial properties loans backed commercial real estate also includes loans purchased firm goldman sachs group inc subsidiaries notes consolidated financial statements • loans backed residential real estate loans backed residential real estate includes loans extended firm clients warehouse assets directly indirectly secured residential real estate loans backed residential real estate also includes loans purchased firm • marcus loans marcus loans represents unsecured loans retail clients • loans primarily includes loans extended clients warehouse assets directly indirectly secured retail loans including auto loans private student loans assets firm monitors geographic diversification loans receivable regional composition loans approximately 79 78 americas approximately 17 18 europe middle east africa emea approximately 4 asia december 2017 december 2016 respectively lending commitments table presents details lending commitments held investment accounted accrual basis table • corporate lending commitments primarily relates firm’s relationship lending activities • lending commitments primarily relates lending commitments extended firm clients warehouse assets backed real estate assets • carrying value lending commitments liabilities 423 million including allowance losses 274 million 327 million including allowance losses 212 million december 2017 december 2016 respectively • estimated fair value lending commitments liabilities 227 billion 255 billion december 2017 december 2016 respectively lending commitments carried fair value included fair value hierarchy 772 million 110 billion would classified level 2 150 billion 145 billion would classified level 3 december 2017 december 2016 respectively purchased credit impaired pci loans receivable includes pci loans represent acquired loans pools loans evidence credit deterioration subsequent origination probable acquisition firm able collect contractually required payments loans acquired within reporting period least two common risk characteristics one relates credit risk eligible pooled together considered single unit account pci loans initially recorded acquisition price difference acquisition price expected cash flows accretable yield recognized interest income life loans pools loans effective yield method expected cash flows pci loans determined using various inputs assumptions including default rates loss severities recoveries amount timing prepayments macroeconomic indicators table presents details pci loans table presents details pci loans time acquisition goldman sachs group inc subsidiaries notes consolidated financial statements credit quality risk assessment firm’s risk assessment process includes evaluating credit quality loans receivable loans receivable excluding pci marcus loans lending commitments firm performs credit reviews include initial ongoing analyses borrowers credit review independent analysis capacity willingness borrower meet financial obligations resulting internal credit rating determination internal credit ratings also incorporates assumptions respect nature outlook borrower’s industry economic environment firm also assigns regulatory risk rating loans based definitions provided us federal bank regulatory agencies firm enters economic hedges mitigate credit risk certain loans receivable corporate lending commitments held investment related firm’s relationship lending activities hedges accounted fair value see note 18 information lending commitments associated hedges table presents gross loans receivable excluding pci marcus loans 637 billion 418 billion december 2017 december 2016 respectively lending commitments firm’s internally determined public rating agency equivalent regulatory risk rating table noncriticizedpass loans lending commitments represent loans lending commitments performing andor demonstrate adverse characteristics likely result credit loss marcus loans important creditquality indicator fair isaac corporation fico credit score measures borrower’s creditworthiness considering factors payment credit history fico credit scores refreshed periodically firm assess updated creditworthiness borrower december 2017 december 2016 greater 80 marcus loans receivable underlying fico credit score 660 weighted average fico credit score excess 700 pci loans firm’s risk assessment process includes reviewing certain key metrics delinquency status collateral values expected cash flows risk factors impaired loans receivable excluding pci loans determined impaired probable firm able collect principal interest due contractual terms loan time loans generally placed nonaccrual status accrued uncollected interest reversed interest income interest subsequently collected recognized cash basis extent loan balance deemed collectible otherwise cash received used reduce outstanding loan balance certain circumstances firm may also modify original terms loan agreement granting concession borrower experiencing financial difficulty modifications considered troubled debt restructurings typically include interest rate reductions payment extensions modification loan covenants loans modified troubled debt restructuring considered impaired subject specific loanlevel reserves december 2017 december 2016 gross carrying value impaired loans receivable excluding pci loans nonaccrual status 845 million 404 million respectively december 2017 december 2016 loans included 61 million 142 million respectively corporate loans modified troubled debt restructuring firm lending commitments related loans december 2017 lending commitments 144 million december 2016 determined firm cannot reasonably estimate expected cash flows pci loans pools loans placed nonaccrual status goldman sachs group inc subsidiaries notes consolidated financial statements allowance losses loans lending commitments firm’s allowance loan losses consists specific loanlevel reserves portfolio level reserves pci loans described • specific loanlevel reserves determined loans excluding pci loans exhibit credit quality weakness therefore individually evaluated impairment • portfolio level reserves determined loans excluding pci loans evaluated specific loanlevel reserves aggregating groups loans similar risk characteristics estimating probable loss inherent portfolio • reserves pci loans recorded determined expected cash flows reassessed quarterly basis lower used establish current effective yield loans pools loans expected cash flows determined significantly higher used establish current effective yield increases initially recognized reduction previously recorded allowances loan losses remaining increases recognized interest income prospectively life loan pools loans increase effective yield allowance loan losses determined using various risk factors including industry default loss data current macroeconomic indicators borrower’s capacity meet financial obligations borrower’s country risk loan seniority collateral type addition loans backed real estate risk factors include loan value ratio debt service ratio home price index risk factors marcus loans include fico credit scores delinquency status management’s estimate loan losses entails judgment loan collectability reporting dates uncertainties inherent judgments management uses best information available determine estimate future adjustments allowance may necessary based among things changes economic environment variances actual results original assumptions used loans charged allowance loan losses deemed uncollectible firm also records allowance losses lending commitments held investment accounted accrual basis allowance determined using methodology allowance loan losses also taking consideration probability drawdowns funding included liabilities accrued expenses tables present gross loans receivable lending commitments impairment methodology tables gross loans receivable lending commitments subject specific loanlevel reserves included 492 million 122 million impaired loans lending commitments december 2017 december 2016 respectively require reserve loan deemed recoverable goldman sachs group inc subsidiaries notes consolidated financial statements table presents changes allowance loan losses allowance losses lending commitments well details impairment methodology table • provision losses loans lending commitments included principal transactions primarily related corporate loans lending commitments loans backed commercial real estate • represents reduction allowance related loans lending commitments transferred held sale • portfolio level reserves primarily related corporate loans specific loanlevel reserves substantially related corporate loans reserves pci loans related loans backed real estate • substantially allowance losses lending commitments related corporate lending commitments note 10 collateralized agreements financings collateralized agreements securities purchased agreements resell resale agreements securities borrowed collateralized financings securities sold agreements repurchase agreements securities loaned secured financings firm enters transactions order among things facilitate client activities invest excess cash acquire securities cover short positions finance certain firm activities collateralized agreements financings presented netbycounterparty basis legal right setoff exists interest collateralized agreements collateralized financings recognized life transaction included interest income interest expense respectively see note 23 information interest income interest expense table presents carrying value resale repurchase agreements securities borrowed loaned transactions table • substantially resale agreements repurchase agreements carried fair value fair value option see note 8 information valuation techniques significant inputs used determine fair value • december 2017 december 2016 7819 billion 8240 billion securities borrowed 536 billion 265 billion securities loaned fair value respectively resale repurchase agreements resale agreement transaction firm purchases financial instruments seller typically exchange cash simultaneously enters agreement resell substantially financial instruments seller stated price plus accrued interest future date repurchase agreement transaction firm sells financial instruments buyer typically exchange cash simultaneously enters agreement repurchase substantially financial instruments buyer stated price plus accrued interest future date even though repurchase resale agreements including “repos reversestomaturity” involve legal transfer ownership financial instruments accounted financing arrangements require financial instruments repurchased resold maturity agreement financial instruments purchased sold resale repurchase agreements typically include us government agency investmentgrade sovereign obligations goldman sachs group inc subsidiaries notes consolidated financial statements firm receives financial instruments purchased resale agreements makes delivery financial instruments sold repurchase agreements mitigate credit exposure firm monitors market value financial instruments daily basis delivers obtains additional collateral due changes market value financial instruments appropriate resale agreements firm typically requires collateral fair value approximately equal carrying value relevant assets consolidated statements financial condition securities borrowed loaned transactions securities borrowed transaction firm borrows securities counterparty exchange cash securities firm returns securities counterparty returns cash securities interest generally paid periodically life transaction securities loaned transaction firm lends securities counterparty exchange cash securities counterparty returns securities firm returns cash securities posted collateral interest generally paid periodically life transaction firm receives securities borrowed makes delivery securities loaned mitigate credit exposure firm monitors market value securities daily basis delivers obtains additional collateral due changes market value securities appropriate securities borrowed transactions firm typically requires collateral fair value approximately equal carrying value securities borrowed transaction securities borrowed loaned within ficc client execution recorded fair value fair value option see note 8 information securities borrowed loaned accounted fair value securities borrowed loaned within securities services recorded based amount cash collateral advanced received plus accrued interest agreements generally terminated demand exhibit little sensitivity changes interest rates therefore carrying value agreements approximates fair value agreements carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 8 agreements included firm’s fair value hierarchy would classified level 2 december 2017 december 2016 offsetting arrangements table presents gross net resale repurchase agreements securities borrowed loaned transactions related amount counterparty netting included consolidated statements financial condition well amounts counterparty netting cash securities collateral offset consolidated statements financial condition table • substantially gross carrying values arrangements subject enforceable netting agreements • firm received posted collateral credit support agreements yet determined agreements enforceable related collateral netted • amounts offset includes counterparty netting meet criteria netting us gaap fair value cash securities collateral received posted subject enforceable credit support agreements goldman sachs group inc subsidiaries notes consolidated financial statements gross carrying value repurchase agreements securities loaned table presents gross carrying value repurchase agreements securities loaned class collateral pledged table presents gross carrying value repurchase agreements securities loaned maturity date table • repurchase agreements securities loaned repayable prior maturity option firm reflected contractual maturity dates • repurchase agreements securities loaned redeemable prior maturity option holder reflected earliest dates options become exercisable secured financings addition repurchase agreements securities loaned transactions firm funds certain assets use secured financings pledges financial instruments assets collateral transactions secured financings consist • liabilities consolidated vies • transfers assets accounted financings rather sales primarily collateralized central bank financings pledged commodities bank loans mortgage whole loans • structured financing arrangements secured financings includes arrangements nonrecourse december 2017 december 2016 nonrecourse secured financings 531 billion 254 billion respectively firm elected apply fair value option substantially secured financings use fair value eliminates noneconomic volatility earnings would arise using different measurement attributes see note 8 information secured financings accounted fair value secured financings recorded fair value recorded based amount cash received plus accrued interest generally approximates fair value financings carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 8 financings included firm’s fair value hierarchy would primarily classified level 2 december 2017 december 2016 goldman sachs group inc subsidiaries notes consolidated financial statements table presents information secured financings table • shortterm secured financings includes financings maturing within one year financial statement date financings redeemable within one year financial statement date option holder • weighted average interest rates excludes secured financings fair value includes effect hedging activities see note 7 information hedging activities • total secured financings included 155 billion 285 million related transfers financial assets accounted financings rather sales december 2017 december 2016 respectively financings collateralized financial assets 157 billion 285 million december 2017 december 2016 respectively primarily included financial instruments owned • secured financings collateralized financial instruments included 1661 billion 1365 billion secured financings collateralized financial instruments owned december 2017 december 2016 respectively 571 billion 618 billion secured financings collateralized financial instruments received collateral repledged december 2017 december 2016 respectively table presents secured financings maturity date table • longterm secured financings repayable prior maturity option firm reflected contractual maturity dates • longterm secured financings redeemable prior maturity option holder reflected earliest dates options become exercisable collateral received pledged firm receives cash securities eg us government agency obligations sovereign corporate obligations well equity securities collateral primarily connection resale agreements securities borrowed derivative transactions customer margin loans firm obtains cash securities collateral upfront contingent basis derivative instruments collateralized agreements reduce credit exposure individual counterparties many cases firm permitted deliver repledge financial instruments received collateral entering repurchase agreements securities loaned transactions primarily connection secured client financing activities firm also permitted deliver repledge financial instruments connection secured financings collateralized derivative transactions firm customer settlement requirements firm also pledges certain financial instruments owned connection repurchase agreements securities loaned transactions secured financings assets substantially real estate cash connection secured financings counterparties may right deliver repledge goldman sachs group inc subsidiaries notes consolidated financial statements table presents financial instruments fair value received collateral available delivered repledged delivered repledged firm table december 2017 december 2016 collateral available delivered repledged excludes 152 billion 1547 billion respectively securities received resale agreements securities borrowed transactions contractually right delivered repledged segregated regulatory purposes table presents information assets pledged firm also segregated 1042 billion 1529 billion securities included financial instruments owned december 2017 december 2016 respectively regulatory purposes see note 3 information segregated cash note 11 securitization activities firm securitizes residential commercial mortgages corporate bonds loans types financial assets selling assets securitization vehicles eg trusts corporate entities limited liability companies resecuritization firm acts underwriter beneficial interests sold investors firm’s residential mortgage securitizations primarily connection government agency securitizations beneficial interests issued securitization entities debt equity instruments give investors rights receive portions specified cash inflows securitization vehicle include senior subordinated interests principal interest andor cash inflows proceeds sale beneficial interests used pay transferor financial assets sold securitization vehicle purchase securities serve collateral firm accounts securitization sale relinquished control transferred financial assets prior securitization firm generally accounts assets pending transfer fair value therefore typically recognize significant gains losses upon transfer assets net revenues underwriting activities recognized connection sales underlying beneficial interests investors transfers financial assets accounted sales assets remain financial instruments owned transfer accounted collateralized financing related interest expense recognized life transaction see notes 10 23 information collateralized financings interest expense respectively firm generally receives cash exchange transferred assets may also continuing involvement transferred financial assets including ownership beneficial interests securitized financial assets primarily form debt instruments firm may also purchase senior subordinated securities issued securitization vehicles typically vies connection secondary marketmaking activities primary risks included beneficial interests firm’s continuing involvement securitization vehicles performance underlying collateral position firm’s investment capital structure securitization vehicle market yield security interests primarily accounted fair value classified level 2 fair value hierarchy beneficial interests accounted fair value carried amounts approximate fair value see notes 5 8 information fair value measurements table presents amount financial assets securitized cash flows received retained interests securitization entities firm continuing involvement end period goldman sachs group inc subsidiaries notes consolidated financial statements table presents firm’s continuing involvement nonconsolidated securitization entities firm sold assets well total outstanding principal amount transferred assets firm continuing involvement table • outstanding principal amount presented purpose providing information size securitization entities representative firm’s risk loss • firm’s risk loss retained purchased interests limited carrying value interests • purchased interests represent senior subordinated interests purchased connection secondary marketmaking activities securitization entities firm also holds retained interests • substantially total outstanding principal amount total retained interests relate securitizations 2012 thereafter • fair value retained interests 213 billion 158 billion december 2017 december 2016 respectively addition interests table firm continuing involvement form derivative transactions commitments certain nonconsolidated vies carrying value derivatives commitments net asset 86 million 48 million december 2017 december 2016 respectively notional amounts derivatives commitments included maximum exposure loss nonconsolidated vie table note 12 table presents weighted average key economic assumptions used measuring fair value mortgagebacked retained interests sensitivity fair value immediate adverse changes 10 20 assumptions table • amounts reflect benefit financial instruments held mitigate risks inherent retained interests • changes fair value based adverse variation assumptions generally cannot extrapolated relationship change assumptions change fair value usually linear • impact change particular assumption calculated independently changes assumption practice simultaneous changes assumptions might magnify counteract sensitivities disclosed • constant prepayment rate included positions key assumption determination fair value • discount rate retained interests relate us government agencyissued collateralized mortgage obligations include credit loss expected credit loss assumptions reflected discount rate remainder retained interests firm retained interests reflected table fair value 56 million weighted average life 45 years december 2017 fair value 56 million weighted average life 35 years december 2016 due nature fair value certain retained interests weighted average assumptions constant prepayment discount rates related sensitivity adverse changes meaningful december 2017 december 2016 firm’s maximum exposure adverse changes value interests carrying value 56 million 56 million december 2017 december 2016 respectively goldman sachs group inc subsidiaries notes consolidated financial statements note 12 variable interest entities variable interest vie investment eg debt equity securities interest eg derivatives loans lending commitments absorb portions vie’s expected losses andor receive portions vie’s expected residual returns firm’s variable interests vies include senior subordinated debt loans lending commitments limited general partnership interests preferred common equity derivatives may include foreign currency equity andor credit risk guarantees certain fees firm receives investment funds certain interest rate foreign currency credit derivatives firm enters vies variable interests create rather absorb risk vies generally finance purchase assets issuing debt equity securities either collateralized indexed assets held vie debt equity securities issued vie may include tranches varying levels subordination firm’s involvement vies includes securitization financial assets described note 11 investments loans types vies described see note 11 information securitization activities including definition beneficial interests see note 3 firm’s consolidation policies including definition vie consolidation analysis enterprise controlling financial interest vie known primary beneficiary consolidates vie firm determines whether primary beneficiary vie performing analysis principally considers • variable interest holder power direct activities vie significantly impact vie’s economic performance • variable interest holder obligation absorb losses right receive benefits vie could potentially significant vie • vie’s purpose design including risks vie designed create pass variable interest holders • vie’s capital structure • terms vie variable interest holders parties involved vie • relatedparty relationships firm reassesses evaluation whether entity vie certain reconsideration events occur firm reassesses determination whether primary beneficiary vie ongoing basis based current facts circumstances vie activities 2017 firm aggregated corporate debt vies assetbacked vies aggregated powerrelated vies real estate creditrelated investing vies rather investments funds vies previously reported amounts conformed current presentation firm principally involved vies following business activities mortgagebacked vies firm sells residential commercial mortgage loans securities mortgagebacked vies may retain beneficial interests assets sold vies firm purchases sells beneficial interests issued mortgagebacked vies connection marketmaking activities addition firm may enter derivatives certain vies primarily interest rate swaps typically variable interests firm generally enters derivatives counterparties mitigate risk real estate credit powerrelated investing vies firm purchases equity debt securities issued makes loans vies hold real estate performing nonperforming debt distressed loans powerrelated assets equity securities firm typically sell assets enter derivatives vies corporate debt assetbacked vies firm structures vies issue notes clients purchases sells beneficial interests issued corporate debt assetbacked vies connection marketmaking activities certain vies synthetically create exposure beneficial interests issue entering credit derivatives firm rather purchasing underlying assets addition firm may enter derivatives total return swaps certain corporate debt assetbacked vies firm pays vie return due beneficial interest holders receives return collateral owned vie collateral owned vies primarily assetbacked loans securities firm generally removed total return swap counterparty enters derivatives counterparties mitigate risk related swaps firm may sell assets corporate debt assetbacked vies structures goldman sachs group inc subsidiaries notes consolidated financial statements principalprotected note vies firm structures vies issue principalprotected notes clients vies portfolios assets principally exposure hedge funds substantially principal protection notes issued vies provided asset portfolio rebalancing required terms notes firm enters total return swaps vies firm pays vie return due principalprotected note holders receives return assets owned vie firm may enter derivatives counterparties mitigate risk firm also obtains funding vies investments funds firm makes equity investments certain investment fund vies manages entitled receive fees vies firm typically sell assets enter derivatives vies adoption asu 201502 firm adopted asu 201502 january 1 2016 upon adoption certain firm’s investments entities previously classified voting interest entities classified vies include investments certain limited partnership entities deconsolidated upon adoption certain fee interests considered significant interests guidance firm longer deemed controlling financial interest entities see note 3 information adoption asu 201502 nonconsolidated vies result adoption january 1 2016 investments funds nonconsolidated vies included 1070 billion assets vies 543 million carrying value variable interests assets 559 million maximum exposure loss related investments limited partnership entities previously classified nonconsolidated voting interest entities consolidated vies result adoption january 1 2016 real estate creditrelated investing consolidated vies included 302 million assets substantially included financial instruments owned 122 million liabilities included liabilities accrued expenses primarily related investments limited partnership entities previously classified consolidated voting interest entities nonconsolidated vies table presents summary nonconsolidated vies firm holds variable interests nature firm’s variable interests take different forms described rows maximum exposure loss table • firm’s exposure obligations vies generally limited interests entities certain instances firm provides guarantees including derivative guarantees vies holders variable interests vies • maximum exposure loss excludes benefit offsetting financial instruments held mitigate risks associated variable interests • maximum exposure loss retained interests purchased interests loans investments carrying value interests • maximum exposure loss commitments guarantees derivatives notional amount represent anticipated losses also reduced unrealized losses already recorded result maximum exposure loss exceeds liabilities recorded commitments guarantees derivatives provided vies • total maximum exposure loss commitments guarantees derivatives included 126 billion 128 billion december 2017 december 2016 respectively related transactions vies firm transferred assets goldman sachs group inc subsidiaries notes consolidated financial statements table disaggregates principal business activity information nonconsolidated vies included summary table december 2017 december 2016 carrying values firm’s variable interests nonconsolidated vies included consolidated statements financial condition follows • mortgagebacked assets primarily included financial instruments owned • real estate credit powerrelated investing assets primarily included financial instruments owned liabilities included financial instruments sold yet purchased liabilities accrued expenses • corporate debt assetbacked substantially assets included financial instruments owned liabilities included financial instruments sold yet purchased • investments funds assets included financial instruments owned consolidated vies table presents summary carrying value classification assets liabilities consolidated vies table • assets liabilities presented net intercompany eliminations exclude benefit offsetting financial instruments held mitigate risks associated firm’s variable interests • vies firm holds majority voting interest excluded vie meets definition business ii vie’s assets used purposes settlement obligations • substantially assets used settle obligations vie goldman sachs group inc subsidiaries notes consolidated financial statements table disaggregates principal business activity information consolidated vies included summary table • majority assets principalprotected notes vies intercompany eliminated consolidation • creditors beneficial interest holders real estate creditrelated investing vies mortgagebacked assetbacked vies recourse general credit firm note 13 assets generally less liquid nonfinancial assets table presents assets type table • property leasehold improvements equipment net accumulated depreciation amortization 828 billion 768 billion december 2017 december 2016 respectively property leasehold improvements equipment included 597 billion 596 billion december 2017 december 2016 respectively related property leasehold improvements equipment firm uses connection operations remainder held investment entities including vies consolidated firm substantially property equipment depreciated straightline basis useful life asset leasehold improvements amortized straightline basis useful life improvement term lease whichever shorter capitalized costs software developed obtained internal use amortized straightline basis three years • decrease income taxrelated assets 2017 primarily reflected estimated impact tax legislation income taxrelated assets see note 24 information tax legislation • miscellaneous receivables included debt securities accounted heldtomaturity 800 million 87 million december 2017 december 2016 respectively december 2017 december 2016 securities backed residential real estate maturities greater ten years securities carried amortized cost carrying value securities approximated fair value december 2017 december 2016 securities accounted fair value fair value option fair value accordance us gaap fair value included firm’s fair value hierarchy notes 6 8 securities included firm’s fair value hierarchy substantially would classified level 2 december 2017 december 2016 goldman sachs group inc subsidiaries notes consolidated financial statements • miscellaneous receivables included investments qualified affordable housing projects 679 million 682 million december 2017 december 2016 respectively • miscellaneous receivables included equitymethod investments 275 million 219 million december 2017 december 2016 respectively • miscellaneous receivables included assets classified held sale 634 million december 2017 related certain firm’s consolidated investments within investing lending segment substantially consisted property equipment goodwill identifiable intangible assets goodwill table presents carrying value goodwill cost acquired companies excess fair value net assets including identifiable intangible assets acquisition date goodwill assessed impairment annually fourth quarter frequently events occur circumstances change indicate impairment may exist assessing goodwill impairment first qualitative factors assessed determine whether likely fair value reporting unit less carrying value results qualitative assessment conclusive quantitative goodwill test performed quantitative goodwill test compares estimated fair value reporting unit estimated net book value including goodwill identifiable intangible assets reporting unit’s estimated fair value exceeds estimated net book value goodwill impaired impairment recognized estimated fair value reporting unit less estimated net book value amount impairment equal difference values estimate fair value reporting unit relative value technique used firm believes market participants would use technique value firm’s reporting units relative value technique applies observable pricetoearnings multiples pricetobook multiples projected return equity comparable competitors reporting units’ net earnings net book value estimated net book value reporting unit reflects allocation total shareholders’ equity represents estimated amount total shareholders’ equity required support activities reporting unit currently applicable regulatory capital requirements fourth quarter 2017 firm assessed goodwill impairment reporting units performing qualitative assessment multiple factors assessed respect firm’s reporting units determine whether likely estimated fair value reporting units less estimated carrying value qualitative assessment also considered changes since prior quantitative tests firm considered following factors qualitative assessment performed fourth quarter evaluating whether likely fair value reporting unit less carrying value • performance indicators 2017 firm’s net revenues pretax margin increased compared 2016 net earnings diluted earnings per common share return average common shareholders’ equity book value per common share 2017 decreased compared 2016 due tax legislation however tax legislation result lower effective income tax rate future see note 24 information tax legislation addition although certain expenses increased significant negative changes firm’s overall cost structure since prior quantitative goodwill tests performed • firm industry events entityspecific otherwise since prior quantitative goodwill tests would significant negative impact valuation firm’s reporting units goldman sachs group inc subsidiaries notes consolidated financial statements • macroeconomic indicators since prior quantitative goodwill tests firm’s general operating environment improved concerns outlook global economic growth moderated • fair value indicators since prior quantitative goodwill tests fair value indicators improved global equity prices increased credit spreads tightened addition publicly traded industry participants including firm experienced increases stock price pricetobook multiples pricetoearnings multiples result qualitative assessment firm determined likely estimated fair value reporting units exceeded respective carrying value therefore firm determined goodwill reporting unit impaired quantitative goodwill test required identifiable intangible assets table presents carrying value identifiable intangible assets table presents details net carrying value identifiable intangible assets table • net carrying value intangibles primarily includes intangible assets related acquired leases commodities transportation rights • 2017 2016 firm acquired 113 million 89 million respectively intangible assets primarily related acquired leases weighted average amortization period five three years respectively substantially firm’s identifiable intangible assets considered finite useful lives amortized estimated useful lives generally using straightline method tables present details amortization identifiable intangible assets impairments firm tests property leasehold improvements equipment identifiable intangible assets impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable extent carrying value asset exceeds projected undiscounted cash flows expected result use eventual disposal asset group firm determines asset impaired records impairment equal difference estimated fair value carrying value asset group addition firm recognize impairment prior sale asset carrying value asset exceeds estimated fair value 2017 2016 2015 impairments material firm’s results operations financial condition goldman sachs group inc subsidiaries notes consolidated financial statements note 14 deposits table presents types sources firm’s deposits table • substantially deposits interestbearing • savings demand deposits stated maturity • time deposits included 2290 billion 1378 billion december 2017 december 2016 respectively deposits accounted fair value fair value option see note 8 information deposits accounted fair value • time deposits weighted average maturity approximately 2 years 25 years december 2017 december 2016 respectively • deposit sweep programs represent longterm contractual agreements several us brokerdealers sweep client cash fdicinsured deposits • deposits insured fdic december 2017 december 2016 approximately 7502 billion 6991 billion respectively table presents deposits held us nonus offices table us deposits held goldman sachs bank usa gs bank usa substantially nonus deposits held goldman sachs international bank gsib table presents maturities time deposits held us nonus offices december 2017 deposits us nonus offices included 143 billion 1166 billion respectively time deposits greater 250000 firm’s savings demand deposits recorded based amount cash received plus accrued interest approximates fair value addition firm designates certain derivatives fair value hedges convert portion time deposits accounted fair value fixedrate obligations floatingrate obligations carrying value time deposits accounted fair value approximated fair value december 2017 december 2016 savings demand deposits time deposits carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 8 deposits included firm’s fair value hierarchy would classified level 2 december 2017 december 2016 goldman sachs group inc subsidiaries notes consolidated financial statements note 15 shortterm borrowings table presents details firm’s shortterm borrowings see note 10 information secured financings unsecured shortterm borrowings includes portion unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holder firm accounts certain hybrid financial instruments fair value fair value option see note 8 information unsecured shortterm borrowings accounted fair value carrying value unsecured shortterm borrowings recorded fair value generally approximates fair value due shortterm nature obligations unsecured shortterm borrowings carried amounts approximate fair value accounted fair value fair value option fair value accordance us gaap therefore included firm’s fair value hierarchy notes 6 8 borrowings included firm’s fair value hierarchy substantially would classified level 2 december 2017 december 2016 table presents details firm’s unsecured shortterm borrowings table • current portion unsecured longterm borrowings included 2628 billion 2153 billion december 2017 december 2016 respectively issued group inc • weighted average interest rates borrowings include effect hedging activities exclude unsecured shortterm borrowings accounted fair value fair value option see note 7 information hedging activities note 16 longterm borrowings table presents details firm’s longterm borrowings see note 10 information secured financings table presents unsecured longterm borrowings extending 2057 consists principally senior borrowings table • floating interest rates generally based libor overnight index swap rate equitylinked indexed instruments included floatingrate obligations • interest rates us dollardenominated debt ranged 160 1004 weighted average rate 424 160 1004 weighted average rate 457 december 2017 december 2016 respectively • interest rates nonus dollardenominated debt ranged 031 1300 weighted average rate 260 002 1300 weighted average rate 305 december 2017 december 2016 respectively goldman sachs group inc subsidiaries notes consolidated financial statements table presents unsecured longterm borrowings maturity date table • unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holder excluded included unsecured shortterm borrowings • unsecured longterm borrowings repayable prior maturity option firm reflected contractual maturity dates • unsecured longterm borrowings redeemable prior maturity option holder reflected earliest dates options become exercisable • unsecured longterm borrowings included 561 billion adjustments carrying value certain unsecured longterm borrowings resulting application hedge accounting year maturity follows 167 million 2019 192 million 2020 387 million 2021 82 million 2022 495 billion 2023 thereafter firm designates certain derivatives fair value hedges convert portion fixedrate unsecured longterm borrowings accounted fair value floatingrate obligations see note 7 information hedging activities table presents unsecured longterm borrowings giving effect hedging activities table weighted average interest rates aggregate amounts 286 367 related fixedrate obligations 202 related floatingrate obligations 287 390 related fixedrate obligations 197 related floatingrate obligations december 2017 december 2016 respectively rates exclude unsecured longterm borrowings accounted fair value fair value option december 2017 december 2016 carrying value unsecured longterm borrowings firm elect fair value option approximated fair value borrowings accounted fair value fair value option fair value accordance us gaap fair value included firm’s fair value hierarchy notes 6 8 borrowings included firm’s fair value hierarchy substantially would classified level 2 december 2017 december 2016 subordinated borrowings unsecured longterm borrowings includes subordinated debt junior subordinated debt junior subordinated debt junior right payment subordinated borrowings junior senior borrowings december 2017 december 2016 subordinated debt maturities ranging 2020 2045 2018 2045 respectively subordinated debt matures within one year included unsecured shortterm borrowings table presents details firm’s subordinated borrowings table • par amount carrying amount subordinated debt issued group inc 1396 billion 1608 billion respectively december 2017 1484 billion 1739 billion respectively december 2016 • rate weighted average interest rate borrowings including effect fair value hedges used convert fixedrate obligations floatingrate obligations see note 7 information hedging activities rates exclude subordinated borrowings accounted fair value fair value option goldman sachs group inc subsidiaries notes consolidated financial statements 2017 firm repurchased redeemed subordinated debt par amount 145 billion carrying value 180 billion 170 billion result debt extinguished junior subordinated debt junior subordinated debt held trusts 2012 vesey street investment trust vesey street trust murray street investment trust murray street trust issued aggregate 225 billion senior guaranteed trust securities third parties proceeds used purchase junior subordinated debt issued group inc goldman sachs capital ii goldman sachs capital iii apex trusts apex trusts used proceeds purchase shares group inc’s perpetual noncumulative preferred stock series e series e preferred stock perpetual noncumulative preferred stock series f series f preferred stock senior guaranteed trust securities issued vesey street trust related junior subordinated debt matured third quarter 2016 december 2016 145 billion senior guaranteed trust securities issued murray street trust related junior subordinated debt outstanding securities related junior subordinated debt matured first quarter 2017 apex trusts delaware statutory trusts sponsored firm whollyowned finance subsidiaries firm regulatory legal purposes consolidated accounting purposes firm covenanted favor holders group inc’s 6345 junior subordinated debt due february 15 2034 subject certain exceptions firm redeem purchase capital securities issued apex trusts shares group inc’s series e series f preferred stock shares group inc’s series perpetual noncumulative preferred stock redemption purchase results less 253 million aggregate liquidation preference outstanding prior specified dates 2022 price exceeds maximum amount determined reference net cash proceeds firm received sale qualifying securities 2016 firm exchanged par amount 132 billion apex issued apex trusts corresponding redemption value series e series f preferred stock permitted covenants referenced junior subordinated debt issued connection trust preferred securities group inc issued 284 billion junior subordinated debt 2004 goldman sachs capital trust delaware statutory trust issued 275 billion guaranteed preferred beneficial interests trust preferred securities third parties 85 million common beneficial interests group inc used proceeds issuances purchase junior subordinated debt group inc december 2017 outstanding par amount junior subordinated debt held trust 117 billion outstanding par amount trust preferred securities common beneficial interests issued trust 113 billion 351 million respectively 2017 firm purchased 186 million par amount trust preferred securities delivered securities along 57 million common beneficial interests trust exchange corresponding par amount junior subordinated debt following exchanges trust preferred securities common beneficial interests junior subordinated debt extinguished december 2016 outstanding par amount junior subordinated debt held trust 136 billion outstanding par amount trust preferred securities common beneficial interests issued trust 132 billion 408 million respectively trust whollyowned finance subsidiary firm regulatory legal purposes consolidated accounting purposes firm pays interest semiannually junior subordinated debt annual rate 6345 debt matures february 15 2034 coupon rate payment dates applicable beneficial interests interest rate payment dates junior subordinated debt firm right time defer payment interest junior subordinated debt therefore cause payment trust’s preferred beneficial interests deferred case ten consecutive semiannual periods deferral period firm permitted among things pay dividends make certain repurchases common stock trust permitted pay distributions common beneficial interests held group inc unless dividends payable preferred beneficial interests paid full goldman sachs group inc subsidiaries notes consolidated financial statements note 17 liabilities accrued expenses table presents liabilities accrued expenses type table increase income taxrelated liabilities 2017 reflected estimated impact tax legislation income taxrelated liabilities see note 24 information tax legislation note 18 commitments contingencies guarantees commitments table presents firm’s commitments type table presents firm’s commitments period expiration commitments extend credit firm’s commitments extend credit agreements lend fixed termination dates depend satisfaction contractual conditions borrowing commitments presented net amounts syndicated third parties total commitment amount necessarily reflect actual future cash flows firm may syndicate substantial additional portions commitments addition commitments expire unused reduced cancelled counterparty’s request december 2017 december 2016 12450 billion 9805 billion respectively firm’s lending commitments held investment accounted accrual basis see note 9 information commitments addition december 2017 december 2016 984 billion 687 billion respectively firm’s lending commitments held sale accounted lower cost fair value firm accounts remaining commitments extend credit fair value losses generally recorded net fees principal transactions goldman sachs group inc subsidiaries notes consolidated financial statements commercial lending firm’s commercial lending commitments extended investmentgrade noninvestmentgrade corporate borrowers commitments investmentgrade corporate borrowers principally used operating liquidity general corporate purposes firm also extends lending commitments connection contingent acquisition financing types corporate lending well commercial real estate financing commitments extended contingent acquisition financing often intended shortterm nature borrowers often seek replace funding sources sumitomo mitsui financial group inc smfg provides firm credit loss protection certain approved loan commitments primarily investmentgrade commercial lending commitments notional amount loan commitments 2570 billion 2688 billion december 2017 december 2016 respectively credit loss protection loan commitments provided smfg generally limited 95 first loss firm realizes commitments maximum approximately 950 million addition subject satisfaction certain conditions upon firm’s request smfg provide protection 70 additional losses commitments maximum 113 billion 550 million 768 million protection provided december 2017 december 2016 respectively firm also uses financial instruments mitigate credit risks related certain commitments covered smfg instruments primarily include credit default swaps reference similar underlying instrument entity credit default swaps reference market index warehouse financing firm provides financing clients warehouse financial assets arrangements secured warehoused assets primarily consisting retail corporate loans contingent forward starting collateralized agreements forward starting collateralized financings contingent forward starting collateralized agreements includes resale securities borrowing agreements forward starting collateralized financings includes repurchase secured lending agreements settle future date generally within three business days firm also enters commitments provide contingent financing clients counterparties resale agreements firm’s funding commitments depends satisfaction contractual conditions resale agreement commitments expire unused letters credit firm commitments letters credit issued various banks firm provides counterparties lieu securities cash satisfy various collateral margin deposit requirements investment commitments investment commitments includes commitments invest private equity real estate assets directly funds firm raises manages investment commitments included 209 billion 210 billion december 2017 december 2016 respectively related commitments invest funds managed firm commitments called would funded market value date investment leases firm contractual obligations longterm noncancelable lease agreements office space expiring various dates 2069 certain agreements subject periodic escalation provisions increases real estate taxes charges table presents future minimum rental payments net minimum sublease rentals rent charged operating expenses 273 million 2017 244 million 2016 249 million 2015 goldman sachs group inc subsidiaries notes consolidated financial statements operating leases include office space held excess current requirements rent expense relating space held growth included occupancy expenses firm records liability based fair value remaining lease rentals reduced potential existing sublease rentals leases firm ceased using space management concluded firm derive future economic benefits costs terminate lease end term recognized measured fair value termination total occupancy expenses space held excess firm’s current requirements exit costs related office space material 2017 2015 approximately 68 million 2016 contingencies legal proceedings see note 27 information legal proceedings including certain mortgagerelated matters agreements firm entered toll statute limitations certain mortgagerelated contingencies multiple areas focus regulators governmental agencies others within mortgage market may impact originators issuers servicers investors remains significant uncertainty surrounding nature extent potential exposure participants market firm significant originator residential mortgage loans firm purchase loans originated others generally received loanlevel representations period 2005 2008 firm sold approximately 10 billion loans governmentsponsored enterprises approximately 11 billion loans third parties addition firm transferred 125 billion loans trusts mortgage securitization vehicles connection sales loans securitizations firm provided loanlevel representations andor assigned loanlevel representations party firm purchased loans firm’s exposure claims repurchase residential mortgage loans based alleged breaches representations depend number factors extent claims made within statute limitations taking consideration agreements toll statute limitations firm entered trustees representing certain trusts based upon large number defaults residential mortgages including sold securitized firm potential repurchase claims however firm position make meaningful estimate exposure time contingencies connection sale metro international trade services metro firm agreed provide indemnities buyer primarily relate fundamental representations warranties potential liabilities legal regulatory proceedings arising conduct metro’s business firm owned connection settlement agreement residential mortgagebacked securities working group us financial fraud enforcement task force rmbs working group firm agreed provide 180 billion consumer relief form principal forgiveness underwater homeowners distressed borrowers financing construction rehabilitation preservation affordable housing support debt restructuring foreclosure prevention housing quality improvement programs well land banks guarantees table presents information certain derivatives meet definition guarantee securities lending indemnifications certain financial guarantees table • maximum payout based notional amount contract represent anticipated losses • amounts exclude certain commitments issue standby letters credit included commitments extend credit see tables “commitments” summary firm’s commitments • carrying value derivatives included derivative assets 220 billion 120 billion derivative liabilities 761 billion 1007 billion december 2017 december 2016 respectively goldman sachs group inc subsidiaries notes consolidated financial statements derivative guarantees firm enters various derivatives meet definition guarantee us gaap including written equity commodity put options written currency contracts interest rate caps floors swaptions derivatives risk managed together derivatives meet definition guarantee therefore amounts table reflect firm’s overall risk related derivative activities disclosures derivatives required may cash settled firm basis conclude probable counterparties held underlying instruments inception contract firm concluded conditions met certain large internationally active commercial investment bank counterparties central clearing counterparties certain counterparties accordingly firm included contracts table addition see note 7 information credit derivatives meet definition guarantee included table derivatives accounted fair value therefore carrying value considered best indication paymentperformance risk individual contracts however carrying values table exclude effect counterparty cash collateral netting securities lending indemnifications firm capacity agency lender indemnifies securities lending customers losses incurred event borrowers return securities collateral held insufficient cover market value securities borrowed collateral held lenders connection securities lending indemnifications 3903 billion 3433 billion december 2017 december 2016 respectively contractual nature arrangements requires firm obtain collateral market value exceeds value securities lent borrower minimal performance risk associated guarantees financial guarantees ordinary course business firm provides financial guarantees obligations third parties eg standby letters credit guarantees enable clients complete transactions fundrelated guarantees represent obligations make payments beneficiaries guaranteed party fails fulfill obligation contractual arrangement beneficiary guarantees securities issued trusts firm established trusts including goldman sachs capital apex trusts entities limited purpose issuing securities third parties lending proceeds firm entering contractual arrangements firm third parties related purpose firm consolidate entities see note 16 information transactions involving goldman sachs capital apex trusts firm effectively provides full unconditional guarantee securities issued entities timely payment firm amounts due entities guarantee borrowing preferred stock related contractual arrangements sufficient cover payments due securities issued entities management believes unlikely circumstances occur nonperformance part paying agents service providers would make necessary firm make payments related entities required terms guarantee borrowing preferred stock related contractual arrangements connection certain expenses incurred entities indemnities guarantees service providers ordinary course business firm indemnifies guarantees certain service providers clearing custody agents trustees administrators specified potential losses connection acting agent providing services firm affiliates firm may also liable clients parties losses arising custodial role caused acts omissions thirdparty service providers including subcustodians thirdparty brokers certain cases firm right seek indemnification thirdparty service providers certain relevant losses incurred firm addition firm member payment clearing settlement networks well securities exchanges around world may require firm meet obligations networks exchanges event member defaults loss scenarios connection firm’s prime brokerage clearing businesses firm agrees clear settle behalf clients transactions entered brokerage firms firm’s obligations respect transactions secured assets client’s account well proceeds received transactions cleared settled firm behalf client connection joint venture investments firm may issue loan guarantees may liable event fraud misappropriation environmental liabilities certain matters involving borrower goldman sachs group inc subsidiaries notes consolidated financial statements firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements material liabilities related guarantees indemnifications recognized consolidated statements financial condition december 2017 december 2016 representations warranties indemnifications firm provides representations warranties counterparties connection variety commercial transactions occasionally indemnifies potential losses caused breach representations warranties firm may also provide indemnifications protecting changes adverse application certain us tax laws connection ordinarycourse transactions securities issuances borrowings derivatives addition firm may provide indemnifications counterparties protect event additional taxes owed payments withheld due either change adverse application certain nonus tax laws indemnifications generally standard contractual terms entered ordinary course business generally stated notional amounts included indemnifications contingencies triggering obligation indemnify expected occur firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements material liabilities related arrangements recognized consolidated statements financial condition december 2017 december 2016 guarantees subsidiaries group inc fully unconditionally guarantees securities issued gs finance corp whollyowned finance subsidiary firm group inc guaranteed payment obligations goldman sachs co llc gsco gs bank usa subject certain exceptions addition group inc guarantees many obligations consolidated subsidiaries transactionbytransaction basis negotiated counterparties group inc unable develop estimate maximum payout subsidiary guarantees however guaranteed obligations also obligations consolidated subsidiaries group inc’s liabilities guarantor separately disclosed note 19 shareholders’ equity common equity december 2017 december 2016 firm 400 billion authorized shares common stock 200 million authorized shares nonvoting common stock par value 001 per share dividends declared per common share 290 2017 260 2016 255 2015 january 16 2018 board directors group inc board declared dividend 075 per common share paid march 29 2018 common shareholders record march 1 2018 firm’s share repurchase program intended help maintain appropriate level common equity share repurchase program effected primarily regular openmarket purchases may include repurchase plans designed comply rule 10b51 amounts timing determined primarily firm’s current projected capital position may also influenced general market conditions prevailing price trading volumes firm’s common stock prior repurchasing common stock firm must receive confirmation frb object capital action table presents amount common stock repurchased firm share repurchase program pursuant terms certain sharebased compensation plans employees may remit shares firm may cancel rsus stock options satisfy minimum statutory employee tax withholding requirements exercise price stock options plans 2017 2016 2015 12165 shares 49374 shares 35217 shares remitted total value 3 million 7 million 6 million firm cancelled 81 million 61 million 57 million rsus total value 194 billion 921 million 103 billion respectively plans firm also cancelled 46 million 55 million 20 million stock options total value 109 billion 111 billion 406 million 2017 2016 2015 respectively goldman sachs group inc subsidiaries notes consolidated financial statements preferred equity tables present details perpetual preferred stock issued outstanding december 2017 tables • shares par value 001 per share applicable share represented specified number depositary shares • earliest redemption date represents date share noncumulative preferred stock redeemable firm’s option • prior redeeming preferred stock firm must receive confirmation frb object capital action • november 2017 group inc issued 60000 shares series p perpetual 500 fixedtofloating rate noncumulative preferred stock series p preferred stock • redemption price per share series f preferred stock liquidation preference plus declared unpaid dividends redemption price per share series j p preferred stock liquidation preference plus accrued unpaid dividends share noncumulative series e series f preferred stock issued outstanding redeemable firm’s option subject certain covenant restrictions governing firm’s ability redeem preferred stock without issuing common stock instruments equitylike characteristics see note 16 information replacement capital covenants applicable series e series f preferred stock • series preferred stock pari passu preference firm’s common stock liquidation • firm’s ability declare pay dividends purchase redeem otherwise acquire common stock subject certain restrictions event firm fails pay set aside full dividends preferred stock latest completed dividend period 2016 firm delivered par amount 132 billion fair value 104 billion apex trusts exchange 9833 shares series e preferred stock 3385 shares series f preferred stock total redemption value 132 billion net carrying value 131 billion following exchange shares series e series f preferred stock cancelled difference fair value apex net carrying value preferred stock time cancellation 266 million difference recorded reduction preferred stock dividends 2016 see note 16 information apex november 2017 firm redeemed 34000 shares series 595 noncumulative preferred stock series preferred stock stated redemption price 850 million 25000 per share plus accrued unpaid dividends difference redemption value series preferred stock net carrying value time redemption 14 million difference recorded addition preferred stock dividends 2017 february 2018 firm redeemed 26000 shares outstanding series b 620 noncumulative preferred stock series b preferred stock redemption value 650 million 25000 per share difference redemption value series b preferred stock net carrying value time redemption 15 million difference recorded addition preferred stock dividends first quarter 2018 goldman sachs group inc subsidiaries notes consolidated financial statements table presents dividend rates firm’s perpetual preferred stock december 2017 table dividends series preferred stock payable arrears periods specified table presents dividends declared firm’s preferred stock table total preferred dividend amounts series e series f preferred stock 2016 include prorated dividends 86667 per share related 4861 shares series e preferred stock 1639 shares series f preferred stock cancelled 2016 january 10 2018 group inc declared dividends 24479 38750 26111 34375 39844 39375 per share series preferred stock series b preferred stock series c preferred stock series preferred stock series j preferred stock series k preferred stock series n preferred stock respectively paid february 12 2018 preferred shareholders record january 28 2018 addition firm declared dividends 100000 per share series e preferred stock series f preferred stock paid march 1 2018 preferred shareholders record february 14 2018 accumulated comprehensive loss table presents changes accumulated comprehensive loss net tax type table beginning balance accumulated comprehensive loss december 2016 adjusted reflect cumulative effect change accounting principle related debt valuation adjustment net tax see note 3 information adoption asu 201601 see note 8 information debt valuation adjustment goldman sachs group inc subsidiaries notes consolidated financial statements note 20 regulation capital adequacy frb primary regulator group inc bank holding company bhc us bank holding company act 1956 financial holding company amendments act bhc firm subject consolidated regulatory capital requirements calculated accordance riskbased capital leverage regulations frb subject certain transitional provisions capital framework riskbased capital requirements expressed capital ratios compare measures regulatory capital riskweighted assets rwas failure comply capital requirements could result restrictions imposed firm’s regulators firm’s capital levels also subject qualitative judgments regulators components capital risk weightings factors furthermore certain firm’s subsidiaries subject separate regulations capital requirements described capital framework regulations capital framework largely based basel committee banking supervision’s basel committee capital framework strengthening international capital standards basel iii also implement certain provisions doddfrank act capital framework firm “advanced approach” banking organization designated global systemically important bank gsib firm calculates common equity tier 1 cet1 tier 1 capital total capital ratios accordance standardized approach market risk rules set capital framework together standardized capital rules ii advanced approach market risk rules set capital framework together basel iii advanced rules lower capital ratio calculated ii ratio firm’s compliance minimum ratio requirements assessed capital ratios calculated accordance basel iii advanced rules lower calculated accordance standardized capital rules therefore basel iii advanced ratios applied firm december 2017 december 2016 capital ratios apply firm change future reporting periods result regulatory requirements regulatory capital ratios table presents minimum ratios required firm table • minimum capital ratios december 2017 reflect 50 phasein capital conservation buffer 25 ii 50 phasein gsib buffer 25 based 2015 financial data iii countercyclical capital buffer zero percent described • minimum capital ratios december 2016 reflect 25 phasein capital conservation buffer 25 ii 25 phasein gsib buffer 3 based 2014 financial data iii countercyclical capital buffer zero percent described • tier 1 leverage ratio defined tier 1 capital divided quarterly average adjusted total assets includes adjustments goodwill identifiable intangible assets certain investments nonconsolidated financial institutions certain aspects capital framework’s requirements phase time transitional provisions include capital buffers certain deductions regulatory capital investments nonconsolidated financial institutions deductions regulatory capital required phased ratably per year 2014 2018 residual amounts deducted transitional period subject risk weighting addition junior subordinated debt issued trusts phased regulatory capital minimum cet1 tier 1 total capital ratios apply firm increase capital buffers phased capital conservation buffer consists entirely capital qualifies cet1 began phase january 1 2016 continue increments 0625 per year reaches 25 rwas january 1 2019 goldman sachs group inc subsidiaries notes consolidated financial statements gsib buffer extension capital conservation buffer phases ratably beginning january 1 2016 becoming fully effective january 1 2019 must consist entirely capital qualifies cet1 buffer must calculated using two methodologies higher reflected firm’s minimum riskbased capital ratios first calculation based upon basel committee’s methodology among factors relies upon measures size activity complexity gsib second calculation uses similar inputs includes measure reliance shortterm wholesale funding firm’s gsib buffer updated annually based financial data prior year generally applicable following year capital framework also provides countercyclical capital buffer extension capital conservation buffer 25 consisting entirely cet1 intended counteract systemic vulnerabilities december 2017 frb set countercyclical capital buffer zero percent failure meet capital levels inclusive buffers could limit firm’s ability distribute capital including share repurchases dividend payments make certain discretionary compensation payments definition riskweighted assets rwas calculated accordance standardized capital rules basel iii advanced rules following comparison rwa calculations rules • rwas credit risk accordance standardized capital rules calculated different manner basel iii advanced rules primary difference standardized capital rules contemplate use internal models compute exposure credit risk derivatives securities financing transactions whereas basel iii advanced rules permit use models subject supervisory approval addition credit rwas calculated accordance standardized capital rules utilize prescribed riskweights depend largely type counterparty rather internal assessments creditworthiness counterparties • rwas market risk accordance standardized capital rules basel iii advanced rules generally consistent • rwas operational risk required standardized capital rules whereas basel iii advanced rules include requirement credit risk credit rwas calculated based upon measures exposure risk weighted following description calculation credit rwas accordance standardized capital rules basel iii advanced rules • credit rwas calculated accordance standardized capital rules firm utilizes prescribed riskweights depend largely type counterparty eg whether counterparty sovereign bank brokerdealer entity exposure measure derivatives based combination positive net current exposure percentage notional amount derivative exposure measure securities financing transactions calculated reflect adjustments potential price volatility size depends factors type maturity security whether denominated currency side financing transaction firm utilizes specific required formulaic approaches measure exposure securitizations equities • credit rwas calculated accordance basel iii advanced rules firm given permission regulators compute riskweights wholesale retail credit exposures accordance advanced internal ratingsbased approach based internal assessments creditworthiness counterparties key inputs probability default loss given default effective maturity firm utilizes internal models measure exposure derivatives securities financing transactions capital framework requires bhc obtain prior written agreement regulators using internal models purposes firm utilizes specific required formulaic approaches measure exposure securitizations equities goldman sachs group inc subsidiaries notes consolidated financial statements market risk market rwas calculated based measures exposure include valueatrisk var stressed var incremental risk comprehensive risk based internal models standardized measurement method specific risk market risk regulatory capital rules require bhc obtain prior written agreement regulators using internal model calculate riskbased capital requirement following information regarding measures exposure market rwas calculated accordance standardized capital rules basel iii advanced rules • var potential loss value inventory positions well certain financial assets financial liabilities due adverse market movements defined time horizon specified confidence level risk management purposes regulatory capital calculations firm uses single var model captures risks including related interest rates equity prices currency rates commodity prices however var used regulatory capital requirements regulatory var differs risk management var due different time horizons confidence levels 10day 99 regulatory var vs oneday 95 risk management var well differences scope positions var calculated addition daily net revenues used determine risk management var exceptions ie comparing daily net revenues var measure calculated end prior business day include intraday activity whereas frb’s regulatory capital rules require intraday activity excluded daily net revenues calculating regulatory var exceptions intraday activity includes bidoffer net revenues likely positive nature result may differences number var exceptions amount daily net revenues calculated regulatory var compared amounts calculated risk management var firm’s positional losses observed single day exceed 99 oneday regulatory var 2017 exceeded 99 oneday regulatory var two occasions 2016 change var multiplier used calculate market rwas • stressed var potential loss value inventory positions well certain financial assets financial liabilities period significant market stress • incremental risk potential loss value nonsecuritized inventory positions due default credit migration issuers financial instruments oneyear time horizon • comprehensive risk potential loss value due price risk defaults within firm’s credit correlation positions • specific risk loss position could result factors broad market movements including event risk default risk idiosyncratic risk standardized measurement method used determine specific risk rwas applying supervisory defined riskweighting factors applicable netting performed operational risk operational rwas required included basel iii advanced rules firm given permission regulators calculate operational rwas accordance “advanced measurement approach” therefore utilizes internal riskbased model quantify operational rwas consolidated regulatory capital ratios capital ratios rwas capital ratios calculated accordance basel iii advanced rules lower calculated accordance standardized capital rules december 2017 december 2016 therefore lower ratios applied firm dates goldman sachs group inc subsidiaries notes consolidated financial statements table presents ratios calculated accordance standardized capital rules basel iii advanced rules effective january 2018 firm subject fully phasedin cet1 ratios december 2017 firm’s cet1 ratios fully phasedin basis calculated accordance standardized capital rules basel iii advanced rules lower 02 percentage points compared transitional cet1 ratios table • deduction goodwill identifiable intangible assets net deferred tax liabilities included goodwill 367 billion december 2017 december 2016 identifiable intangible assets 298 million 80 373 million 257 million 60 429 million december 2017 december 2016 respectively net associated deferred tax liabilities 694 million 105 billion december 2017 december 2016 respectively goodwill fully deducted cet1 deduction identifiable intangible assets required phased cet1 ratably five years 2014 2018 balance deducted transitional period risk weighted • deduction investments nonconsolidated financial institutions represents amount firm’s investments capital nonconsolidated financial institutions exceed certain prescribed thresholds deduction investments required phased cet1 ratably five years 2014 2018 december 2017 december 2016 cet1 reflects 80 60 deduction respectively balance deducted transitional period risk weighted • deduction investments covered funds represents firm’s aggregate investments applicable covered funds excluding investments subject extended conformance period deduction subject transition period see note 6 information volcker rule • adjustments within cet1 tier 1 capital primarily include credit valuation adjustments derivative liabilities pension postretirement liabilities overfunded portion firm’s defined benefit pension plan obligation net associated deferred tax liabilities disallowed deferred tax assets debt valuation adjustments required credit riskbased deductions deduction items generally required phased cet1 ratably five years 2014 2018 december 2017 december 2016 cet1 reflects 80 60 deduction respectively balance deducted cet1 transitional period generally deducted tier 1 capital within adjustments goldman sachs group inc subsidiaries notes consolidated financial statements • december 2017 junior subordinated debt issued trusts fully phased tier 1 capital 50 included tier 2 capital 50 fully phased regulatory capital december 2016 junior subordinated debt issued trusts fully phased tier 1 capital 60 included tier 2 capital 40 fully phased regulatory capital junior subordinated debt issued trusts reduced amount trust preferred securities purchased firm fully phased tier 2 capital 2022 rate 10 per year see note 16 information firm’s junior subordinated debt issued trusts trust preferred securities purchased firm • qualifying subordinated debt subordinated debt issued group inc original maturity five years greater outstanding amount subordinated debt qualifying tier 2 capital reduced upon reaching remaining maturity five years see note 16 information firm’s subordinated debt tables present changes cet1 tier 1 capital tier 2 capital tables change deduction transitional provisions represents increased phasein deduction 60 80 effective january 1 2017 40 60 effective january 1 2016 goldman sachs group inc subsidiaries notes consolidated financial statements tables present components rwas calculated accordance standardized capital rules basel iii advanced rules tables • securities financing transactions represent resale repurchase agreements securities borrowed loaned transactions • includes receivables certain debt securities cash equivalents assets table presents changes rwas calculated accordance standardized capital rules basel iii advanced rules table increased deduction transitional provisions represents increased phasein deduction 60 80 effective january 1 2017 standardized credit rwas december 2017 increased 5682 billion compared december 2016 primarily reflecting increase commitments guarantees loans principally due increased lending activity standardized market rwas december 2017 increased 212 billion compared december 2016 primarily reflecting increase stressed var result increased risk exposures partially offset decreases specific risk result changes risk exposures comprehensive risk result changes risk measurements basel iii advanced credit rwas december 2017 increased 6323 billion compared december 2016 primarily reflecting increase commitments guarantees loans principally due increased lending activity basel iii advanced market rwas december 2017 increased 238 billion compared december 2016 primarily reflecting increase stressed var result increased risk exposures partially offset decreases specific risk result changes risk exposures comprehensive risk result changes risk measurements goldman sachs group inc subsidiaries notes consolidated financial statements table presents changes rwas calculated accordance standardized capital rules basel iii advanced rules table increased deduction transitional provisions represents increased phasein deduction 40 60 effective january 1 2016 standardized credit rwas december 2016 decreased 871 billion compared december 2015 primarily reflecting decrease derivatives principally due reduced exposures decrease receivables included credit rwas reflecting impact firm client activity decrease partially offset increases commitments guarantees loans principally due increased lending activity equity investments principally due increased exposures impact market movements standardized market rwas december 2016 decreased 1873 billion compared december 2015 primarily reflecting decrease specific risk result reduced risk exposures basel iii advanced credit rwas december 2016 increased 601 billion compared december 2015 primarily reflecting increase commitments guarantees loans principally due increased lending activity increase equity investments principally due increased exposures impact market movements increases partially offset decrease derivatives principally due lower counterparty credit risk reduced exposure basel iii advanced market rwas december 2016 decreased 1851 billion compared december 2015 primarily reflecting decrease specific risk result reduced risk exposures basel iii advanced operational rwas december 2016 decreased 1550 billion compared december 2015 reflecting decrease frequency certain events incorporated within firm’s riskbased model bank subsidiaries regulatory capital ratios gs bank usa fdicinsured new york statechartered bank member federal reserve system supervised regulated frb fdic new york state department financial services consumer financial protection bureau subject regulatory capital requirements calculated substantially manner applicable bhcs purposes assessing adequacy capital gs bank usa calculates capital ratios accordance riskbased capital leverage requirements applicable state member banks requirements based capital framework described gs bank usa advanced approach banking organization capital framework goldman sachs group inc subsidiaries notes consolidated financial statements regulatory framework prompt corrective action applicable gs bank usa order meet quantitative requirements “wellcapitalized” depository institution gs bank usa must meet higher minimum requirements minimum ratios table december 2017 december 2016 gs bank usa compliance minimum capital requirements “wellcapitalized” minimum ratios table presents minimum ratios “wellcapitalized” minimum ratios required gs bank usa table • minimum capital ratios december 2017 reflect 50 phasein capital conservation buffer 25 ii countercyclical capital buffer zero percent described • minimum capital ratios december 2016 reflect 25 phasein capital conservation buffer 25 ii countercyclical capital buffer zero percent described gs bank usa’s capital levels prompt corrective action classification also subject qualitative judgments regulators components capital risk weightings factors failure comply capital requirements including breach buffers described could result restrictions imposed gs bank usa’s regulators similar firm gs bank usa required calculate cet1 tier 1 capital total capital ratios accordance standardized capital rules basel iii advanced rules lower capital ratio calculated accordance standardized capital rules basel iii advanced rules ratio gs bank usa’s compliance minimum ratio requirements assessed capital ratios calculated accordance standardized capital rules lower calculated accordance basel iii advanced rules therefore standardized capital ratios applied gs bank usa december 2017 december 2016 capital ratios apply gs bank usa change future reporting periods result regulatory requirements table presents ratios gs bank usa calculated accordance standardized capital rules basel iii advanced rules decrease gs bank usa’s standardized basel iii advanced capital ratios december 2016 december 2017 primarily due increase credit rwas principally due increase lending activity firm’s principal nonus bank subsidiary gsib whollyowned credit institution regulated prudential regulation authority pra financial conduct authority fca subject minimum capital requirements december 2017 december 2016 gsib compliance regulatory capital requirements deposits gs bank usa insured fdic extent provided law frb requires gs bank usa maintain cash reserves federal reserve bank new york amount deposited gs bank usa federal reserve bank new york 5086 billion 7424 billion december 2017 december 2016 respectively exceeded required reserve amounts 5074 billion 7409 billion december 2017 december 2016 respectively goldman sachs group inc subsidiaries notes consolidated financial statements brokerdealer subsidiaries us regulated brokerdealer subsidiaries gsco firm’s primary us regulated brokerdealer subsidiary subject regulatory capital requirements including imposed sec financial industry regulatory authority inc addition gsco registered futures commission merchant subject regulatory capital requirements imposed cftc chicago mercantile exchange national futures association rule 15c31 sec rule 117 cftc specify uniform minimum net capital requirements defined registrants also effectively require significant part registrants’ assets kept relatively liquid form gsco elected calculate minimum capital requirements accordance “alternative net capital requirement” permitted rule 15c31 december 2017 december 2016 gsco regulatory net capital defined rule 15c31 1557 billion 1717 billion respectively exceeded amount required 1315 billion 1466 billion respectively addition alternative minimum net capital requirements gsco also required hold tentative net capital excess 1 billion net capital excess 500 million accordance market credit risk standards appendix e rule 15c31 gsco also required notify sec event tentative net capital less 5 billion december 2017 december 2016 gsco tentative net capital net capital excess minimum notification requirements nonus regulated brokerdealer subsidiaries firm’s principal nonus regulated brokerdealer subsidiaries include goldman sachs international gsi goldman sachs japan co ltd gsjcl gsi firm’s uk brokerdealer regulated pra fca gsjcl firm’s japanese brokerdealer regulated japan’s financial services agency certain nonus subsidiaries firm also subject capital adequacy requirements promulgated authorities countries operate december 2017 december 2016 subsidiaries compliance local capital adequacy requirements restrictions payments group inc’s ability withdraw capital regulated subsidiaries limited minimum equity capital requirements applicable subsidiaries provisions applicable law regulations regulatory restrictions limit ability subsidiaries declare pay dividends without prior regulatory approval eg amount dividends may paid gs bank usa limited lesser amounts calculated recent earnings test undivided profits test even relevant subsidiary would satisfy equity capital requirements applicable giving effect dividend example frb fdic new york state department financial services authority prohibit limit payment dividends banking organizations supervise including gs bank usa relevant regulator’s opinion payment dividend would constitute unsafe unsound practice light financial condition banking organization december 2017 december 2016 group inc required maintain 5302 billion 4649 billion respectively minimum equity capital regulated subsidiaries order satisfy regulatory requirements subsidiaries goldman sachs group inc subsidiaries notes consolidated financial statements note 21 earnings per common share basic earnings per common share eps calculated dividing net earnings applicable common shareholders weighted average number common shares outstanding rsus future service required condition delivery underlying common stock collectively basic shares diluted eps includes determinants basic eps addition reflects dilutive effect common stock deliverable stock options rsus future service required condition delivery underlying common stock table presents computations basic diluted eps table unvested sharebased awards nonforfeitable rights dividends dividend equivalents treated separate class securities calculating eps impact applying methodology reduction basic eps 006 2017 005 2016 2015 diluted eps computations table include antidilutive securities rsus common shares underlying stock options 01 million 2017 28 million 2016 60 million 2015 note 22 transactions affiliated funds firm formed numerous nonconsolidated investment funds thirdparty investors firm generally acts investment manager funds entitled receive management fees certain cases advisory fees incentive fees funds additionally firm invests alongside thirdparty investors certain funds tables present fees earned affiliated funds fees receivable affiliated funds aggregate carrying value firm’s interests affiliated funds firm may periodically determine waive certain management fees selected money market funds management fees waived 98 million 104 million 2017 2016 respectively volcker rule restricts firm providing financial support covered funds defined rule expiration conformance period general matter ordinary course business firm expect provide additional voluntary financial support covered funds may choose respect funds subject volcker rule however event support provided amount expected material december 2017 december 2016 firm outstanding guarantee permitted volcker rule behalf funds 154 million 300 million respectively firm voluntarily provided guarantee connection financing agreement thirdparty lender executed one firm’s real estate funds covered volcker rule december 2017 december 2016 except noted firm provided additional financial support affiliated funds addition ordinary course business firm may also engage activities affiliated funds including among others securities lending trade execution market making custody acquisition bridge financing see note 18 firm’s investment commitments related funds goldman sachs group inc subsidiaries notes consolidated financial statements note 23 interest income interest expense interest recorded life instrument accrual basis based contractual interest rates table presents firm’s sources interest income interest expense table • collateralized agreements includes rebates paid interest income securities borrowed • interest income includes interest income customer debit balances interestearning assets • collateralized financings consists securities sold agreements repurchase securities loaned • interest expense includes rebates received interestbearing liabilities interest expense customer credit balances note 24 income taxes tax legislation provision taxes 2017 reflected increase income tax expense 440 billion representing estimated impact tax legislation enacted december 22 2017 440 billion income tax expense includes repatriation tax undistributed earnings foreign subsidiaries effects implementation territorial tax system remeasurement us deferred tax assets lower enacted tax rates repatriation tax based greater firm’s post1986 earnings profits november 2 2017 december 31 2017 income taxes paid payable foreign jurisdictions partially reduce repatriation tax foreign tax credit based formula includes future earnings certain foreign subsidiaries calculation resulted estimated income tax expense 332 billion us deferred tax assets liabilities required remeasured december 22 2017 new us federal income tax rate 21 federal impact associated state local deferred income taxes well due implementation territorial tax system remeasurement resulted estimated income tax expense 108 billion components impact tax legislation described calculated account available information amounts estimates firm anticipates modification estimate may occur result refinement firm’s calculations based updated information ii changes firm’s interpretations assumptions iii updates issuance future legislative guidance iv actions firm may take result tax legislation provision income taxes income taxes provided using asset liability method deferred tax assets liabilities recognized temporary differences financial reporting tax bases assets liabilities firm reports interest expense related income tax matters provision taxes income tax penalties expenses goldman sachs group inc subsidiaries notes consolidated financial statements table presents components provision taxes table • state local current taxes includes impact settlements state local examinations • us federal deferred tax expense includes estimated impact tax legislation table presents reconciliation us federal statutory income tax rate firm’s effective income tax rate table • nonus operations includes impact permanently reinvested earnings excludes estimated impact tax legislation • state local taxes net us federal income tax effects includes impact settlements state local examinations • substantially nondeductible legal expenses 2015 relate provisions settlement agreement rmbs working group deferred income taxes deferred income taxes reflect net tax effects temporary differences financial reporting tax bases assets liabilities temporary differences result taxable deductible amounts future years measured using tax rates laws effect differences expected reverse valuation allowances established reduce deferred tax assets amount likely realized primarily relate ability utilize losses various tax jurisdictions tax assets liabilities presented component assets liabilities accrued expenses respectively table presents significant components deferred tax assets liabilities excluding impact netting within tax jurisdictions firm recorded deferred tax assets 428 million 427 million december 2017 december 2016 respectively connection us federal state local foreign net operating loss carryforwards firm also recorded valuation allowance 128 million 67 million december 2017 december 2016 respectively related net operating loss carryforwards goldman sachs group inc subsidiaries notes consolidated financial statements december 2017 us federal state local foreign net operating loss carryforwards 268 million 133 billion 123 billion respectively utilized us federal state local foreign net operating loss carryforwards begin expire 2018 carryforwards expire material impact firm’s results operations december 2017 foreign tax credit carryforwards 446 million general business credit carryforwards 533 million state local tax credit carryforwards 27 million utilized foreign tax credit carryforward begin expire 2027 general business credit carryforward begin expire 2037 state local tax credit carryforward begin expire 2020 firm capital loss carryforwards related net deferred income tax assets december 2017 december 2016 valuation allowance increased 41 million 2017 increased 42 million 2016 increases 2017 2016 primarily due increase deferred tax assets firm expect realize benefit firm permanently reinvested eligible earnings certain foreign subsidiaries december 2017 substantially us taxes accrued subsidiaries’ earnings profits result tax legislation repatriation tax december 2016 firm accrue us income taxes would arise earnings repatriated resulting unrecognized net deferred tax liability 618 billion attributable reinvested earnings 3124 billion unrecognized tax benefits firm recognizes tax positions consolidated financial statements likely position sustained examination relevant taxing authority based technical merits position meets standard measured largest amount benefit likely realized settlement liability established differences positions taken tax return amounts recognized consolidated financial statements accrued liability interest expense related income tax matters income tax penalties 81 million 141 million december 2017 december 2016 respectively firm recognized interest expense income tax penalties 63 million 27 million 17 million 2017 2016 2015 respectively reasonably possible unrecognized tax benefits could change significantly twelve months subsequent december 2017 due potential audit settlements however time possible estimate potential change table presents changes liability unrecognized tax benefits liability included liabilities accrued expenses see note 17 information regulatory tax examinations firm subject examination us internal revenue service irs taxing authorities jurisdictions firm significant business operations united kingdom japan hong kong various states new york tax years examination vary jurisdiction firm expect completion audits material impact firm’s financial condition may material operating results particular period depending part operating results period table presents earliest tax years remain subject examination major jurisdiction goldman sachs group inc subsidiaries notes consolidated financial statements us federal examinations 2011 2012 began 2013 firm accepted compliance assurance process program irs tax years 2013 2018 program allows firm work irs identify resolve potential us federal tax issues filing tax returns 2013 2016 tax years remain subject postfiling review fourth quarter 2017 new york state city examinations firm excluding gs bank usa fiscal 2007 calendar 2010 completed completion examinations material impact firm’s effective income tax rate new york state city examinations excluding gs bank usa 2011 2014 began fourth quarter 2017 new york state city examinations gs bank usa completed 2014 first quarter 2017 firm concluded examinations hong kong tax authorities related 2007 2015 2011 2015 subject final review completion examinations material impact firm’s effective income tax rate years including subsequent years table remain open examination taxing authorities firm believes liability unrecognized tax benefits established adequate relation potential additional assessments note 25 business segments firm reports activities following four business segments investment banking institutional client services investing lending investment management basis presentation reporting segments certain firm’s business lines aggregated similar economic characteristics similar following areas nature services provide ii methods distribution iii types clients serve iv regulatory environments operate cost drivers firm taken whole compensation headcount levels business activity broadly similar firm’s business segments compensation benefits expenses firm’s segments reflect among factors overall performance firm well performance individual businesses consequently pretax margins one segment firm’s business may significantly affected performance firm’s business segments firm allocates assets including allocations global core liquid assets cash secured client financing assets revenues expenses among four business segments due integrated nature segments estimates judgments made allocating certain assets revenues expenses allocation process based manner management currently views performance segments transactions segments based specific criteria approximate thirdparty rates table presents firm’s net revenues pretax earnings total assets segment management believes information provides reasonable representation segment’s contribution consolidated pretax earnings total assets goldman sachs group inc subsidiaries notes consolidated financial statements table • revenues expenses directly associated segment included determining pretax earnings • net revenues firm’s segments include allocations interest income interest expense specific securities commodities positions relation cash generated funding requirements underlying positions net interest included segment net revenues consistent way management assesses segment performance • overhead expenses directly allocable specific segments allocated ratably based direct segment expenses • operating expenses allocated firm’s segments except charitable contributions 127 million 2017 114 million 2016 148 million 2015 • total operating expenses included net provisions litigation regulatory proceedings 188 million 2017 396 million 2016 401 billion 337 billion related settlement agreement rmbs working group 2015 table presents amounts net interest income segment included net revenues table presents amounts depreciation amortization expense segment included pretax earnings geographic information due highly integrated nature international financial markets firm manages businesses based profitability enterprise whole methodology allocating profitability geographic regions dependent estimates management judgment significant portion firm’s activities require crossborder coordination order facilitate needs firm’s clients geographic results generally allocated follows • investment banking location client investment banking team • institutional client services ficc client execution equities excluding securities services location marketmaking desk securities services location primary market underlying security • investing lending investing location investment lending location client • investment management location sales team table presents total net revenues pretax earnings net earnings firm geographic region allocated based methodology referred well percentage total net revenues pretax earnings net earnings excluding corporate geographic region goldman sachs group inc subsidiaries notes consolidated financial statements table • americas net earnings included estimated income tax expense 440 billion recorded 2017 related tax legislation • americas pretax earnings included provisions 337 billion recorded 2015 related settlement agreement rmbs working group • corporate pretax earnings includes charitable contributions allocated firm’s geographic regions • substantially amounts americas attributable us • asia includes australia new zealand note 26 credit concentrations firm’s concentrations credit risk arise market making client facilitation investing underwriting lending collateralized transactions cash management activities may impacted changes economic industry political factors activities expose firm many different industries counterparties may also subject firm concentration credit risk particular central bank counterparty borrower issuer including sovereign issuers particular clearing house exchange firm seeks mitigate credit risk actively monitoring exposures obtaining collateral counterparties deemed appropriate firm measures monitors credit exposure based amounts owed firm taking account risk mitigants management considers determining credit risk mitigants include netting collateral arrangements economic hedges credit derivatives futures forward contracts netting collateral agreements permit firm offset receivables payables counterparties andor enable firm obtain collateral upfront contingent basis table presents credit concentrations cash instruments held firm included financial instruments owned addition december 2017 december 2016 firm 7613 billion 9472 billion respectively cash deposits held central banks included cash equivalents 5086 billion 7424 billion respectively held federal reserve bank new york december 2017 december 2016 firm credit exposure counterparty exceeded 2 total assets collateral obtained firm related derivative assets principally cash held firm thirdparty custodian collateral obtained firm related resale agreements securities borrowed transactions primarily us government agency obligations nonus government agency obligations see note 10 information collateralized agreements financings table presents us government agency obligations nonus government agency obligations collateralize resale agreements securities borrowed transactions table • nonus government agency obligations primarily consist securities issued governments japan france uk germany • given firm’s primary credit exposure transactions counterparty transaction firm would exposed collateral issuer event counterparty default goldman sachs group inc subsidiaries notes consolidated financial statements note 27 legal proceedings firm involved number judicial regulatory arbitration proceedings including described concerning matters arising connection conduct firm’s businesses many proceedings early stages many cases seek indeterminate amount damages asc 450 event “reasonably possible” “the chance future event events occurring remote less likely” event “remote” “the chance future event events occurring slight” thus references upper end range reasonably possible loss cases firm able estimate range reasonably possible loss mean upper end range loss cases firm believes risk loss slight respect matters described management able estimate range reasonably possible loss actual potential plaintiffs claimed amount money damages ii firm threatened sued purchasers securities offering indemnified party firm believes pay full amount judgment iii purchasers demanding firm repurchase securities management estimated upper end range reasonably possible loss equal case amount money damages claimed b case ii difference initial sales price securities firm sold offering estimated lowest subsequent price securities prior action commenced c case iii price purchasers paid securities less estimated value december 2017 relevant securities cases ii iii taking account factors believed relevant particular matter matters type date hereof firm estimated upper end range reasonably possible aggregate loss matters described management able estimate range reasonably possible aggregate loss approximately 15 billion excess aggregate reserves matters management generally unable estimate range reasonably possible loss matters included estimate including actual potential plaintiffs claimed amount money damages except instances management otherwise determine appropriate amount ii matters early stages iii matters relate regulatory investigations reviews except instances management otherwise determine appropriate amount iv uncertainty likelihood class certified ultimate size class v uncertainty outcome pending appeals motions vi significant factual issues resolved andor vii novel legal issues presented example firm’s potential liabilities respect future mortgagerelated “putback” claims described may ultimately result increase firm’s liabilities included management’s estimate reasonably possible loss another example firm’s potential liabilities respect investigations reviews described “regulatory investigations reviews related litigation” also generally included management’s estimate reasonably possible loss however management believe based currently available information outcomes matters material adverse effect firm’s financial condition though outcomes could material firm’s operating results particular period depending part upon operating results period see note 18 information mortgagerelated contingencies mortgagerelated matters beginning april 2010 number purported securities law class actions filed us district court southern district new york challenging adequacy group inc’s public disclosure among things firm’s activities cdo market firm’s conflict interest management consolidated amended complaint filed july 25 2011 names defendants group inc certain current former officers employees group inc affiliates generally alleges violations sections 10b 20a exchange act seeks unspecified damages january 12 2018 us court appeals second circuit vacated district court’s class certification order remanded reconsideration goldman sachs group inc subsidiaries notes consolidated financial statements june 2012 board received demand shareholder board investigate take action relating firm’s mortgagerelated activities stock sales certain directors executives firm february 15 2013 shareholder filed putative shareholder derivative action new york supreme court new york county group inc certain current former directors employees based activities stock sales derivative complaint includes allegations breach fiduciary duty unjust enrichment abuse control gross mismanagement corporate waste seeks among things unspecified monetary damages disgorgement profits certain corporate governance disclosure reforms may 28 2013 group inc informed shareholder board completed investigation determined refuse demand june 20 2013 shareholder made books records demand requesting materials relating board’s determination parties agreed stay proceedings putative derivative action pending resolution books records demand addition board received books records demands several shareholders materials relating among subjects firm’s mortgage servicing foreclosure activities participation federal programs providing assistance financial institutions homeowners loan sales fannie mae freddie mac mortgagerelated activities conflicts management firm entered agreements us bank national association toll relevant statute limitations respect claims repurchase residential mortgage loans based alleged breaches representations related 17 billion original notional face amount securitizations issued trusts us bank national association acts trustee firm received subpoenas requests information engaged discussions certain regulators law enforcement agencies entered settlement agreements part inquiries investigations relating mortgagerelated matters director compensationrelated litigation may 9 2017 group inc certain current former directors named defendants purported direct derivative shareholder action court chancery state delaware similar purported derivative action filed june 2015 alleging excessive director compensation period 2012 2014 voluntarily dismissed without prejudice december 2016 new complaint alleges excessive compensation paid nonemployee director defendants since 2015 certain disclosures connection soliciting stockholder approval stock incentive plans deficient complaint asserts claims breaches fiduciary duties seeks among things rescission cases rescissory damages disgorgement shareholder votes several matters defendants moved dismiss july 28 2017 currenciesrelated litigation gsco group inc among defendants named putative class actions filed us district court southern district new york beginning september 2016 behalf putative indirect purchasers foreign exchange instruments consolidated amended complaint filed june 30 2017 generally alleges conspiracy manipulate foreign currency exchange markets asserts claims federal state antitrust laws state consumer protection laws seeks injunctive relief well treble damages unspecified amount defendants moved dismiss august 11 2017 financial advisory services group inc certain affiliates time parties various civil litigation arbitration proceedings disputes clients third parties relating firm’s financial advisory activities claims generally seek among things compensatory damages cases punitive damages certain cases allege firm appropriately disclose deal conflicts interest goldman sachs group inc subsidiaries notes consolidated financial statements underwriting litigation firm affiliates among defendants number proceedings connection securities offerings proceedings including described plaintiffs assert class action individual claims federal state securities laws cases applicable laws allege offering documents securities purchased contained material misstatements omissions generally seek compensatory rescissory damages unspecified amounts certain proceedings involve additional allegations cobalt international energy cobalt international energy inc cobalt certain officers directors including employees affiliates group inc served directors cobalt affiliates shareholders cobalt including group inc underwriters including gsco certain offerings cobalt’s securities defendants putative securities class action filed november 30 2014 us district court southern district texas second consolidated amended complaint filed march 15 2017 relates 167 billion february 2012 offering cobalt common stock 138 billion december 2012 offering cobalt’s convertible notes 100 billion january 2013 offering cobalt’s common stock 133 billion may 2013 offering cobalt’s common stock 130 billion may 2014 offering cobalt’s convertible notes consolidated amended complaint alleges among others group inc gsco liable controlling persons respect five offerings shareholder affiliates including group inc liable sale cobalt common stock basis inside information consolidated amended complaint also seeks damages gsco connection acting underwriter 16594500 shares common stock representing aggregate offering price approximately 465 million 690 million principal amount convertible notes approximately 508 million principal amount convertible notes february 2012 december 2012 may 2014 offerings respectively aggregate offering price approximately 166 billion january 19 2016 court granted leave replead underwriter defendants’ motions dismiss claims plaintiffs purchased cobalt securities april 30 2013 denied motions dismiss respects june 15 2017 court granted plaintiffs’ motion class certification denied certain shareholder affiliates’ motions including group inc dismiss claim alleging sales based inside information august 4 2017 us court appeals fifth circuit granted defendants’ petition interlocutory review class certification order august 23 2017 district court denied defendants’ motion reconsideration certain aspects class certification order district court fifth circuit denied defendants’ request stay discovery pending resolution fifth circuit proceeding december 14 2017 cobalt filed chapter 11 bankruptcy cobalt certain officers directors including employees affiliates group inc served directors cobalt certain shareholders cobalt including funds affiliated group inc affiliates shareholders including group inc defendants putative shareholder derivative actions filed may 6 2016 november 29 2016 texas district court harris county director officer defendants including employees affiliates group inc served directors cobalt petitions generally allege breached fiduciary duties state law making materially false misleading statements concerning cobalt shareholder defendants affiliates including group inc several affiliated funds original petition also alleges breached fiduciary duties selling cobalt securities common stock offerings described basis inside information petitions seek among things unspecified monetary damages disgorgement proceeds sale cobalt common stock march 6 2017 court denied defendants’ motion dismiss may petition shareholder defendants affiliates including group inc affiliated funds defendants moved dismiss november petition january 30 2017 goldman sachs group inc subsidiaries notes consolidated financial statements adeptus health gsco among underwriters named defendants several putative securities class actions filed beginning october 2016 consolidated us district court eastern district texas addition underwriters defendants include certain adeptus health inc’s adeptus past present directors officers well principal private equity investor underwriters consolidated amended complaint filed november 21 2017 relates 124 million june 2014 initial public offering 154 million may 2015 secondary equity offering 411 million july 2015 secondary equity offering 175 million june 2016 secondary equity offering gsco underwrote 169 million shares common stock june 2014 initial public offering representing aggregate offering price approximately 37 million 962378 shares common stock may 2015 offering representing aggregate offering price approximately 61 million 176 million shares common stock july 2015 offering representing aggregate offering price approximately 184 million shares common stock june 2016 offering representing aggregate offering price approximately 175 million april 19 2017 adeptus filed chapter 11 bankruptcy defendants filed motions dismiss february 5 2018 terraform global gsco among underwriters placement agents initial purchasers named defendants several putative class actions individual actions filed beginning october 2015 relating 675 million july 2015 initial public offering common stock terraform global inc terraform global june 2015 private placement 335 million terraform global class units august 2015 rule 144a offering 810 million principal amount terraform global senior notes december 20 2017 parties reached definitive settlement individual actions relating terraform global’s offerings resolved claims without contribution gsco date us district court southern district new york preliminarily approved settlement funded terraform global class action relating terraform global’s initial public offering would resolve litigation gsco underwriter sold 2340000 shares terraform global common stock initial public offering representing aggregate offering price approximately 35 million gsco initial purchaser sold approximately 49 million principal amount terraform global senior notes rule 144a offering sunedison gsco among underwriters named defendants several putative class actions individual actions filed beginning march 2016 relating august 2015 public offering 650 million sunedison inc sunedison convertible preferred stock april 21 2016 sunedison filed chapter 11 bankruptcy pending cases transferred us district court southern district new york march 17 2017 certain plaintiffs filed amended complaint defendants also include certain sunedison’s directors officers gsco underwriter sold 138890 shares sunedison convertible preferred stock offering representing aggregate offering price approximately 139 million valeant pharmaceuticals international gsco goldman sachs canada inc gs canada among underwriters initial purchasers named defendants putative class action filed march 2 2016 superior court quebec canada addition underwriters initial purchasers defendants include valeant pharmaceuticals international inc valeant certain directors officers valeant’s auditor gsco gs canada complaint relates june 2013 public offering 23 billion common stock june 2013 rule 144a offering 32 billion principal amount senior notes november 2013 rule 144a offering 900 million principal amount senior notes complaint asserts claims quebec securities act civil code quebec august 29 2017 court certified class includes nonus purchasers offerings defendant’s motion leave appeal certification denied november 30 2017 gsco gs canada sole underwriters sold 5334897 shares common stock june 2013 offering nonus purchasers representing aggregate offering price approximately 453 million initial purchasers proportional share sales nonus purchasers approximately cad142 million principal amount senior notes june 2013 november 2013 rule 144a offerings snap inc gsco among underwriters named defendants putative securities class actions pending california superior court county los angeles california superior court county san mateo us district court central district california beginning may 2017 relating snap inc’s 391 billion march 2017 initial public offering addition underwriters defendants include snap inc certain officers directors gsco underwrote 57040000 shares common stock representing aggregate offering price approximately 970 million defendants moved dismiss federal court action december 1 2017 goldman sachs group inc subsidiaries notes consolidated financial statements investment management services group inc certain affiliates parties various civil litigation arbitration proceedings disputes clients relating losses allegedly sustained result firm’s investment management services claims generally seek among things restitution compensatory damages cases punitive damages interest rate swap antitrust litigation group inc gsco gsi gs bank usa goldman sachs financial markets lp gsfm among defendants named putative antitrust class action relating trading interest rate swaps filed november 2015 consolidated us district court southern district new york goldman sachs entities also among defendants named antitrust action relating trading interest rate swaps filed us district court southern district new york april 2016 two operators swap execution facilities certain affiliates actions consolidated pretrial proceedings second consolidated amended complaint actions filed december 9 2016 generally asserts claims federal antitrust law state common law connection alleged conspiracy among defendants preclude exchange trading interest rate swaps complaint individual action also asserts claims state antitrust law complaints seek declaratory injunctive relief well treble damages unspecified amount defendants moved dismiss actions january 20 2017 july 28 2017 district court issued decision dismissing state common law claims asserted plaintiffs individual action otherwise limiting antitrust claims actions state common law claim putative class action period 2013 2016 securities lending antitrust litigation group inc gsco among defendants named putative antitrust class action individual action relating securities lending practices filed us district court southern district new york beginning august 2017 complaints generally assert claims federal antitrust law state common law connection alleged conspiracy among defendants preclude development electronic platforms securities lending transactions individual complaint also asserts claims tortious interference business relations state trade practices law complaints seek declaratory injunctive relief well treble damages restitution unspecified amounts group inc voluntarily dismissed putative class action january 26 2018 defendants moved dismiss class action complaint january 26 2018 credit default swap antitrust litigation group inc gsco gsi gs bank usa gsfm among defendants named antitrust action relating trading credit default swaps filed us district court southern district new york june 8 2017 operator swap execution facility certain affiliates complaint generally asserts claims federal state antitrust laws state common law connection alleged conspiracy among defendants preclude trading credit default swaps plaintiffs’ swap execution facility complaint seeks declaratory injunctive relief well treble damages unspecified amount defendants moved dismiss september 11 2017 commoditiesrelated litigation gsi among defendants named putative class actions relating trading platinum palladium filed beginning november 25 2014 recently amended may 15 2017 us district court southern district new york amended complaint generally alleges defendants violated federal antitrust laws commodity exchange act connection alleged conspiracy manipulate benchmark physical platinum palladium prices seek declaratory injunctive relief well treble damages unspecified amount defendants moved dismiss third consolidated amended complaint july 21 2017 us treasury securities litigation gsco among primary dealers named defendants several putative class actions relating market us treasury securities filed beginning july 2015 consolidated us district court southern district new york gsco also among primary dealers named defendants similar individual action filed us district court southern district new york august 25 2017 consolidated class action complaint filed december 29 2017 generally alleges defendants violated antitrust laws connection alleged conspiracy manipulate whenissued market auctions us treasury securities certain defendants including gsco colluded preclude trading us treasury securities electronic trading platforms order impede competition bidding process individual action alleges similar conspiracy regarding manipulation whenissued market auctions well related futures options violation commodity exchange act complaints seek declaratory injunctive relief treble damages unspecified amount restitution goldman sachs group inc subsidiaries notes consolidated financial statements employmentrelated matters september 15 2010 putative class action filed us district court southern district new york three female former employees alleging group inc gsco systematically discriminated female employees respect compensation promotion assignments mentoring performance evaluations complaint alleges class consisting female employees employed specified levels specified areas group inc gsco since july 2002 asserts claims federal new york city discrimination laws complaint seeks class action status injunctive relief unspecified amounts compensatory punitive damages july 17 2012 district court issued decision granting part group inc’s gsco’s motion strike certain plaintiffs’ class allegations ground plaintiffs lacked standing pursue certain equitable remedies denying group inc’s gsco’s motion strike plaintiffs’ class allegations entirety premature march 21 2013 us court appeals second circuit held arbitration compelled one named plaintiffs managing director party arbitration agreement firm march 10 2015 magistrate judge district judge assigned remaining plaintiffs’ may 2014 motion class certification recommended motion denied respects august 3 2015 magistrate judge granted plaintiffs’ motion intervene two female individuals one employed firm september 2010 ceased employee firm subsequent magistrate judge’s decision august 30 2017 district court vacated portion magistrate judge’s march 10 2015 decision recommended denial plaintiffs’ motion certification injunctive declaratory judgment class 1malaysia development berhad 1mdbrelated matters firm received subpoenas requests documents information various governmental regulatory bodies selfregulatory organizations part investigations reviews relating financing transactions matters involving 1mdb sovereign wealth fund malaysia firm cooperating governmental regulatory investigations reviews regulatory investigations reviews related litigation group inc certain affiliates subject number investigations reviews cases received subpoenas requests documents information various governmental regulatory bodies selfregulatory organizations litigation shareholder requests relating various matters relating firm’s businesses operations including • 2008 financial crisis • public offering process • firm’s investment management financial advisory services • conflicts interest • research practices including research independence interactions research analysts firm personnel including investment banking personnel well third parties • transactions involving governmentrelated financings matters municipal securities including wallcross procedures conflict interest disclosure respect state municipal clients trading structuring municipal derivative instruments connection municipal offerings political contribution rules municipal advisory services possible impact credit default swap transactions municipal issuers goldman sachs group inc subsidiaries notes consolidated financial statements • offering auction sales trading clearance corporate government securities currencies commodities financial products related sales communications activities well firm’s supervision controls relating activities including compliance sec’s short sale rule algorithmic highfrequency quantitative trading firm’s us alternative trading system dark pool futures trading options trading whenissued trading transaction reporting technology systems controls securities lending practices trading clearance credit derivative instruments interest rate swaps commodities activities metals storage private placement practices allocations trading securities trading activities communications connection establishment benchmark rates currency rates • compliance us foreign corrupt practices act • firm’s hiring compensation practices • firm’s system risk management controls • insider trading potential misuse dissemination material nonpublic information regarding corporate governmental developments effectiveness firm’s insider trading controls information barriers firm cooperating governmental regulatory investigations reviews note 28 employee benefit plans firm sponsors various pension plans certain postretirement benefit plans primarily healthcare life insurance firm also provides certain benefits former inactive employees prior retirement defined benefit pension plans postretirement plans employees certain nonus subsidiaries participate various defined benefit pension plans generally provide benefits based years credited service percentage employee’s eligible compensation firm maintains defined benefit pension plan certain uk employees april 2008 uk defined benefit plan closed new participants frozen existing participants march 31 2016 nonus plans material impact firm’s consolidated results operations firm also maintains defined benefit pension plan substantially us employees hired prior november 1 2003 november 2004 plan closed new participants frozen existing participants addition firm maintains unfunded postretirement benefit plans provide medical life insurance eligible retirees dependents covered programs plans material impact firm’s consolidated results operations firm recognizes funded status defined benefit pension postretirement plans measured difference fair value plan assets benefit obligation consolidated statements financial condition december 2017 assets liabilities accrued expenses included 346 million related overfunded pension plans 606 million respectively related plans december 2016 assets liabilities accrued expenses included 72 million related overfunded pension plans 592 million respectively related plans goldman sachs group inc subsidiaries notes consolidated financial statements defined contribution plans firm contributes employersponsored us nonus defined contribution plans firm’s contribution plans 257 million 2017 236 million 2016 231 million 2015 note 29 employee incentive plans cost employee services received exchange sharebased award generally measured based grantdate fair value award sharebased awards require future service ie vested awards including awards granted retirementeligible employees expensed immediately sharebased awards require future service amortized relevant service period effective january 2017 forfeitures recorded occur prior january 2017 expected forfeitures estimated recorded vesting period see note 3 information adoption asu 201609 cash dividend equivalents paid outstanding rsus charged retained earnings rsus require future service forfeited related dividend equivalents originally charged retained earnings reclassified compensation expense period forfeiture occurs firm generally issues new shares common stock upon delivery sharebased awards certain cases primarily related conflicted employment outlined applicable award agreements firm may cash settle sharebased compensation awards accounted equity instruments awards whose terms allow cash settlement additional paidin capital adjusted extent difference value award time cash settlement grantdate value award stock incentive plan firm sponsors stock incentive plan goldman sachs amended restated stock incentive plan 2015 sip provides grants rsus restricted stock dividend equivalent rights incentive stock options nonqualified stock options stock appreciation rights sharebased awards may subject performance conditions may 21 2015 shareholders approved 2015 sip 2015 sip replaced goldman sachs amended restated stock incentive plan 2013 sip previously effect applies awards granted date approval december 2017 730 million shares available grant 2015 sip shares common stock underlying awards granted 2015 sip 2013 sip delivered due forfeiture termination cancellation surrendered withheld shares become available delivered 2015 sip shares available grant also subject adjustment certain changes corporate structure permitted 2015 sip 2015 sip scheduled terminate date annual meeting shareholders occurs 2019 restricted stock units firm grants rsus including rsus subject performance conditions employees 2015 sip generally valued based closing price underlying shares date grant taking account liquidity discount applicable postvesting delivery transfer restrictions rsus generally vest underlying shares common stock deliver net required withholding tax outlined applicable award agreements employee award agreements generally provide vesting accelerated certain circumstances retirement death disability conflicted employment delivery underlying shares common stock generally occurs threeyear period conditioned grantees satisfying certain vesting requirements outlined award agreements goldman sachs group inc subsidiaries notes consolidated financial statements table presents activity related rsus table • weighted average grantdate fair value rsus granted 2017 2016 2015 20688 13592 16019 respectively fair value rsus granted 2017 2016 2015 includes liquidity discount 107 105 92 respectively reflect postvesting delivery transfer restrictions generally 4 years • aggregate fair value awards vested 2017 2016 2015 214 billion 226 billion 240 billion respectively • delivered rsus include rsus cash settled • rsus outstanding include restricted stock subject future service requirements december 2017 december 2016 3298 39957 shares respectively • rsus outstanding include 62023 rsus subject performance conditions subject future service requirements december 2017 rsus outstanding december 2016 relation 2017 yearend first quarter 2018 firm granted employees 57 million rsus 29 million require future service condition delivery related shares common stock delivered net required withholding tax 12 million shares restricted stock require future service rsu restricted stock awards subject additional conditions outlined award agreements including postvesting delivery transfer restrictions january 2023 awards included table stock options stock options generally vest outlined applicable stock option agreement general options expire tenth anniversary grant date although may subject earlier termination cancellation certain circumstances accordance terms applicable stock option agreement sip effect time grant december 2017 december 2016 210 million 796 million options outstanding respectively exercisable options outstanding december 2017 granted 2008 exercise price 7878 aggregate intrinsic value 370 million remaining life 1 year options outstanding december 2016 weighted average exercise price 12336 aggregate intrinsic value 924 million weighted average remaining life 161 years options outstanding december 2016 consisted 513 million options exercise price 7878 remaining life 200 years 283 million options exercise price 20416 remaining life 092 years 2017 586 million options exercised weighted average exercise price 13935 total intrinsic value options exercised 2017 2016 2015 589 million 436 million 531 million respectively table presents sharebased compensation related excess tax benefit table excess net tax benefit sharebased awards includes net tax benefit dividend equivalents paid rsus delivery common stock underlying sharebased awards well excess net tax benefit options exercised following adoption asu 201609 january 2017 amounts recognized prospectively income tax expense prior years amounts recognized additional paidin capital see note 3 information asu december 2017 386 million total unrecognized compensation cost related nonvested sharebased compensation arrangements cost expected recognized weighted average period 182 years goldman sachs group inc subsidiaries notes consolidated financial statements note 30 parent company group inc condensed statements earnings supplemental disclosures dividends bank subsidiaries included cash dividends 525 million 32 million 14 million 2017 2016 2015 respectively dividends nonbank subsidiaries affiliates included cash dividends 798 billion 346 billion 229 billion 2017 2016 2015 respectively interest expense included 105 billion 201 million 187 million interest expense subsidiaries 2017 2016 2015 respectively group inc’s provisionbenefit taxes 2017 included substantially firm’s 440 billion estimated income tax expense related tax legislation see note 24 information tax legislation group inc condensed statements financial condition supplemental disclosures goldman sachs funding llc funding ihc whollyowned direct subsidiary group inc provided group inc committed line credit allows group inc draw sufficient funds meet cash needs ordinary course business financial instruments owned included 570 million 108 billion derivative contracts subsidiaries december 2017 december 2016 respectively december 2017 unsecured longterm borrowings subsidiaries maturity date 1055 billion 2019 121 million 2020 58 million 2021 21 million 2022 323 million 2023thereafter goldman sachs group inc subsidiaries notes consolidated financial statements group inc condensed statements cash flows supplemental disclosures cash payments interest net capitalized interest 631 billion 491 billion 370 billion 2017 2016 2015 respectively cash payments income taxes net refunds 297 million 61 million 128 billion 2017 2016 2015 respectively cash flows related common stock repurchased includes common stock repurchased prior period settlement occurred current period excludes common stock repurchased current period settlement occurred following period noncash activities year ended december 2017 • group inc exchanged 8400 billion certain loans receivables subsidiaries 8400 billion unsecured subordinated note funding ihc included loans receivables subsidiaries • group inc exchanged 750 million equity interest goldman sachs uk llc gs uk whollyowned subsidiary group inc 750 million loan gs uk • group inc exchanged 237 million trust preferred securities common beneficial interests 248 million group inc’s junior subordinated debt noncash activities year ended december 2016 • group inc exchanged 104 billion apex 131 billion series e series f preferred stock see note 19 information • group inc exchanged 127 million senior guaranteed trust securities 124 million group inc’s junior subordinated debt noncash activities year ended december 2015 • group inc exchanged 612 billion financial instruments owned fair value held group inc 520 billion loans 918 million equity certain subsidiaries • group inc exchanged 262 million trust preferred securities common beneficial interests held group inc 296 million group inc’s junior subordinated debt goldman sachs group inc subsidiaries supplemental financial information quarterly results unaudited tables present firm’s unaudited quarterly results 2017 2016 quarterly results prepared accordance us gaap reflect adjustments opinion management necessary fair statement results adjustments normal recurring nature timing magnitude changes firm’s discretionary compensation accruals included operating expenses significant effect results given quarter common stock price range table presents high low sales prices per share firm’s common stock february 9 2018 7652 holders record firm’s common stock february 9 2018 last reported sales price firm’s common stock new york stock exchange 24930 per share common stock performance graph table compare performance investment firm’s common stock december 31 2012 last trading day firm’s 2013 fiscal year december 31 2017 sp 500 index sp 500 financials index graph table assume 100 invested december 31 2012 firm’s common stock sp 500 index sp 500 financials index dividends reinvested date payment without payment commissions performance shown represents past performance considered indication future performance goldman sachs group inc subsidiaries supplemental financial information selected financial data table • impact adopting asu 201503 reduction total assets total liabilities 398 million 383 million december 2014 december 2013 respectively see note 3 consolidated financial statements part ii item 8 firm’s annual report form 10k year ended december 31 2015 information asu 201503 • basic shares represent common shares outstanding restricted stock units granted employees future service requirements statistical disclosures distribution assets liabilities shareholders’ equity tables present summary average balances interest rates goldman sachs group inc subsidiaries supplemental financial information goldman sachs group inc subsidiaries supplemental financial information tables • assets liabilities interest classified us nonus based location entity assets liabilities held see notes consolidated financial statements information assets liabilities • derivative instruments commodities included noninterestearning assets noninterestbearing liabilities • total interestearning assets primarily consists certain receivables customers counterparties • collateralized financings consists securities sold agreements repurchase securities loaned • substantially total interestbearing liabilities consists certain payables customers counterparties • interest rates borrowings include effects interest rate swaps accounted hedges • december 2016 firm reclassified amounts related cash securities segregated regulatory purposes previously included total interestearning assets total deposits banks total collateralized agreements total financial instruments owned firm also reclassified amounts related cash segregated regulatory purposes previously included noninterestearning assets cash due banks previously reported amounts conformed current presentation see note 3 consolidated financial statements information reclassification changes net interest income volume rate analysis tables present analysis effect net interest income volume rate changes analysis changes due volumerate variance allocated volume goldman sachs group inc subsidiaries supplemental financial information deposits table presents summary firm’s interestbearing deposits table deposits classified us nonus based location entity deposits held december 2017 deposits us nonus offices include 281 billion 1166 billion respectively time deposits greater 100000 table presents maturities time deposits held us offices goldman sachs group inc subsidiaries supplemental financial information shortterm borrowed funds table presents summary firm’s securities loaned securities sold agreements repurchase shortterm borrowings table • borrowings generally mature within one year financial statement date include borrowings redeemable option holder within one year financial statement date • amounts outstanding yearend shortterm borrowings includes shortterm secured financings 1490 billion 1312 billion 1423 billion december 2017 december 2016 december 2015 respectively • weighted average interest rates borrowings include effect hedging activities loan portfolio table presents summary firm’s loans receivable table loans receivable classified us nonus based location entity loans held allowance loan losses table presents changes allowance loan losses table • allowance loan losses primarily related corporate loans extended pwm clients held entities located us • substantially chargeoffs related corporate loans held entities located us goldman sachs group inc subsidiaries supplemental financial information maturities sensitivity changes interest rates table presents firm’s gross loans receivable tenor distribution loans receivable fixed floating interest rates crossborder outstandings crossborder outstandings based federal financial institutions examination council’s ffiec guidelines reporting crossborder information represent amounts firm may able obtain foreign country due countryspecific events including unfavorable economic political conditions economic social instability changes government policies credit exposure represents potential loss due default deterioration credit quality counterparty issuer securities instruments firm holds measured based potential loss event nonpayment counterparty credit exposure reduced effect risk mitigants netting agreements counterparties permit firm offset receivables payables counterparties obtaining collateral counterparties table include effects risk mitigants represent firm’s credit exposure table presents crossborder outstandings commitments country crossborder outstandings exceed 075 consolidated assets accordance ffiec guidelines include cash receivables collateralized agreements cash financial instruments exclude derivative instruments table • collateralized agreements presented gross without reduction related securities collateral held • margin loans included receivables presented based amount collateral advanced counterparty • substantially commitments consist commitments extend credit forward starting collateralized agreements • beginning december 2016 collateralized agreements agency lenders presented based country underlying counterparty rather country agency lender amounts december 2015 conformed current presentation goldman sachs group inc subsidiaries item 9item 8 financial statements supplementary data index management’s report internal control financial reporting management goldman sachs group inc together consolidated subsidiaries firm responsible establishing maintaining adequate internal control financial reporting firm’s internal control financial reporting process designed supervision firm’s principal executive principal financial officers provide reasonable assurance regarding reliability financial reporting preparation firm’s financial statements external reporting purposes accordance us generally accepted accounting principles end firm’s 2007 fiscal year management conducted assessment effectiveness firm’s internal control financial reporting based framework established internal control integrated framework issued committee sponsoring organizations treadway commission coso based assessment management determined firm’s internal control financial reporting november 30 2007 effective internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets provide reasonable assurances transactions recorded necessary permit preparation financial statements accordance us generally accepted accounting principles receipts expenditures made accordance authorizations management directors firm provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition firm’s assets could material effect financial statements firm’s internal control financial reporting november 30 2007 audited pricewaterhousecoopers llp independent registered public accounting firm stated report appearing page 108 expresses unqualified opinion effectiveness firm’s internal control financial reporting november 30 2007 report independent registered public accounting firm board directors shareholders goldman sachs group inc opinion consolidated financial statements listed accompanying index present fairly material respects financial position goldman sachs group inc subsidiaries company november 30 2007 november 24 2006 results operations cash flows three fiscal years period ended november 30 2007 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed accompanying index presents fairly material respects information set forth therein read conjunction related consolidated financial statements also opinion company maintained material respects effective internal control financial reporting november 30 2007 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements financial statement schedule maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing page 107 responsibility express opinions financial statements financial statement schedule company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions discussed note 2 consolidated financial statements company adopted sfas 157 “fair value measurements” sfas 159 “the fair value option financial assets financial liabilities” company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp new york new york january 24 2008 goldman sachs group inc subsidiaries consolidated statements earnings accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements financial condition accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements changes shareholders’ equity accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements cash flows supplemental disclosures cash payments interest net capitalized interest 4074 billion 3098 billion 1749 billion years ended november 2007 november 2006 november 2005 respectively cash payments income taxes net refunds 578 billion 456 billion 247 billion years ended november 2007 november 2006 november 2005 respectively noncash activities firm assumed 409 million 498 million 115 billion debt connection business acquisitions years ended november 2007 november 2006 november 2005 respectively year ended november 2007 firm issued 17 million common stock connection business acquisitions accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements comprehensive income accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries notes consolidated financial statements note 1 description business goldman sachs group inc group inc delaware corporation together consolidated subsidiaries collectively firm leading global investment banking securities investment management firm provides wide range services worldwide substantial diversified client base includes corporations financial institutions governments highnetworth individuals firm’s activities divided three segments • investment banking firm provides broad range investment banking services diverse group corporations financial institutions investment funds governments individuals • trading principal investments firm facilitates client transactions diverse group corporations financial institutions investment funds governments individuals takes proprietary positions market making trading investing fixed income equity products currencies commodities derivatives products addition firm engages marketmaking specialist activities equities options exchanges clears client transactions major stock options futures exchanges worldwide connection firm’s merchant banking investing activities firm makes principal investments directly funds firm raises manages • asset management securities services firm provides investment advisory financial planning services offers investment products primarily separately managed accounts commingled vehicles mutual funds private investment funds across major asset classes diverse group institutions individuals worldwide provides prime brokerage services financing services securities lending services institutional clients including hedge funds mutual funds pension funds foundations highnetworth individuals worldwide note 2 significant accounting policies basis presentation consolidated financial statements include accounts group inc entities firm controlling financial interest material intercompany transactions balances eliminated firm determines whether controlling financial interest entity first evaluating whether entity voting interest entity variable interest entity vie qualifying specialpurpose entity qspe generally accepted accounting principles • voting interest entities voting interest entities total equity investment risk sufficient enable entity finance activities independently ii equity holders obligation absorb losses right receive residual returns right make decisions entity’s activities voting interest entities consolidated accordance accounting research bulletin arb 51 “consolidated financial statements” amended arb 51 states usual condition controlling financial interest entity ownership majority voting interest accordingly firm consolidates voting interest entities majority voting interest • variable interest entities vies entities lack one characteristics voting interest entity controlling financial interest vie present enterprise variable interest combination variable interests absorb majority goldman sachs group inc subsidiaries notes consolidated financial statements continued vie’s expected losses receive majority vie’s expected residual returns enterprise controlling financial interest known primary beneficiary consolidates vie accordance financial accounting standards board fasb interpretation fin 46r “consolidation variable interest entities” firm consolidates vies primary beneficiary firm determines whether primary beneficiary vie first performing qualitative analysis vie includes review among factors capital structure contractual terms interests create absorb variability related party relationships design vie qualitative analysis conclusive firm performs quantitative analysis purposes allocating vie’s expected losses expected residual returns variable interest holders firm utilizes “top down” method firm calculates share vie’s expected losses expected residual returns using specific cash flows would allocated based contractual arrangements andor firm’s position capital structure vie various probabilityweighted scenarios • qspes passive entities commonly used mortgage securitization transactions statement financial accounting standards sfas 140 “accounting transfers servicing financial assets extinguishments liabilities” sets forth criteria entity must satisfy qspe criteria include types assets qspe may hold limits asset sales use derivatives financial guarantees level discretion servicer may exercise attempting collect receivables criteria may require management make judgments complex matters including whether derivative considered passive degree discretion servicer may exercise accordance sfas 140 fin 46r firm consolidate qspes • equitymethod investments firm controlling financial interest entity exerts significant influence entity’s operating financial policies generally defined owning voting interest 20 50 investment common stock insubstance common stock firm accounts investment accordance equity method accounting prescribed accounting principles board apb opinion 18 “the equity method accounting investments common stock” investments acquired subsequent adoption sfas 159 “the fair value option financial assets financial liabilities” firm generally elected apply fair value option accounting investments see “ recent accounting developments” discussion firm’s adoption sfas 159 • firm consolidate entity apply equity method accounting firm accounts investment fair value firm also formed numerous nonconsolidated investment funds thirdparty investors typically organized limited partnerships firm acts general partner funds generally hold majority economic interests funds firm generally provided thirdparty investors rights terminate funds remove firm general partner fund investments included “financial instruments owned fair value” consolidated statements financial condition unless otherwise stated herein references november 2007 november 2006 november 2005 refer firm’s fiscal years ended dates context requires november 30 2007 november 24 2006 november 25 2005 respectively certain reclassifications made previously reported amounts conform current presentation goldman sachs group inc subsidiaries notes consolidated financial statements continued use estimates consolidated financial statements prepared accordance generally accepted accounting principles require management make certain estimates assumptions important estimates assumptions relate fair value measurements accounting goodwill identifiable intangible assets provision potential losses may arise litigation regulatory proceedings tax audits although estimates assumptions based best available information actual results could materially different estimates revenue recognition investment banking underwriting revenues fees mergers acquisitions financial advisory assignments recognized consolidated statements earnings services related underlying transaction completed terms engagement expenses associated transactions deferred related revenue recognized engagement otherwise concluded underwriting revenues presented net related expenses associated financial advisory transactions recorded noncompensation expenses net client reimbursements financial instruments “total financial instruments owned fair value” “financial instruments sold yet purchased fair value” reflected consolidated statements financial condition tradedate basis related unrealized gains losses generally recognized “trading principal investments” consolidated statements earnings fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date exit price instruments firm owns long positions marked bid prices instruments firm sold yet purchased short positions marked offer prices fair value measurements adjusted transaction costs firm adopted sfas 157 “fair value measurements” beginning 2007 sfas 157 establishes fair value hierarchy prioritizes inputs valuation techniques used measure fair value hierarchy gives highest priority unadjusted quoted prices active markets identical assets liabilities level 1 measurements lowest priority unobservable inputs level 3 measurements three levels fair value hierarchy sfas 157 described basis fair value measurement level 1 unadjusted quoted prices active markets accessible measurement date identical unrestricted assets liabilities level 2 quoted prices markets active financial instruments significant inputs observable either directly indirectly level 3 prices valuations require inputs significant fair value measurement unobservable financial instrument’s level within fair value hierarchy based lowest level input significant fair value measurement see “ recent accounting developments” discussion impact adopting sfas 157 goldman sachs group inc subsidiaries notes consolidated financial statements continued determining fair value firm separates “financial instruments owned fair value” “financial instruments sold yet purchased fair value” two categories cash instruments derivative contracts • cash instruments firm’s cash instruments generally classified within level 1 level 2 fair value hierarchy valued using quoted market prices broker dealer quotations alternative pricing sources reasonable levels price transparency types instruments valued based quoted market prices active markets include us government agency securities many sovereign government obligations active listed equities money market securities instruments generally classified within level 1 fair value hierarchy firm adjust quoted price instruments even situations firm holds large position sale could reasonably impact quoted price types instruments valued based quoted prices markets active broker dealer quotations alternative pricing sources reasonable levels price transparency include investmentgrade highyield corporate bonds mortgage products certain corporate bank bridge loans less liquid listed equities state municipal provincial obligations physical commodities certain loan commitments instruments generally classified within level 2 fair value hierarchy certain cash instruments classified within level 3 fair value hierarchy trade infrequently therefore little price transparency instruments include private equity real estate fund investments certain corporate bank bridge loans less liquid mortgage whole loans distressed debt instruments certain loan commitments transaction price initially used best estimate fair value accordingly pricing model used value instrument model adjusted model value inception equals transaction price valuation adjusted changes inputs assumptions corroborated evidence transactions similar instruments completed pending thirdparty transactions underlying investment comparable entities subsequent rounds financing recapitalizations transactions across capital structure offerings equity debt capital markets changes financial ratios cash flows positions traded active markets subject transfer restrictions valuations adjusted reflect illiquidity andor nontransferability adjustments generally based available market evidence absence evidence management’s best estimate used • derivative contracts derivative contracts exchangetraded overthecounter otc exchangetraded derivatives typically fall within level 1 level 2 fair value hierarchy depending whether deemed actively traded firm generally values exchangetraded derivatives within portfolios using models calibrate market clearing levels eliminate timing differences closing price exchangetraded derivatives underlying cash instruments cases exchangetraded derivatives classified within level 2 fair value hierarchy otc derivatives valued using market transactions market evidence whenever possible including marketbased inputs models model calibration market clearing transactions broker dealer quotations alternative pricing sources reasonable levels price transparency models used selection particular model value otc derivative depends upon contractual terms specific risks inherent instrument well availability pricing information market firm generally goldman sachs group inc subsidiaries notes consolidated financial statements continued uses similar models value similar instruments valuation models require variety inputs including contractual terms market prices yield curves credit curves measures volatility prepayment rates correlations inputs otc derivatives trade liquid markets generic forwards swaps options model inputs generally verified model selection involve significant management judgment instruments typically classified within level 2 fair value hierarchy certain otc derivatives trade less liquid markets limited pricing information determination fair value derivatives inherently difficult instruments classified within level 3 fair value hierarchy firm corroborating market evidence support significant model inputs cannot verify model market transactions transaction price initially used best estimate fair value accordingly pricing model used value instrument model adjusted model value inception equals transaction price valuations less liquid otc derivatives typically based level 1 andor level 2 inputs observed market well unobservable level 3 inputs subsequent initial recognition firm updates level 1 level 2 inputs reflect observable market changes resulting gains losses reflected within level 3 level 3 inputs changed corroborated evidence similar market transactions thirdparty pricing services andor broker dealer quotations empirical market data circumstances firm cannot verify model value market transactions possible different valuation model could produce materially different estimate fair value appropriate valuations adjusted various factors liquidity bidoffer spreads credit considerations adjustments generally based available market evidence absence evidence management’s best estimate used collateralized agreements financings collateralized agreements consist resale agreements securities borrowed collateralized financings consist repurchase agreements securities loaned secured financings interest collateralized agreements collateralized financings recognized “interest income” “interest expense” respectively life transaction • resale repurchase agreements financial instruments purchased agreements resell financial instruments sold agreements repurchase principally us government federal agency investmentgrade sovereign obligations represent collateralized financing transactions firm receives financial instruments purchased agreements resell makes delivery financial instruments sold agreements repurchase monitors market value financial instruments daily basis delivers obtains additional collateral appropriate resale repurchase agreements carried consolidated statements financial condition fair value allowed sfas 159 prior adoption sfas 159 transactions recorded contractual amounts plus accrued interest resale repurchase agreements generally valued based inputs reasonable levels price transparency classified within level 2 fair value hierarchy resale repurchase agreements presented netbycounterparty basis requirements fin 41 “offsetting amounts related certain repurchase reverse repurchase agreements” fin 39 “offsetting amounts related certain contracts” satisfied • securities borrowed loaned securities borrowed loaned generally collateralized cash securities letters credit firm receives securities borrowed makes delivery securities loaned monitors market value securities borrowed goldman sachs group inc subsidiaries notes consolidated financial statements continued loaned delivers obtains additional collateral appropriate securities borrowed loaned within securities services relating customer activities lesser extent certain firm financing activities recorded based amount cash collateral advanced received plus accrued interest arrangements generally transacted ondemand exhibit little sensitivity changes interest rates securities borrowed loaned within trading principal investments related firm’s matched book certain firm financing activities recorded fair value allowed sfas 159 prior adoption sfas 159 transactions recorded based amount cash collateral advanced received plus accrued interest securities borrowed loaned transactions generally valued based inputs reasonable levels price transparency classified within level 2 fair value hierarchy • secured financings addition repurchase agreements securities loaned firm funds assets use secured financing arrangements pledges financial instruments assets collateral transactions sfas 159 adopted financings use fair value would eliminate noneconomic volatility earnings using different measurement attributes ie assets recorded fair value related nonrecourse financings recorded based amount cash received plus accrued interest primarily transfers accounted financings rather sales sfas 140 debt raised firm’s william street program secured financing transactions generally valued based inputs reasonable levels price transparency classified within level 2 fair value hierarchy secured financings recorded fair value recorded based amount cash received plus accrued interest see note 3 information regarding secured financings hybrid financial instruments hybrid financial instruments contain bifurcatable embedded derivatives sfas 133 “accounting derivative instruments hedging activities” require settlement physical delivery nonfinancial assets eg physical commodities firm elects bifurcate embedded derivative accounted fair value host contract accounted amortized cost adjusted effective portion fair value hedge accounting relationships firm elect bifurcate entire hybrid financial instrument accounted fair value sfas 155 “accounting certain hybrid financial instruments amendment fasb statements 133 140” primary reasons electing fair value option hybrid financial instruments mitigating volatility earnings using different measurement attributes simplification costbenefit considerations see notes 3 4 additional information hybrid financial instruments transfers financial assets general transfers financial assets accounted sales sfas 140 firm relinquished control transferred assets transfers accounted sales related gains losses recognized net revenues transfers accounted sales accounted collateralized financings related interest expense recognized net revenues life transaction power generation power generation revenues associated firm’s consolidated power generation facilities included “trading principal investments” consolidated statements earnings power delivered revenues 421 million 553 million 496 million years ended november 2007 november 2006 november 2005 respectively direct employee costs associated firm’s consolidated power generation facilities 97 million 78 million 70 million years ended november 2007 november 2006 november 2005 respectively included “compensation benefits” direct costs associated goldman sachs group inc subsidiaries notes consolidated financial statements continued power generation facilities related contractual assets included “cost power generation” commissions commission revenues executing clearing client transactions stock options futures markets worldwide recognized “trading principal investments” consolidated statements earnings tradedate basis insurance activities revenues variable annuity life insurance contracts providing reinsurance contracts generally consist fees assessed contract holder account balances mortality charges policy administration surrender charges fees recognized within “trading principal investments” consolidated statements earnings period services provided interest credited variable annuity life insurance account balances changes reserves recognized “other expenses” consolidated statements earnings premiums earned providing property catastrophe reinsurance recognized within “trading principal investments” consolidated statements earnings coverage period net premiums ceded cost reinsurance expenses liabilities related property catastrophe reinsurance claims including estimates claims incurred reported recognized within “other expenses” consolidated statements earnings merchant banking overrides firm entitled receive merchant banking overrides ie increased share fund’s income gains return funds’ investments exceeds certain threshold returns overrides based investment performance life merchant banking fund future investment underperformance may require amounts override previously distributed firm returned funds accordingly overrides recognized consolidated statements earnings material contingencies resolved overrides included “trading principal investments” consolidated statements earnings asset management fees recognized period related service provided based upon average net asset values certain circumstances firm also entitled receive incentive fees based percentage fund’s return assets management exceeds specified benchmark returns performance targets incentive fees generally based investment performance 12month period subject adjustment prior end measurement period accordingly incentive fees recognized consolidated statements earnings measurement period ends asset management fees incentive fees included “asset management securities services” consolidated statements earnings sharebased compensation first quarter 2006 firm adopted sfas 123r “sharebased payment” revision sfas 123 “accounting stockbased compensation” sfas 123r focuses primarily accounting transactions entity obtains employee services exchange sharebased payments sfas 123r cost employee services received exchange sharebased award generally measured based grantdate fair value award sfas 123r sharebased awards require future service ie vested awards including awards granted retirementeligible employees expensed immediately sharebased employee awards require future service amortized relevant service period firm adopted sfas 123r modified prospective adoption method adoption provisions sfas 123r generally applied sharebased awards granted subsequent goldman sachs group inc subsidiaries notes consolidated financial statements continued adoption sharebased awards held employees retirementeligible date adoption sfas 123r must continue amortized stated service period award accelerated employee actually retires sfas 123r requires expected forfeitures included determining sharebased employee compensation expense firm pays cash dividend equivalents outstanding restricted stock units dividend equivalents paid restricted stock units accounted sfas 123 sfas 123r charged retained earnings sfas 123r requires dividend equivalents paid restricted stock units expected forfeited included compensation expense prior adoption sfas 123r dividend equivalents paid restricted stock units later forfeited employees reclassified compensation expense retained earnings tax benefit related dividend equivalents paid restricted stock units accounted reduction income tax expense see “ recent accounting developments” discussion emerging issues task force eitf issue 0611 “accounting income tax benefits dividends sharebased payment awards” certain cases primarily related death employee conflicted employment outlined applicable award agreements firm may cash settle sharebased compensation awards accounted equity instruments “additional paidin capital” adjusted extent difference current value award grantdate value award goodwill cost acquired companies excess fair value identifiable net assets acquisition date accordance sfas 142 “goodwill intangible assets” goodwill tested least annually impairment loss triggered estimated fair value operating segment component one level firm’s three business segments less estimated net book value loss calculated difference estimated fair value goodwill carrying value identifiable intangible assets identifiable intangible assets consist primarily customer lists specialist rights value business acquired voba deferred acquisition costs dac firm’s insurance subsidiaries amortized estimated useful lives accordance sfas 142 identifiable intangible assets tested potential impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable accordance sfas 144 “accounting impairment disposal longlived assets” impairment loss calculated difference estimated fair value carrying value asset group recognized sum estimated undiscounted cash flows relating asset group less corresponding carrying value property leasehold improvements equipment property leasehold improvements equipment net accumulated depreciation amortization included “other assets” consolidated statements financial condition substantially property equipment depreciated straightline basis useful life asset leasehold improvements amortized straightline basis useful life improvement term lease whichever shorter certain costs software developed obtained internal use capitalized amortized straightline basis useful life software goldman sachs group inc subsidiaries notes consolidated financial statements continued property leasehold improvements equipment tested potential impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable accordance sfas 144 impairment loss calculated difference estimated fair value carrying value asset group recognized sum expected undiscounted cash flows relating asset group less corresponding carrying value firm’s operating leases include space held excess current requirements rent expense relating space held growth included “occupancy” consolidated statements earnings accordance sfas 146 “accounting costs associated exit disposal activities” firm records liability based fair value remaining lease rentals reduced potential existing sublease rentals leases firm ceased using space management concluded firm derive future economic benefits costs terminate lease end term recognized measured fair value upon termination foreign currency translation assets liabilities denominated nonus currencies translated rates exchange prevailing date consolidated statement financial condition revenues expenses translated average rates exchange year gains losses translation financial statements nonus operation functional currency us dollar included net hedges taxes consolidated statements comprehensive income firm seeks reduce net investment exposure fluctuations foreign exchange rates use foreign currency forward contracts foreign currencydenominated debt foreign currency forward contracts hedge effectiveness assessed based changes forward exchange rates accordingly forward points reflected component currency translation adjustment consolidated statements comprehensive income foreign currencydenominated debt hedge effectiveness assessed based changes spot rates foreign currency remeasurement gains losses transactions nonfunctional currencies included consolidated statements earnings income taxes deferred tax assets liabilities recognized temporary differences financial reporting tax bases firm’s assets liabilities valuation allowances established reduce deferred tax assets amount likely realized firm’s tax assets liabilities presented component “other assets” “other liabilities accrued expenses” respectively consolidated statements financial condition tax provisions computed accordance sfas 109 “accounting income taxes” contingent liabilities related income taxes recorded criteria loss recognition sfas 5 “accounting contingencies” amended met see “ recent accounting developments” discussion impact fin 48 “accounting uncertainty income taxes interpretation fasb statement 109” sfas 109 earnings per common share eps basic eps calculated dividing net earnings applicable common shareholders weighted average number common shares outstanding common shares outstanding includes common stock restricted stock units future service required condition delivery underlying common stock diluted eps includes determinants basic eps addition reflects dilutive effect common stock deliverable pursuant stock options goldman sachs group inc subsidiaries notes consolidated financial statements continued restricted stock units future service required condition delivery underlying common stock cash equivalents firm defines cash equivalents highly liquid overnight deposits held ordinary course business recent accounting developments fin 48 june 2006 fasb issued fin 48 “accounting uncertainty income taxes interpretation fasb statement 109” fin 48 requires firm determine whether tax position likely sustained upon examination including resolution related appeals litigation processes based technical merits position determined position meets recognition threshold position measured determine amount benefit recognized financial statements firm adopt provisions fin 48 first quarter 2008 adoption fin 48 material effect firm’s financial condition results operations cash flows sfas 157 september 2006 fasb issued sfas 157 “fair value measurements” sfas 157 clarifies fair value exit price representing amount would received sell asset paid transfer liability orderly transaction market participants sfas 157 fair value measurements adjusted transaction costs sfas 157 nullifies guidance included eitf issue 023 “issues involved accounting derivative contracts held trading purposes contracts involved energy trading risk management activities” prohibited recognition day one gain loss derivative contracts hybrid financial instruments measured fair value sfas 155 firm unable verify significant model inputs observable market data andor verify model market transactions however sfas 157 requires fair value measurement reflect assumptions market participants would use pricing asset liability based best information available assumptions include risks inherent particular valuation technique pricing model andor risks inherent inputs model addition sfas 157 prohibits recognition “block discounts” large holdings unrestricted financial instruments quoted prices readily regularly available identical asset liability active market provisions sfas 157 applied prospectively except changes fair value measurements result initial application sfas 157 existing derivative financial instruments measured eitf issue 023 existing hybrid financial instruments measured fair value block discounts recorded adjustment beginning retained earnings year adoption firm adopted sfas 157 beginning 2007 transition adjustment beginning retained earnings gain 51 million net tax first quarter 2007 effect nullification eitf issue 023 removal liquidity discounts actively traded positions material addition sfas 157 gains principal investments recorded absence substantial thirdparty transactions market evidence sufficient first quarter 2007 firm recorded approximately 500 million gains result adopting sfas 157 goldman sachs group inc subsidiaries notes consolidated financial statements continued sfas 158 september 2006 fasb issued sfas 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” sfas 158 requires entity recognize statement financial condition funded status defined benefit pension postretirement plans measured difference fair value plan assets benefit obligation sfas 158 also requires entity recognize changes funded status defined benefit pension postretirement plan within accumulated comprehensive income net tax extent changes recognized earnings components periodic net benefit cost sfas 158 effective end fiscal year ending december 15 2006 firm adopted sfas 158 end 2007 adjustment accumulated comprehensive loss initial application sfas 158 194 million net tax sfas 159 february 2007 fasb issued sfas 159 “the fair value option financial assets financial liabilities” gives entities option measure eligible financial assets financial liabilities firm commitments fair value ie fair value option instrumentbyinstrument basis otherwise accounted fair value accounting standards election use fair value option available specified election dates entity first recognizes financial asset financial liability upon entering firm commitment subsequent changes fair value must recorded earnings additionally sfas 159 allows onetime election existing positions upon adoption transition adjustment recorded beginning retained earnings firm adopted sfas 159 beginning 2007 elected apply fair value option following financial assets liabilities existing time adoption • certain unsecured shortterm borrowings consisting promissory notes commercial paper • certain secured financings primarily transfers accounted financings rather sales sfas 140 debt raised firm’s william street program • certain unsecured longterm borrowings including prepaid physical commodity transactions • resale repurchase agreements • securities borrowed loaned within trading principal investments consisting firm’s matched book certain firm financing activities • securities held goldman sachs bank usa gs bank usa previously accounted availableforsale • receivables customers counterparties arising transfers accounted secured loans rather purchases sfas 140 transition adjustment beginning retained earnings related adoption sfas 159 loss 45 million net tax substantially related applying fair value option prepaid physical commodity transactions subsequent adoption sfas 159 firm elected apply fair value option new positions within categories ii corporate loans corporate loan commitments certificates deposit issued gs bank usa iii generally investments firm would otherwise apply equity method accounting certain cases firm may continue apply equity method accounting investments strategic nature closely related firm’s principal business activities firm significant degree involvement cash flows operations investee andor costbenefit considerations less significant goldman sachs group inc subsidiaries notes consolidated financial statements continued primary reasons electing fair value option mitigating volatility earnings using different measurement attributes simplification costbenefit considerations sop 071 fsp fin 46r7 june 2007 american institute certified public accountants aicpa issued statement position sop 071 “clarification scope audit accounting guide ‘audits investment companies’ accounting parent companies equity method investors investments investment companies” sop 071 clarifies entity may apply provisions audit accounting guide investment companies guide may 2007 fasb issued fsp fin 46r7 “application fin 46r investment companies” amends fin 46r make permanent temporary deferral application fin 46r entities within scope revised guide sop 071 fsp fin 46r7 effective upon adoption sop 071 november 2007 fasb issued proposed fsp sop 071a “the effective date aicpa statement position 071” proposes indefinitely defer effective date sop 0701 consequently fsp fin 46r7 eitf issue 0611 june 2007 eitf reached consensus issue 0611 “accounting income tax benefits dividends sharebased payment awards” eitf issue 0611 requires tax benefit related dividend equivalents paid restricted stock units expected vest recorded increase additional paidin capital firm currently accounts tax benefit reduction income tax expense eitf issue 0611 applied prospectively tax benefits dividends declared fiscal years beginning december 15 2007 firm expects adopt provisions eitf issue 0611 beginning first quarter 2009 firm currently evaluating impact adopting eitf issue 0611 financial condition results operations cash flows goldman sachs group inc subsidiaries notes consolidated financial statements continued note 3 financial instruments fair value financial instruments following table sets forth firm’s financial instruments owned fair value including pledged collateral financial instruments sold yet purchased fair value point time firm may use cash instruments well derivatives manage long short risk position 1 includes 617 billion 693 billion november 2007 november 2006 respectively money market instruments held william street funding corporation support william street credit extension program see note 6 information regarding william street program 2 includes 764 billion mortgage whole loans transferred securitization vehicles transfers accounted secured financings rather sales sfas 140 firm distributed investors securities issued securitization vehicles therefore bear economic exposure underlying mortgage whole loans 3 net cash received pursuant credit support agreements 5905 billion 2406 billion november 2007 november 2006 respectively 4 includes 117 billion securities held within firm’s insurance subsidiaries accounted availableforsale sfas 115 “accounting certain investments debt equity securities” november 2007 includes 995 billion securities held within gs bank usa firm’s insurance subsidiaries accounted availableforsale november 2006 5 net cash paid pursuant credit support agreements 2776 billion 1600 billion november 2007 november 2006 respectively fair value hierarchy following tables set forth level within fair value hierarchy “financial instruments owned fair value” “financial instruments sold yet purchased fair value” financial assets liabilities accounted fair value sfas 155 sfas 159 november 2007 see note 2 information fair value hierarchy required sfas 157 assets liabilities classified entirety based lowest level input significant fair value measurement total financial assets fair value classified within level 3 6915 billion 6 “total assets” consolidated statement financial condition november 2007 includes 1444 billion financial assets fair value classified within level 3 firm bear goldman sachs group inc subsidiaries notes consolidated financial statements continued economic exposure excluding assets firm bear economic exposure level 3 assets 5 “total assets” november 2007 1 consists transfers accounted secured loans rather purchases sfas 140 prepaid variable share forwards 2 reflects securities borrowed within trading principal investments excludes securities borrowed within securities services accounted based amount cash collateral advanced plus accrued interest 3 consists level 3 assets financed nonrecourse debt attributable minority investors attributable employee interests certain consolidated funds 4 consists us treasury securities money market instruments well insurance separate account assets measured fair value aicpa sop 031 “accounting reporting insurance enterprises certain nontraditional longduration contracts separate accounts” 5 principally consists securities borrowed resale agreements underlying securities segregated satisfy certain regulatory requirements 6 consists private equity real estate fund investments 7 represents cash collateral impact netting across levels fair value hierarchy netting among positions classified within level included level goldman sachs group inc subsidiaries notes consolidated financial statements continued 1 consists promissory notes commercial paper hybrid financial instruments 2 consists certificates deposit issued gs bank usa 3 reflects securities loaned within trading principal investments excludes securities loaned within securities services accounted based amount cash collateral received plus accrued interest 4 primarily includes transfers accounted financings rather sales sfas 140 debt raised firm’s william street program 5 primarily includes hybrid financial instruments prepaid physical commodity transactions 6 represents cash collateral impact netting across levels fair value hierarchy netting among positions classified within level included level goldman sachs group inc subsidiaries notes consolidated financial statements continued level 3 gains losses table sets forth summary changes fair value firm’s level 3 financial assets liabilities year ended november 2007 table reflects gains losses full year financial assets liabilities categorized level 3 november 2007 table include gains losses reported level 3 prior periods financial assets liabilities transferred level 3 prior november 2007 reflected table net unrealized gain level 3 financial assets liabilities 131 billion year ended november 2007 net unrealized gain considered context factors discussed cash instruments net unrealized loss level 3 cash instruments 259 billion year ended november 2007 included 229 billion unrealized losses assets 294 million unrealized losses liabilities primarily consisting unrealized losses subprime residential mortgage loans securities well noninvestmentgrade loan commitments partially offset unrealized gains principal investments level 3 cash instruments frequently hedged instruments classified level 1 level 2 accordingly gains losses reported level 3 frequently offset gains losses attributable instruments classified level 1 level 2 gains losses derivative contracts classified level 3 fair value hierarchy derivative contracts net unrealized gain level 3 derivative contracts 454 billion year ended november 2007 level 3 gains losses derivative contracts considered context following factors • derivative contract level 1 andor level 2 inputs classified level 3 financial instrument entirety least one significant level 3 input • one significant level 3 input entire gain loss adjusting observable inputs ie level 1 level 2 still classified level 3 • gains losses reported level 3 resulting changes level 1 level 2 inputs frequently offset gains losses attributable instruments classified level 1 level 2 cash instruments reported level 3 fair value hierarchy unrealized gains referenced principally resulted changes level 2 inputs opposed changes level 3 inputs goldman sachs group inc subsidiaries notes consolidated financial statements continued 1 aggregate amounts include approximately 177 billion 171 billion reported “trading principal investments” “interest income” respectively consolidated statements earnings 2 substantially reported “trading principal investments” consolidated statements earnings 3 principally resulted changes level 2 inputs goldman sachs group inc subsidiaries notes consolidated financial statements continued november 2007 changes fair value receivables including securities borrowed resale agreements fair value option elected attributable changes instrumentspecific credit spreads material 2007 firm recognized gains 216 million attributable observable impact market’s widening firm’s credit spread liabilities fair value option elected firm calculates impact credit spread liabilities carried fair value discounting future cash flows rate incorporates firm’s observable credit spreads november 2007 difference fair value aggregate contractual principal amount longterm receivables longterm debt instruments principal nonprincipal protected fair value option elected material following table sets forth gains losses included earnings year ended november 2007 related financial assets liabilities firm elected apply fair value option sfas 155 sfas 159 table reflect impact firm’s earnings adopting sfas 159 significant amount gains losses would also recognized previously issued generally accepted accounting principles addition instruments firm elected fair value option economically hedged instruments accounted fair value generally accepted accounting principles reflected table 1 includes gains 208 billion related financings recorded result certain mortgage securitizations accounted secured financings rather sales sfas 140 changes fair value secured financings equally offset changes fair value related mortgage whole loans included within firm’s “financial instruments owned fair value” consolidated statement financial condition 2 consists investments firm would otherwise applied equity method accounting well securities held gs bank usa previously accounted availableforsale 3 consists resale repurchase agreements securities borrowed loaned within trading principal investments certificates deposit issued gs bank usa 4 reported within “trading principal investments” within consolidated statements earnings amounts exclude contractual interest included “interest income” “interest expense” instruments hybrid financial instruments goldman sachs group inc subsidiaries notes consolidated financial statements continued credit concentrations credit concentrations may arise trading investing underwriting securities borrowing activities may impacted changes economic industry political factors firm seeks mitigate credit risk actively monitoring exposures obtaining collateral deemed appropriate firm’s activities expose many different industries counterparties firm routinely executes high volume transactions counterparties financial services industry including brokers dealers commercial banks investment funds institutional clients resulting significant credit concentration respect industry ordinary course business firm may also subject concentration credit risk particular counterparty borrower issuer november 2007 november 2006 firm held 4575 billion 4 total assets 4620 billion 6 total assets respectively us government federal agency obligations including securities guaranteed federal national mortgage association federal home loan mortgage corporation included “financial instruments owned fair value” “cash securities segregated regulatory purposes” consolidated statements financial condition november 2007 november 2006 firm held 3165 billion 3 total assets 2364 billion 3 total assets respectively sovereign obligations principally consisting securities issued governments japan united kingdom addition november 2007 november 2006 14492 billion 10476 billion firm’s financial instruments purchased agreements resell securities borrowed respectively collateralized us government federal agency obligations november 2007 2006 4126 billion 3822 billion firm’s financial instruments purchased agreements resell securities borrowed respectively collateralized sovereign obligations november 2007 november 2006 firm credit exposure counterparty exceeded 2 firm’s total assets derivative activities derivative contracts instruments futures forwards swaps option contracts derive value underlying assets indices reference rates combination factors derivative instruments may privately negotiated contracts often referred otc derivatives may listed traded exchange derivatives may involve future commitments purchase sell financial instruments commodities exchange currency interest payment streams amounts exchanged based specific terms contract reference specified rates securities commodities currencies indices certain cash instruments mortgagebacked securities interestonly principalonly obligations indexed debt instruments considered derivatives even though values contractually required cash flows derived price security index however certain commodityrelated contracts included firm’s derivatives disclosure contracts may settled cash assets delivered contract readily convertible cash firm enters derivative transactions facilitate client transactions take proprietary positions means risk management risk exposures managed diversification controlling position sizes entering offsetting positions example firm may manage risk related portfolio common stock entering offsetting position related equityindex futures contract goldman sachs group inc subsidiaries notes consolidated financial statements continued firm applies hedge accounting sfas 133 certain derivative contracts firm uses derivatives manage certain interest rate currency exposures including firm’s net investment nonus operations firm designates certain interest rate swap contracts fair value hedges interest rate swap contracts hedge changes relevant benchmark interest rate eg london interbank offered rate libor effectively converting substantial portion firm’s unsecured longterm certain unsecured shortterm borrowings floating rate obligations see note 2 information regarding firm’s accounting policy foreign currency forward contracts used hedge net investment nonus operations firm applies longhaul method substantially hedge accounting relationships perform ongoing assessment effectiveness relationships achieving offsetting changes fair value offsetting cash flows attributable risk hedged firm utilizes dollaroffset method compares change fair value hedging instrument change fair value hedged item excluding effect passage time prospectively retrospectively assess hedge effectiveness firm’s prospective dollaroffset assessment utilizes scenario analyses test hedge effectiveness via simulations numerous parallel slope shifts relevant yield curve parallel shifts change interest rate maturities identical amounts slope shifts change curvature yield curve prospective assessment response simulated yield curve shifts retrospective assessment hedging relationship deemed effective fair value hedging instrument hedged item change inversely within range 80 125 fair value hedges gains losses derivative transactions recognized “interest expense” consolidated statements earnings change fair value hedged item attributable risk hedged reported adjustment carrying value subsequently amortized interest expense remaining life gains losses related hedge ineffectiveness hedges generally included “interest expense” gains losses component gains losses derivative transactions excluded assessment hedge effectiveness eg effect passage time fair value hedges firm’s borrowings material firm’s results operations years ended november 2007 november 2006 november 2005 gains losses derivatives used trading purposes included “trading principal investments” consolidated statements earnings fair value firm’s derivative contracts reflected net cash paid received pursuant credit support agreements reported netbycounterparty basis firm’s consolidated statements financial condition management believes legal right setoff exists enforceable netting agreement fair value derivative financial instruments computed accordance firm’s netting policy set forth fair value derivatives accounted qualifying hedges sfas 133 consisted 512 billion 266 billion assets november 2007 november 2006 respectively 354 million 551 million liabilities november 2007 november 2006 respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued firm also embedded derivatives bifurcated related borrowings sfas 133 derivatives classified unsecured shortterm unsecured longterm borrowings carrying value 463 million 113 billion excluding debt host contract november 2007 november 2006 respectively see notes 4 5 information regarding firm’s unsecured borrowings securitization activities firm securitizes commercial residential mortgages home equity auto loans government corporate bonds types financial assets firm acts underwriter beneficial interests sold investors firm derecognizes financial assets transferred securitizations provided relinquished control assets transferred assets accounted fair value prior securitization net revenues related underwriting activities recognized connection sales underlying beneficial interests investors firm may retain interests securitized financial assets primarily form senior subordinated securities including residual interests retained interests accounted fair value included “total financial instruments owned fair value” consolidated statements financial condition year ended november 2007 firm securitized 8140 billion financial assets 2495 billion residential mortgages 1950 billion commercial mortgages 3695 billion financial assets primarily connection collateralized debt loan obligations cdos clos year ended november 2006 firm securitized 10392 billion financial assets 6773 billion residential mortgages 1278 billion commercial mortgages 2341 billion financial assets primarily connection cdos clos cash flows received retained interests approximately 705 million 801 million years ended november 2007 november 2006 respectively november 2007 november 2006 firm held 457 billion 708 billion retained interests respectively securitization activities including 272 billion 518 billion respectively held qspes goldman sachs group inc subsidiaries notes consolidated financial statements continued following table sets forth weighted average key economic assumptions used measuring fair value firm’s retained interests sensitivity fair value immediate adverse changes 10 20 assumptions 1 anticipated credit losses computed positions expected credit loss key assumption determination fair value positions expected credit loss reflected within discount rate 2 impacts adverse change take account credit mitigants incorporated retained interests including overcollateralization subordination provisions 3 includes 905 million 126 billion november 2007 november 2006 respectively retained interests related transfers securitized assets accounted secured financings rather sales sfas 140 4 includes retained interests bonds types financial assets subject prepayment risk preceding table give effect offsetting benefit financial instruments held mitigate risks inherent retained interests changes fair value based adverse variation assumptions generally cannot extrapolated relationship change assumptions change fair value usually linear addition impact change particular assumption calculated independently changes assumption practice simultaneous changes assumptions might magnify counteract sensitivities disclosed addition retained interests described firm also held interests residential mortgage qspes purchased connection secondary marketmaking activities purchased interests approximated 6 billion 8 billion november 2007 november 2006 respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued november 2007 november 2006 firm held mortgage servicing rights fair value 93 million 62 million respectively substantially retained connection residential mortgage securitizations servicing assets represent firm’s right receive future stream cash flows associated firm’s obligation service residential mortgages fair value mortgage servicing rights fluctuate response changes certain economic variables interest rates loan prepayment assumptions default rates firm determines fair value mortgage servicing rights using valuation models incorporate variables quantifying anticipated cash flows related servicing activities variable interest entities vies firm ordinary course business retains interests vies connection securitization activities firm also purchases sells variable interests vies primarily issue mortgagebacked assetbacked securities cdos clos connection marketmaking activities makes investments loans vies hold performing nonperforming debt equity real estate powerrelated assets addition firm utilizes vies provide investors principalprotected notes creditlinked notes assetrepackaged notes designed meet objectives vies generally purchase assets issuing debt equity instruments certain instances firm provides guarantees vies holders variable interests vies cases maximum exposure loss included tables set forth notional amount guarantees amounts represent anticipated losses connection guarantees firm’s variable interests vies include senior subordinated debt loan commitments limited general partnership interests preferred common stock interest rate foreign currency equity commodity credit derivatives guarantees residual interests mortgagebacked assetbacked securitization vehicles cdos clos firm’s exposure obligations vies generally limited interests entities following tables set forth total assets nonconsolidated vies firm holds significant variable interests firm’s maximum exposure loss associated variable interests firm aggregated nonconsolidated vies based principal business activity reflected first column nature firm’s variable interests take different forms described columns maximum exposure loss goldman sachs group inc subsidiaries notes consolidated financial statements continued tables give effect benefit offsetting financial instruments held mitigate risks related firm’s interests nonconsolidated vies 1 amounts represent anticipated losses connection transactions 2 derivatives related mortgage cdos primarily consist written protection investmentgrade shortterm collateral held vies issued cdos 3 derivatives related corporate cdos clos primarily consist total return swaps cdos clos firm generally transferred risks related underlying securities derivatives nonvies 4 firm obtains interests vies connection making proprietary investments real estate distressed loans types debt mezzanine instruments equities 5 derivatives related principalprotected notes consist outofthemoney written put options provide principal protection clients invested various fund products risk firm mitigated portfolio rebalancing goldman sachs group inc subsidiaries notes consolidated financial statements continued following table sets forth firm’s total assets maximum exposure loss associated significant variable interests consolidated vies firm hold majority voting interest firm aggregated consolidated vies based principal business activity reflected first column table give effect benefit offsetting financial instruments held mitigate risks related firm’s interests consolidated vies 1 consolidated vie assets include assets financed nonrecourse basis 2 amounts represent anticipated losses connection transactions collateralized transactions firm receives financial instruments collateral primarily connection resale agreements securities borrowed derivative transactions customer margin loans financial instruments may include obligations us government federal agencies sovereigns corporations well equities convertibles many cases firm permitted deliver repledge financial instruments connection entering repurchase agreements securities lending agreements secured financings collateralizing derivative transactions meeting firm customer settlement requirements november 2007 november 2006 fair value financial instruments received collateral firm permitted deliver repledge 89105 billion 74608 billion respectively firm delivered repledged 78562 billion 63987 billion respectively firm also pledges assets owns counterparties may right deliver repledge financial instruments owned pledged counterparties right deliver repledge reported “financial instruments owned pledged collateral fair value” consolidated statements financial condition 4614 billion 3600 billion november 2007 november 2006 respectively financial instruments owned pledged connection repurchase agreements securities lending agreements secured financings counterparties right sell repledge included “financial instruments owned fair value” consolidated statements financial condition 15692 billion 13431 billion november 2007 november 2006 respectively assets primarily real estate cash owned pledged connection secured financings counterparties right sell repledge 586 billion 534 billion november 2007 november 2006 respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued addition repurchase agreements securities lending agreements firm obtains secured funding use arrangements secured financings include arrangements nonrecourse subsidiary executed arrangement subsidiary guaranteeing arrangement obligated repay financing secured financings consist liabilities related firm’s william street program consolidated variable interest entities collateralized central bank financings transfers financial assets accounted financings rather sales sfas 140 primarily pledged bank loans mortgage whole loans structured financing arrangements secured financings set forth table 1 november 2007 consists us dollardenominated financings 1847 billion weighted average interest rate 532 nonus dollardenominated financings 1394 billion weighted average interest rate 091 giving effect hedging activities november 2006 consists us dollardenominated financings 1428 billion weighted average interest rate 522 nonus dollardenominated financings 1001 billion weighted average interest rate 200 giving effect hedging activities weighted average interest rates november 2007 november 2006 excluded financial instruments accounted fair value sfas 155 sfas 159 2 includes secured financings maturing within one year financial statement date secured financings redeemable within one year financial statement date option holder 3 november 2007 consists us dollardenominated financings 2213 billion weighted average interest rate 573 nonus dollardenominated financings 1117 billion weighted average interest rate 428 giving effect hedging activities november 2006 consists us dollardenominated financings 1697 billion weighted average interest rate 561 nonus dollardenominated financings 916 billion weighted average interest rate 381 giving effect hedging activities 4 secured longterm financings repayable prior maturity option firm reflected contractual maturity dates secured longterm financings redeemable prior maturity option holder reflected dates options become exercisable 5 november 2007 6134 billion financings collateralized financial instruments 437 billion assets primarily real estate cash november 2006 4722 billion financings collateralized financial instruments 320 billion assets secured financings include 2537 billion 1979 billion nonrecourse obligations november 2007 november 2006 respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued note 4 unsecured shortterm borrowings firm obtains unsecured shortterm borrowings primarily issuance promissory notes commercial paper hybrid financial instruments november 2007 november 2006 borrowings 7156 billion 4790 billion respectively amounts include portion unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holder firm accounts promissory notes commercial paper certain hybrid financial instruments fair value sfas 155 sfas 159 shortterm borrowings recorded fair value recorded based amount cash received plus accrued interest amounts approximate fair value due shortterm nature obligations unsecured shortterm borrowings set forth 1 weighted average interest rates borrowings giving effect hedging activities 505 516 november 2007 november 2006 respectively weighted average interest rates november 2007 november 2006 excluded financial instruments accounted fair value sfas 155 sfas 159 goldman sachs group inc subsidiaries notes consolidated financial statements continued note 5 unsecured longterm borrowings firm’s unsecured longterm borrowings extend 2043 consist principally senior borrowings november 2007 november 2006 borrowings 16417 billion 12284 billion respectively unsecured longterm borrowings set forth 1 november 2007 november 2006 interest rates us dollar fixed rate obligations ranged 388 1004 388 1200 respectively november 2007 november 2006 interest rates nonus dollar fixed rate obligations ranged 067 888 031 888 respectively 2 floating interest rates generally based libor federal funds target rate equitylinked indexed instruments included floating rate obligations unsecured longterm borrowings maturity date set forth 1 unsecured longterm borrowings maturing within one year financial statement date certain unsecured longterm borrowings redeemable within one year financial statement date option holder included unsecured shortterm borrowings consolidated statements financial condition 2 unsecured longterm borrowings repayable prior maturity option firm reflected contractual maturity dates unsecured longterm borrowings redeemable prior maturity option holder reflected dates options become exercisable firm enters derivative contracts interest rate futures contracts interest rate swap agreements currency swap agreements commodity contracts equitylinked indexed contracts effectively convert substantial portion unsecured longterm borrowings us dollarbased floating rate obligations accordingly carrying value unsecured longterm borrowings approximated fair value november 2007 november 2006 goldman sachs group inc subsidiaries notes consolidated financial statements continued effective weighted average interest rates unsecured longterm borrowings set forth 1 includes fixed rate obligations converted floating rate obligations derivative contracts 2 weighted average interest rates november 2007 november 2006 excluded financial instruments accounted fair value sfas 155 sfas 159 subordinated borrowings unsecured longterm borrowings include subordinated borrowings outstanding principal amounts 1632 billion 751 billion november 2007 november 2006 respectively set forth subordinated notes november 2007 firm 1123 billion subordinated notes outstanding maturities ranging fiscal 2009 2037 effective weighted average interest rate subordinated notes 575 giving effect derivative contracts used convert fixed rate obligations floating rate obligations november 2006 firm 467 billion subordinated notes outstanding maturities ranging 2007 2036 effective weighted average interest rate 624 notes junior right payment firm’s senior indebtedness junior subordinated debt issued trust connection trust preferred securities firm issued 284 billion junior subordinated debentures first quarter 2004 goldman sachs capital trust delaware statutory trust turn issued 275 billion guaranteed preferred beneficial interests third parties 85 million common beneficial interests firm invested proceeds sale junior subordinated debentures issued firm trust wholly owned finance subsidiary firm regulatory legal purposes consolidated accounting purposes firm pays interest semiannually debentures annual rate 6345 debentures mature february 15 2034 coupon rate payment dates applicable beneficial interests interest rate payment dates applicable debentures firm right time defer payment interest debentures therefore cause payment trust’s preferred beneficial interests deferred case ten consecutive semiannual periods extension period firm permitted among things pay dividends make certain repurchases common stock trust permitted pay distributions common beneficial interests held firm unless dividends payable preferred beneficial interests paid full debentures junior right payment firm’s senior indebtedness firm’s subordinated borrowings junior subordinated debt issued connection normal automatic preferred enhanced capital securities see discussion goldman sachs group inc subsidiaries notes consolidated financial statements continued junior subordinated debt issued trusts connection fixedtofloating floating rate normal automatic preferred enhanced capital securities second quarter 2007 firm issued total 225 billion remarketable junior subordinated notes goldman sachs capital ii goldman sachs capital iii trusts delaware statutory trusts turn issued 225 billion guaranteed perpetual automatic preferred enhanced capital securities apex third parties de minimis amount common securities firm also entered contracts trusts sell 225 billion perpetual noncumulative preferred stock issued firm stock purchase contracts trusts wholly owned finance subsidiaries firm regulatory legal purposes consolidated accounting purposes firm pays interest semiannually 175 billion junior subordinated notes issued goldman sachs capital ii fixed annual rate 559 notes mature june 1 2043 firm pays interest quarterly 500 million junior subordinated notes issued goldman sachs capital iii rate per annum equal threemonth libor plus 57 notes mature september 1 2043 addition firm makes contract payments rate 20 per annum stock purchase contracts held trusts firm right defer payments junior subordinated notes stock purchase contracts subject limitations therefore cause payment apex deferred extension period firm permitted among things pay dividends make certain repurchases common preferred stock junior subordinated notes junior right payment firm’s senior indebtedness firm’s subordinated borrowings connection apex issuance firm covenanted favor certain debtholders initially holders firm’s 6345 junior subordinated debentures due february 15 2034 subject certain exceptions firm would redeem purchase firm’s junior subordinated debt issued apex trusts prior applicable stock purchase date ii apex shares firm’s series e series f preferred stock prior date ten years applicable stock purchase date unless applicable redemption purchase price exceed maximum amount determined reference aggregate amount net cash proceeds firm received sale qualifying equity securities 180 day period preceding redemption purchase firm accounted stock purchase contracts equity instruments eitf issue 0019 “accounting derivative financial instruments indexed potentially settled company’s stock” accordingly recorded cost stock purchase contracts reduction additional paidin capital see note 7 information preferred stock firm issue connection stock purchase contracts goldman sachs group inc subsidiaries notes consolidated financial statements continued note 6 commitments contingencies guarantees commitments forward starting collateralized agreements financings firm forward starting resale agreements securities borrowing agreements 2814 billion 1829 billion november 2007 november 2006 respectively firm forward starting repurchase agreements securities lending agreements 1539 billion 1715 billion november 2007 november 2006 respectively commitments extend credit connection lending activities firm outstanding commitments extend credit 8275 billion 10048 billion november 2007 november 2006 respectively firm’s commitments extend credit agreements lend counterparties fixed termination dates contingent satisfaction conditions borrowing set forth contract since commitments may expire unused reduced cancelled counterparty’s request total commitment amount necessarily reflect actual future cash flow requirements firm accounts commitments fair value extent firm recognizes losses commitments losses recorded within firm’s trading principal investments segment net related underwriting fees following table summarizes firm’s commitments extend credit november 2007 november 2006 • commercial lending commitments firm extends commercial lending commitments primarily connection contingent acquisition financing types corporate lending well commercial real estate financing total commitment amount necessarily reflect actual future cash flow requirements firm often syndicates substantial portions commitments may expire unused commitments may cancelled reduced request counterparty addition commitments extended contingent acquisition financing often intended shortterm nature borrowers often seek replace funding sources included within noninvestmentgrade amount november 2007 2609 billion exposure leveraged lending capital market transactions 350 billion related commercial real estate transactions 1234 billion arising unfunded credit facilities included within noninvestmentgrade amount november 2006 3968 billion exposure leveraged lending capital market transactions 1211 billion related commercial real estate transactions 523 billion arising unfunded credit facilities goldman sachs group inc subsidiaries notes consolidated financial statements continued • william street program substantially commitments provided william street credit extension program investmentgrade corporate borrowers commitments program extended william street commitment corporation commitment corp consolidated wholly owned subsidiary group inc whose assets liabilities legally separated assets liabilities firm william street credit corporation gs bank usa goldman sachs credit partners lp consolidated wholly owned subsidiaries group inc commitments extended commitment corp supported part funding raised william street funding corporation funding corp another consolidated wholly owned subsidiary group inc whose assets liabilities also legally separated assets liabilities firm assets commitment corp funding corp available respective shareholders claims respective creditors paid addition affiliate either commitment corp funding corp except limited cases expressly agreed writing responsible obligation either entity respect william street commitments sumitomo mitsui financial group inc smfg provides firm credit loss protection generally limited 95 first loss firm realizes approved loan commitments maximum 100 billion addition subject satisfaction certain conditions upon firm’s request smfg provide protection 70 second loss commitments maximum 113 billion firm also uses financial instruments mitigate credit risks related certain william street commitments covered smfg • warehouse financing firm provides financing warehousing financial assets securitized financings expected repaid proceeds related securitizations firm may act underwriter arrangements secured warehoused assets primarily consisting corporate bank loans commercial mortgages november 2007 residential mortgages mortgagebacked securities corporate bank loans commercial mortgages november 2006 connection warehouse financing activities firm loans 44 million collateralized subprime mortgages november 2007 letters credit firm provides letters credit issued various banks counterparties lieu securities cash satisfy various collateral margin deposit requirements letters credit outstanding 875 billion 573 billion november 2007 november 2006 respectively investment commitments connection merchant banking investing activities firm invests private equity real estate assets directly funds raises manages connection activities firm commitments invest 1776 billion 824 billion november 2007 november 2006 respectively including 1232 billion 441 billion respectively commitments invest funds managed firm constructionrelated commitments november 2007 november 2006 firm constructionrelated commitments 769 million 163 billion respectively including outstanding commitments 642 million 500 million november 2007 november 2006 respectively related firm’s new world headquarters new york city expected cost 23 billion 25 billion firm partially financing construction project taxexempt liberty bonds firm borrowed approximately 140 billion approximately 250 million 2005 2007 respectively issuance liberty bonds underwriting commitments november 2007 november 2006 firm commitments purchase 88 million 262 billion respectively securities connection underwriting activities goldman sachs group inc subsidiaries notes consolidated financial statements continued firm purchase commitments 420 million 393 million november 2007 november 2006 respectively addition firm entered agreement 2007 acquire litton loan servicing lp litton mortgage servicing unit creditbased asset servicing securitization llc cbass transaction closed december 2007 purchase price 428 million plus repayment 916 million outstanding litton debt obligations leases firm contractual obligations longterm noncancelable lease agreements principally office space expiring various dates 2069 certain agreements subject periodic escalation provisions increases real estate taxes charges future minimum rental payments net minimum sublease rentals set forth contingencies firm involved number judicial regulatory arbitration proceedings concerning matters arising connection conduct businesses management believes based currently available information results proceedings aggregate material adverse effect firm’s financial condition may material firm’s operating results particular period depending part upon operating results period given inherent difficulty predicting outcome firm’s litigation regulatory matters particularly cases proceedings substantial indeterminate damages fines sought firm cannot estimate losses ranges losses cases proceedings reasonable possibility loss may incurred connection insurance business firm contingently liable provide guaranteed minimum death income benefits certain contract holders established reserve related 1084 billion 804 billion contract holder account balances november 2007 november 2006 respectively benefits weighted average attained age contract holders 67 years 70 years november 2007 november 2006 respectively net amount risk representing guaranteed minimum death income benefits excess contract holder account balances 104 billion 127 billion november 2007 november 2006 respectively see note 10 information firm’s insurance liabilities goldman sachs group inc subsidiaries notes consolidated financial statements continued guarantees firm enters various derivative contracts meet definition guarantee fin 45 “guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others” derivative contracts include credit default total return swaps written equity commodity put options written currency contracts interest rate caps floors swaptions fin 45 require disclosures derivative contracts may cash settled firm basis conclude probable counterparties held inception underlying instruments related derivative contracts firm concluded conditions met certain large internationally active commercial investment bank end users certain users accordingly firm included contracts tables firm capacity agency lender indemnifies securities lending customers losses incurred event borrowers return securities collateral held insufficient cover market value securities borrowed ordinary course business firm provides financial guarantees obligations third parties eg performance bonds standby letters credit guarantees enable clients complete transactions merchant banking fundrelated guarantees represent obligations make payments beneficiaries guaranteed party fails fulfill obligation contractual arrangement beneficiary goldman sachs group inc subsidiaries notes consolidated financial statements continued following tables set forth certain information firm’s derivative contracts meet definition guarantee certain guarantees november 2007 november 2006 1 amounts represent anticipated losses connection contracts 2 aggregate carrying value derivatives november 2007 liability 3310 billion aggregate carrying value derivatives november 2006 asset 112 billion consisting contracts asset value 1106 billion contracts liability value 994 billion carrying value excludes effect legal right setoff may exist enforceable netting agreement derivative contracts risk managed together derivative contracts considered guarantees fin 45 therefore amounts reflect firm’s overall risk related derivative activities 3 collateral held lenders connection securities lending indemnifications 2749 billion 1970 billion november 2007 november 2006 respectively 4 excludes collateral 205 billion related obligations 5 carrying value guarantees liability 43 million 15 million november 2007 november 2006 respectively firm established trusts including goldman sachs capital ii iii entities limited purpose issuing securities third parties lending proceeds firm entering contractual arrangements firm third parties related purpose see note 5 information regarding transactions involving goldman sachs capital ii iii firm effectively provides full unconditional guarantee securities issued entities consolidated accounting purposes timely payment firm amounts due entities borrowing preferred stock related contractual arrangements sufficient cover payments due securities issued entities management believes unlikely circumstances occur nonperformance part paying agents service providers would make necessary firm make payments related entities required terms borrowing preferred stock related contractual arrangements connection certain expenses incurred entities goldman sachs group inc subsidiaries notes consolidated financial statements continued ordinary course business firm indemnifies guarantees certain service providers clearing custody agents trustees administrators specified potential losses connection acting agent providing services firm affiliates firm also indemnifies clients potential losses incurred event specified thirdparty service providers including subcustodians thirdparty brokers improperly execute transactions addition firm member payment clearing settlement networks well securities exchanges around world may require firm meet obligations networks exchanges event member defaults connection prime brokerage clearing businesses firm agrees clear settle behalf clients transactions entered brokerage firms firm’s obligations respect transactions secured assets client’s account well proceeds received transactions cleared settled firm behalf client connection joint venture investments firm may issue loan guarantees may liable event fraud misappropriation environmental liabilities certain matters involving borrower firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements liabilities related guarantees indemnifications recognized consolidated statements financial condition november 2007 november 2006 firm provides representations warranties counterparties connection variety commercial transactions occasionally indemnifies potential losses caused breach representations warranties firm may also provide indemnifications protecting changes adverse application certain us tax laws connection ordinarycourse transactions securities issuances borrowings derivatives addition firm may provide indemnifications counterparties protect event additional taxes owed payments withheld due either change adverse application certain nonus tax laws indemnifications generally standard contractual terms entered ordinary course business generally stated notional amounts included indemnifications contingencies triggering obligation indemnify expected occur firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements liabilities related arrangements recognized consolidated statements financial condition november 2007 november 2006 goldman sachs group inc subsidiaries notes consolidated financial statements continued note 7 shareholders’ equity dividends declared per common share 140 2007 130 2006 100 2005 december 17 2007 board directors group inc board declared dividend 035 per common share paid february 28 2008 common shareholders record january 29 2008 2007 2006 firm repurchased 412 million 502 million shares common stock total cost 896 billion 782 billion respectively average price paid per share repurchased shares 21729 15564 years ended november 2007 november 2006 respectively addition satisfy minimum statutory employee tax withholding requirements related delivery common stock underlying restricted stock units firm cancelled 47 million 30 million restricted stock units total value 929 million 375 million 2007 2006 respectively firm’s share repurchase program intended help maintain appropriate level common equity substantially offset increases share count time resulting employee sharebased compensation repurchase program effected primarily regular openmarket purchases amounts timing determined primarily firm’s current projected capital positions ie comparisons firm’s desired level capital actual level capital may also influenced general market conditions prevailing price trading volumes firm’s common stock november 2007 firm 124000 shares perpetual noncumulative preferred stock issued outstanding four series set forth following table share preferred stock issued outstanding par value 001 liquidation preference 25000 represented 1000 depositary shares redeemable firm’s option redemption price equal 25000 plus declared unpaid dividends series preferred stock declared payable quarterly arrears firm’s ability declare pay dividends purchase redeem otherwise acquire common stock subject certain restrictions event firm fails pay set aside full dividends preferred stock latest completed dividend period series preferred stock pari passu preference firm’s common stock upon liquidation goldman sachs group inc subsidiaries notes consolidated financial statements continued second quarter 2007 board authorized 175001 shares perpetual noncumulative preferred stock series e 50001 shares perpetual noncumulative preferred stock series f connection apex issuance see note 5 information apex issuance stock purchase contracts firm issue relevant stock purchase dates june 1 2013 september 1 2013 series e series f preferred stock respectively one share series e series f preferred stock goldman sachs capital ii iii respectively 100000 principal amount subordinated notes held trusts issued share series e series f preferred stock par value 001 liquidation preference 100000 per share dividends series e preferred stock declared payable semiannually fixed annual rate 579 stock issued prior june 1 2012 quarterly thereafter rate per annum equal greater threemonth libor plus 77 ii 4 dividends series f preferred stock declared payable quarterly rate per annum equal threemonth libor plus 77 stock issued prior september 1 2012 quarterly thereafter rate per annum equal greater threemonth libor plus 77 ii 4 preferred stock may redeemed option firm stock purchase dates day thereafter subject approval securities exchange commission sec certain covenant restrictions governing firm’s ability redeem purchase preferred stock without issuing common stock instruments equitylike characteristics dividends declared per preferred share 156351 155000 156351 154306 series b series c series preferred stock respectively 2007 dividends declared per preferred share 143479 159306 146519 70910 series b series c series preferred stock respectively 2006 addition december 17 2007 board declared dividends per preferred share 35184 38750 35184 34684 series b series c series preferred stock respectively paid february 11 2008 preferred shareholders record january 27 2008 following table sets forth firm’s accumulated comprehensive incomeloss type 1 consists net unrealized gains 9 million availableforsale securities held investees accounted equity method net unrealized losses 1 million availableforsale securities held firm’s insurance subsidiaries goldman sachs group inc subsidiaries notes consolidated financial statements continued note 8 earnings per common share computations basic diluted earnings per common share set forth 1 diluted eps computations include antidilutive effect following options note 9 goodwill identifiable intangible assets goodwill following table sets forth carrying value firm’s goodwill operating segment included “other assets” consolidated statements financial condition 1 primarily related slk llc slk 2 primarily related ayco company lp ayco increase goodwill november 2006 relates firm’s acquisition macquarie imm investment management goldman sachs group inc subsidiaries notes consolidated financial statements continued identifiable intangible assets following table sets forth gross carrying amount accumulated amortization net carrying amount firm’s identifiable intangible assets 1 primarily includes firm’s clearance execution nasdaq customer lists related slk financial counseling customer lists related ayco 2 consists voba dac voba represents present value estimated future gross profits variable annuity life insurance business dac results commissions paid firm primary insurer ceding company life annuity reinsurance agreements compensation place business firm cover ceding company’s acquisition expenses voba dac amortized estimated life underlying contracts based estimated gross profits amortization adjusted based actual experience weighted average remaining amortization period voba dac seven years november 2007 3 reduction power contracts november 2006 due sale majority firm’s ownership interests 14 power generation facilities 2007 4 primarily includes marketing technologyrelated assets goldman sachs group inc subsidiaries notes consolidated financial statements continued substantially firm’s identifiable intangible assets considered finite lives amortized estimated useful lives weighted average remaining life firm’s identifiable intangibles approximately 12 years amortization expense associated identifiable intangible assets 251 million 246 million 165 million years ended november 2007 november 2006 november 2005 respectively amortization expense associated firm’s consolidated power generation facilities reported within “cost power generation” consolidated statements earnings estimated future amortization existing identifiable intangible assets 2012 set forth note 10 assets liabilities assets generally less liquid nonfinancial assets following table sets forth firm’s assets type 1 net accumulated depreciation amortization 588 billion 506 billion november 2007 november 2006 respectively 2 see note 9 information regarding firm’s goodwill identifiable intangible assets 3 excludes investments 225 billion accounted fair value sfas 159 november 2007 included “financial instruments owned fair value” consolidated statements financial condition goldman sachs group inc subsidiaries notes consolidated financial statements continued liabilities following table sets forth firm’s liabilities accrued expenses type 1 insurancerelated liabilities set forth table separate account liabilities offset separate account assets representing segregated contract holder funds variable annuity life insurance contracts separate account assets included “cash securities segregated regulatory purposes” consolidated statements financial condition liabilities future benefits unpaid claims include liabilities arising reinsurance provided firm insurers firm receivable 130 billion 133 billion november 2007 november 2006 respectively related reinsurance contracts reported “receivables customers counterparties” consolidated statements financial condition addition firm ceded risks reinsurers related certain liabilities future benefits unpaid claims receivable 785 million 786 million november 2007 november 2006 respectively related reinsurance contracts reported “receivables customers counterparties” consolidated statements financial condition contracts cede risks reinsurers relieve firm obligations contract holders reserves guaranteed minimum death income benefits represent liability expected value guaranteed benefits excess projected annuity account balances reserves computed accordance aicpa sop 031 based total payments expected made less total fees expected assessed life contract 2 includes 595 billion 619 million related consolidated investment funds november 2007 november 2006 respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued note 11 employee benefit plans firm sponsors various pension plans certain postretirement benefit plans primarily healthcare life insurance firm also provides certain benefits former inactive employees prior retirement defined benefit pension plans postretirement plans employees certain nonus subsidiaries participate various defined benefit pension plans generally provide benefits based years credited service percentage employee’s eligible compensation firm maintains defined benefit pension plan substantially uk employees firm expects close uk pension plan new participants first half 2008 continue accrue benefits existing participants firm also maintains defined benefit pension plan substantially us employees hired prior november 1 2003 november 2004 plan closed new participants benefits accrued existing participants addition firm unfunded postretirement benefit plans provide medical life insurance eligible retirees dependents covered programs november 30 2007 firm adopted sfas 158 requires entity recognize statement financial condition funded status defined benefit pension postretirement plans measured difference fair value plan assets benefit obligation upon adoption sfas 158 requires entity recognize previously unrecognized actuarial gains losses prior service costs transition obligations assets within “accumulated comprehensive incomeloss” consolidated statements changes shareholders’ equity additional minimum pension liabilities derecognized upon adoption new standard result adopting sfas 158 firm recorded increases 59 million 253 million “other assets” “other liabilities accrued expenses” respectively 194 million loss net taxes within “accumulated comprehensive incomeloss” accumulated comprehensive loss november 30 2007 includes actuarial losses prior service costs transition assets 269 million 37 million 9 million pretax respectively 8 million 13 million 2 million pretax respectively amortized accumulated comprehensive loss net periodic benefit cost 2008 goldman sachs group inc subsidiaries notes consolidated financial statements continued following table provides summary changes plans’ benefit obligations fair value assets november 2007 november 2006 statement funded status plans november 2007 november 2006 goldman sachs group inc subsidiaries notes consolidated financial statements continued accumulated benefit obligation defined benefit pension plans 105 billion 944 million november 2007 november 2006 respectively plans accumulated benefit obligation exceeded plan assets aggregate projected benefit obligation accumulated benefit obligation 722 million 636 million respectively november 2007 771 million 647 million respectively november 2006 fair value plan assets plans 590 million 583 million november 2007 november 2006 respectively components pension expenseincome postretirement expense set forth 1 represents benefit result termination japanese pension plan goldman sachs group inc subsidiaries notes consolidated financial statements continued weighted average assumptions used develop actuarial present value projected benefit obligation net periodic pension cost set forth assumptions represent weighted average assumptions used us nonus plans based economic environment applicable country generally firm determined discount rates defined benefit plans referencing indices longterm highquality bonds ensuring discount rate exceed yield reported indices adjustment duration plans’ liabilities firm’s approach determining longterm rate return plan assets based upon historical financial market relationships existed time presumption trend generally remain constant future measurement purposes annual growth rate per capita cost covered healthcare benefits 1002 assumed year ending november 2008 rate assumed decrease ratably 500 year ending november 2015 remain level thereafter assumed cost healthcare effect amounts reported firm’s postretirement plans 1 change assumed healthcare cost trend rate would following effects goldman sachs group inc subsidiaries notes consolidated financial statements continued following table sets forth composition plan assets us nonus defined benefit pension plans asset category investment approach firm’s us major nonus defined benefit pension plans involves employing sufficient level flexibility capture investment opportunities occur maintaining reasonable parameters ensure prudence care exercised execution investment programs plans employ total return investment approach whereby mix broadly similar actual asset allocation november 2007 equity securities debt securities assets targeted maximize longterm return assets given level risk investment risk measured monitored ongoing basis firm’s retirement committee periodic portfolio reviews meetings investment managers annual liability measurements firm expects contribute minimum 133 million pension plans 9 million postretirement plans 2008 following table sets forth benefits projected paid firm’s us nonus defined benefit pension postretirement plans net medicare subsidy receipts reflects expected future service costs appropriate defined contribution plans firm contributes employersponsored us nonus defined contribution plans firm’s contribution plans 258 million 230 million 305 million years ended november 2007 november 2006 november 2005 respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued note 12 employee incentive plans stock incentive plan firm sponsors stock incentive plan goldman sachs amended restated stock incentive plan amended sip provides grants incentive stock options nonqualified stock options stock appreciation rights dividend equivalent rights restricted stock restricted stock units awards performance conditions sharebased awards second quarter 2003 amended sip approved firm’s shareholders effective grants april 1 2003 total number shares common stock may issued amended sip 2008 may exceed 250 million shares year thereafter may exceed 5 issued outstanding shares common stock determined last day immediately preceding year increased number shares available awards previous years covered awards granted years november 2007 november 2006 1606 million 1800 million shares respectively available grant amended sip compensation arrangements firm deferred compensation plans eligible employees general plans participants able defer payment portion cash yearend compensation deferral period participants able nominally invest deferrals certain alternatives available plans generally current tax law participants subject income tax amounts deferred notional investment earnings returns distributed firm entitled corresponding tax deduction amounts distributed firm recognized compensation expense amounts deferred plans november 2007 november 2006 281 million 245 million respectively related plans included “other liabilities accrued expenses” consolidated statements financial condition firm discount stock program eligible senior executives may acquire restricted stock units effective 25 discount 25 discount effected additional grant restricted stock units equal onethird number restricted stock units purchased qualifying participants purchased restricted stock units 100 vested granted shares underlying able sold transferred satisfy tax obligations third anniversary grant date shares underlying restricted stock units granted order effect 25 discount generally vest equal installments second third anniversaries following grant date transferable third anniversary grant date compensation expense related restricted stock units recognized vesting period total value restricted stock units granted 2007 2006 order effect 25 discount 66 million 72 million respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued restricted stock units firm issued restricted stock units employees amended sip primarily connection yearend compensation acquisitions restricted stock units valued based closing price underlying shares date grant yearend restricted stock units generally vest outlined applicable restricted stock unit agreements deliver shortly third anniversary grant date employee restricted stock unit agreements provide vesting accelerated certain circumstances upon retirement death extended absence total restricted stock units outstanding november 2007 november 2006 220 million units 264 million units respectively required future service condition delivery underlying shares common stock ii 516 million units 389 million units respectively require future service cases delivery underlying shares common stock conditioned grantees satisfying certain vesting requirements outlined award agreements delivering underlying shares employees firm generally issues new shares common stock activity related restricted stock units set forth 1 includes restricted stock units granted employees year ended november 2007 part compensation 2006 2 includes restricted stock units granted employees subsequent november 2007 part compensation 2007 3 weighted average grantdate fair value restricted stock units granted years ended november 2007 november 2006 november 2005 22413 19699 12903 respectively 4 aggregate fair value awards vested years ended november 2007 november 2006 november 2005 563 billion 440 billion 205 billion respectively 5 includes restricted stock units cash settled goldman sachs group inc subsidiaries notes consolidated financial statements continued stock options stock options granted employees generally vest outlined applicable stock option agreement first become exercisable third anniversary grant date yearend stock options 2007 2006 become exercisable january 2011 january 2010 respectively expire november 24 2017 november 25 2016 respectively shares received exercise prior january 2013 yearend 2007 options january 2011 yearend 2006 options sold transferred otherwise disposed january 2013 january 2011 respectively employee stock option agreements provide vesting accelerated certain circumstances upon retirement death extended absence general stock options expire tenth anniversary grant date although may subject earlier termination cancellation certain circumstances accordance terms amended sip applicable stock option agreement dilutive effect firm’s outstanding stock options included “average common shares outstanding diluted” consolidated statements earnings activity related stock options set forth 1 includes stock options granted employees year ended november 2007 part compensation 2006 2 includes stock options granted employees subsequent november 2007 part compensation 2007 total intrinsic value options exercised years ended november 2007 november 2006 november 2005 132 billion 152 billion 766 million respectively options outstanding november 2007 set forth 1 includes stock options granted employees subsequent november 2007 part compensation 2007 goldman sachs group inc subsidiaries notes consolidated financial statements continued weighted average fair value options granted 2007 2006 2005 5104 4996 3291 per option respectively fair value estimated grant date based blackscholes optionpricing model principally using following weighted average assumptions common stock underlying options granted 2007 2006 2005 subject transfer restrictions period 2 years 1 year 1 year respectively date options become exercisable value common stock underlying options granted 2007 2006 2005 reflects liquidity discount 240 175 respectively result transfer restrictions liquidity discount based firm’s predetermined written liquidity discount policies 75 years expected life options reflects estimated impact sales restrictions life awards following table sets forth sharebased compensation related tax benefit 1 represents tax benefit recognized additional paidin capital stock options exercised delivery common stock underlying restricted stock units november 2007 275 billion total unrecognized compensation cost related nonvested sharebased compensation arrangements cost expected recognized weighted average period 215 years goldman sachs group inc subsidiaries notes consolidated financial statements continued note 13 transactions affiliated funds firm formed numerous nonconsolidated investment funds thirdparty investors firm generally acts investment manager funds entitled receive management fees certain cases advisory fees incentive fees overrides funds fees amounted 362 billion 337 billion 208 billion years ended november 2007 november 2006 november 2005 respectively november 2007 november 2006 fees receivable funds 596 million 362 million respectively additionally firm may invest alongside thirdparty investors certain funds aggregate carrying value firm’s interests funds 1290 billion 394 billion november 2007 november 2006 respectively ordinary course business firm may also engage activities funds including among others securities lending trade execution trading custody acquisition bridge financing see note 6 firm’s commitments related funds note 14 income taxes components net tax expense reflected consolidated statements earnings set forth deferred income taxes reflect net tax effects temporary differences financial reporting tax bases assets liabilities temporary differences result taxable deductible amounts future years measured using tax rates laws effect differences expected reverse goldman sachs group inc subsidiaries notes consolidated financial statements continued significant components firm’s deferred tax assets liabilities set forth 1 relates primarily ability utilize losses various tax jurisdictions firm permanently reinvests eligible earnings certain foreign subsidiaries accordingly accrue us income taxes would arise earnings repatriated november 2007 policy resulted unrecognized net deferred tax liability 350 million attributable reinvested earnings 497 billion 2007 valuation allowance increased 31 million primarily due increase deferred tax assets relating net operating losses considered likely expire unused net operating loss carryforwards 212 billion 178 billion november 2007 november 2006 respectively firm federal net operating loss carryforwards primarily resulting acquisitions 139 million 203 million november 2007 november 2006 respectively firm recorded related net deferred income tax asset 44 million 69 million november 2007 november 2006 respectively carryforwards subject annual limitations utilization begin expire 2011 firm state local net operating loss carryforwards primarily resulting acquisitions 162 billion 152 billion november 2007 november 2006 respectively firm recorded related net deferred income tax asset 21 million 31 million november 2007 november 2006 respectively carryforwards subject annual limitations utilization begin expire 2012 firm foreign net operating loss carryforwards 306 million 50 million november 2007 november 2006 respectively firm recorded related net deferred income tax asset 84 million 13 million november 2007 november 2006 respectively carryforwards subject limitation utilization carried forward indefinitely goldman sachs group inc subsidiaries notes consolidated financial statements continued firm subject examination us internal revenue service irs taxing authorities jurisdictions firm significant business operations united kingdom japan korea various states new york fiscal 2007 irs substantially concluded examination fiscal years 2003 2004 firm expect potential additional assessments examination material results operations firm expects irs examination firm’s 2005 2006 fiscal years begin 2008 tax reserves established firm believes adequate relation potential additional assessments resolution tax matters expected material effect firm’s financial condition may material firm’s operating results particular period depending part upon operating results period firm’s effective tax rate period reconciliation us federal statutory income tax rate firm’s effective income tax rate set forth 1 primarily includes effect audit settlements tax benefits approximately 908 million november 2007 653 million november 2006 272 million november 2005 related delivery common stock underlying restricted stock units exercise options credited directly “additional paidin capital” consolidated statements financial condition changes shareholders’ equity goldman sachs group inc subsidiaries notes consolidated financial statements continued note 15 regulation firm regulated us securities exchange commission consolidated supervised entity cse subject groupwide supervision examination sec minimum capital standards consolidated basis november 2007 november 2006 firm compliance cse capital standards firm’s principal us regulated subsidiaries include goldman sachs co gsco goldman sachs execution clearing lp gsec gsco gsec registered us brokerdealers futures commission merchants subject rule 15c31 sec rule 117 commodity futures trading commission specify uniform minimum net capital requirements defined registrants also require significant part registrants’ assets kept relatively liquid form gsco gsec elected compute minimum capital requirements accordance “alternative net capital requirement” permitted rule 15c31 november 2007 november 2006 gsco gsec net capital excess minimum capital requirements addition alternative minimum net capital requirements gsco also required hold tentative net capital excess 1 billion net capital excess 500 million accordance market credit risk standards appendix e rule 15c31 gsco also required notify sec event tentative net capital less 5 billion november 2007 november 2006 gsco tentative net capital net capital excess minimum notification requirements gs bank usa wholly owned industrial bank regulated federal deposit insurance corporation state utah department financial institutions subject minimum capital requirements november 2007 gs bank usa compliance regulatory capital requirements substantially firm’s bank deposits november 2007 consisted us dollardenominated savings accounts gs bank usa savings accounts gs bank usa stated maturity withdrawn upon short notice weighted average interest rates savings deposits 471 517 november 2007 november 2006 respectively carrying value savings deposits approximated fair value november 2007 november 2006 firm us insurance subsidiaries subject state insurance regulation oversight states domiciled states licensed addition certain firm’s insurance subsidiaries regulated bermuda registrar companies firm’s insurance subsidiaries compliance regulatory capital requirements november 2007 november 2006 firm’s principal nonus regulated subsidiaries include goldman sachs international gsi goldman sachs japan co ltd gsjcl gsi firm’s regulated uk brokerdealer subject capital requirements uk’s financial services authority gsjcl firm’s regulated japanese brokerdealer subject capital requirements japan’s financial services agency november 2007 november 2006 gsi gsjcl compliance local capital adequacy requirements certain nonus subsidiaries firm also subject capital adequacy requirements promulgated authorities countries operate november 2007 november 2006 subsidiaries compliance local capital adequacy requirements regulatory requirements referred restrict group inc’s ability withdraw capital regulated subsidiaries november 2007 approximately 1810 billion net assets regulated subsidiaries restricted payment dividends group inc goldman sachs group inc subsidiaries notes consolidated financial statements continued note 16 business segments reporting management firm’s operating results categorized following three business segments investment banking trading principal investments asset management securities services basis presentation reporting segments certain firm’s business lines aggregated similar economic characteristics similar following areas nature services provide ii methods distribution iii types clients serve iv regulatory environments operate cost drivers firm taken whole compensation headcount levels business activity broadly similar firm’s business segments compensation benefits expenses within firm’s segments reflect among factors overall performance firm well performance individual business units consequently pretax margins one segment firm’s business may significantly affected performance firm’s business segments firm allocates revenues expenses among three business segments due integrated nature segments estimates judgments made allocating certain revenue expense items transactions segments based specific criteria approximate thirdparty rates total operating expenses include corporate items allocated individual business segments allocation process based manner management views business firm segment information presented table prepared according following methodologies • revenues expenses directly associated segment included determining pretax earnings • net revenues firm’s segments include allocations interest income interest expense specific securities commodities positions relation cash generated funding requirements underlying positions net interest included within segment net revenues consistent way management assesses segment performance • overhead expenses directly allocable specific segments allocated ratably based direct segment expenses goldman sachs group inc subsidiaries notes consolidated financial statements continued segment operating results management believes following information provides reasonable representation segment’s contribution consolidated pretax earnings total assets 1 net revenues include net interest set forth table 2 operating expenses include net provisions number litigation regulatory proceedings 37 million 45 million 37 million years ended november 2007 november 2006 november 2005 respectively allocated firm’s segments 3 pretax earnings include total depreciation amortization set forth table goldman sachs group inc subsidiaries notes consolidated financial statements continued geographic information due highly integrated nature international financial markets firm manages businesses based profitability enterprise whole since significant portion firm’s activities require crossborder coordination order facilitate needs firm’s clients methodology allocating firm’s profitability geographic regions dependent judgment management geographic results generally allocated follows • investment banking location client investment banking team • fixed income currency commodities equities location trading desk • principal investments location investment • asset management location sales team • securities services location primary market underlying security following table sets forth total net revenues pretax earnings firm consolidated subsidiaries geographic region allocated methodology described well percentage total net revenues total pretax earnings geographic region 1 substantially relates us results 2 emea europe middle east africa 3 consists net provisions number litigation regulatory proceedings supplemental financial information quarterly results unaudited following represents firm’s unaudited quarterly results 2007 2006 quarterly results prepared accordance generally accepted accounting principles reflect adjustments opinion management necessary fair statement results adjustments normal recurring nature 1 timing magnitude changes firm’s bonus accruals significant effect results given quarter supplemental financial information common stock price range following table sets forth quarters indicated high low sales prices per share firm’s common stock january 18 2008 7784 holders record firm’s common stock january 18 2008 last reported sales price firm’s common stock new york stock exchange 18721 per share supplemental financial information selected financial data 1 book value per common share based common shares outstanding including restricted stock units granted employees future service requirements 4390 million 4501 million 4604 million 4940 million 4961 million november 2007 november 2006 november 2005 november 2004 november 2003 respectively 2 substantially assets management valued calendar monthend 3 primarily includes hedge funds private equity real estate currencies commodities asset allocation strategies item 9item 8 financial statements supplementary data index management’s report internal control financial reporting management goldman sachs group inc together consolidated subsidiaries firm responsible establishing maintaining adequate internal control financial reporting firm’s internal control financial reporting process designed supervision firm’s principal executive principal financial officers provide reasonable assurance regarding reliability financial reporting preparation firm’s financial statements external reporting purposes accordance us generally accepted accounting principles end firm’s 2008 fiscal year management conducted assessment effectiveness firm’s internal control financial reporting based framework established internal control integrated framework issued committee sponsoring organizations treadway commission coso based assessment management determined firm’s internal control financial reporting november 28 2008 effective internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets provide reasonable assurances transactions recorded necessary permit preparation financial statements accordance us generally accepted accounting principles receipts expenditures made accordance authorizations management directors firm provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition firm’s assets could material effect financial statements firm’s internal control financial reporting november 28 2008 audited pricewaterhousecoopers llp independent registered public accounting firm stated report appearing page 130 expresses unqualified opinion effectiveness firm’s internal control financial reporting november 28 2008 report independent registered public accounting firm board directors shareholders goldman sachs group inc opinion consolidated financial statements listed accompanying index present fairly material respects financial position goldman sachs group inc subsidiaries company november 28 2008 november 30 2007 results operations cash flows three fiscal years period ended november 28 2008 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting november 28 2008 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing page 129 responsibility express opinions financial statements company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions discussed note 2 consolidated financial statements beginning 2007 company adopted sfas 157 “fair value measurements” sfas 159 “the fair value option financial assets financial liabilities” company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp new york new york january 22 2009 goldman sachs group inc subsidiaries consolidated statements earnings accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements financial condition accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements changes shareholders’ equity accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements cash flows supplemental disclosures cash payments interest net capitalized interest 3237 billion 4074 billion 3098 billion years ended november 2008 november 2007 november 2006 respectively cash payments income taxes net refunds 347 billion 578 billion 456 billion years ended november 2008 november 2007 november 2006 respectively noncash activities firm assumed 790 million 409 million 498 million debt connection business acquisitions years ended november 2008 november 2007 november 2006 respectively accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries consolidated statements comprehensive income accompanying notes integral part consolidated financial statements goldman sachs group inc subsidiaries notes consolidated financial statements note 1 description business goldman sachs group inc group inc delaware corporation bank holding company together consolidated subsidiaries collectively firm leading global investment banking securities investment management firm provides wide range services worldwide substantial diversified client base includes corporations financial institutions governments highnetworth individuals firm’s activities divided three segments • investment banking firm provides broad range investment banking services diverse group corporations financial institutions investment funds governments individuals • trading principal investments firm facilitates client transactions diverse group corporations financial institutions investment funds governments individuals takes proprietary positions market making trading investing fixed income equity products currencies commodities derivatives products addition firm engages marketmaking specialist activities equities options exchanges firm clears client transactions major stock options futures exchanges worldwide connection firm’s merchant banking investing activities firm makes principal investments directly funds firm raises manages • asset management securities services firm provides investment advisory financial planning services offers investment products primarily separately managed accounts commingled vehicles mutual funds private investment funds across major asset classes diverse group institutions individuals worldwide provides prime brokerage services financing services securities lending services institutional clients including hedge funds mutual funds pension funds foundations highnetworth individuals worldwide note 2 significant accounting policies basis presentation consolidated financial statements include accounts group inc entities firm controlling financial interest material intercompany transactions balances eliminated firm determines whether controlling financial interest entity first evaluating whether entity voting interest entity variable interest entity vie qualifying specialpurpose entity qspe generally accepted accounting principles • voting interest entities voting interest entities total equity investment risk sufficient enable entity finance activities independently ii equity holders obligation absorb losses right receive residual returns right make decisions entity’s activities voting interest entities consolidated accordance accounting research bulletin 51 “consolidated financial statements” amended usual condition controlling financial interest entity ownership majority voting interest accordingly firm consolidates voting interest entities majority voting interest • variable interest entities vies entities lack one characteristics voting interest entity controlling financial interest vie present enterprise variable interest combination variable interests absorb majority vie’s expected losses receive majority vie’s expected residual returns goldman sachs group inc subsidiaries notes consolidated financial statements continued enterprise controlling financial interest known primary beneficiary consolidates vie accordance financial accounting standards board fasb interpretation fin 46r “consolidation variable interest entities” firm consolidates vies primary beneficiary firm determines whether primary beneficiary vie first performing qualitative analysis vie’s expected losses expected residual returns analysis includes review among factors vie’s capital structure contractual terms interests create absorb variability related party relationships design vie qualitative analysis conclusive firm performs quantitative analysis purposes allocating vie’s expected losses expected residual returns variable interest holders firm utilizes “top down” method firm calculates share vie’s expected losses expected residual returns using specific cash flows would allocated based contractual arrangements andor firm’s position capital structure vie various probabilityweighted scenarios firm reassesses initial evaluation entity vie initial determination whether firm primary beneficiary vie upon occurrence certain reconsideration events defined fin 46r • qspes passive entities commonly used mortgage securitization transactions statement financial accounting standards sfas 140 “accounting transfers servicing financial assets extinguishments liabilities” sets forth criteria entity must satisfy qspe criteria include types assets qspe may hold limits asset sales use derivatives financial guarantees level discretion servicer may exercise attempting collect receivables criteria may require management make judgments complex matters whether derivative considered passive level discretion servicer may exercise including example determining default reasonably foreseeable accordance sfas 140 fin 46r firm consolidate qspes • equitymethod investments firm controlling financial interest entity exerts significant influence entity’s operating financial policies generally defined owning voting interest 20 50 investment common stock insubstance common stock firm accounts investment either accordance accounting principles board opinion apb 18 “the equity method accounting investments common stock” fair value accordance sfas 159 “the fair value option financial assets financial liabilities” general firm accounts investments acquired subsequent adoption sfas 159 fair value certain cases firm may apply equity method accounting new investments strategic nature closely related firm’s principal business activities firm significant degree involvement cash flows operations investee costbenefit considerations less significant see “ revenue recognition financial assets financial liabilities fair value” discussion firm’s application sfas 159 • firm consolidate entity apply equity method accounting firm accounts investment fair value firm also formed numerous nonconsolidated investment funds thirdparty investors typically organized limited partnerships firm acts general partner funds generally hold majority economic interests funds firm generally provided thirdparty investors rights terminate funds remove firm general partner result firm consolidate funds fund investments included “trading assets fair value” consolidated statements financial condition goldman sachs group inc subsidiaries notes consolidated financial statements continued unless otherwise stated herein references 2008 2007 2006 refer firm’s fiscal years ended dates context requires november 28 2008 november 30 2007 november 24 2006 respectively certain reclassifications made previously reported amounts conform current presentation use estimates consolidated financial statements prepared accordance generally accepted accounting principles require management make certain estimates assumptions important estimates assumptions relate fair value measurements accounting goodwill identifiable intangible assets provision potential losses may arise litigation regulatory proceedings tax audits although estimates assumptions based best available information actual results could materially different estimates revenue recognition investment banking underwriting revenues fees mergers acquisitions financial advisory assignments recognized consolidated statements earnings services related underlying transaction completed terms engagement expenses associated transactions deferred related revenue recognized engagement otherwise concluded underwriting revenues presented net related expenses associated financial advisory transactions recorded noncompensation expenses net client reimbursements trading assets trading liabilities substantially trading assets trading liabilities reflected consolidated statements financial condition fair value pursuant principally • sfas 115 “accounting certain investments debt equity securities” • specialized industry accounting brokerdealers investment companies • sfas 133 “accounting derivative instruments hedging activities” • fair value option either sfas 155 “accounting certain hybrid financial instruments amendment fasb statements 133 140” sfas 159 “the fair value option financial assets financial liabilities” ie fair value option related unrealized gains losses generally recognized “trading principal investments” consolidated statements earnings upon becoming bank holding company september 2008 firm could longer apply specialized brokerdealer industry accounting subsidiaries regulated brokerdealers therefore within firm’s nonbrokerdealer subsidiaries firm designated held trading instruments within scope sfas 115 ie debt securities marketable equity securities elected fair value option cash instruments specifically loans loan commitments certain private equity restricted public equity securities firm historically carried fair value fair value elections addition previous elections made certain corporate loans loan commitments certificates deposit issued goldman sachs bank usa gs bank usa impact earnings initial elections instruments already recorded fair value “trading assets fair value” “trading liabilities fair value” consolidated statements financial condition prior group inc becoming bank holding company goldman sachs group inc subsidiaries notes consolidated financial statements continued financial assets financial liabilities fair value addition “trading assets fair value” “trading liabilities fair value” firm elected account certain financial assets financial liabilities fair value fair value option primary reasons electing fair value option reflect economic events earnings timely basis mitigate volatility earnings using different measurement attributes address simplification costbenefit considerations financial assets financial liabilities accounted fair value include • certain unsecured shortterm borrowings consisting promissory notes commercial paper certain hybrid financial instruments • certain secured financings primarily transfers accounted financings rather sales sfas 140 debt raised firm’s william street program certain nonrecourse financings • certain unsecured longterm borrowings including prepaid physical commodity transactions • resale repurchase agreements • securities borrowed loaned within trading principal investments consisting firm’s matched book certain firm financing activities • certain corporate loans loan commitments certificates deposit issued gs bank usa well securities held gs bank usa • receivables customers counterparties arising transfers accounted secured loans rather purchases sfas 140 • certain insurance reinsurance contracts • general investments acquired adoption sfas 159 firm significant influence investee would otherwise apply equity method accounting fair value measurements fair value financial instrument amount would received sell asset paid transfer liability orderly transaction market participants measurement date exit price financial assets marked bid prices financial liabilities marked offer prices fair value measurements include transaction costs firm adopted sfas 157 “fair value measurements” beginning 2007 sfas 157 establishes fair value hierarchy prioritizes inputs valuation techniques used measure fair value hierarchy gives highest priority unadjusted quoted prices active markets identical assets liabilities level 1 measurements lowest priority unobservable inputs level 3 measurements three levels fair value hierarchy sfas 157 described basis fair value measurement level 1 unadjusted quoted prices active markets accessible measurement date identical unrestricted assets liabilities level 2 quoted prices markets considered active financial instruments significant inputs observable either directly indirectly level 3 prices valuations require inputs significant fair value measurement unobservable goldman sachs group inc subsidiaries notes consolidated financial statements continued financial instrument’s level within fair value hierarchy based lowest level input significant fair value measurement firm defines active markets equity instruments based average daily trading volume absolute terms relative market capitalization instrument firm defines active markets debt instruments based average daily trading volume number days trading activity fourth quarter 2008 fasb staff sec reemphasized importance sound fair value measurement financial reporting october 2008 fasb issued fasb staff position fas 1573 “determining fair value financial asset market asset active” statement clarifies determining fair value inactive dislocated market depends facts circumstances requires significant management judgment statement specifies acceptable use inputs based management estimates assumptions management make adjustments observable inputs determine fair value markets active relevant observable inputs available firm’s fair value measurement policies consistent guidance fsp fas 1573 credit risk essential component fair value cash products eg bonds loans derivative instruments particularly significant future projected cash flows trade market levels reflect credit considerations firm calculates fair value derivative assets discounting future cash flows rate incorporates counterparty credit spreads fair value derivative liabilities discounting future cash flows rate incorporates firm’s credit spreads credit exposures adjusted reflect mitigants namely collateral agreements reduce exposures based triggers contractual posting requirements firm manages exposure credit risk market risks price economically hedge facilitate intermediate trades involve credit risk firm records liquidity valuation adjustments reflect cost exiting concentrated risk positions including exposure firm’s credit spreads determining fair value firm separates “trading assets fair value” “trading liabilities fair value” two categories cash instruments derivative contracts • cash instruments firm’s cash instruments generally classified within level 1 level 2 fair value hierarchy valued using quoted market prices broker dealer quotations alternative pricing sources reasonable levels price transparency types instruments valued based quoted market prices active markets include us government sovereign obligations active listed equities certain money market securities instruments generally classified within level 1 fair value hierarchy accordance sfas 157 firm adjust quoted price instruments even situations firm holds large position sale could reasonably impact quoted price types instruments trade markets considered active valued based quoted market prices broker dealer quotations alternative pricing sources reasonable levels price transparency include government agency securities investmentgrade corporate bonds certain mortgage products certain bank loans bridge loans less liquid listed equities state municipal provincial obligations certain money market securities loan commitments instruments generally classified within level 2 fair value hierarchy certain cash instruments classified within level 3 fair value hierarchy trade infrequently therefore little price transparency instruments include private equity real estate fund investments certain bank loans bridge loans including goldman sachs group inc subsidiaries notes consolidated financial statements continued certain mezzanine financing leveraged loans arising capital market transactions corporate bank debt less liquid corporate debt securities debt obligations including less liquid highyield corporate bonds distressed debt instruments collateralized debt obligations cdos backed corporate obligations less liquid mortgage whole loans securities backed either commercial residential real estate acquired portfolios distressed loans transaction price initially used best estimate fair value accordingly pricing model used value instrument model adjusted model value inception equals transaction price valuation adjusted changes inputs assumptions corroborated evidence transactions similar instruments completed pending thirdparty transactions underlying investment comparable entities subsequent rounds financing recapitalizations transactions across capital structure offerings equity debt capital markets changes financial ratios cash flows positions traded active markets subject transfer restrictions valuations adjusted reflect illiquidity andor nontransferability adjustments generally based available market evidence absence evidence management’s best estimate used recent market conditions particularly fourth quarter 2008 characterized dislocations asset classes elevated levels volatility reduced price transparency increased level management judgment required value cash trading instruments classified within level 3 fair value hierarchy particular management’s judgment required determine appropriate riskadjusted discount rate cash trading instruments little price transparency result decreased volumes lower levels trading activity situations firm’s valuation adjusted approximate rates market participants would likely consider appropriate relevant credit liquidity risks • derivative contracts derivative contracts exchangetraded overthecounter otc exchangetraded derivatives typically fall within level 1 level 2 fair value hierarchy depending whether deemed actively traded firm generally values exchangetraded derivatives using models calibrate marketclearing levels eliminate timing differences closing price exchangetraded derivatives underlying instruments cases exchangetraded derivatives classified within level 2 fair value hierarchy otc derivatives valued using market transactions market evidence whenever possible including marketbased inputs models model calibration marketclearing transactions broker dealer quotations alternative pricing sources reasonable levels price transparency models used selection particular model value otc derivative depends upon contractual terms specific risks inherent instrument well availability pricing information market firm generally uses similar models value similar instruments valuation models require variety inputs including contractual terms market prices yield curves credit curves measures volatility prepayment rates correlations inputs otc derivatives trade liquid markets generic forwards swaps options model inputs generally verified model selection involve significant management judgment otc derivatives classified within level 2 fair value hierarchy significant inputs corroborated market evidence certain otc derivatives trade less liquid markets limited pricing information determination fair value derivatives inherently difficult instruments goldman sachs group inc subsidiaries notes consolidated financial statements continued classified within level 3 fair value hierarchy firm corroborating market evidence support significant model inputs cannot verify model market transactions transaction price initially used best estimate fair value accordingly pricing model used value instrument model adjusted model value inception equals transaction price valuations less liquid otc derivatives typically based level 1 andor level 2 inputs observed market well unobservable level 3 inputs subsequent initial recognition firm updates level 1 level 2 inputs reflect observable market changes resulting gains losses reflected within level 3 level 3 inputs changed corroborated evidence similar market transactions thirdparty pricing services andor broker dealer quotations empirical market data circumstances firm cannot verify model value market transactions possible different valuation model could produce materially different estimate fair value appropriate valuations adjusted various factors liquidity bidoffer spreads credit considerations adjustments generally based available market evidence absence evidence management’s best estimate used collateralized agreements financings collateralized agreements consist resale agreements securities borrowed collateralized financings consist repurchase agreements securities loaned secured financings interest collateralized agreements collateralized financings recognized “interest income” “interest expense” respectively life transaction • resale repurchase agreements securities purchased agreements resell securities sold agreements repurchase principally us government federal agency investmentgrade sovereign obligations represent collateralized financing transactions firm receives securities purchased agreements resell makes delivery securities sold agreements repurchase monitors market value securities daily basis delivers obtains additional collateral appropriate noted resale repurchase agreements carried consolidated statements financial condition fair value sfas 159 resale repurchase agreements generally valued based inputs reasonable levels price transparency classified within level 2 fair value hierarchy resale repurchase agreements presented netbycounterparty basis requirements fin 41 “offsetting amounts related certain repurchase reverse repurchase agreements” fin 39 “offsetting amounts related certain contracts” satisfied • securities borrowed loaned securities borrowed loaned generally collateralized cash securities letters credit firm receives securities borrowed makes delivery securities loaned monitors market value securities borrowed loaned delivers obtains additional collateral appropriate securities borrowed loaned within securities services relating customer activities lesser extent certain firm financing activities recorded based amount cash collateral advanced received plus accrued interest arrangements generally terminated demand exhibit little sensitivity changes interest rates noted securities borrowed loaned within trading principal investments related firm’s matched book certain firm financing activities recorded fair value sfas 159 securities borrowed loaned transactions generally valued based inputs reasonable levels price transparency classified within level 2 fair value hierarchy goldman sachs group inc subsidiaries notes consolidated financial statements continued • secured financings addition repurchase agreements securities loaned firm funds assets use secured financing arrangements pledges financial instruments assets collateral transactions noted firm elected apply sfas 159 transfers accounted financings rather sales sfas 140 debt raised firm’s william street program certain nonrecourse financings use fair value eliminates noneconomic volatility earnings would arise using different measurement attributes secured financing transactions generally valued based inputs reasonable levels price transparency generally classified within level 2 fair value hierarchy secured financings recorded fair value recorded based amount cash received plus accrued interest see note 3 information regarding secured financings hybrid financial instruments hybrid financial instruments contain bifurcatable embedded derivatives sfas 133 require settlement physical delivery nonfinancial assets eg physical commodities firm elects bifurcate embedded derivative accounted fair value host contract accounted amortized cost adjusted effective portion fair value hedge accounting relationships firm elect bifurcate entire hybrid financial instrument accounted fair value sfas 155 see notes 3 6 information regarding hybrid financial instruments transfers financial assets general transfers financial assets accounted sales sfas 140 firm relinquished control transferred assets transfers accounted sales related gains losses recognized net revenues transfers accounted sales accounted collateralized financings related interest expense recognized net revenues life transaction commissions commission revenues executing clearing client transactions stock options futures markets recognized “trading principal investments” consolidated statements earnings tradedate basis insurance activities certain firm’s insurance reinsurance contracts accounted fair value sfas 159 changes fair value included “trading principal investments” consolidated statements earnings revenues variable annuity life insurance reinsurance contracts accounted fair value sfas 159 generally consist fees assessed contract holder account balances mortality charges policy administration fees surrender charges recognized within “trading principal investments” consolidated statements earnings period services provided interest credited variable annuity life insurance reinsurance contracts account balances changes reserves recognized “other expenses” consolidated statements earnings premiums earned underwriting property catastrophe reinsurance recognized within “trading principal investments” consolidated statements earnings coverage period net premiums ceded cost reinsurance expenses liabilities related property catastrophe reinsurance claims including estimates losses incurred reported recognized within “other expenses” consolidated statements earnings merchant banking overrides firm entitled receive merchant banking overrides ie increased share fund’s income gains return funds’ investments goldman sachs group inc subsidiaries notes consolidated financial statements continued exceeds certain threshold returns overrides based investment performance life merchant banking fund future investment underperformance may require amounts override previously distributed firm returned funds accordingly overrides recognized consolidated statements earnings material contingencies resolved overrides included “trading principal investments” consolidated statements earnings asset management fees recognized period related service provided based upon average net asset values certain circumstances firm also entitled receive incentive fees based percentage fund’s return assets management exceeds specified benchmark returns performance targets incentive fees generally based investment performance 12month period subject adjustment prior end measurement period accordingly incentive fees recognized consolidated statements earnings measurement period ends asset management fees incentive fees included “asset management securities services” consolidated statements earnings sharebased compensation firm accounts sharebased compensation accordance sfas 123r “sharebased payment” cost employee services received exchange sharebased award generally measured based grantdate fair value award sharebased awards require future service ie vested awards including awards granted retirementeligible employees expensed immediately sharebased employee awards require future service amortized relevant service period expected forfeitures included determining sharebased employee compensation expense first quarter 2006 firm adopted sfas 123r modified prospective adoption method adoption provisions sfas 123r generally applied sharebased awards granted subsequent adoption sharebased awards held employees retirementeligible date adoption sfas 123r must continue amortized stated service period award accelerated employee actually retires firm pays cash dividend equivalents outstanding restricted stock units dividend equivalents paid restricted stock units generally charged retained earnings dividend equivalents paid restricted stock units expected forfeited included compensation expense tax benefit related dividend equivalents paid restricted stock units accounted reduction income tax expense see “ recent accounting developments” discussion emerging issues task force eitf issue 0611 “accounting income tax benefits dividends sharebased payment awards” certain cases primarily related death employee conflicted employment outlined applicable award agreements firm may cash settle sharebased compensation awards accounted equity instruments “additional paidin capital” adjusted extent difference current value award grantdate value award goodwill cost acquired companies excess fair value identifiable net assets acquisition date accordance sfas 142 “goodwill intangible assets” goodwill tested least annually impairment loss recognized estimated fair value operating segment component one level firm’s three business segments goldman sachs group inc subsidiaries notes consolidated financial statements continued less estimated net book value loss calculated difference estimated fair value goodwill carrying value identifiable intangible assets identifiable intangible assets consist primarily customer lists designated market maker dmm rights value business acquired voba deferred acquisition costs dac firm’s insurance subsidiaries amortized estimated lives accordance sfas 142 case insurance contracts accordance sfas 60 “accounting reporting insurance enterprises” sfas 97 “accounting reporting insurance enterprises certain longduration contracts realized gains losses sale investments” identifiable intangible assets tested impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable accordance sfas 144 “accounting impairment disposal longlived assets” sfas 60 sfas 97 impairment loss generally calculated difference estimated fair value carrying value asset group recognized sum estimated undiscounted cash flows relating asset group less corresponding carrying value property leasehold improvements equipment property leasehold improvements equipment net accumulated depreciation amortization recorded cost included “other assets” consolidated statements financial condition substantially property equipment depreciated straightline basis useful life asset leasehold improvements amortized straightline basis useful life improvement term lease whichever shorter certain costs software developed obtained internal use capitalized amortized straightline basis useful life software property leasehold improvements equipment tested impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable accordance sfas 144 impairment loss calculated difference estimated fair value carrying value asset group recognized sum expected undiscounted cash flows relating asset group less corresponding carrying value firm’s operating leases include office space held excess current requirements rent expense relating space held growth included “occupancy” consolidated statements earnings accordance sfas 146 “accounting costs associated exit disposal activities” firm records liability based fair value remaining lease rentals reduced potential existing sublease rentals leases firm ceased using space management concluded firm derive future economic benefits costs terminate lease end term recognized measured fair value upon termination foreign currency translation assets liabilities denominated nonus currencies translated rates exchange prevailing date consolidated statement financial condition revenues expenses translated average rates exchange period gains losses translation financial statements nonus operation functional currency us dollar included net hedges taxes consolidated statements comprehensive goldman sachs group inc subsidiaries notes consolidated financial statements continued income firm seeks reduce net investment exposure fluctuations foreign exchange rates use foreign currency forward contracts foreign currencydenominated debt foreign currency forward contracts hedge effectiveness assessed based changes forward exchange rates accordingly forward points reflected component currency translation adjustment consolidated statements comprehensive income foreign currencydenominated debt hedge effectiveness assessed based changes spot rates foreign currency remeasurement gains losses transactions nonfunctional currencies included consolidated statements earnings income taxes deferred tax assets liabilities recognized temporary differences financial reporting tax bases firm’s assets liabilities valuation allowances established reduce deferred tax assets amount likely realized firm’s tax assets liabilities presented component “other assets” “other liabilities accrued expenses” respectively consolidated statements financial condition tax provisions computed accordance sfas 109 “accounting income taxes” firm adopted provisions fin 48 “accounting uncertainty income taxes interpretation fasb statement 109” december 1 2007 recorded transition adjustment resulting reduction 201 million beginning retained earnings see note 16 information regarding firm’s adoption fin 48 tax position recognized financial statements likely position sustained upon examination relevant taxing authority based technical merits position meets standard measured largest amount benefit likely realized upon settlement liability established differences positions taken tax return amounts recognized financial statements fin 48 also provides guidance derecognition classification interim period accounting interest penalties prior adoption fin 48 contingent liabilities related income taxes recorded criteria loss recognition sfas 5 “accounting contingencies” amended met earnings per common share eps basic eps calculated dividing net earnings applicable common shareholders weighted average number common shares outstanding common shares outstanding includes common stock restricted stock units future service required condition delivery underlying common stock diluted eps includes determinants basic eps addition reflects dilutive effect common stock deliverable pursuant stock warrants options restricted stock units future service required condition delivery underlying common stock cash equivalents firm defines cash equivalents highly liquid overnight deposits held ordinary course business november 2008 “cash equivalents” consolidated statements financial condition included 560 billion cash due banks 1014 billion interestbearing deposits banks november 2007 “cash equivalents” consolidated statements financial condition included 429 billion cash due banks 599 billion interestbearing deposits banks goldman sachs group inc subsidiaries notes consolidated financial statements continued recent accounting developments eitf issue 0611 june 2007 eitf reached consensus issue 0611 “accounting income tax benefits dividends sharebased payment awards” eitf issue 0611 requires tax benefit related dividend equivalents paid restricted stock units expected vest recorded increase additional paidin capital firm currently accounts tax benefit reduction income tax expense eitf issue 0611 applied prospectively tax benefits dividends declared fiscal years beginning december 15 2007 firm expect adoption eitf issue 0611 material effect financial condition results operations cash flows fasb staff position fas 1403 february 2008 fasb issued fasb staff position fsp fas 1403 “accounting transfers financial assets repurchase financing transactions” fsp fas 1403 requires initial transfer financial asset repurchase financing entered contemporaneously contemplation initial transfer evaluated linked transaction sfas 140 unless certain criteria met including transferred asset must readily obtainable marketplace fsp fas 1403 effective fiscal years beginning november 15 2008 applicable new transactions entered date adoption early adoption prohibited firm expect adoption fsp fas 1403 material effect financial condition cash flows adoption fsp fas 1403 effect firm’s results operations sfas 161 march 2008 fasb issued sfas 161 “disclosures derivative instruments hedging activities amendment fasb statement 133” sfas 161 requires enhanced disclosures entity’s derivative hedging activities effective financial statements issued reporting periods beginning november 15 2008 early application encouraged since sfas 161 requires additional disclosures concerning derivatives hedging activities adoption sfas 161 affect firm’s financial condition results operations cash flows fasb staff position eitf 0361 june 2008 fasb issued fsp eitf 0361 “determining whether instruments granted sharebased payment transactions participating securities” fsp addresses whether instruments granted sharebased payment transactions participating securities prior vesting therefore need included earnings allocation calculating earnings per share twoclass method described sfas 128 “earnings per share” fsp requires companies treat unvested sharebased payment awards nonforfeitable rights dividend equivalents separate class securities calculating earnings per share fsp effective fiscal years beginning december 15 2008 earlier application permitted firm expect adoption fsp eitf 0361 material effect results operations earnings per share fasb staff position fas 1331 fin 454 september 2008 fasb issued fsp fas 1331 fin 454 “disclosures credit derivatives certain guarantees amendment fasb statement 133 fasb interpretation 45 clarification effective date fasb statement 161” fsp fas 1331 fin 454 requires enhanced disclosures credit derivatives guarantees amends fin 45 “guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others” exclude credit derivative instruments accounted fair value sfas 133 fsp effective financial statements issued reporting periods ending november 15 2008 since fsp fas 1331 fin 454 requires additional disclosures concerning credit derivatives guarantees adoption fsp fas 1331 fin 454 effect firm’s financial condition results operations cash flows goldman sachs group inc subsidiaries notes consolidated financial statements continued fasb staff position fas 1573 october 2008 fasb issued fsp fas 1573 “determining fair value financial asset market asset active” fsp fas 1573 clarifies application sfas 157 inactive market without changing existing principles fsp effective immediately upon issuance adoption fsp fas 1573 effect firm’s financial condition results operations cash flows sfas 141r december 2007 fasb issued revision sfas 141 “business combinations” sfas 141r requires changes accounting transaction costs certain contingent assets liabilities balances business combination addition partial acquisitions control obtained acquiring company must measure record target’s assets liabilities including goodwill fair value entire target company acquired firm apply provisions sfas 141r business combinations occurring december 26 2008 adoption sfas 141r affect firm’s financial condition results operations cash flows may effect accounting future business combinations sfas 160 december 2007 fasb issued sfas 160 “noncontrolling interests consolidated financial statements amendment arb 51” sfas 160 requires ownership interests consolidated subsidiaries held parties parent noncontrolling interests accounted presented equity rather liability mezzanine equity sfas 160 effective fiscal years beginning december 15 2008 presentation disclosure requirements applied retrospectively firm expect adoption statement material effect financial condition results operations cash flows fasb staff position fas 1404 fin 46r8 december 2008 fasb issued fsp fas 1404 fin 46r8 “disclosures public entities enterprises transfers financial assets interests variable interest entities” fsp fas 1404 fin 46r8 requires enhanced disclosures transfers financial assets interests variable interest entities fsp effective interim annual periods ending december 15 2008 since fsp requires additional disclosures concerning transfers financial assets interests variable interest entities adoption fsp affect firm’s financial condition results operations cash flows eitf issue 075 june 2008 eitf reached consensus issue 075 “determining whether instrument embedded feature indexed entity’s stock” eitf issue 075 provides guidance whether instrument firm’s outstanding common stock warrants classified equity marked market accounting purposes eitf issue 075 effective fiscal years beginning december 15 2008 adoption eitf issue 075 affect firm’s financial condition results operations cash flows goldman sachs group inc subsidiaries notes consolidated financial statements continued note 3 financial instruments fair value financial instruments following table sets forth firm’s trading assets fair value including pledged collateral trading liabilities fair value point time firm may use cash instruments well derivatives manage long short risk position goldman sachs group inc subsidiaries notes consolidated financial statements continued fair value hierarchy firm’s financial assets fair value classified within level 3 fair value hierarchy summarized 1 excludes assets financed nonrecourse debt attributable minority investors attributable employee interests certain consolidated funds following tables set forth level within fair value hierarchy “trading assets fair value” “trading liabilities fair value” financial assets financial liabilities accounted fair value sfas 155 sfas 159 november 2008 november 2007 see note 2 information fair value hierarchy required sfas 157 assets liabilities classified entirety based lowest level input significant fair value measurement goldman sachs group inc subsidiaries notes consolidated financial statements continued 1 principally consists transfers accounted secured loans rather purchases sfas 140 prepaid variable share forwards 2 consists securities borrowed within trading principal investments excludes securities borrowed within securities services accounted based amount cash collateral advanced plus accrued interest 3 consists level 3 assets financed nonrecourse debt attributable minority investors attributable employee interests certain consolidated funds 4 consists us treasury securities money market instruments well insurance separate account assets measured fair value aicpa sop 031 “accounting reporting insurance enterprises certain nontraditional longduration contracts separate accounts” 5 principally consists securities borrowed resale agreements underlying securities segregated satisfy certain regulatory requirements 6 consists private equity real estate fund investments 7 represents cash collateral impact netting across levels fair value hierarchy netting among positions classified within level included level goldman sachs group inc subsidiaries notes consolidated financial statements continued 1 consists promissory notes commercial paper hybrid financial instruments 2 consists certain certificates deposit issued gs bank usa 3 consists securities loaned within trading principal investments excludes securities loaned within securities services accounted based amount cash collateral received plus accrued interest 4 primarily includes transfers accounted financings rather sales sfas 140 debt raised firm’s william street program certain nonrecourse financings 5 consists liabilities related insurance contracts 6 primarily includes hybrid financial instruments prepaid physical commodity transactions 7 level 3 liabilities 70 total liabilities fair value 8 represents cash collateral impact netting across levels fair value hierarchy netting among positions classified within level included level goldman sachs group inc subsidiaries notes consolidated financial statements continued 1 consists transfers accounted secured loans rather purchases sfas 140 prepaid variable share forwards 2 consists securities borrowed within trading principal investments excludes securities borrowed within securities services accounted based amount cash collateral advanced plus accrued interest 3 consists level 3 assets financed nonrecourse debt attributable minority investors attributable employee interests certain consolidated funds 4 consists us treasury securities money market instruments well insurance separate account assets measured fair value aicpa sop 031 “accounting reporting insurance enterprises certain nontraditional longduration contracts separate accounts” 5 principally consists securities borrowed resale agreements underlying securities segregated satisfy certain regulatory requirements 6 consists private equity real estate fund investments 7 represents cash collateral impact netting across levels fair value hierarchy netting among positions classified within level included level goldman sachs group inc subsidiaries notes consolidated financial statements continued 1 consists promissory notes commercial paper hybrid financial instruments 2 consists certain certificates deposit issued gs bank usa 3 consists securities loaned within trading principal investments excludes securities loaned within securities services accounted based amount cash collateral received plus accrued interest 4 primarily includes transfers accounted financings rather sales sfas 140 debt raised firm’s william street program certain nonrecourse financings 5 primarily includes hybrid financial instruments prepaid physical commodity transactions 6 level 3 liabilities 40 total liabilities fair value 7 represents cash collateral impact netting across levels fair value hierarchy netting among positions classified within level included level goldman sachs group inc subsidiaries notes consolidated financial statements continued level 3 unrealized gainslosses table sets forth summary unrealized gainslosses firm’s level 3 financial assets financial liabilities still held reporting date years ended november 2008 november 2007 cash instruments net unrealized loss level 3 cash instruments 1236 billion year ended november 2008 primarily consisted unrealized losses loans securities backed commercial real estate certain bank loans bridge loans private equity real estate fund investments losses year reflected significant weakness global credit equity markets level 3 cash instruments frequently economically hedged instruments classified within level 1 level 2 accordingly gains losses reported level 3 offset gains losses attributable instruments classified within level 1 level 2 gains losses derivative contracts classified level 3 fair value hierarchy derivative contracts net unrealized gain level 3 derivative contracts 558 billion year ended november 2008 primarily attributable changes observable credit spreads level 2 inputs underlying instruments level 3 gains losses derivative contracts considered context following • derivative contract level 1 andor level 2 inputs classified level 3 financial instrument entirety least one significant level 3 input • one significant level 3 input entire gain loss adjusting observable inputs ie level 1 level 2 still classified level 3 • gains losses reported level 3 resulting changes level 1 level 2 inputs frequently offset gains losses attributable instruments classified within level 1 level 2 cash instruments reported level 3 fair value hierarchy goldman sachs group inc subsidiaries notes consolidated financial statements continued tables set forth summary changes fair value firm’s level 3 financial assets financial liabilities years ended november 2008 november 2007 tables reflect gains losses including gains losses financial assets financial liabilities transferred level 3 year financial assets financial liabilities categorized level 3 november 2008 november 2007 respectively tables include gains losses reported level 3 prior periods instruments sold transferred level 3 prior end period presented 1 aggregate amounts include approximately 1154 billion 198 billion reported “trading principal investments” “interest income” respectively consolidated statements earnings year ended november 2008 aggregate amounts include approximately 177 billion 171 billion reported “trading principal investments” “interest income” respectively consolidated statements earnings year ended november 2007 2 principally reflects transfers level 2 within fair value hierarchy loans securities backed commercial real estate reflecting reduced price transparency financial instruments 3 substantially reported “trading principal investments” consolidated statements earnings 4 principally resulted changes level 2 inputs 5 principally reflects transfers level 2 within fair value hierarchy mortgagerelated derivative assets recent trading activity provided improved transparency correlation inputs decrease partially offset transfers level 2 within fair value hierarchy credit equitylinked derivatives due reduced price transparency 6 consists transfers level 2 within fair value hierarchy 7 principally reflects transfers level 2 within fair value hierarchy loans securities backed commercial residential real estate certain bank loans bridge loans reflecting reduced price transparency financial instruments 8 principally reflects transfers level 2 within fair value hierarchy structured credit derivative liabilities due reduced transparency correlation inputs goldman sachs group inc subsidiaries notes consolidated financial statements continued impact credit spreads ongoing basis firm realizes gains losses relating changes credit risk derivative contracts changes credit mitigants sale unwind contracts net gainloss attributable impact changes credit exposure credit spreads derivative contracts 137 million 86 million years ended november 2008 november 2007 respectively following table sets forth net gains attributable impact changes firm’s credit spreads unsecured borrowings fair value option elected firm calculates fair value unsecured borrowings discounting future cash flows rate incorporates firm’s observable credit spreads impact changes instrumentspecific credit spreads loans loan commitments fair value option elected loss 461 billion year ended november 2008 material year ended november 2007 firm attributes changes fair value floating rate loans loan commitments changes instrumentspecific credit spreads fixed rate loans loan commitments firm allocates changes fair value interest raterelated changes credit spreadrelated changes based changes interest rates see additional details regarding fair value option fair value option gainslosses following table sets forth gainslosses included earnings years ended november 2008 november 2007 result firm electing apply fair value option certain financial assets financial liabilities described note 2 table excludes gains losses related trading assets trading liabilities well gains losses would recognized generally accepted accounting principles firm elected fair value option economically hedged instruments accounted fair value generally accepted accounting principles 1 excludes gains 242 billion losses 218 billion years ended november 2008 november 2007 respectively related derivative component hybrid financial instruments gains losses would recognized pursuant sfas 133 firm elected account entire hybrid instrument fair value fair value option goldman sachs group inc subsidiaries notes consolidated financial statements continued 2 excludes gains 129 billion 219 billion years ended november 2008 november 2007 respectively related financings recorded result securitizationrelated transactions accounted secured financings rather sales sfas 140 changes fair value secured financings offset changes fair value related financial instruments included within firm’s “trading assets fair value” consolidated statements financial condition 3 excludes gains 637 billion losses 107 billion years ended november 2008 november 2007 respectively related derivative component hybrid financial instruments gains losses would recognized pursuant sfas 133 firm elected account entire hybrid instrument fair value fair value option 4 primarily consists certain insurance reinsurance contracts resale repurchase agreements securities borrowed loaned within trading principal investments 5 reported within “trading principal investments” within consolidated statements earnings amounts exclude contractual interest included “interest income” “interest expense” instruments hybrid financial instruments trading assets trading liabilities accounted fair value either fair value option required accounting pronouncements excluding equities commissions 500 billion 458 billion years ended november 2008 november 2007 respectively gains losses instruments accounted fair value option described firm’s “trading principal investments” revenues consolidated statements earnings primarily represent gains losses “trading assets fair value” “trading liabilities fair value” consolidated statements financial condition loans loan commitments november 2008 aggregate contractual principal amount loans longterm receivables fair value option elected exceeded related fair value 5021 billion including difference 3746 billion related loans aggregate fair value 377 billion nonaccrual status including loans 90 days past due aggregate contractual principal exceeds related fair value primarily firm regularly purchases loans distressed loans values significantly contractual principal amounts november 2008 fair value unfunded lending commitments fair value option elected liability 352 billion related total contractual amount lending commitments 3949 billion november 2007 substantially firm’s loans unfunded lending commitments recorded fair value accordance specialized industry accounting brokerdealers pursuant fair value option result difference aggregate fair value related contractual principal amounts loans longterm receivables accounted fair value option material november 2007 see note 2 information related fair value option elections made firm upon becoming bank holding company september 2008 longterm debt instruments aggregate contractual principal amount longterm debt instruments principal nonprincipal protected fair value option elected exceeded related fair value 242 billion november 2008 difference fair value aggregate contractual principal amount material carrying value november 2007 goldman sachs group inc subsidiaries notes consolidated financial statements continued credit concentrations credit concentrations may arise trading investing underwriting securities borrowing activities may impacted changes economic industry political factors firm seeks mitigate credit risk actively monitoring exposures obtaining collateral deemed appropriate firm’s activities expose many different industries counterparties firm routinely executes high volume transactions counterparties financial services industry including brokers dealers commercial banks investment funds institutional clients resulting significant credit concentration respect industry ordinary course business firm may also subject concentration credit risk particular counterparty borrower issuer november 2008 november 2007 firm held 5398 billion 6 total assets 4575 billion 4 total assets respectively us government federal agency obligations included “trading assets fair value” “cash securities segregated regulatory purposes” consolidated statements financial condition november 2008 november 2007 firm held 2113 billion 2 total assets 3165 billion 3 total assets respectively sovereign obligations principally consisting securities issued governments japan united kingdom addition november 2008 november 2007 12627 billion 14492 billion firm’s securities purchased agreements resell securities borrowed including “cash securities segregated regulatory purposes” respectively collateralized us government federal agency obligations november 2008 november 2007 6537 billion 4126 billion firm’s securities purchased agreements resell securities borrowed respectively collateralized sovereign obligations november 2008 november 2007 firm credit exposure counterparty exceeded 2 firm’s total assets derivative activities derivative contracts instruments futures forwards swaps option contracts derive value underlying assets indices reference rates combination factors derivative instruments may privately negotiated contracts often referred otc derivatives may listed traded exchange derivatives may involve future commitments purchase sell financial instruments commodities exchange currency interest payment streams amounts exchanged based specific terms contract reference specified rates securities commodities currencies indices certain cash instruments mortgagebacked securities interestonly principalonly obligations indexed debt instruments considered derivatives even though values contractually required cash flows derived price security index however certain commodityrelated contracts included firm’s derivatives disclosure contracts may settled cash assets delivered contract readily convertible cash firm enters derivative transactions facilitate client transactions take proprietary positions means risk management risk exposures managed diversification controlling position sizes entering offsetting positions example firm may manage risk related portfolio common stock entering offsetting position related equityindex futures contract firm applies hedge accounting sfas 133 certain derivative contracts firm uses derivatives manage certain interest rate currency exposures including firm’s net investment nonus operations firm designates certain interest rate swap contracts fair value hedges interest rate swap contracts hedge changes relevant benchmark interest goldman sachs group inc subsidiaries notes consolidated financial statements continued rate eg london interbank offered rate libor effectively converting substantial portion firm’s unsecured longterm certain unsecured shortterm borrowings floating rate obligations see note 2 information regarding firm’s accounting policy foreign currency forward contracts used hedge net investment nonus operations firm applies longhaul method hedge accounting relationships perform ongoing assessment effectiveness relationships achieving offsetting changes fair value offsetting cash flows attributable risk hedged firm utilizes dollaroffset method compares change fair value hedging instrument change fair value hedged item excluding effect passage time prospectively retrospectively assess hedge effectiveness firm’s prospective dollaroffset assessment utilizes scenario analyses test hedge effectiveness via simulations numerous parallel slope shifts relevant yield curve parallel shifts change interest rate maturities identical amounts slope shifts change curvature yield curve prospective assessment response simulated yield curve shifts retrospective assessment hedging relationship deemed effective fair value hedging instrument hedged item change inversely within range 80 125 fair value hedges gains losses derivative transactions recognized “interest expense” consolidated statements earnings change fair value hedged item attributable risk hedged reported adjustment carrying value subsequently amortized interest expense remaining life gains losses related hedge ineffectiveness hedges generally included “interest expense” gains losses component gains losses derivative transactions excluded assessment hedge effectiveness eg effect passage time fair value hedges firm’s borrowings material firm’s results operations years ended november 2008 november 2007 november 2006 gains losses derivatives used trading purposes included “trading principal investments” consolidated statements earnings fair value firm’s derivative contracts reflected net cash paid received pursuant credit support agreements reported netbycounterparty basis firm’s consolidated statements financial condition management believes legal right setoff exists enforceable netting agreement fair value derivative financial instruments presented accordance firm’s netting policy set forth 1 represents netting receivable balances payable balances counterparty across contract types pursuant legally enforceable netting agreements 2 represents netting cash collateral received posted counterparty basis pursuant credit support agreements goldman sachs group inc subsidiaries notes consolidated financial statements continued fair value derivatives accounted qualifying hedges sfas 133 consisted 2040 billion 515 billion assets november 2008 november 2007 respectively 128 million 355 million liabilities november 2008 november 2007 respectively firm also embedded derivatives bifurcated related borrowings sfas 133 derivatives classified unsecured shortterm unsecured longterm borrowings carrying value 774 million 463 million excluding debt host contract november 2008 november 2007 respectively see notes 6 7 information regarding firm’s unsecured borrowings firm enters various derivative transactions considered credit derivatives fsp fas 1331 fin 454 firm’s written purchased credit derivatives include credit default swaps credit spread options credit index products total return swaps november 2008 firm’s written purchased credit derivatives total gross notional amounts 378 trillion 403 trillion respectively total net purchased protection 25524 billion notional value following table sets forth certain information related firm’s credit derivatives fair values table exclude effects netting enforceable netting agreements netting cash paid pursuant credit support agreements therefore representative firm’s net exposure 1 offsetting purchased credit derivatives represent notional amount purchased credit derivatives extent hedge written credit derivatives identical underlyings 2 comprised purchased protection excess amount written protection identical underlyings purchased protection underlyings firm written protection 3 credit spread underlying together period expiration indicators paymentperformance risk example firm least likely pay otherwise required perform credit spread underlying “0250” basis points period expiration “05 years” likelihood payment performance generally greater credit spread underlying period expiration increase 4 includes maximum payoutnotional amount written credit derivatives 20844 billion expiring within one year november 2008 5 liability excludes effects netting enforceable netting agreements netting cash collateral paid pursuant credit support agreements including effects netting receivable balances payable balances counterparty pursuant enforceable netting agreements firm’s net liability related credit derivatives firm’s statement financial condition november 2008 3376 billion net amount excludes netting cash collateral paid pursuant credit support agreements goldman sachs group inc subsidiaries notes consolidated financial statements continued collateralized transactions firm receives financial instruments collateral primarily connection resale agreements securities borrowed derivative transactions customer margin loans financial instruments may include obligations us government federal agencies sovereigns corporations well equities convertibles many cases firm permitted deliver repledge financial instruments connection entering repurchase agreements securities lending agreements secured financings collateralizing derivative transactions meeting firm customer settlement requirements november 2008 november 2007 fair value financial instruments received collateral firm permitted deliver repledge 57872 billion 89105 billion respectively firm delivered repledged 44511 billion 78562 billion respectively firm also pledges assets owns counterparties may right deliver repledge trading assets pledged counterparties right deliver repledge included “trading assets fair value” consolidated statements financial condition 2631 billion 4614 billion november 2008 november 2007 respectively trading assets pledged connection repurchase agreements securities lending agreements secured financings counterparties right sell repledge included “trading assets fair value” consolidated statements financial condition 8085 billion 15692 billion november 2008 november 2007 respectively assets primarily real estate cash owned pledged connection secured financings counterparties right sell repledge 924 billion 586 billion november 2008 november 2007 respectively addition repurchase agreements securities lending agreements firm obtains secured funding use arrangements secured financings include arrangements nonrecourse subsidiary executed arrangement subsidiary guaranteeing arrangement obligated repay financing secured financings consist liabilities related firm’s william street program consolidated vies collateralized central bank financings transfers financial assets accounted financings rather sales sfas 140 primarily pledged bank loans mortgage whole loans structured financing arrangements goldman sachs group inc subsidiaries notes consolidated financial statements continued secured financings maturity set forth table 1 november 2008 consists us dollardenominated financings 1253 billion weighted average interest rate 298 nonus dollardenominated financings 870 billion weighted average interest rate 095 giving effect hedging activities november 2007 consists us dollardenominated financings 1847 billion weighted average interest rate 532 nonus dollardenominated financings 1394 billion weighted average interest rate 091 giving effect hedging activities weighted average interest rates november 2008 november 2007 excluded financial instruments accounted fair value sfas 159 2 includes secured financings maturing within one year financial statement date secured financings redeemable within one year financial statement date option holder 3 november 2008 consists us dollardenominated financings 955 billion weighted average interest rate 462 nonus dollardenominated financings 791 billion weighted average interest rate 439 giving effect hedging activities november 2007 consists us dollardenominated financings 2213 billion weighted average interest rate 573 nonus dollardenominated financings 1117 billion weighted average interest rate 428 giving effect hedging activities weighted average interest rates november 2008 november 2007 excluded financial instruments accounted fair value sfas 159 4 secured longterm financings repayable prior maturity option firm reflected contractual maturity dates secured longterm financings redeemable prior maturity option holder reflected dates options become exercisable 5 november 2008 3154 billion financings collateralized financial instruments 714 billion assets primarily real estate cash november 2007 6134 billion financings collateralized financial instruments 437 billion assets primarily real estate cash secured financings include 1374 billion 2537 billion nonrecourse obligations november 2008 november 2007 respectively note 4 securitization activities variable interest entities securitization activities firm securitizes commercial residential mortgages home equity auto loans government corporate bonds types financial assets firm acts underwriter beneficial interests sold investors firm derecognizes financial assets transferred securitizations provided relinquished control assets transferred assets accounted fair value prior securitization net revenues related underwriting activities recognized connection sales underlying beneficial interests investors goldman sachs group inc subsidiaries notes consolidated financial statements continued firm may retain interests securitized financial assets primarily form senior subordinated securities including residual interests retained interests accounted fair value included “trading assets fair value” consolidated statements financial condition following table sets forth amount financial assets firm securitized well cash flows received retained interests 1 primarily connection collateralized loan obligations clos 2 primarily connection cdos clos november 2008 november 2007 firm held 178 billion 457 billion retained interests respectively securitization activities including 153 billion 272 billion respectively held qspes following table sets forth weighted average key economic assumptions used measuring fair value firm’s retained interests sensitivity fair value immediate adverse changes 10 20 assumptions 1 constant prepayment rate included positions constant prepayment rate key assumption determination fair value 2 anticipated credit losses computed positions expected credit loss key assumption determination fair value positions expected credit loss reflected within discount rate 3 impacts adverse change take account credit mitigants incorporated retained interests including overcollateralization subordination provisions 4 includes 192 million 905 million november 2008 november 2007 respectively retained interests related transfers securitized assets accounted secured financings rather sales sfas 140 goldman sachs group inc subsidiaries notes consolidated financial statements continued preceding table give effect offsetting benefit financial instruments held mitigate risks inherent retained interests changes fair value based adverse variation assumptions generally cannot extrapolated relationship change assumptions change fair value usually linear addition impact change particular assumption calculated independently changes assumption practice simultaneous changes assumptions might magnify counteract sensitivities disclosed addition retained interests described firm also held interests residential mortgage qspes purchased connection secondary marketmaking activities purchased interests approximately 4 billion 6 billion november 2008 november 2007 respectively november 2008 november 2007 firm held mortgage servicing rights fair value 147 million 93 million respectively servicing assets represent firm’s right receive future stream cash flows servicing fees excess firm’s obligation service residential mortgages fair value mortgage servicing rights fluctuate response changes certain economic variables discount rates loan prepayment rates firm estimates fair value mortgage servicing rights using valuation models incorporate variables quantifying anticipated cash flows related servicing activities mortgage servicing rights included “trading assets fair value” consolidated statements financial condition classified within level 3 fair value hierarchy following table sets forth changes firm’s mortgage servicing rights well servicing fees earned 1 primarily related acquisition litton loan servicing lp 2 november 2008 fair value estimated using weighted average discount rate approximately 16 weighted average prepayment rate approximately 27 goldman sachs group inc subsidiaries notes consolidated financial statements continued variable interest entities vies firm ordinary course business retains interests vies connection securitization activities firm also purchases sells variable interests vies primarily issue mortgagebacked assetbacked securities cdos clos connection marketmaking activities makes investments loans vies hold performing nonperforming debt equity real estate powerrelated assets addition firm utilizes vies provide investors principalprotected notes creditlinked notes assetrepackaged notes designed meet objectives vies generally purchase assets issuing debt equity instruments certain instances firm provides guarantees vies holders variable interests vies cases maximum exposure loss included tables set forth notional amount guarantees amounts represent anticipated losses connection guarantees firm’s variable interests vies include senior subordinated debt loan commitments limited general partnership interests preferred common stock interest rate foreign currency equity commodity credit derivatives guarantees residual interests mortgagebacked assetbacked securitization vehicles cdos clos firm’s exposure obligations vies generally limited interests entities goldman sachs group inc subsidiaries notes consolidated financial statements continued following tables set forth total assets nonconsolidated vies firm holds significant variable interests firm’s maximum exposure loss excluding benefit offsetting financial instruments held mitigate risks associated variable interests firm aggregated nonconsolidated vies based principal business activity reflected first column nature firm’s variable interests take different forms described columns maximum exposure loss 1 amounts represent anticipated losses connection transactions exclude effect offsetting financial instruments held mitigate risks 2 firm obtains interests vies connection making investments real estate distressed loans types debt mezzanine instruments equities 3 consists outofthemoney written put options provide principal protection clients invested various fund products risk firm mitigated portfolio rebalancing 4 primarily consists written protection investmentgrade shortterm collateral held vies issued cdos 5 primarily consists total return swaps cdos clos firm generally transferred risks related underlying securities derivatives nonvies goldman sachs group inc subsidiaries notes consolidated financial statements continued following table sets forth firm’s total assets maximum exposure loss excluding benefit offsetting financial instruments held mitigate risks associated significant variable interests consolidated vies firm hold majority voting interest firm aggregated consolidated vies based principal business activity reflected first column 1 consolidated vie assets include assets financed nonrecourse basis 2 amounts represent anticipated losses connection transactions exclude effect offsetting financial instruments held mitigate risks firm offbalancesheet commitments purchase finance cdos held structured investment vehicles november 2008 november 2007 note 5 deposits following table sets forth deposits november 2008 november 2007 1 substantially us deposits interestbearing held gs bank usa 2 nonus deposits interestbearing primarily held goldman sachs bank europe plc gs bank europe goldman sachs group inc subsidiaries notes consolidated financial statements continued included table time deposits 849 billion 463 million november 2008 november 2007 respectively following table sets forth maturities time deposits november 2008 note 6 shortterm borrowings november 2008 shortterm borrowings 7389 billion comprised 2123 billion included “other secured financings” consolidated statement financial condition 5266 billion unsecured shortterm borrowings november 2007 shortterm borrowings 10397 billion comprised 3241 billion included “other secured financings” consolidated statement financial condition 7156 billion unsecured shortterm borrowings see note 3 information secured financings unsecured shortterm borrowings include portion unsecured longterm borrowings maturing within one year financial statement date unsecured longterm borrowings redeemable within one year financial statement date option holder firm accounts promissory notes commercial paper certain hybrid financial instruments fair value sfas 155 sfas 159 shortterm borrowings recorded fair value recorded based amount cash received plus accrued interest amounts approximate fair value due shortterm nature obligations unsecured shortterm borrowings set forth 1 includes 2512 billion 2124 billion november 2008 november 2007 respectively issued group inc 2 includes 342 billion november 2008 guaranteed federal deposit insurance corporation fdic temporary liquidity guarantee program tlgp 3 includes 751 million november 2008 guaranteed fdic tlgp 4 weighted average interest rates borrowings giving effect hedging activities 337 477 november 2008 november 2007 respectively weighted average interest rates november 2008 november 2007 excluded financial instruments accounted fair value sfas 155 sfas 159 goldman sachs group inc subsidiaries notes consolidated financial statements continued note 7 longterm borrowings november 2008 longterm borrowings 18568 billion comprised 1746 billion included “other secured financings” consolidated statements financial condition 16822 billion unsecured longterm borrowings november 2007 longterm borrowings 19747 billion comprised 3330 billion included “other secured financings” consolidated statements financial condition 16417 billion unsecured longterm borrowings see note 3 information secured financings firm’s unsecured longterm borrowings extend 2043 consist principally senior borrowings unsecured longterm borrowings issued group inc subsidiaries set forth 1 november 2008 november 2007 7008 billion 5528 billion respectively firm’s fixed rate debt obligations denominated us dollars interest rates ranged 387 1004 388 1004 respectively november 2008 november 2007 3375 billion 2914 billion respectively firm’s fixed rate debt obligations denominated nonus dollars interest rates ranged 067 888 periods 2 november 2008 november 2007 3241 billion 4731 billion respectively firm’s floating rate debt obligations denominated us dollars november 2008 november 2007 3199 billion 3244 billion respectively firm’s floating rate debt obligations denominated nonus dollars floating interest rates generally based libor federal funds target rate equitylinked indexed instruments included floating rate obligations 3 includes 336 billion 305 billion november 2008 november 2007 respectively foreign currencydenominated debt designated hedges net investments nonus subsidiaries sfas 133 goldman sachs group inc subsidiaries notes consolidated financial statements continued unsecured longterm borrowings maturity date set forth 1 unsecured longterm borrowings maturing within one year financial statement date certain unsecured longterm borrowings redeemable within one year financial statement date option holder included unsecured shortterm borrowings consolidated statements financial condition 2 unsecured longterm borrowings repayable prior maturity option firm reflected contractual maturity dates unsecured longterm borrowings redeemable prior maturity option holder reflected dates options become exercisable firm enters derivative contracts effectively convert substantial portion unsecured longterm borrowings accounted fair value us dollarbased floating rate obligations accordingly excluding cumulative impact changes firm’s credit spreads carrying value unsecured longterm borrowings approximated fair value november 2008 november 2007 unsecured longterm borrowings firm elect fair value option cumulative impact due widening firm’s credit spreads reduction fair value total unsecured longterm borrowings approximately 9 1 november 2008 november 2007 respectively effective weighted average interest rates unsecured longterm borrowings set forth 1 includes fixed rate obligations converted floating rate obligations derivative contracts 2 weighted average interest rates november 2008 november 2007 excluded financial instruments accounted fair value sfas 155 sfas 159 goldman sachs group inc subsidiaries notes consolidated financial statements continued subordinated borrowings november 2008 unsecured longterm borrowings comprised subordinated borrowings outstanding principal amounts 1926 billion set forth 1879 billion issued group inc november 2007 unsecured longterm borrowings comprised subordinated borrowings outstanding principal amounts 1632 billion set forth 1600 billion issued group inc junior subordinated debt issued trusts connection fixedtofloating floating rate normal automatic preferred enhanced capital securities 2007 group inc issued total 225 billion remarketable junior subordinated debt goldman sachs capital ii goldman sachs capital iii apex trusts delaware statutory trusts turn issued 225 billion guaranteed perpetual automatic preferred enhanced capital securities apex third parties de minimis amount common securities group inc group inc also entered contracts apex trusts sell 225 billion perpetual noncumulative preferred stock issued group inc stock purchase contracts apex trusts wholly owned finance subsidiaries firm regulatory legal purposes consolidated accounting purposes firm pays interest semiannually 175 billion junior subordinated debt issued goldman sachs capital ii fixed annual rate 559 debt matures june 1 2043 firm pays interest quarterly 500 million junior subordinated debt issued goldman sachs capital iii rate per annum equal threemonth libor plus 057 debt matures september 1 2043 addition firm makes contract payments rate 020 per annum stock purchase contracts held apex trusts firm right defer payments junior subordinated debt stock purchase contracts subject limitations therefore cause payment apex deferred extension period firm permitted among things pay dividends make certain repurchases common preferred stock junior subordinated debt junior right payment group inc’s senior indebtedness group inc’s subordinated borrowings connection apex issuance firm covenanted favor certain debtholders initially holders group inc’s 6345 junior subordinated debentures due february 15 2034 subject certain exceptions firm would redeem purchase group inc’s junior subordinated debt issued apex trusts prior applicable stock purchase date ii apex shares group inc’s series e series f preferred stock prior date ten years applicable stock purchase date unless applicable redemption purchase price exceed maximum amount determined reference aggregate amount net cash proceeds firm received sale qualifying equity securities 180day period preceding redemption purchase firm accounted stock purchase contracts equity instruments eitf issue 0019 “accounting derivative financial instruments indexed potentially settled company’s stock” accordingly recorded cost stock purchase contracts reduction additional paidin capital see note 9 information preferred stock group inc issue connection stock purchase contracts junior subordinated debt issued trust connection trust preferred securities group inc issued 284 billion junior subordinated debentures 2004 goldman sachs capital trust delaware statutory trust turn issued 275 billion guaranteed preferred beneficial interests third parties 85 million common beneficial interests group inc invested proceeds sale junior subordinated debentures issued group inc trust wholly goldman sachs group inc subsidiaries notes consolidated financial statements continued owned finance subsidiary firm regulatory legal purposes consolidated accounting purposes firm pays interest semiannually debentures annual rate 6345 debentures mature february 15 2034 coupon rate payment dates applicable beneficial interests interest rate payment dates applicable debentures firm right time defer payment interest debentures therefore cause payment trust’s preferred beneficial interests deferred case ten consecutive semiannual periods extension period firm permitted among things pay dividends make certain repurchases common stock trust permitted pay distributions common beneficial interests held group inc unless dividends payable preferred beneficial interests paid full debentures junior right payment group inc’s senior indebtedness group inc’s subordinated borrowings junior subordinated debt issued connection normal automatic preferred enhanced capital securities subordinated debt november 2008 firm 1417 billion subordinated debt outstanding 1370 billion issued group inc maturities ranging fiscal 2009 2038 effective weighted average interest rate debt 199 giving effect derivative contracts used convert fixed rate obligations floating rate obligations november 2007 firm 1123 billion subordinated debt outstanding 1091 billion issued group inc maturities ranging fiscal 2009 2037 effective weighted average interest rate debt 575 giving effect derivative contracts used convert fixed rate obligations floating rate obligations debt junior right payment firm’s senior indebtedness note 8 commitments contingencies guarantees commitments forward starting collateralized agreements financings firm forward starting resale agreements securities borrowing agreements 6146 billion 2814 billion november 2008 november 2007 respectively firm forward starting repurchase agreements securities lending agreements 695 billion 1539 billion november 2008 november 2007 respectively commitments extend credit connection lending activities firm outstanding commitments extend credit 4104 billion 8275 billion november 2008 november 2007 respectively firm’s commitments extend credit agreements lend counterparties fixed termination dates contingent satisfaction conditions borrowing set forth contract since commitments may expire unused reduced cancelled counterparty’s request total commitment amount necessarily reflect actual future cash flow requirements firm accounts commitments fair value extent firm recognizes losses commitments losses recorded within firm’s trading principal investments segment net related underwriting fees goldman sachs group inc subsidiaries notes consolidated financial statements continued following table summarizes firm’s commitments extend credit net amounts syndicated third parties november 2008 november 2007 • commercial lending commitments firm’s commercial lending commitments generally extended connection contingent acquisition financing types corporate lending well commercial real estate financing total commitment amount necessarily reflect actual future cash flow requirements firm may syndicate substantial portions commitments future commitments may expire unused commitments may cancelled reduced request counterparty addition commitments extended contingent acquisition financing often intended shortterm nature borrowers often seek replace funding sources included within noninvestmentgrade commitments november 2008 207 billion exposure leveraged lending capital market transactions 164 million related commercial real estate transactions 709 billion arising unfunded credit facilities included within noninvestmentgrade amount november 2007 2609 billion exposure leveraged lending capital market transactions 350 billion related commercial real estate transactions 1234 billion arising unfunded credit facilities including funded loans firm’s total exposure leveraged lending capital market transactions 797 billion 4306 billion november 2008 november 2007 respectively • william street program substantially commitments provided william street credit extension program investmentgrade corporate borrowers commitments program principally extended william street commitment corporation commitment corp consolidated wholly owned subsidiary gs bank usa also william street credit corporation gs bank usa goldman sachs credit partners lp commitments extended commitment corp supported part funding raised william street funding corporation funding corp another consolidated wholly owned subsidiary gs bank usa assets liabilities commitment corp funding corp legally separated assets liabilities firm assets commitment corp funding corp available respective shareholders claims respective creditors paid addition affiliate either commitment corp funding corp except limited cases expressly agreed writing responsible obligation either entity respect william street commitments sumitomo mitsui financial group inc smfg provides firm credit loss protection generally limited 95 first loss firm realizes approved loan commitments maximum 100 billion addition subject satisfaction certain conditions upon firm’s request smfg provide protection 70 additional losses commitments maximum 113 billion 375 million protection provided november 2008 firm also uses financial instruments mitigate credit risks related certain william street commitments covered smfg goldman sachs group inc subsidiaries notes consolidated financial statements continued • warehouse financing firm provides financing warehousing financial assets arrangements secured warehoused assets primarily consisting commercial mortgages november 2008 corporate bank loans commercial mortgages november 2007 letters credit firm provides letters credit issued various banks counterparties lieu securities cash satisfy various collateral margin deposit requirements letters credit outstanding 725 billion 875 billion november 2008 november 2007 respectively investment commitments connection merchant banking investing activities firm invests private equity real estate assets directly funds raises manages connection activities firm commitments invest 1427 billion 1776 billion november 2008 november 2007 respectively including 1225 billion 1232 billion respectively commitments invest funds managed firm constructionrelated commitments november 2008 november 2007 firm constructionrelated commitments 483 million 769 million respectively including commitments 388 million 642 million november 2008 november 2007 respectively related firm’s new headquarters new york city expected cost 21 billion 23 billion firm partially financed construction project 165 billion taxexempt liberty bonds underwriting commitments november 2008 november 2007 firm commitments purchase 241 million 88 million respectively securities connection underwriting activities firm purchase commitments 260 million november 2008 176 billion including 134 billion commitment acquisition litton loan servicing lp november 2007 leases firm contractual obligations longterm noncancelable lease agreements principally office space expiring various dates 2069 certain agreements subject periodic escalation provisions increases real estate taxes charges future minimum rental payments net minimum sublease rentals set forth millions rent charged operating expense set forth millions goldman sachs group inc subsidiaries notes consolidated financial statements continued contingencies firm involved number judicial regulatory arbitration proceedings concerning matters arising connection conduct businesses management believes based currently available information results proceedings aggregate material adverse effect firm’s financial condition may material firm’s operating results particular period depending part upon operating results period given inherent difficulty predicting outcome firm’s litigation regulatory matters particularly cases proceedings substantial indeterminate damages fines sought firm cannot estimate losses ranges losses cases proceedings reasonable possibility loss may incurred connection insurance business firm contingently liable provide guaranteed minimum death income benefits certain contract holders established reserve related 613 billion 1084 billion contract holder account balances november 2008 november 2007 respectively benefits weighted average attained age contract holders 68 years 67 years november 2008 november 2007 respectively net amount risk representing guaranteed minimum death income benefits excess contract holder account balances 296 billion 104 billion november 2008 november 2007 respectively see note 12 information firm’s insurance liabilities guarantees firm enters various derivative contracts meet definition guarantee fin 45 “guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others” amended fsp fas 1331 fin 454 fin 45 require disclosures derivative contracts may cash settled firm basis conclude probable counterparties held inception underlying instruments related derivative contracts firm concluded conditions met certain large internationally active commercial investment bank counterparties certain counterparties accordingly firm included contracts tables firm capacity agency lender indemnifies securities lending customers losses incurred event borrowers return securities collateral held insufficient cover market value securities borrowed ordinary course business firm provides financial guarantees obligations third parties eg performance bonds standby letters credit guarantees enable clients complete transactions merchant banking fundrelated guarantees represent obligations make payments beneficiaries guaranteed party fails fulfill obligation contractual arrangement beneficiary goldman sachs group inc subsidiaries notes consolidated financial statements continued november 2008 november 2007 derivative contracts meet definition guarantee include written equity commodity put options written currency contracts interest rate caps floors swaptions november 2007 prior adoption fsp fas 1331 fin 454 derivative contracts met definition guarantee also included credit derivatives credit default swaps credit spread options credit index products total return swaps see “ recent accounting developments” information fsp fas 1331 fin 454 note 3 additional information firm’s credit derivatives november 2008 following tables set forth certain information firm’s derivative contracts meet definition guarantee certain guarantees november 2008 november 2007 1 amounts represent anticipated losses connection contracts 2 derivative contracts accounted fair value carrying value considered best indication paymentperformance risk individual contracts however carrying value excludes effect legal right setoff may exist enforceable netting agreement effect netting cash paid pursuant credit support agreements derivative contracts risk managed together derivative contracts considered guarantees fin 45 therefore amounts reflect firm’s overall risk related derivative activities 3 collateral held lenders connection securities lending indemnifications 1995 billion 2749 billion november 2008 november 2007 respectively contractual nature arrangements requires firm obtain collateral market value exceeds value securities loan borrower minimal performance risk associated guarantees 4 includes credit derivatives meet definition guarantee november 2007 5 excludes cash collateral 205 billion related obligation firm established trusts including goldman sachs capital ii iii entities limited purpose issuing securities third parties lending proceeds firm entering contractual arrangements firm third parties related purpose see note 7 information regarding transactions involving goldman sachs capital ii iii firm effectively provides full unconditional guarantee securities issued entities consolidated accounting purposes timely payment firm amounts due entities borrowing preferred stock related contractual arrangements sufficient cover payments due securities issued entities management believes unlikely circumstances occur nonperformance part paying agents service providers would make necessary firm make payments related goldman sachs group inc subsidiaries notes consolidated financial statements continued entities required terms borrowing preferred stock related contractual arrangements connection certain expenses incurred entities ordinary course business firm indemnifies guarantees certain service providers clearing custody agents trustees administrators specified potential losses connection acting agent providing services firm affiliates firm also indemnifies clients potential losses incurred event specified thirdparty service providers including subcustodians thirdparty brokers improperly execute transactions addition firm member payment clearing settlement networks well securities exchanges around world may require firm meet obligations networks exchanges event member defaults connection prime brokerage clearing businesses firm agrees clear settle behalf clients transactions entered brokerage firms firm’s obligations respect transactions secured assets client’s account well proceeds received transactions cleared settled firm behalf client connection joint venture investments firm may issue loan guarantees may liable event fraud misappropriation environmental liabilities certain matters involving borrower firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements liabilities related guarantees indemnifications recognized consolidated statements financial condition november 2008 november 2007 firm provides representations warranties counterparties connection variety commercial transactions occasionally indemnifies potential losses caused breach representations warranties firm may also provide indemnifications protecting changes adverse application certain us tax laws connection ordinarycourse transactions securities issuances borrowings derivatives addition firm may provide indemnifications counterparties protect event additional taxes owed payments withheld due either change adverse application certain nonus tax laws indemnifications generally standard contractual terms entered ordinary course business generally stated notional amounts included indemnifications contingencies triggering obligation indemnify expected occur firm unable develop estimate maximum payout guarantees indemnifications however management believes unlikely firm make material payments arrangements liabilities related arrangements recognized consolidated statements financial condition november 2008 november 2007 group inc guaranteed payment obligations goldman sachs co gsco gs bank usa gs bank europe subject certain exceptions november 2008 firm contributed subsidiaries aggregate 11716 billion assets gs bank usa brought total assets gs bank usa 14506 billion november 2008 group inc agreed guarantee certain losses including creditrelated losses relating assets held contributed entities connection guarantee group inc also agreed pledge gs bank usa certain collateral including interests subsidiaries illiquid assets addition group inc guarantees many obligations consolidated subsidiaries transactionbytransaction basis negotiated counterparties group inc unable develop estimate maximum payout subsidiary guarantees however guaranteed obligations also obligations consolidated subsidiaries included tables group inc’s liabilities guarantor separately disclosed goldman sachs group inc subsidiaries notes consolidated financial statements continued note 9 shareholders’ equity common preferred equity september 2008 group inc completed public offering 467 million shares common stock 12300 per share proceeds 575 billion october 2008 group inc issued berkshire hathaway inc certain affiliates 50000 shares 10 cumulative perpetual preferred stock series g series g preferred stock fiveyear warrant purchase 435 million shares common stock exercise price 11500 per share aggregate proceeds 500 billion allocated carrying values warrant series g preferred stock date issuance based relative fair values 114 billion 386 billion respectively warrant exercisable time october 1 2013 number shares common stock underlying warrant exercise price subject adjustment certain dilutive events october 2008 us department treasury’s us treasury tarp capital purchase program group inc issued us treasury 100 million shares fixed rate cumulative perpetual preferred stock series h series h preferred stock 10year warrant purchase 122 million shares common stock exercise price 12290 per share aggregate proceeds 1000 billion allocated carrying values warrant series h preferred stock date issuance based relative fair values 490 million 951 billion respectively cumulative dividends series h preferred stock payable 5 per annum november 14 2013 rate 9 per annum thereafter series h preferred stock accreted redemption price 1000 billion five years warrant exercisable time october 28 2018 number shares common stock underlying warrant exercise price subject adjustment certain dilutive events prior december 31 2009 firm receives aggregate gross cash proceeds least 10 billion sales tier 1 qualifying perpetual preferred stock common stock number shares common stock issuable upon exercise warrant reduced onehalf original number shares common stock dividends declared per common share 140 2008 140 2007 130 2006 december 15 2008 board directors group inc board declared dividend 04666666 per common share paid march 26 2009 common shareholders record february 24 2009 dividend 04666666 per common share reflective fourmonth period december 2008 march 2009 due change firm’s fiscal yearend see note 21 information regarding change firm’s fiscal yearend see information regarding restrictions firm’s ability raise common stock dividend 2008 2007 firm repurchased 105 million 412 million shares common stock average cost per share 19318 21729 total cost 204 billion 896 billion respectively addition satisfy minimum statutory employee tax withholding requirements related delivery common stock underlying restricted stock units firm cancelled 67 million 47 million restricted stock units total value 131 billion 929 million 2008 2007 respectively firm’s share repurchase program intended help maintain appropriate level common equity substantially offset increases share count time resulting employee sharebased compensation repurchase program effected primarily regular openmarket purchases amounts timing determined primarily firm’s current projected capital positions ie comparisons firm’s desired level capital actual level capital may also influenced general market conditions goldman sachs group inc subsidiaries notes consolidated financial statements continued prevailing price trading volumes firm’s common stock case subject limit imposed us treasury’s tarp capital purchase program see information regarding current restrictions firm’s ability repurchase common stock november 2008 firm 102 million shares perpetual preferred stock issued outstanding set forth following table share noncumulative preferred stock issued outstanding par value 001 liquidation preference 25000 represented 1000 depositary shares redeemable firm’s option subject approval board governors federal reserve system federal reserve board redemption price equal 25000 plus declared unpaid dividends share series g preferred stock issued outstanding par value 001 liquidation preference 100000 redeemable firm’s option subject approval federal reserve board redemption price equal 110000 plus accrued unpaid dividends share series h preferred stock issued outstanding par value 001 liquidation preference 1000 redeemable firm’s option subject approval federal reserve board redemption price equal 1000 plus accrued unpaid dividends provided november 14 2011 series h preferred stock redeemable amount aggregate net cash proceeds received sales tier 1 qualifying perpetual preferred stock common stock sales resulted aggregate gross proceeds least 25 billion series preferred stock pari passu preference firm’s common stock upon liquidation dividends series preferred stock declared payable quarterly arrears firm’s ability declare pay dividends purchase redeem otherwise acquire common stock subject certain restrictions event firm fails pay set aside full dividends preferred stock latest completed dividend period addition pursuant us treasury’s tarp capital purchase program earliest october 28 2011 redemption series h preferred stock transfer us treasury series h preferred stock third parties firm must obtain consent us treasury raise firm’s common stock dividend repurchase shares common stock preferred stock certain exceptions including repurchases shares common stock firm’s share repurchase program offset dilution equitybased compensation long series h preferred stock remains outstanding due limitations pursuant us treasury’s tarp capital purchase program firm repurchase shares common stock share goldman sachs group inc subsidiaries notes consolidated financial statements continued repurchase program purpose offsetting dilution equitybased compensation extent permitted 2007 board authorized 175001 shares perpetual noncumulative preferred stock series e 50001 shares perpetual noncumulative preferred stock series f connection apex issuance see note 7 information apex issuance stock purchase contracts group inc issue relevant stock purchase dates june 1 2013 september 1 2013 series e series f preferred stock respectively one share series e series f preferred stock goldman sachs capital ii iii respectively 100000 principal amount subordinated debt held trusts issued share series e series f preferred stock par value 001 liquidation preference 100000 per share dividends series e preferred stock declared payable semiannually fixed annual rate 579 stock issued prior june 1 2012 quarterly thereafter rate per annum equal greater threemonth libor plus 077 ii 400 dividends series f preferred stock declared payable quarterly rate per annum equal threemonth libor plus 077 stock issued prior september 1 2012 quarterly thereafter rate per annum equal greater threemonth libor plus 077 ii 400 preferred stock may redeemed option firm stock purchase dates day thereafter subject regulatory approval certain covenant restrictions governing firm’s ability redeem purchase preferred stock without issuing common stock instruments equitylike characteristics preferred dividends declared set forth december 15 2008 board declared dividend per preferred share 23958 38750 25556 2500 series b series c series g preferred stock respectively paid february 10 2009 preferred shareholders record january 26 2009 also december 15 2008 board declared dividend 148611111 per share series h preferred stock paid february 17 2009 preferred shareholders record january 31 2009 total amount preferred stock dividends declared december 15 2008 309 million goldman sachs group inc subsidiaries notes consolidated financial statements continued comprehensive income following table sets forth firm’s accumulated comprehensive incomeloss type 1 consists net unrealized losses 55 million availableforsale securities held firm’s insurance subsidiaries net unrealized gains 8 million availableforsale securities held investees accounted equity method november 2008 consists net unrealized gains 9 million availableforsale securities held investees accounted equity method net unrealized losses 1 million availableforsale securities held firm’s insurance subsidiaries november 2007 note 10 earnings per common share computations basic diluted earnings per common share set forth 1 diluted eps computations include antidilutive effect restricted stock units rsus stock options warrants follows goldman sachs group inc subsidiaries notes consolidated financial statements continued note 11 goodwill identifiable intangible assets goodwill following table sets forth carrying value firm’s goodwill operating segment included “other assets” consolidated statements financial condition 1 primarily related slk llc slk 2 primarily related ayco company lp ayco goldman sachs group inc subsidiaries notes consolidated financial statements continued identifiable intangible assets following table sets forth gross carrying amount accumulated amortization net carrying amount firm’s identifiable intangible assets 1 primarily includes firm’s clearance execution nasdaq customer lists related slk financial counseling customer lists related ayco 2 consists voba dac voba represents present value estimated future gross profits acquired variable annuity life insurance businesses dac results commissions paid firm primary insurer ceding company life annuity reinsurance agreements compensation place business firm cover ceding company’s acquisition expenses voba dac amortized estimated life underlying contracts based estimated gross profits amortization adjusted based actual experience weighted average remaining amortization period voba dac seven years november 2008 3 primarily includes marketingrelated assets power contracts goldman sachs group inc subsidiaries notes consolidated financial statements continued substantially firm’s identifiable intangible assets considered finite lives amortized estimated lives weighted average remaining life firm’s identifiable intangibles approximately 11 years estimated future amortization existing identifiable intangible assets 2013 set forth millions note 12 assets liabilities assets generally less liquid nonfinancial assets following table sets forth firm’s assets type 1 net accumulated depreciation amortization 655 billion 588 billion november 2008 november 2007 respectively 2 see note 11 information regarding firm’s goodwill identifiable intangible assets 3 excludes investments 345 billion 225 billion accounted fair value sfas 159 november 2008 november 2007 respectively included “trading assets fair value” consolidated statements financial condition goldman sachs group inc subsidiaries notes consolidated financial statements continued liabilities following table sets forth firm’s liabilities accrued expenses type 1 insurancerelated liabilities set forth table separate account liabilities supported separate account assets representing segregated contract holder funds variable annuity life insurance contracts separate account assets included “cash securities segregated regulatory purposes” consolidated statements financial condition liabilities future benefits unpaid claims include liabilities arising reinsurance provided firm insurers firm receivable 130 billion november 2008 november 2007 related reinsurance contracts reported “receivables customers counterparties” consolidated statements financial condition addition firm ceded risks reinsurers related certain liabilities future benefits unpaid claims receivable 120 billion 785 million november 2008 november 2007 respectively related reinsurance contracts reported “receivables customers counterparties” consolidated statements financial condition contracts cede risks reinsurers relieve firm obligations contract holders liabilities future benefits unpaid claims include 978 million carried fair value sfas 159 reserves guaranteed minimum death income benefits represent liability expected value guaranteed benefits excess projected annuity account balances reserves computed accordance aicpa sop 031 based total payments expected made less total fees expected assessed life contract 2 includes 784 million 595 billion related consolidated investment funds november 2008 november 2007 respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued note 13 employee benefit plans firm sponsors various pension plans certain postretirement benefit plans primarily healthcare life insurance firm also provides certain benefits former inactive employees prior retirement defined benefit pension plans postretirement plans employees certain nonus subsidiaries participate various defined benefit pension plans generally provide benefits based years credited service percentage employee’s eligible compensation firm maintains defined benefit pension plan uk employees april 2008 uk defined benefit plan closed new participants continue accrue benefits existing participants firm also maintains defined benefit pension plan substantially us employees hired prior november 1 2003 november 2004 plan closed new participants frozen existing participants would accrue additional benefits addition firm maintains unfunded postretirement benefit plans provide medical life insurance eligible retirees dependents covered programs november 30 2007 firm adopted sfas 158 requires entity recognize statement financial condition funded status defined benefit pension postretirement plans measured difference fair value plan assets benefit obligation upon adoption sfas 158 requires entity recognize previously unrecognized actuarial gains losses prior service costs transition obligations assets within “accumulated comprehensive incomeloss” consolidated statements changes shareholders’ equity additional minimum pension liabilities derecognized upon adoption new standard result adopting sfas 158 firm recorded increases 59 million 253 million “other assets” “other liabilities accrued expenses” respectively 194 million loss net taxes within “accumulated comprehensive incomeloss” goldman sachs group inc subsidiaries notes consolidated financial statements continued following table provides summary changes plans’ benefit obligations fair value assets november 2008 november 2007 statement funded status plans november 2008 november 2007 accumulated benefit obligation defined benefit pension plans 769 million 105 billion november 2008 november 2007 respectively plans accumulated benefit obligation exceeded plan assets aggregate projected benefit obligation accumulated benefit obligation 426 million 413 million respectively november 2008 722 million 636 million respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued november 2007 fair value plan assets plans 317 million 590 million november 2008 november 2007 respectively components pension expenseincome postretirement expense set forth goldman sachs group inc subsidiaries notes consolidated financial statements continued weighted average assumptions used develop actuarial present value projected benefit obligation net periodic pension cost set forth assumptions represent weighted average assumptions used us nonus plans based economic environment applicable country generally firm determined discount rates defined benefit plans referencing indices longterm highquality bonds ensuring discount rate exceed yield reported indices adjustment duration plans’ liabilities firm’s approach determining longterm rate return plan assets based upon historical financial market relationships existed time presumption trend generally remain constant future measurement purposes annual growth rate per capita cost covered healthcare benefits 930 assumed year ending november 2009 rate assumed decrease ratably 500 year ending november 2015 remain level thereafter assumed cost healthcare effect amounts reported firm’s postretirement plans 1 change assumed healthcare cost trend rate would following effects goldman sachs group inc subsidiaries notes consolidated financial statements continued following table sets forth composition plan assets us nonus defined benefit pension plans asset category investment approach firm’s us major nonus defined benefit pension plans involves employing sufficient level flexibility capture investment opportunities occur maintaining reasonable parameters ensure prudence care exercised execution investment programs plans employ total return investment approach whereby mix broadly similar actual asset allocation november 2008 equity securities debt securities assets targeted maximize longterm return assets given level risk investment risk measured monitored ongoing basis firm’s retirement committee periodic portfolio reviews meetings investment managers annual liability measurements firm expects contribute minimum 73 million pension plans 13 million postretirement plans 2009 following table sets forth benefits projected paid firm’s us nonus defined benefit pension postretirement plans net medicare subsidy receipts reflects expected future service costs appropriate defined contribution plans firm contributes employersponsored us nonus defined contribution plans firm’s contribution plans 208 million 258 million 230 million years ended november 2008 november 2007 november 2006 respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued note 14 employee incentive plans stock incentive plan firm sponsors stock incentive plan goldman sachs amended restated stock incentive plan amended sip provides grants incentive stock options nonqualified stock options stock appreciation rights dividend equivalent rights restricted stock restricted stock units awards performance conditions sharebased awards second quarter 2003 amended sip approved firm’s shareholders effective grants april 1 2003 total number shares common stock may issued amended sip 2008 may exceed 250 million shares year thereafter may exceed 5 issued outstanding shares common stock determined last day immediately preceding year increased number shares available awards previous years covered awards granted years november 2008 november 2007 1624 million 1606 million shares respectively available grant amended sip compensation arrangements firm maintained deferred compensation plans eligible employees general plans participants able defer payment portion cash yearend compensation deferral period participants able notionally invest deferrals certain alternatives available plans generally current tax law participants subject income tax amounts deferred notional investment earnings returns distributed firm entitled corresponding tax deduction amounts distributed beginning 2008 year deferred compensation plans frozen respect new contributions plans terminated participants generally receive distributions benefits 2009 except payments accelerated certain senior executives firm recognized compensation expense amounts deferred plans november 2008 november 2007 220 million 281 million respectively related plans included “other liabilities accrued expenses” consolidated statements financial condition firm discount stock program participating managing directors may permitted acquire restricted stock units effective 25 discount 2008 yearend compensation program suspended individual permitted acquire discounted restricted stock units thereunder prior years 25 discount effected additional grant restricted stock units equal onethird number restricted stock units purchased qualifying participants purchased restricted stock units 100 vested granted shares underlying generally subject certain transfer restrictions waived december 2008 except certain senior executives shares underlying restricted stock units granted effect 25 discount generally vest equal installments second third anniversaries following grant date transferable third anniversary grant date transfer restrictions vested awards waived december 2008 except certain senior executives compensation expense related restricted stock units recognized vesting period total value restricted stock units granted 2007 order effect 25 discount 66 million goldman sachs group inc subsidiaries notes consolidated financial statements continued restricted stock units firm issues restricted stock units employees amended sip primarily connection yearend compensation acquisitions restricted stock units valued based closing price underlying shares date grant yearend restricted stock units generally vest deliver outlined applicable restricted stock unit agreements employee restricted stock unit agreements provide vesting accelerated certain circumstances upon retirement death extended absence total restricted stock units outstanding november 2008 november 2007 120 million units 220 million units respectively required future service condition delivery underlying shares common stock ii 439 million units 516 million units respectively require future service cases delivery underlying shares common stock conditioned grantees satisfying certain vesting requirements outlined award agreements delivering underlying shares employees firm generally issues new shares common stock activity related restricted stock units set forth 1 includes restricted stock units granted employees december 2007 part compensation fiscal 2007 2 weighted average grantdate fair value restricted stock units granted years ended november 2008 november 2007 november 2006 15431 22413 19699 respectively 3 aggregate fair value awards vested years ended november 2008 november 2007 november 2006 103 billion 563 billion 440 billion respectively 4 includes restricted stock units cash settled stock options stock options granted employees generally vest outlined applicable stock option agreement generally first become exercisable third anniversary grant date options granted december 2007 related 2007 compensation options granted fiscal 2008 yearend stock options 2007 become exercisable january 2011 expire november 24 2017 shares received exercise prior january 2013 yearend 2007 options cannot sold transferred otherwise disposed january 2013 employee stock option agreements provide vesting accelerated certain circumstances upon retirement death extended absence general stock options expire tenth anniversary grant date although may subject earlier termination cancellation certain circumstances accordance terms amended sip applicable stock option agreement dilutive effect firm’s outstanding stock options included “average common shares outstanding diluted” consolidated statements earnings goldman sachs group inc subsidiaries notes consolidated financial statements continued activity related stock options set forth 1 includes stock options granted employees december 2007 part compensation fiscal 2007 future service required total intrinsic value options exercised years ended november 2008 november 2007 november 2006 433 million 132 billion 152 billion respectively options outstanding november 2008 set forth weighted average fair value options granted 2007 2006 5104 4996 per option respectively fair value estimated grant date based blackscholes optionpricing model principally using following weighted average assumptions 1 options granted fiscal 2008 related 2007 compensation included 2007 disclosures goldman sachs group inc subsidiaries notes consolidated financial statements continued common stock underlying options granted 2007 2006 subject transfer restrictions period 2 years 1 year respectively date options become exercisable value common stock underlying options granted 2007 2006 reflects liquidity discount 240 175 respectively result transfer restrictions liquidity discount based firm’s predetermined written liquidity discount policies 75 years expected life options reflects estimated impact sales restrictions life awards following table sets forth sharebased compensation related tax benefit 1 represents tax benefit recognized additional paidin capital stock options exercised delivery common stock underlying restricted stock units november 2008 125 billion total unrecognized compensation cost related nonvested sharebased compensation arrangements cost expected recognized weighted average period 184 years december 17 2008 firm granted 206 million restricted stock units 360 million stock options employees restricted stock units options require future service subject additional vesting conditions outlined award agreements generally shares underlying rsus delivered stock options become exercisable shortly vesting subject certain transfer restrictions grants included tables note 15 transactions affiliated funds firm formed numerous nonconsolidated investment funds thirdparty investors firm generally acts investment manager funds entitled receive management fees certain cases advisory fees incentive fees overrides funds fees amounted 314 billion 362 billion 337 billion years ended november 2008 november 2007 november 2006 respectively november 2008 november 2007 fees receivable funds 861 million 596 million respectively additionally firm may invest alongside thirdparty investors certain funds aggregate carrying value firm’s interests funds 1445 billion 1290 billion november 2008 november 2007 respectively ordinary course business firm may also engage activities funds including among others securities lending trade execution trading custody acquisition bridge financing see note 8 firm’s commitments related funds goldman sachs group inc subsidiaries notes consolidated financial statements continued note 16 income taxes components net tax expense reflected consolidated statements earnings set forth deferred income taxes reflect net tax effects temporary differences financial reporting tax bases assets liabilities temporary differences result taxable deductible amounts future years measured using tax rates laws effect differences expected reverse significant components firm’s deferred tax assets liabilities set forth 1 relates primarily ability utilize losses various tax jurisdictions 2 netting within tax jurisdictions firm permanently reinvests eligible earnings certain foreign subsidiaries accordingly accrue us income taxes would arise earnings repatriated november 2008 policy resulted unrecognized net deferred tax liability 11 billion attributable reinvested earnings 116 billion goldman sachs group inc subsidiaries notes consolidated financial statements continued 2008 valuation allowance decreased 19 million primarily due utilization net operating losses previously considered likely expire unused net operating loss carryforwards 277 billion 212 billion november 2008 november 2007 respectively firm federal net operating loss carryforwards primarily resulting acquisitions 172 million 139 million november 2008 november 2007 respectively firm recorded related net deferred income tax asset 56 million 44 million november 2008 november 2007 respectively carryforwards subject annual limitations utilization begin expire 2016 firm state local net operating loss carryforwards primarily resulting acquisitions 259 billion 162 billion november 2008 november 2007 respectively firm recorded related net deferred income tax asset 97 million 21 million november 2008 november 2007 respectively carryforwards subject annual limitations utilization begin expire 2012 firm foreign net operating loss carryforwards 5 million 306 million november 2008 november 2007 respectively firm recorded related net deferred income tax asset 84 million november 2007 carryforwards subject limitation utilization carried forward indefinitely firm foreign tax credit carryforwards 334 million november 2008 carryforwards subject limitation utilization begin expire 2018 firm adopted provisions fin 48 december 1 2007 recorded transition adjustment resulting reduction 201 million beginning retained earnings following table sets forth changes firm’s unrecognized tax benefits december 1 2007 november 28 2008 millions november 2008 firm’s liability unrecognized tax benefits reported “other liabilities accrued expenses” consolidated statement financial condition 14 billion firm reported related deferred tax asset 625 million “other assets” consolidated statement financial condition recognized net tax benefit 748 million would reduce firm’s effective income tax rate november 2008 firm’s accrued liability interest expense related income tax matters income tax penalties 1109 million firm reports interest expense related income tax matters “provision taxes” consolidated statements earnings income tax penalties “other expenses” consolidated statements earnings firm recognized 367 million interest income tax penalties year ended november 2008 firm expect unrecognized tax benefits change significantly twelve months subsequent november 28 2008 goldman sachs group inc subsidiaries notes consolidated financial statements continued firm subject examination us internal revenue service irs taxing authorities jurisdictions firm significant business operations united kingdom japan hong kong korea various states new york tax years examination vary jurisdiction firm expect potential additional assessments examinations material results operations table earliest tax years remain subject examination major jurisdiction 1 irs examination fiscal 2005 2006 2007 began 2008 2 new york state city examination fiscal 2004 2005 2006 began 2008 years subsequent years remain open examination taxing authorities firm believes liability unrecognized tax benefits established adequate relation potential additional assessments resolution tax matters expected material effect firm’s financial condition may material firm’s operating results particular period depending part upon operating results period reconciliation us federal statutory income tax rate firm’s effective income tax rate set forth 1 primarily includes effect fin 48 liability increase 2 primarily includes effect audit settlements tax benefits approximately 645 million november 2008 908 million november 2007 653 million november 2006 related delivery common stock underlying restricted stock units exercise options credited directly “additional paidin capital” consolidated statements financial condition changes shareholders’ equity goldman sachs group inc subsidiaries notes consolidated financial statements continued note 17 regulation september 21 2008 group inc became bank holding company us bank holding company act 1956 date federal reserve board became primary us regulator group inc consolidated entity prior september 21 2008 group inc subject regulation sec consolidated supervised entity cse subject groupwide supervision examination sec minimum capital standards consolidated basis september 26 2008 sec announced ending cse program firm’s principal us brokerdealer gsco remains subject regulation sec firm subject regulatory capital requirements administered us federal banking agencies firm’s bank depository institution subsidiaries including gs bank usa subject similar capital guidelines federal reserve board’s capital adequacy guidelines regulatory framework prompt corrective action pca applicable gs bank usa firm bank depository institution subsidiaries must meet specific capital guidelines involve quantitative measures assets liabilities certain offbalancesheet items calculated regulatory reporting practices firm bank depository institution subsidiaries’ capital amounts well gs bank usa’s pca classification also subject qualitative judgments regulators components risk weightings factors firm anticipates reporting capital ratios follows • group inc became bank holding company subject capital guidelines sec cse generally consistent set revised framework international convergence capital measurement capital standards issued basel committee banking supervision basel ii firm currently computes reports firmwide capital ratios accordance basel ii requirements applicable firm regulated cse purpose assessing adequacy capital basel ii framework applied firm regulated cse firm evaluates tier 1 capital total allowable capital percentage riskweighted assets rwas november 2008 firm’s total capital ratio total allowable capital percentage rwas 189 firm’s tier 1 ratio tier 1 capital percentage rwas 156 case calculated basel ii framework applied firm regulated cse firm expects continue report investors period time basel ii capital ratios applicable regulated cse • regulatory capital guidelines currently applicable bank holding companies based capital accord basel committee banking supervision basel ii phased time firm currently working federal reserve board put place appropriate reporting compliance mechanisms methodologies allow reporting basel capital ratios end march 2009 • addition firm currently working implement basel ii framework applicable bank holding company opposed cse us banking regulators incorporated basel ii framework existing riskbased capital requirements requiring internationally active banking organizations group inc transition basel ii next several years goldman sachs group inc subsidiaries notes consolidated financial statements continued federal reserve board also established minimum leverage ratio guidelines firm subject guidelines becoming bank holding company accordingly currently working federal reserve board finalize methodology calculating ratio tier 1 leverage ratio defined tier 1 capital applicable firm bank holding company divided adjusted average total assets includes adjustments disallowed goodwill certain intangible assets minimum tier 1 leverage ratio 3 bank holding companies received highest supervisory rating federal reserve board guidelines implemented federal reserve board’s riskbased capital measure market risk bank holding companies must minimum tier 1 leverage ratio 4 bank holding companies may expected maintain ratios well minimum levels depending upon particular condition risk profile growth plans november 2008 firm’s estimated tier 1 leverage ratio 61 ratio represents preliminary estimate may revised subsequent filings firm continues work federal reserve board finalize methodology calculation firm’s us regulated brokerdealer subsidiaries include gsco goldman sachs execution clearing lp gsec gsco gsec registered us brokerdealers futures commission merchants subject rule 15c31 sec rule 117 commodity futures trading commission specify uniform minimum net capital requirements defined registrants also effectively require significant part registrants’ assets kept relatively liquid form gsco gsec elected compute minimum capital requirements accordance “alternative net capital requirement” permitted rule 15c31 november 2008 gsco regulatory net capital defined rule 15c31 1092 billion exceeded amounts required 887 billion november 2008 gsec regulatory net capital defined rule 15c31 138 billion exceeded amounts required 129 billion addition alternative minimum net capital requirements gsco also required hold tentative net capital excess 1 billion net capital excess 500 million accordance market credit risk standards appendix e rule 15c31 gsco also required notify sec event tentative net capital less 5 billion november 2008 november 2007 gsco tentative net capital net capital excess minimum notification requirements november 2008 gs bank usa new york statechartered bank member federal reserve system fdic regulated federal reserve board new york state banking department subject minimum capital requirements subject certain exceptions similar applicable bank holding companies gs bank usa formed november 2008 merger firm’s existing utah industrial bank named gs bank usa firm’s new york limited purpose trust company surviving company taking name gs bank usa november 2007 gs bank usa’s predecessor wholly owned industrial bank regulated utah department financial institutions member fdic subject minimum capital requirements firm computes capital ratios gs bank usa accordance basel framework purposes assessing adequacy capital order considered “well capitalized” depository institution federal reserve board guidelines gs bank usa must maintain tier 1 capital ratio least 6 total capital ratio least 10 tier 1 leverage ratio least 5 connection november 2008 asset transfer described gs bank usa agreed federal reserve board minimum capital ratios excess “well capitalized” levels accordingly period time gs bank usa expected maintain tier 1 capital ratio least 8 total capital ratio least 11 tier 1 leverage ratio least 6 november 2008 firm contributed subsidiaries aggregate 11716 billion assets gs bank usa brought total assets gs bank usa goldman sachs group inc subsidiaries notes consolidated financial statements continued 14506 billion november 2008 result firm currently working federal reserve board finalize methodology basel calculations november 2008 basel gs bank usa’s estimated tier 1 capital ratio 89 estimated total capital ratio 116 addition gs bank usa’s estimated tier 1 leverage ratio 91 deposits gs bank usa insured fdic extent provided law federal reserve board requires depository institutions maintain cash reserves federal reserve bank reserve balance deposited firm’s depository institution subsidiaries held federal reserve bank approximately 94 million 32 million november 2008 november 2007 respectively gs bank europe wholly owned credit institution regulated irish financial services regulatory authority subject minimum capital requirements november 2008 gs bank usa gs bank europe compliance regulatory capital requirements transactions gs bank usa group inc subsidiaries affiliates generally subsidiaries gs bank usa regulated federal reserve board regulations generally limit types amounts transactions including loans borrowings gs bank usa may take place generally require transactions armslength basis firm us insurance subsidiaries subject state insurance regulation oversight states domiciled states licensed addition certain firm’s insurance subsidiaries outside us regulated bermuda monetary authority lloyd’s turn regulated uk’s financial services authority fsa firm’s insurance subsidiaries compliance regulatory capital requirements november 2008 november 2007 firm’s principal nonus regulated subsidiaries include goldman sachs international gsi goldman sachs japan co ltd gsjcl gsi firm’s regulated uk brokerdealer subject capital requirements fsa gsjcl firm’s regulated japanese brokerdealer subject capital requirements imposed japan’s financial services agency november 2008 november 2007 gsi gsjcl compliance local capital adequacy requirements certain nonus subsidiaries firm also subject capital adequacy requirements promulgated authorities countries operate november 2008 november 2007 subsidiaries compliance local capital adequacy requirements regulatory requirements referred restrict group inc’s ability withdraw capital regulated subsidiaries november 2008 november 2007 approximately 2692 billion 1810 billion respectively net assets regulated subsidiaries restricted payment dividends group inc addition limitations payment dividends imposed federal state laws federal reserve board fdic authority prohibit limit payment dividends banking organizations supervise including gs bank usa federal reserve board’s opinion payment dividend would constitute unsafe unsound practice light financial condition banking organization november 2008 gs bank usa able declare dividends group inc without regulatory approval goldman sachs group inc subsidiaries notes consolidated financial statements continued note 18 business segments reporting management firm’s operating results categorized following three business segments investment banking trading principal investments asset management securities services basis presentation reporting segments certain firm’s business lines aggregated similar economic characteristics similar following areas nature services provide ii methods distribution iii types clients serve iv regulatory environments operate cost drivers firm taken whole compensation headcount levels business activity broadly similar firm’s business segments compensation benefits expenses within firm’s segments reflect among factors overall performance firm well performance individual business units consequently pretax margins one segment firm’s business may significantly affected performance firm’s business segments firm allocates revenues expenses among three business segments due integrated nature segments estimates judgments made allocating certain revenue expense items transactions segments based specific criteria approximate thirdparty rates total operating expenses include corporate items allocated individual business segments allocation process based manner management views business firm segment information presented table prepared according following methodologies • revenues expenses directly associated segment included determining pretax earnings • net revenues firm’s segments include allocations interest income interest expense specific securities commodities positions relation cash generated funding requirements underlying positions net interest included within segment net revenues consistent way management assesses segment performance • overhead expenses directly allocable specific segments allocated ratably based direct segment expenses goldman sachs group inc subsidiaries notes consolidated financial statements continued segment operating results management believes following information provides reasonable representation segment’s contribution consolidated pretax earnings total assets 1 net revenues include net interest set forth table 2 net revenues includes noninterest income set forth table goldman sachs group inc subsidiaries notes consolidated financial statements continued trading principal investments revenues include 61 million 6 million 7 million years ended november 2008 november 2007 november 2006 respectively realized gainslosses securities held within firm’s insurance subsidiaries accounted availableforsale sfas 115 3 operating expenses include net provisions number litigation regulatory proceedings 4 million 37 million 45 million years ended november 2008 november 2007 november 2006 respectively allocated firm’s segments 4 pretax earnings include total depreciation amortization set forth table geographic information due highly integrated nature international financial markets firm manages businesses based profitability enterprise whole since significant portion firm’s activities require crossborder coordination order facilitate needs firm’s clients methodology allocating firm’s profitability geographic regions dependent judgment management geographic results generally allocated follows • investment banking location client investment banking team • fixed income currency commodities equities location trading desk • principal investments location investment • asset management location sales team • securities services location primary market underlying security goldman sachs group inc subsidiaries notes consolidated financial statements continued following table sets forth total net revenues pretax earnings net earnings firm consolidated subsidiaries geographic region allocated methodology described well percentage total net revenues pretax earnings net earnings geographic region 1 substantially relates us 2 emea europe middle east africa 3 consists net provisions number litigation regulatory proceedings goldman sachs group inc subsidiaries notes consolidated financial statements continued note 19 interest income interest expense following table sets forth details firm’s interest income interest expense 1 interest income recorded accrual basis based contractual interest rates 2 primarily includes interest income customer debit balances securities borrowed interestearning assets 3 includes interest unsecured shortterm borrowings shortterm secured financings 4 includes interest unsecured longterm borrowings longterm secured financings 5 primarily includes interest expense customer credit balances securities loaned interestbearing liabilities goldman sachs group inc subsidiaries notes consolidated financial statements continued note 20 parent company group inc condensed statements earnings group inc condensed statements financial condition group inc condensed statements cash flows supplemental disclosures cash payments thirdparty interest net capitalized interest 718 billion 778 billion 611 billion years ended november 2008 november 2007 november 2006 respectively cash payments income taxes net refunds 99 million 327 billion 286 billion years ended november 2008 november 2007 november 2006 respectively goldman sachs group inc subsidiaries notes consolidated financial statements continued note 21 subsequent events december 15 2008 board approved change firm’s fiscal yearend last friday november last friday december change effective firm’s 2009 fiscal year firm’s 2009 fiscal year began december 27 2008 end december 25 2009 resulting onemonth transition period began november 29 2008 ended december 26 2008 december 2008 continued deterioration credit lyondellbasell finance company firm provided bridge loan financing january 6 2009 certain legal entities within lyondellbasell industries af sca group filed bankruptcy result firm incurred loss approximately 850 million december 2008 marking bridge bank loan facilities held lyondellbasell finance company expected recovery levels supplemental financial information quarterly results unaudited following represents firm’s unaudited quarterly results 2008 2007 quarterly results prepared accordance generally accepted accounting principles reflect adjustments opinion management necessary fair statement results adjustments normal recurring nature 1 timing magnitude changes firm’s bonus accruals significant effect results given quarter supplemental financial information common stock price range following table sets forth quarters indicated high low sales prices per share firm’s common stock january 16 2009 9909 holders record firm’s common stock january 16 2009 last reported sales price firm’s common stock new york stock exchange 7305 per share supplemental financial information selected financial data 1 book value per common share based common shares outstanding including restricted stock units granted employees future service requirements 4854 million 4390 million 4501 million 4604 million 4940 million november 2008 november 2007 november 2006 november 2005 november 2004 respectively 2 excludes 4671 4572 3868 7382 485 employees november 2008 november 2007 november 2006 november 2005 november 2004 respectively consolidated entities held investment purposes 3 substantially assets management valued calendar monthend 4 primarily includes hedge funds private equity real estate currencies commodities asset allocation strategies supplemental financial information statistical disclosures distribution assets liabilities shareholders’ equity following table sets forth summary consolidated average balances interest rates years ended november 2008 november 2007 november 2006 supplemental financial information 1 consists cash trading instruments including equity securities convertible debentures 2 derivative instruments included noninterestearning assets noninterestbearing liabilities 3 primarily consists cash securities segregated regulatory purposes receivables customers counterparties 4 consists shortterm secured financings unsecured shortterm borrowings excluding commercial paper 5 interest rates include effects hedging accordance sfas 133 6 consists longterm secured financings unsecured longterm borrowings 7 primarily consists payables customers counterparties 8 assets liabilities interest attributed us nonus based principal place operations legal entity assets liabilities held supplemental financial information changes net interest income volume rate analysis following table sets forth analysis effect net interest income volume rate changes periods 2008 versus 2007 versus 2006 analysis changes due volumerate variance allocated volume supplemental financial information availableforsale securities portfolio following table sets forth amortized cost gross unrealized gains losses fair value availableforsale securities november 2008 november 2007 supplemental financial information 1 yields calculated weighted average basis supplemental financial information deposits following table sets forth summary average balances average interest rates firm’s interestbearing deposits years ended november 2008 november 2007 november 2006 1 amounts available withdrawal upon short notice generally within seven days november 2008 firm 55 million nonus time deposits greater 100000 ratios following table sets forth selected financial ratios 1 based net income less preferred stock dividends percentage average common shareholders’ equity 2 based net income percentage average total shareholders’ equity 3 dividends declared per common share percentage net income per diluted share supplemental financial information shortterm borrowed funds 1 following table sets forth summary firm’s securities loaned securities sold agreements repurchase shortterm borrowings years ended november indicated 1 includes borrowings maturing within one year financial statement date borrowings redeemable option holder within one year financial statement date 2 includes shortterm secured financings 2123 billion november 2008 3241 billion november 2007 2429 billion november 2006 3 november 2008 november 2007 november 2006 weighted average interest rates include effects hedging accordance sfas 133 crossborder outstandings crossborder outstandings based upon federal financial institutions examination council’s ffiec regulatory guidelines reporting crossborder risk claims include cash receivables securities purchased agreements resell securities borrowed cash trading instruments exclude derivative instruments commitments securities purchased agreements resell securities borrowed presented based domicile counterparty without reduction related securities collateral held following table sets forth crossborder outstandings country crossborder outstandings exceed 075 consolidated assets november 2008 accordance ffiec guidelines item 9 nannanitem 15 exhibits financial statement schedules reports form 8k documents filed part report 105 summary tokyo leases incorporated reference exhibit 1014 registrant’s registration statement form s1 33374449 106 goldman sachs 1999 stock incentive plan incorporated reference exhibit 1015 registrant’s registration statement form s1 33375213 107 goldman sachs defined contribution plan incorporated reference exhibit 1016 registrant’s registration statement form s1 33375213 108 goldman sachs partner compensation plan incorporated reference exhibit 1018 registrant’s registration statement form s1 33375213 109 form employment agreement incorporated reference exhibit 1019 registrant’s registration statement form s1 33375213 1010 form agreement relating noncompetition covenants incorporated reference exhibit 1020 registrant’s registration statement form s1 33375213 1011 form pledge agreement incorporated reference exhibit 1021 registrant’s registration statement form s1 33375213 1012 form award agreement discretionary rsus incorporated reference exhibit 1023 registrant’s registration statement form s1 33375213 1013 form option agreement discretionary options incorporated reference exhibit 1024 registrant’s registration statement form s1 33375213 1014 form 2002 yearend option award agreement 1015 form 2002 yearend rsu award agreement 1016 tax indemnification agreement dated may 7 1999 among goldman sachs group inc various parties incorporated reference exhibit 1025 registrant’s registration statement form s1 33375213 1017 form shareholders’ agreement among goldman sachs group inc various parties incorporated reference exhibit 1026 registrant’s annual report form 10k fiscal year ended november 26 1999 1018 instrument indemnification incorporated reference exhibit 1027 registrant’s registration statement form s1 33375213 1019 form indemnification agreement incorporated reference exhibit 1028 registrant’s annual report form 10k fiscal year ended november 26 1999 1020 registration rights instrument dated december 10 1999 incorporated reference exhibit g amendment 1 schedule 13d filed december 17 1999 relating registrant’s common stock 00556295 1021 supplemental registration rights instrument dated december 10 1999 incorporated reference exhibit h amendment 1 schedule 13d filed december 17 1999 relating registrant’s common stock 1022 form indemnification agreement incorporated reference exhibit 1044 registrant’s annual report form 10k fiscal year ended november 26 1999 1023 form indemnification agreement dated july 5 2000 incorporated reference exhibit 101 registrant’s quarterly report form 10q period ended august 25 2000 1024 pledge agreement dated may 7 1999 incorporated reference exhibit f amendment 4 schedule 13d filed july 11 2000 relating registrant’s common stock 1025 form amendment 1 dated july 10 2000 pledge agreement filed exhibit 1052 incorporated reference exhibit 102 registrant’s quarterly report form 10q period ended august 25 2000 1026 amendment 1 dated september 5 2000 tax indemnification agreement dated may 7 1999 incorporated reference exhibit 103 registrant’s quarterly report form 10q period ended august 25 2000 1027 form nonemployee director option agreement incorporated reference exhibit 1055 registrant’s annual report form 10k fiscal year ended november 24 2000 1028 form nonemployee director rsu agreement incorporated reference exhibit 1056 registrant’s annual report form 10k fiscal year ended november 24 2000 1029 supplemental registration rights instrument dated december 21 2000 incorporated reference exhibit aa amendment 12 schedule 13d filed january 23 2001 relating registrant’s common stock 1030 supplemental registration rights instrument dated december 21 2001 incorporated reference exhibit 44 registrant’s registration statement form s3 33374006 1031 supplemental registration rights instrument dated december 20 2002 incorporated reference exhibit 44 registrant’s registration statement form s3 333101093 1032 letter dated february 6 2001 goldman sachs group inc dr ruth j simmons incorporated reference exhibit 1063 registrant’s annual report form 10k fiscal year ended november 24 2000 1033 letter dated february 6 2001 goldman sachs group inc mr john h bryan incorporated reference exhibit 1064 registrant’s annual report form 10k fiscal year ended november 24 2000 1034 letter dated february 6 2001 goldman sachs group inc mr james johnson incorporated reference exhibit 1065 registrant’s annual report form 10k fiscal year ended november 24 2000 1035 letter dated february 6 2001 goldman sachs group inc lord browne madingley incorporated reference exhibit 1066 registrant’s annual report form 10k fiscal year ended november 24 2000 1036 letter dated september 24 2001 goldman sachs group inc ms margaret c whitman incorporated reference exhibit 1038 registrant’s annual report form 10k fiscal year ended november 30 2001 1037 letter dated november 19 2001 goldman sachs group inc dr morris chang incorporated reference exhibit 1039 registrant’s annual report form 10k fiscal year ended november 30 2001 1038 letter dated april 15 2002 goldman sachs group inc mr stephen friedman incorporated reference exhibit 101 registrant’s quarterly report form 10q period ended may 31 2002 1039 letter dated december 18 2002 goldman sachs group inc mr william w george 1040 amendment goldman sachs 1999 stock incentive plan 121 statement computation ratios earnings fixed charges following portions registrant’s 2002 annual report shareholders incorporated reference annual report form 10k filed exhibit 131 “management’s discussion analysis” pages 30 59 132 consolidated financial statements registrant subsidiaries together notes thereto report independent accountants thereon pages 60 89 133 “supplemental financial information quarterly results” “ common stock price range” pages 90 91 134 selected financial data page 92 211 list subsidiaries goldman sachs group inc 231 consent pricewaterhousecoopers llp 241 powers attorney included signature page 991 opinion pricewaterhousecoopers llp respect selected financial data incorporated reference part ii item 6 hereof incorporated reference corresponding exhibit registrant’s registration statement form s1 33374449 incorporated reference corresponding exhibit registrant’s registration statement form s1 33375213  exhibit management contract compensatory plan arrangement b reports form 8k september 24 2002 filed current report form 8k reporting earnings fiscal third quarter ended august 30 2002 december 19 2002 filed current report form 8k reporting earnings fiscal fourth quarter ended november 29 2002 december 23 2002 filed current report form 8k reporting settlement certain investigations investment research department january 15 2003 filed current report form 8k reporting purchase convertible preferred stock sumitomo mitsui financial group inc related transactions goldman sachs group inc index financial statements financial statement schedule items 14a1 14a2 specifically incorporated elsewhere herein reference certain portions following unaudited items schedules listed omitted absence conditions required information included consolidated financial statements notes thereto 2002 annual report shareholders information incorporated herein reference report independent accountants directors shareholders goldman sachs group inc audits consolidated financial statements referred report dated january 27 2003 appearing 2002 annual report shareholders goldman sachs group inc subsidiaries report consolidated financial statements incorporated reference annual report form 10k also included audit financial statement schedule listed page form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp new york new york january 27 2003 schedule goldman sachs group inc condensed statements earnings parent company accompanying notes integral part condensed financial statements schedule goldman sachs group inc condensed statements financial condition parent company accompanying notes integral part condensed financial statements schedule goldman sachs group inc condensed statements cash flows parent company supplemental disclosures cash payments interest approximated related expense fiscal years presented payments income taxes 546 million 545 million 123 billion years ended november 2002 november 2001 november 2000 respectively noncash activities value common stock issued connection business combinations 47 million 223 million 341 billion years ended november 2002 november 2001 november 2000 respectively stockbased compensation expense included subsidiary net earnings 609 million 766 million 130 billion years ended november 2002 november 2001 november 2000 respectively accompanying notes integral part condensed financial statements schedule goldman sachs group inc notes condensed financial statements parent company note 1 significant accounting policies basis presentation condensed unconsolidated financial statements goldman sachs group inc parent company read conjunction consolidated financial statements goldman sachs group inc subsidiaries firm notes thereto incorporated reference form 10k investments subsidiaries accounted using equity method condensed unconsolidated financial statements prepared accordance accounting principles generally accepted united states america require management make estimates assumptions regarding investment valuations outcome pending litigation matters affect condensed unconsolidated financial statements related disclosures estimates assumptions based judgment available information consequently actual results could materially different estimates certain reclassifications made prior years’ financial statements conform current year presentation financial instruments owned financial instruments owned including principal investments carried fair value amounts approximate fair value related unrealized gains losses recognized condensed statements earnings fair value based generally listed market prices broker dealer price quotations prices readily determinable liquidating position reasonably expected affect market prices fair value based either internal valuation models management’s estimate amounts could realized current market conditions assuming orderly liquidation reasonable period time firm’s valuation models consider among inputs contractual market prices yield curves credits volatility factors prepayment rates andor correlation underlying positions downward adjustments made management determines realizable value less carrying value affiliate financings consolidated unsecured liquidity firm raised parent company parent company lends necessary funds subsidiaries affiliates represented “receivables affiliates” “subordinated loan receivables affiliates” condensed statements financial condition intercompany exposure managed generally requiring intercompany loans maturities equal shorter maturities aggregate borrowings parent company policy ensures subsidiaries’ obligations parent company generally mature advance parent company’s thirdparty longterm borrowings addition many subsidiaries affiliates pledge collateral cover intercompany borrowings equity investments subsidiaries generally funded equity capital parent company guarantees certain obligations subsidiaries ordinary course business goldman sachs group inc notes condensed financial statements parent company continued interest income largely generated loans made affiliates income taxes income taxes accounted accordance sfas 109 “accounting income taxes” requires recognition tax benefits expenses temporary differences financial reporting tax bases assets liabilities tax assets liabilities presented component “other assets” “other liabilities accrued expenses” respectively condensed statements financial condition included “other assets” deferred tax assets totaling approximately 800 million 900 million november 2002 november 2001 respectively note 2 restricted stock units total restricted stock units outstanding years ended november 2002 november 2001 november 2000 follows 1 includes restricted stock units granted connection combination slk restricted stock units granted employees subsequent yearend part yearend compensation 2 includes restricted stock units granted employees subsequent yearend part yearend compensation signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized goldman sachs group inc david viniar name david viniar title chief financial officer date february 27 2003 ii1 power attorney know persons presents person whose signature appears constitutes appoints john thain gregory k palm david viniar esta e stecher severally true lawful attorneyinfact power substitution resubstitution sign name place stead capacities things execute instruments attorney may deem necessary advisable securities exchange act 1934 rules regulations requirements us securities exchange commission connection annual report form 10k amendments hereto fully intents purposes might could person hereby ratifies confirms said attorneysinfact agents acting alone substitute substitutes may lawfully cause done virtue hereof pursuant requirements securities exchange act 1934 report signed behalf registrant capacities dates indicated ii2 certifications henry paulson jr certify 1 reviewed annual report form 10k goldman sachs group inc 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrant’s certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrant’s disclosure controls procedures date within 90 days prior filing date annual report “evaluation date” c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrant’s certifying officers disclosed based recent evaluation registrant’s auditors audit committee registrant’s board directors persons performing equivalent functions significant deficiencies design operation internal controls could adversely affect registrant’s ability record process summarize report financial data identified registrant’s auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrant’s internal controls 6 registrant’s certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses henry paulson jr name henry paulson jr title chief executive officer date february 27 2003 ii3 certifications david viniar certify 1 reviewed annual report form 10k goldman sachs group inc 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrant’s certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrant’s disclosure controls procedures date within 90 days prior filing date annual report “evaluation date” c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrant’s certifying officers disclosed based recent evaluation registrant’s auditors audit committee registrant’s board directors persons performing equivalent functions significant deficiencies design operation internal controls could adversely affect registrant’s ability record process summarize report financial data identified registrant’s auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrant’s internal controls 6 registrant’s certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses david viniar name david viniar title chief financial officer date february 27 2003 ii4item 15 exhibits financial statement schedules reports form 8k documents filed part report 107 form award agreement discretionary rsus incorporated reference exhibit 1023 registrant’s registration statement form s1 33375213 108 form option agreement discretionary options incorporated reference exhibit 1024 registrant’s registration statement form s1 33375213 109 form 2003 yearend option award agreement 1010 form 2003 yearend rsu award agreement 1011 tax indemnification agreement dated may 7 1999 among goldman sachs group inc various parties incorporated reference exhibit 1025 registrant’s registration statement form s1 33375213 1012 form shareholders’ agreement among goldman sachs group inc various parties incorporated reference exhibit 1026 registrant’s annual report form 10k fiscal year ended november 26 1999 1013 instrument indemnification incorporated reference exhibit 1027 registrant’s registration statement form s1 33375213 1014 form indemnification agreement incorporated reference exhibit 1028 registrant’s annual report form 10k fiscal year ended november 26 1999 1015 registration rights instrument dated december 10 1999 incorporated reference exhibit g amendment 1 schedule 13d filed december 17 1999 relating registrant’s common stock 00556295 1016 supplemental registration rights instrument dated december 10 1999 incorporated reference exhibit h amendment 1 schedule 13d filed december 17 1999 relating registrant’s common stock 1017 form indemnification agreement incorporated reference exhibit 1044 registrant’s annual report form 10k fiscal year ended november 26 1999 1018 form indemnification agreement dated july 5 2000 incorporated reference exhibit 101 registrant’s quarterly report form 10q period ended august 25 2000 1019 pledge agreement dated may 7 1999 incorporated reference exhibit f amendment 4 schedule 13d filed july 11 2000 relating registrant’s common stock 1020 form amendment 1 dated july 10 2000 pledge agreement filed exhibit 1052 incorporated reference exhibit 102 registrant’s quarterly report form 10q period ended august 25 2000 1021 amendment 1 dated september 5 2000 tax indemnification agreement dated may 7 1999 incorporated reference exhibit 103 registrant’s quarterly report form 10q period ended august 25 2000 1022 form nonemployee director option agreement incorporated reference exhibit 1055 registrant’s annual report form 10k fiscal year ended november 24 2000 1023 form nonemployee director rsu agreement incorporated reference exhibit 1056 registrant’s annual report form 10k fiscal year ended november 24 2000 1024 supplemental registration rights instrument dated december 21 2000 incorporated reference exhibit aa amendment 12 schedule 13d filed january 23 2001 relating registrant’s common stock 1025 supplemental registration rights instrument dated december 21 2001 incorporated reference exhibit 44 registrant’s registration statement form s3 33374006 1026 supplemental registration rights instrument dated december 20 2002 incorporated reference exhibit 44 registrant’s registration statement form s3 333101093 1027 letter dated february 6 2001 goldman sachs group inc dr ruth j simmons incorporated reference exhibit 1063 registrant’s annual report form 10k fiscal year ended november 24 2000 1028 letter dated february 6 2001 goldman sachs group inc mr john h bryan incorporated reference exhibit 1064 registrant’s annual report form 10k fiscal year ended november 24 2000 1029 letter dated february 6 2001 goldman sachs group inc mr james johnson incorporated reference exhibit 1065 registrant’s annual report form 10k fiscal year ended november 24 2000 1030 letter dated february 6 2001 goldman sachs group inc lord browne madingley incorporated reference exhibit 1066 registrant’s annual report form 10k fiscal year ended november 24 2000 1031 letter dated december 18 2002 goldman sachs group inc mr william w george incorporated reference exhibit 1039 registrant’s annual report form 10k fiscal year ended november 29 2002 1032 letter dated june 20 2003 goldman sachs group inc mr claes dahlbäck incorporated reference exhibit 101 registrant’s quarterly report form 10q period ended may 30 2003 1033 letter dated june 20 2003 goldman sachs group inc mr edward liddy incorporated reference exhibit 102 registrant’s quarterly report form 10q period ended may 30 2003 1034 supplemental registration rights instrument dated december 19 2003 incorporated reference exhibit 44 registrant’s registration statement form s3 333110371 121 statement computation ratios earnings fixed charges following portions registrant’s 2003 annual report shareholders incorporated reference annual report form 10k filed exhibit 131 “management’s discussion analysis” pages 32 66 132 consolidated financial statements registrant subsidiaries together notes thereto report independent accountants thereon pages 67 100 133 “supplemental financial information quarterly results” “ common stock price range” pages 101 102 134 selected financial data page 103 211 list subsidiaries goldman sachs group inc 231 consent pricewaterhousecoopers llp 241 powers attorney included signature page 311 rule 13a14a certifications 321 section 1350 certifications 991 opinion pricewaterhousecoopers llp respect selected financial data incorporated reference part ii item 6 hereof incorporated reference corresponding exhibit registrant’s registration statement form s1 33374449  exhibit management contract compensatory plan arrangement b reports form 8k september 23 2003 filed current report form 8k reporting earnings fiscal third quarter ended august 29 2003 december 12 2003 filed current report form 8k announcing certain changes business segment reporting structure december 18 2003 filed current report form 8k reporting earnings fiscal fourth quarter fiscal year ended november 28 2003 december 19 2003 filed current report form 8k announcing certain management changes goldman sachs group inc index financial statements financial statement schedule items 15a1 15a2 specifically incorporated elsewhere herein reference certain portions following unaudited items schedules listed omitted absence conditions required information included consolidated financial statements notes thereto 2003 annual report shareholders information incorporated herein reference report independent auditors directors shareholders goldman sachs group inc audits consolidated financial statements referred report dated january 26 2004 appearing 2003 annual report shareholders goldman sachs group inc subsidiaries report consolidated financial statements incorporated reference annual report form 10k also included audit financial statement schedule listed page form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp new york new york january 26 2004 schedule goldman sachs group inc condensed statements earnings parent company accompanying notes integral part condensed financial statements schedule goldman sachs group inc condensed statements financial condition parent company accompanying notes integral part condensed financial statements schedule goldman sachs group inc condensed statements cash flows parent company supplemental disclosures cash payments interest 197 billion 221 billion 384 billion years ended november 2003 november 2002 november 2001 respectively cash payments income taxes net refunds 324 million 546 million 545 million years ended november 2003 november 2002 november 2001 respectively noncash activities value common stock issued connection business combinations 165 million 47 million 223 million years ended november 2003 november 2002 november 2001 respectively stockbased compensation expense included subsidiary net earnings 644 million 609 million 766 million years ended november 2003 november 2002 november 2001 respectively accompanying notes integral part condensed financial statements schedule goldman sachs group inc notes condensed nonconsolidated financial statements parent company note 1 significant accounting policies basis presentation condensed nonconsolidated financial statements goldman sachs group inc parent company read conjunction consolidated financial statements goldman sachs group inc subsidiaries firm notes thereto consolidated financial statements incorporated reference form 10k investments subsidiaries accounted using equity method condensed nonconsolidated financial statements prepared accordance generally accepted accounting principles require management make estimates assumptions regarding fair value measurement accounting goodwill identifiable intangible assets provision potential losses may arise litigations regulatory proceedings matters affect condensed nonconsolidated financial statements related disclosures estimates assumptions based best available information nonetheless actual results could materially different estimates certain reclassifications made previously reported amounts conform current presentation affiliate transactions consolidated unsecured liquidity firm raised parent company parent company lends necessary funds subsidiaries affiliates represented “receivables affiliates” “subordinated loan receivables affiliates” condensed statements financial condition intercompany exposure managed generally requiring intercompany loans maturities equal shorter maturities aggregate borrowings parent company policy ensures subsidiaries’ obligations parent company generally mature advance parent company’s thirdparty longterm borrowings addition many subsidiaries affiliates pledge collateral cover intercompany borrowings equity investments subsidiaries generally funded equity capital addition parent company charges certain affiliates rental costs relating properties occupied affiliates interest income largely generated loans made affiliates goldman sachs group inc notes condensed nonconsolidated financial statements parent company continued note 2 longterm borrowings longterm borrowings third parties set forth 1 2003 2002 interest rates us dollar fixed rate obligations ranged 413 1200 550 1200 respectively 2003 2002 interest rates nonus dollar fixed rate obligations ranged 070 888 120 888 respectively 2 floating interest rates generally based libor us treasury bill rate federal funds rate certain equitylinked indexed instruments included floating rate obligations longterm borrowings third parties fiscal maturity date set forth 1 longterm borrowings maturing within one year certain longterm borrowings may redeemable within one year option holder included “shortterm borrowings” condensed nonconsolidated statements financial condition 2 longterm borrowings repayable option parent company reflected contractual maturity dates certain longterm borrowings may redeemable prior goldman sachs group inc notes condensed nonconsolidated financial statements parent company continued maturity option holder reflected date options first become exercisable 3 longterm borrowings maturities range one 30 years date issue parent company enters derivative contracts affiliates interest rate futures contracts interest rate swap agreements currency swap agreements equitylinked contracts effectively convert substantial portion longterm borrowings us dollarbased floating rate obligations accordingly aggregate carrying value longterm borrowings related hedges approximates fair value effective weighted average interest rates longterm borrowings hedging activities set forth longterm borrowings affiliates set forth 1 2003 2002 interest rate us dollar fixed rate obligations 578 2003 2002 interest rates nonus dollar fixed rate obligations ranged 335 600 2 floating interest rates generally based libor goldman sachs group inc notes condensed nonconsolidated financial statements parent company continued longterm borrowings affiliates fiscal maturity date set forth 1 longterm borrowings affiliates maturities range three eight years date issue note 3 commitments contingencies guarantees commitments parent company provides letters credit issued various banks counterparties lieu securities cash satisfy various collateral margin deposit requirements letters credit outstanding 119 million 164 million november 2003 november 2002 respectively parent company acts investor merchant banking transactions includes making longterm investments equity debt securities privately negotiated transactions corporate acquisitions real estate transactions connection activities parent company commitments invest 130 billion 133 billion corporate real estate merchant banking investment funds november 2003 november 2002 respectively parent company purchase commitments 5 million 7 million november 2003 november 2002 respectively parent company obligations longterm noncancelable lease agreements principally office space occupied affiliates expiring various dates 2029 certain agreements subject periodic escalation provisions increases real estate taxes goldman sachs group inc notes condensed nonconsolidated financial statements parent company continued charges future minimum rental payments generally reimbursed affiliates set forth contingencies parent company involved number judicial regulatory arbitration proceedings concerning matters arising connection conduct businesses management believes based currently available information results proceedings aggregate material adverse effect firm’s financial condition may material parent company’s operating results particular period depending part upon operating results period guarantees parent company guarantees many obligations consolidated subsidiaries including largest operating entities europe asia many primary derivatives commodities trading entities well certain subsidiaries parent company typically guarantee obligations particular subsidiary rather guarantees obligations transactionbytransaction basis negotiated counterparty parent company typically issue guarantees obligations us brokerdealer subsidiaries although parent company general partner goldman sachs co parent company unable develop estimate maximum payout guarantees however guaranteed obligations consolidated subsidiaries parent company’s liabilities guarantor included liabilities firm already reported disclosed consolidated financial statements goldman sachs group inc notes condensed nonconsolidated financial statements parent company continued following table sets forth certain information guarantees issued parent company respect nonconsolidated affiliates third parties november 2003 1 amounts represent anticipated losses connection contracts normal course business parent company indemnifies guarantees certain service providers custody agents trustees administrators specified potential losses connection acting agent providing services parent company affiliates parent company also indemnifies clients potential losses incurred event specified thirdparty service providers including subcustodians thirdparty brokers improperly execute transactions parent company unable develop estimate maximum payout guarantees indemnifications however management believes unlikely parent company make material payments arrangements liabilities related guarantees indemnifications recognized condensed nonconsolidated financial statement november 2003 parent company provides representations warranties counterparties connection variety commercial transactions occasionally indemnifies potential losses caused breach representations warranties parent company may also provide indemnifications protecting changes adverse application certain us tax laws connection ordinarycourse transactions securities issuances borrowings derivatives addition parent company may provide indemnifications counterparties protect event additional taxes owed payments withheld due either change adverse application certain nonus tax laws indemnifications generally standard contractual terms entered normal course business generally stated notional amounts included indemnifications contingencies triggering obligation indemnify expected occur parent company unable develop estimate maximum payout guarantees however management believes unlikely parent company make material payments arrangements liabilities related arrangements recognized condensed nonconsolidated financial statements november 2003 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized goldman sachs group inc david viniar name david viniar title chief financial officer date february 24 2004 ii1 power attorney know persons presents person whose signature appears constitutes appoints henry paulson jr lloyd c blankfein david viniar gregory k palm esta e stecher severally true lawful attorneyinfact power substitution resubstitution sign name place stead capacities things execute instruments attorney may deem necessary advisable securities exchange act 1934 rules regulations requirements us securities exchange commission connection annual report form 10k amendments hereto fully intents purposes might could person hereby ratifies confirms said attorneysinfact agents acting alone substitute substitutes may lawfully cause done virtue hereof pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated ii2item 15 exhibits financial statement schedules documents filed part report 1 consolidated financial statements consolidated financial statements required filed annual report form 10k listed page hereof part ii item 8 hereof 2 financial statement schedule financial statement schedule required annual report form 10k listed page hereof required schedule appears pages hereof 3 exhibits 21 plan incorporation 31 amended restated certificate incorporation goldman sachs group inc incorporated reference exhibit 31 registrant’s registration statement form s1 33375213 32 amended restated bylaws goldman sachs group inc incorporated reference exhibit 31 registrant’s quarterly report form 10q period ended august 29 2003 41 indenture dated may 19 1999 goldman sachs group inc bank new york trustee incorporated reference exhibit 6 registrant’s registration statement form 8a filed june 29 1999 42 subordinated debt indenture dated february 20 2004 goldman sachs group inc bank new york trustee incorporated reference exhibit 42 registrant’s annual report form 10k fiscal year ended november 28 2003 certain instruments defining rights holders longterm debt securities registrant subsidiaries omitted pursuant item 601b4iii regulation sk registrant hereby undertakes furnish sec upon request copies instruments 101 goldman sachs amended restated stock incentive plan incorporated reference exhibit 101 registrant’s quarterly report form 10q period ended february 28 2003  102 goldman sachs defined contribution plan incorporated reference exhibit 1016 registrant’s registration statement form s1 33375213  103 goldman sachs restricted partner compensation plan incorporated reference exhibit 102 registrant’s quarterly report form 10q period ended february 28 2003  104 form employment agreement incorporated reference exhibit 1019 registrant’s registration statement form s1 33375213  105 form agreement relating noncompetition covenants incorporated reference exhibit 1020 registrant’s registration statement form s1 33375213  106 form award agreement discretionary rsus incorporated reference exhibit 1023 registrant’s registration statement form s1 33375213 107 form option agreement discretionary options incorporated reference exhibit 1024 registrant’s registration statement form s1 33375213  108 form 2004 yearend rsu award agreement  109 tax indemnification agreement dated may 7 1999 among goldman sachs group inc various parties incorporated reference exhibit 1025 registrant’s registration statement form s1 33375213 1010 amended restated shareholders’ agreement dated june 22 2004 among goldman sachs group inc various parties incorporated reference exhibit amendment 54 schedule 13d filed june 23 2004 relating registrant’s common stock 1011 instrument indemnification incorporated reference exhibit 1027 registrant’s registration statement form s1 33375213 1012 form indemnification agreement incorporated reference exhibit 1028 registrant’s annual report form 10k fiscal year ended november 26 1999 1013 registration rights instrument dated december 10 1999 incorporated reference exhibit g amendment 1 schedule 13d filed december 17 1999 relating registrant’s common stock 00556295 1014 supplemental registration rights instrument dated december 10 1999 incorporated reference exhibit h amendment 1 schedule 13d filed december 17 1999 relating registrant’s common stock 1015 form indemnification agreement incorporated reference exhibit 1044 registrant’s annual report form 10k fiscal year ended november 26 1999 1016 form indemnification agreement dated july 5 2000 incorporated reference exhibit 101 registrant’s quarterly report form 10q period ended august 25 2000 1017 amendment 1 dated september 5 2000 tax indemnification agreement dated may 7 1999 incorporated reference exhibit 103 registrant’s quarterly report form 10q period ended august 25 2000 1018 form nonemployee director option agreement incorporated reference exhibit 1055 registrant’s annual report form 10k fiscal year ended november 24 2000  1019 form nonemployee director rsu agreement incorporated reference exhibit 1056 registrant’s annual report form 10k fiscal year ended november 24 2000  1020 supplemental registration rights instrument dated december 21 2000 incorporated reference exhibit aa amendment 12 schedule 13d filed january 23 2001 relating registrant’s common stock 1021 supplemental registration rights instrument dated december 21 2001 incorporated reference exhibit 44 registrant’s registration statement form s3 33374006 1022 supplemental registration rights instrument dated december 20 2002 incorporated reference exhibit 44 registrant’s registration statement form s3 333101093 1023 letter dated february 6 2001 goldman sachs group inc dr ruth j simmons incorporated reference exhibit 1063 registrant’s annual report form 10k fiscal year ended november 24 2000  1024 letter dated february 6 2001 goldman sachs group inc mr john h bryan incorporated reference exhibit 1064 registrant’s annual report form 10k fiscal year ended november 24 2000  1025 letter dated february 6 2001 goldman sachs group inc mr james johnson incorporated reference exhibit 1065 registrant’s annual report form 10k fiscal year ended november 24 2000  1026 letter dated february 6 2001 goldman sachs group inc lord browne madingley incorporated reference exhibit 1066 registrant’s annual report form 10k fiscal year ended november 24 2000  1027 letter dated december 18 2002 goldman sachs group inc mr william w george incorporated reference exhibit 1039 registrant’s annual report form 10k fiscal year ended november 29 2002  1028 letter dated june 20 2003 goldman sachs group inc mr claes dahlbäck incorporated reference exhibit 101 registrant’s quarterly report form 10q period ended may 30 2003  1029 letter dated june 20 2003 goldman sachs group inc mr edward liddy incorporated reference exhibit 102 registrant’s quarterly report form 10q period ended may 30 2003  1030 supplemental registration rights instrument dated december 19 2003 incorporated reference exhibit 44 registrant’s registration statement form s3 333110371 1031 letter dated march 31 2004 goldman sachs group inc ms lois juliber incorporated reference exhibit 101 registrant’s quarterly report form 10q period ended may 28 2004  1032 form amendment dated november 27 2004 agreement relating noncompetition covenants dated may 7 1999  1033 form 2004 rsu award agreement pmd discount stock program subject transfer restrictions  1034 form 2004 rsu award agreement pmd discount stock program subject transfer restrictions  1035 goldman sachs group inc nonqualified deferred compensation plan us participating managing directors  1036 goldman sachs group inc nonqualified deferred compensation plan us extended managing directors select employees  1037 goldman sachs group inc nonqualified deferred compensation plan uk participating managing directors  1038 goldman sachs group inc nonqualified deferred compensation plan uk extended managing directors select uk employees  121 statement computation ratios earnings fixed charges 211 list significant subsidiaries goldman sachs group inc 231 consent independent registered public accounting firm 241 powers attorney included signature page 311 rule 13a14a certifications 321 section 1350 certifications 991 report independent registered public accounting firm selected financial data goldman sachs group inc index financial statements financial statement schedule items 15a1 15a2 page management’s report internal control financial reporting report independent registered public accounting firm consolidated financial statements consolidated statements earnings consolidated statements financial condition consolidated statements changes shareholders’ equity consolidated statements cash flows consolidated statements comprehensive income notes consolidated financial statements supplemental financial information quarterly results common stock price range selected financial data financial statement schedule report independent registered public accounting firm schedule condensed nonconsolidated financial information registrant parent company condensed nonconsolidated statements earnings condensed nonconsolidated statements financial condition condensed nonconsolidated statements cash flows notes condensed nonconsolidated financial statements schedules listed omitted absence conditions required information consolidated financial statements notes thereto schedule goldman sachs group inc parent company condensed nonconsolidated statements earnings accompanying notes integral part condensed nonconsolidated financial statements schedule goldman sachs group inc parent company condensed nonconsolidated statements financial condition accompanying notes integral part condensed nonconsolidated financial statements schedule goldman sachs group inc parent company condensed nonconsolidated statements cash flows supplemental disclosures cash payments interest net capitalized interest 259 billion 197 billion 221 billion years ended november 2004 november 2003 november 2002 respectively cash payments income taxes net refunds 284 million 324 million 546 million years ended november 2004 november 2003 november 2002 respectively noncash activities value common stock issued connection business combinations 165 million 47 million years ended november 2003 november 2002 respectively stockbased compensation expense included subsidiary net earnings 110 billion 644 million 609 million years ended november 2004 november 2003 november 2002 respectively accompanying notes integral part condensed nonconsolidated financial statements schedule goldman sachs group inc parent company notes condensed nonconsolidated financial statements note 1 significant accounting policies basis presentation condensed nonconsolidated financial statements goldman sachs group inc parent company delaware corporation read conjunction consolidated financial statements goldman sachs group inc subsidiaries firm notes thereto consolidated financial statements included part ii item 8 annual report form 10k condensed nonconsolidated financial statements reflect results operations financial condition cash flows parent company investments subsidiaries accounted using equity method accounting prescribed accounting principles board apb opinion 18 “the equity method accounting investments common stock” parent company formed numerous nonconsolidated merchant banking funds thirdparty investors typically organized limited partnerships parent company acts general partner funds hold majority economic interests fund parent company holds minor interest fund subject removal general partner fund investments included “financial instruments owned fair value” condensed nonconsolidated statements financial condition condensed nonconsolidated financial statements prepared accordance generally accepted accounting principles require management make certain estimates assumptions regarding fair value measurement accounting goodwill identifiable intangible assets provision potential losses may arise litigations regulatory proceedings tax audits matters affect condensed nonconsolidated financial statements related disclosures estimates assumptions based best available information nonetheless actual results could materially different estimates unless otherwise stated herein references november 2004 november 2003 november 2002 refer parent company’s fiscal years ended dates context requires november 26 2004 november 28 2003 november 29 2002 respectively certain reclassifications made previously reported amounts conform current presentation revenue recognition financial instruments condensed nonconsolidated statements financial condition reflect purchases sales financial instruments tradedate basis “financial instruments owned fair value” condensed nonconsolidated statements financial condition consist financial instruments carried fair value amounts approximate fair value related unrealized gains losses recognized parent company’s results operations fair value financial instrument amount instrument could exchanged current transaction willing parties forced liquidation sale determining fair value parent company separates financial instruments two categories derivative contracts principal investments fair values parent company’s derivative contracts consist exchangetraded overthecounter otc derivatives entered affiliates reflect cash parent company paid received fair values parent company’s exchangetraded derivatives goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued generally determined quoted market prices otc derivatives valued using valuation models parent company uses variety valuation models including present value known estimated cash flows optionpricing models optionadjusted spread models valuing corporate real estate principal investments parent company’s portfolio separated investments private companies investments public companies parent company’s private principal investments nature little price transparency investments initially carried cost approximation fair value adjustments carrying value made thirdparty transactions evidencing change value downward adjustments also made absence thirdparty transactions determined expected realizable value investment less carrying value reaching determination many factors considered including limited operating cash flows financial performance companies properties relative budgets projections trends within sectors andor regions underlying business models expected exit timing strategy specific rights terms associated investment conversion features liquidation preferences parent company’s public principal investments tend large concentrated holdings result initial public offerings corporate transactions valued using quoted market prices discounted restrictions sale liquidating position reasonably expected affect market prices valuations adjusted accordingly based predetermined written policies merchant banking overrides parent company entitled receive merchant banking overrides ie increased share fund’s income gains return funds’ investments exceeds certain threshold returns overrides based investment performance life merchant banking fund future investment underperformance may require amounts previously distributed parent company returned funds accordingly overrides recognized condensed nonconsolidated statements earnings material contingencies resolved overrides included “principal investments” condensed nonconsolidated statements earnings goodwill cost acquired companies excess fair value identifiable net assets acquisition date accordance statement financial accounting standards sfas 142 “goodwill intangible assets” goodwill tested least annually impairment loss triggered estimated fair value operating segment less estimated net book value loss calculated difference implied fair value goodwill carrying value property leasehold improvements equipment property leasehold improvements equipment net accumulated depreciation amortization included “other assets” condensed nonconsolidated statements financial condition effective december 1 2001 parent company changed straightline method depreciation certain property leasehold improvements equipment placed service december 1 2001 goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued foreign currency translation assets liabilities denominated nonus currencies translated rates exchange prevailing dates condensed nonconsolidated statements financial condition revenues expenses translated average rates exchange fiscal year parent company seeks reduce net investment exposure fluctuations foreign exchange rates use foreign currency forward contracts foreign currency denominated debt foreign currency forward contracts hedge effectiveness assessed based changes forward exchange rates accordingly forward points reflected component currency translation adjustment “accumulated comprehensive income” condensed nonconsolidated statements financial condition foreign currency denominated debt hedge effectiveness assessed based changes spot rates foreign currency remeasurement gains losses transactions nonfunctional currencies included condensed nonconsolidated statements earnings income taxes deferred tax assets liabilities recognized temporary differences financial reporting tax bases parent company’s assets liabilities valuation allowances established reduce deferred tax assets amount likely realized parent company’s tax assets liabilities presented component “other assets” “other liabilities accrued expenses” respectively condensed nonconsolidated statements financial condition tax provisions computed accordance sfas 109 “accounting income taxes” contingent liabilities related income taxes recorded criteria loss recognition sfas 5 “accounting contingencies” amended met cash equivalents parent company defines cash equivalents highly liquid overnight deposits held ordinary course business affiliate transactions substantially firm’s unsecured liquidity raised parent company parent company lends necessary funds subsidiaries affiliates regulated meet financing capital requirements addition parent company advances regulated subsidiaries necessary capital meet regulatory requirements funding included “shortterm loans affiliates” “subordinated loans affiliates” condensed nonconsolidated statements financial condition intercompany exposure managed requiring senior subordinated intercompany loans maturities equal shorter maturities aggregate borrowings parent company policy ensures subsidiaries’ obligations parent company generally mature advance parent company’s thirdparty borrowings addition many subsidiaries affiliates pledge collateral loan value cover intercompany borrowings subordinated debt order mitigate parent company liquidity risk equity investments subsidiaries generally funded equity capital included “investments subsidiaries” condensed nonconsolidated statements financial condition parent company enters derivative contracts affiliates hedge net investment nonus operations manage interest rate currency exposure longterm borrowings certain shortterm borrowings manage exposure borrowings parent goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued company uses derivatives effectively convert substantial portion longterm borrowings us dollarbased floating rate obligations parent company applies fairvalue hedge accounting derivative contracts hedge benchmark interest rate ie libor longterm borrowings derivative balances affiliates included “financial instruments owned fair value” condensed nonconsolidated statements financial condition 740 billion 426 billion november 2004 november 2003 respectively interest income largely generated loans made affiliates parent company also allocates rental costs relating properties occupied certain subsidiaries affiliates subsidiaries affiliates parent company additionally allocates cost stockbased compensation programs subsidiaries affiliates associated employees subsidiaries affiliates note 2 shortterm borrowings parent company obtains thirdparty unsecured shortterm borrowings primarily issuance promissory notes commercial paper bank loans shortterm borrowings also include portion longterm borrowings maturing within one year certain longterm borrowings may redeemable within one year option holder carrying value shortterm obligations approximates fair value due shortterm nature shortterm borrowings third parties set forth addition parent company may borrow overnight funds certain subsidiaries affiliates unsecured basis november 2004 november 2003 amounts 871 million 255 billion respectively included “unsecured shortterm borrowings affiliates” condensed nonconsolidated statements financial condition goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued note 3 longterm borrowings parent company obtains unsecured longterm borrowings consisting principally senior borrowings maturities extending 2034 longterm borrowings third parties set forth longterm borrowings third parties fiscal maturity date set forth 1 longterm borrowings maturing within one year certain longterm borrowings may become redeemable within one year option holder included shortterm borrowings condensed nonconsolidated statements financial condition 2 longterm borrowings repayable option parent company reflected contractual maturity dates certain longterm borrowings redeemable prior maturity option holders reflected dates options become exercisable goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued parent company enters derivative contracts affiliates effectively convert substantial portion longterm borrowings us dollarbased floating rate obligations accordingly aggregate carrying value longterm borrowings related hedges approximates fair value effective weighted average interest rates longterm borrowings third parties hedging activities set forth longterm borrowings affiliates set forth goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued longterm borrowings affiliates fiscal maturity date set forth 1 longterm borrowings maturing within one year certain longterm borrowings may become redeemable within one year option holder included shortterm borrowings condensed nonconsolidated statements financial condition deferrable interest junior subordinated debentures february 2004 goldman sachs capital trust wholly owned delaware statutory trust formed parent company exclusive purposes issuing 275 billion guaranteed preferred beneficial interests 85 million common beneficial interests trust ii investing proceeds sale purchase junior subordinated debentures parent company iii engaging activities necessary incidental purposes preferred beneficial interests purchased third parties november 2004 parent company held common beneficial interests parent company right time defer payment interest junior subordinated debentures therefore cause payment dividends trust’s preferred beneficial interests deferred case ten consecutive semiannual periods extension period parent company permitted among things pay dividends make certain repurchases common stock trust permitted pay distributions common beneficial interests held parent company unless dividends payable preferred beneficial interests paid full note 4 commitments contingencies guarantees commitments parent company provides letters credit issued various banks counterparties lieu securities cash satisfy various collateral margin deposit requirements letters credit outstanding 25 million november 2004 november 2003 parent company acts investor merchant banking transactions includes making longterm investments equity debt securities privately negotiated transactions corporate acquisitions real estate transactions connection activities parent company commitments invest 104 billion 130 billion corporate real estate investment funds november 2004 november 2003 respectively goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued parent company constructionrelated commitments 19 million november 2004 purchase commitments 10 million 5 million november 2004 november 2003 respectively november 2004 parent company commitments fund newly formed subsidiary entered contract acquire interests power plants related businesses national energy gas transmission inc including additional interests power plants natural gas pipeline cogentrix energy inc wholly owned subsidiary already holds interests approximately 550 million parent company contractual obligations longterm noncancelable lease agreements principally office space occupied subsidiaries affiliates expiring various dates 2029 certain agreements subject periodic escalation provisions increases real estate taxes charges future minimum rental payments generally reimbursed affiliates set forth contingencies parent company involved number judicial regulatory arbitration proceedings concerning matters arising connection conduct businesses management believes based currently available information results proceedings aggregate material adverse effect parent company’s financial condition may material parent company’s operating results particular period depending part upon operating results period given inherent difficulty predicting outcome parent company’s litigation matters particularly cases claimants seek substantial indeterminate damages parent company cannot estimate losses ranges losses cases reasonable possibility loss may incurred goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued guarantees parent company guarantees many obligations consolidated subsidiaries including largest operating entities americas europe asia many primary derivatives commodities trading entities well certain subsidiaries parent company typically guarantee obligations particular subsidiary rather guarantees obligations transactionbytransaction basis negotiated counterparty parent company typically issue guarantees obligations us brokerdealer subsidiaries although parent company general partner goldman sachs co parent company unable develop estimate maximum payout guarantees however guaranteed obligations consolidated subsidiaries parent company’s liabilities guarantor already reported disclosed note 6 consolidated financial statements part ii item 8 annual report form 10k parent company occasionally indemnifies securities lending customers losses incurred event borrowers return securities collateral held insufficient cover market value securities borrowed relation certain asset sales securitization transactions parent company guarantees collection contractual cash flows connection merchant banking activities parent company may issue loan guarantees secure financing obtain preferential terms addition parent company provides letters credit guarantees limited basis enable clients enhance credit standing complete transactions connection parent company’s establishment trust parent company effectively provided full unconditional guarantee beneficial interests trust held third parties timely payment parent company interest junior subordinated debentures amounts due performance obligations transaction documents sufficient cover payments due trust beneficial interests result management believes unlikely parent company make payments related trust required junior subordinated debentures connection certain expenses incurred trust goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued following table sets forth certain information parent company’s guarantees november 2004 november 2003 1 collateral held connection securities lending indemnifications 1528 billion november 2004 2 includes guarantee payments scheduled made life trust could shortened event parent company redeemed junior subordinated debentures issued fund trust 3 amounts represent anticipated losses connection contracts normal course business parent company indemnifies guarantees certain service providers clearing custody agents trustees administrators specified potential losses connection acting agent providing services parent company subsidiaries affiliates parent company also indemnifies clients potential losses incurred event specified thirdparty service providers including subcustodians thirdparty brokers improperly execute transactions parent company unable develop estimate maximum payout guarantees indemnifications however management believes unlikely parent company make material payments arrangements liabilities goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued related guarantees indemnifications recognized condensed nonconsolidated statements financial condition november 2004 november 2003 parent company provides representations warranties counterparties connection variety commercial transactions occasionally indemnifies potential losses caused breach representations warranties parent company may also provide indemnifications protecting changes adverse application certain us tax laws connection ordinarycourse transactions securities issuances borrowings derivatives addition parent company may provide indemnifications counterparties protect event additional taxes owed payments withheld due either change adverse application certain nonus tax laws indemnifications generally standard contractual terms entered normal course business generally stated notional amounts included indemnifications contingencies triggering obligation indemnify expected occur parent company unable develop estimate maximum payout guarantees however management believes unlikely parent company make material payments arrangements liabilities related arrangements recognized condensed nonconsolidated statements financial condition november 2004 november 2003 note 5 shareholders’ equity dividends declared per common share 100 2004 074 2003 048 2002 december 15 2004 board directors parent company board declared dividend 025 per share paid february 24 2005 common shareholders record january 25 2005 2004 2003 parent company repurchased 187 million shares 122 million shares common stock respectively average price paid per share repurchased shares 9629 7683 years ended november 2004 november 2003 respectively addition satisfy minimum statutory employee tax withholding requirements related delivery shares underlying restricted stock units employees firm parent company cancelled 91 million restricted stock units average price 9520 per unit 2004 january 30 2004 board authorized repurchase additional 150 million shares common stock pursuant parent company’s existing repurchase program november 2004 parent company authorized repurchase 64 million additional shares common stock pursuant parent company’s repurchase program signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized date february 7 2005 ii1 power attorney know persons presents person whose signature appears constitutes appoints henry paulson jr lloyd c blankfein david viniar gregory k palm esta e stecher severally true lawful attorneyinfact power substitution resubstitution sign name place stead capacities things execute instruments attorney may deem necessary advisable securities exchange act 1934 rules regulations requirements us securities exchange commission connection annual report form 10k amendments hereto fully intents purposes might could person hereby ratifies confirms said attorneysinfact agents acting alone substitute substitutes may lawfully cause done virtue hereof pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated ii2item 15 exhibits financial statement schedules documents filed part report 1 consolidated financial statements consolidated financial statements required filed annual report form 10k listed page hereof part ii item 8 hereof 2 financial statement schedule financial statement schedule required annual report form 10k listed page hereof required schedule appears pages hereof 3 exhibits 21 plan incorporation incorporated reference corresponding exhibit registrant’s registration statement form s1 33374449 31 restated certificate incorporation goldman sachs group inc 32 amended restated bylaws goldman sachs group inc incorporated reference exhibit 31 registrant’s quarterly report form 8k filed september 20 2005 41 indenture dated may 19 1999 goldman sachs group inc bank new york trustee incorporated reference exhibit 6 registrant’s registration statement form 8a filed june 29 1999 42 subordinated debt indenture dated february 20 2004 goldman sachs group inc bank new york trustee incorporated reference exhibit 42 registrant’s annual report form 10k fiscal year ended november 28 2003 certain instruments defining rights holders longterm debt securities registrant subsidiaries omitted pursuant item 601b4iii regulation sk registrant hereby undertakes furnish sec upon request copies instruments 101 goldman sachs amended restated stock incentive plan incorporated reference exhibit 101 registrant’s quarterly report form 10q period ended february 28 2003  102 goldman sachs defined contribution plan incorporated reference exhibit 1016 registrant’s registration statement form s1 33375213  103 goldman sachs restricted partner compensation plan incorporated reference exhibit 102 registrant’s quarterly report form 10q period ended february 28 2003  104 form employment agreement incorporated reference exhibit 1019 registrant’s registration statement form s1 33375213  105 form agreement relating noncompetition covenants incorporated reference exhibit 1020 registrant’s registration statement form s1 33375213  106 form option agreement discretionary options incorporated reference exhibit 1024 registrant’s registration statement form s1 33375213  107 tax indemnification agreement dated may 7 1999 among goldman sachs group inc various parties incorporated reference exhibit 1025 registrant’s registration statement form s1 33375213 108 amended restated shareholders’ agreement dated june 22 2004 among goldman sachs group inc various parties incorporated reference exhibit amendment 54 schedule 13d filed june 23 2004 relating registrant’s common stock 109 instrument indemnification incorporated reference exhibit 1027 registrant’s registration statement form s1 33375213 1010 form indemnification agreement incorporated reference exhibit 1028 registrant’s annual report form 10k fiscal year ended november 26 1999 1011 registration rights instrument dated december 10 1999 incorporated reference exhibit g amendment 1 schedule 13d filed december 17 1999 relating registrant’s common stock 00556295 1012 supplemental registration rights instrument dated december 10 1999 incorporated reference exhibit h amendment 1 schedule 13d filed december 17 1999 relating registrant’s common stock 1013 form indemnification agreement incorporated reference exhibit 1044 registrant’s annual report form 10k fiscal year ended november 26 1999 1014 form indemnification agreement dated july 5 2000 incorporated reference exhibit 101 registrant’s quarterly report form 10q period ended august 25 2000 1015 amendment 1 dated september 5 2000 tax indemnification agreement dated may 7 1999 incorporated reference exhibit 103 registrant’s quarterly report form 10q period ended august 25 2000 1016 supplemental registration rights instrument dated december 21 2000 incorporated reference exhibit aa amendment 12 schedule 13d filed january 23 2001 relating registrant’s common stock 1017 supplemental registration rights instrument dated december 21 2001 incorporated reference exhibit 44 registrant’s registration statement form s3 33374006 1018 supplemental registration rights instrument dated december 20 2002 incorporated reference exhibit 44 registrant’s registration statement form s3 333101093 1019 letter dated february 6 2001 goldman sachs group inc dr ruth j simmons incorporated reference exhibit 1063 registrant’s annual report form 10k fiscal year ended november 24 2000  1020 letter dated february 6 2001 goldman sachs group inc mr john h bryan incorporated reference exhibit 1064 registrant’s annual report form 10k fiscal year ended november 24 2000  1021 letter dated february 6 2001 goldman sachs group inc mr james johnson incorporated reference exhibit 1065 registrant’s annual report form 10k fiscal year ended november 24 2000  1022 letter dated february 6 2001 goldman sachs group inc lord browne madingley incorporated reference exhibit 1066 registrant’s annual report form 10k fiscal year ended november 24 2000  1023 letter dated december 18 2002 goldman sachs group inc mr william w george incorporated reference exhibit 1039 registrant’s annual report form 10k fiscal year ended november 29 2002  1024 letter dated june 20 2003 goldman sachs group inc mr claes dahlbäck incorporated reference exhibit 101 registrant’s quarterly report form 10q period ended may 30 2003  1025 letter dated june 20 2003 goldman sachs group inc mr edward liddy incorporated reference exhibit 102 registrant’s quarterly report form 10q period ended may 30 2003  1026 supplemental registration rights instrument dated december 19 2003 incorporated reference exhibit 44 registrant’s registration statement form s3 333110371 1027 letter dated march 31 2004 goldman sachs group inc ms lois juliber incorporated reference exhibit 101 registrant’s quarterly report form 10q period ended may 28 2004  1028 letter dated april 6 2005 goldman sachs group inc mr stephen friedman incorporated reference exhibit 101 registrant’s current report form 8k filed april 8 2005  1029 form amendment dated november 27 2004 agreement relating noncompetition covenants dated may 7 1999 incorporated reference exhibit 1032 registrant’s annual report form 10k fiscal year ended november 26 2004  1030 form 2005 rsu award agreement pmd discount stock program subject transfer restrictions  1031 form 2005 rsu award agreement pmd discount stock program subject transfer restrictions  1032 goldman sachs group inc nonqualified deferred compensation plan us participating managing directors  1033 goldman sachs group inc nonqualified deferred compensation plan us extended managing directors select employees incorporated reference exhibit 1036 registrant’s annual report form 10k fiscal year ended november 26 2004  1034 goldman sachs group inc nonqualified deferred compensation plan uk participating managing directors  1035 goldman sachs group inc nonqualified deferred compensation uk extended managing directors select uk employees incorporated reference exhibit 1038 registrant’s annual report form 10k fiscal year ended november 26 2004  1036 form yearend option award agreement incorporated reference exhibit 101 registrant’s current report form 8k filed december 9 2005  1037 form yearend rsu award agreement incorporated reference exhibit 102 registrant’s current report form 8k filed december 9 2005  1038 form yearend restricted stock award agreement incorporated reference exhibit 103 registrant’s current report form 8k filed december 9 2005  1039 form nonemployee director option award agreement incorporated reference exhibit 104 registrant’s current report form 8k filed december 9 2005  1040 form nonemployee director rsu award agreement incorporated reference exhibit 105 registrant’s current report form 8k filed december 9 2005  1041 description nonemployee director compensation  1042 description certain benefits participating managing directors  1043 form onetime rsu award agreement  1044 ground lease dated august 23 2005 battery park city authority dba hugh l carey battery park city authority landlord goldman sachs headquarters llc tenant incorporated reference exhibit 101 registrant’s current report form 8k filed august 26 2005 1045 general guarantee agreement dated january 30 2006 made goldman sachs group inc 121 statement computation ratios earnings fixed charges ratios earnings combined fixed charges preferred stock dividends 211 list significant subsidiaries goldman sachs group inc 231 consent independent registered public accounting firm 241 powers attorney included signature page 311 rule 13a14a certifications 321 section 1350 certifications 991 report independent registered public accounting firm selected financial data  exhibit management contract compensatory plan arrangement goldman sachs group inc index financial statements financial statement schedule items 15a1 15a2 page management’s report internal control financial reporting report independent registered public accounting firm consolidated financial statements consolidated statements earnings consolidated statements financial condition consolidated statements changes shareholders’ equity consolidated statements cash flows consolidated statements comprehensive income notes consolidated financial statements supplemental financial information quarterly results common stock price range selected financial data financial statement schedule report independent registered public accounting firm schedule condensed nonconsolidated financial information registrant parent company condensed nonconsolidated statements earnings condensed nonconsolidated statements financial condition condensed nonconsolidated statements cash flows notes condensed nonconsolidated financial statements schedules listed omitted absence conditions required information consolidated financial statements notes thereto schedule goldman sachs group inc parent company condensed nonconsolidated statements earnings accompanying notes integral part condensed nonconsolidated financial statements schedule goldman sachs group inc parent company condensed nonconsolidated statements financial condition accompanying notes integral part condensed nonconsolidated financial statements schedule goldman sachs group inc parent company condensed nonconsolidated statements cash flows supplemental disclosures cash payments interest net capitalized interest 552 billion 259 billion 197 billion years ended november 2005 november 2004 november 2003 respectively cash payments income taxes net refunds 152 billion 284 million 324 million years ended november 2005 november 2004 november 2003 respectively noncash activities value common stock issued connection business acquisitions 165 million year ended november 2003 stockbased compensation expense included subsidiary net earnings 158 billion 110 billion 644 million years ended november 2005 november 2004 november 2003 respectively accompanying notes integral part condensed nonconsolidated financial statements schedule goldman sachs group inc parent company notes condensed nonconsolidated financial statements note 1 significant accounting policies basis presentation condensed nonconsolidated financial statements goldman sachs group inc parent company delaware corporation read conjunction consolidated financial statements goldman sachs group inc subsidiaries firm notes thereto consolidated financial statements included part ii item 8 annual report form 10k condensed nonconsolidated financial statements reflect results operations financial condition cash flows parent company investments subsidiaries accounted using equity method accounting prescribed accounting principles board apb opinion 18 “the equity method accounting investments common stock” condensed nonconsolidated financial statements prepared accordance generally accepted accounting principles require management make certain estimates assumptions important estimates assumptions relate fair value measurements accounting goodwill identifiable intangible assets provision potential losses may arise litigation regulatory proceedings tax audits although estimates assumptions based best available information actual results could materially different estimates parent company formed numerous nonconsolidated investment funds thirdparty investors typically organized limited partnerships parent company subsidiaries acts general partner funds hold majority economic interests fund funds established june 29 2005 parent company subsidiaries holds minor interest funds established modified june 29 2005 parent company provided thirdparty investors rights terminate funds see “ recent accounting developments” note 2 consolidated financial statements part ii item 8 annual report form 10k fund investments included “financial instruments owned fair value” condensed nonconsolidated statements financial condition unless otherwise stated herein references november 2005 november 2004 november 2003 refer parent company’s fiscal years ended dates context requires november 25 2005 november 26 2004 november 28 2003 respectively certain reclassifications made previously reported amounts conform current presentation revenue recognition financial instruments “financial instruments owned fair value” “financial instruments sold yet purchased fair value” reflected condensed nonconsolidated statements financial condition tradedate basis consist financial instruments carried fair value amounts approximate fair value related unrealized gains losses recognized condensed nonconsolidated statements earnings fair value financial instrument amount instrument could exchanged current transaction willing parties forced liquidation sale determining fair value parent company separates financial instruments two categories derivative contracts principal investments goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued • derivative contracts fair values parent company’s derivative contracts consist exchangetraded overthecounter otc derivatives entered affiliates reflected net cash parent company paid received fair values parent company’s exchangetraded derivatives generally determined quoted market prices otc derivatives valued using valuation models parent company uses variety valuation models including present value known estimated cash flows optionpricing models • principal investments valuing corporate real estate principal investments parent company’s portfolio separated investments private companies investments public companies excluding parent company’s investment convertible preferred stock sumitomo mitsui financial group inc smfg parent company’s investment smfg parent company’s private principal investments nature little price transparency investments initially carried cost approximation fair value adjustments carrying value made thirdparty transactions evidencing change value downward adjustments also made absence thirdparty transactions determined expected realizable value investment less carrying value reaching determination many factors considered including limited operating cash flows financial performance companies properties relative budgets projections trends within sectors andor regions underlying business models expected exit timing strategy specific rights terms associated investment conversion features liquidation preferences parent company’s public principal investments tend large concentrated holdings result initial public offerings corporate transactions valued using quoted market prices discounted based predetermined written policies nontransferability illiquidity parent company’s investment convertible preferred stock smfg carried fair value derived model incorporates smfg’s common stock price credit spreads impact nontransferability illiquidity downside protection conversion strike price parent company’s investment convertible preferred stock smfg generally nontransferable freely convertible smfg common stock restrictions parent company’s ability hedge sell onethird common stock underlying investment smfg lapsed february 2005 november 2005 parent company fully hedged respect unrestricted shares parent company’s initial agreement smfg restrictions parent company’s ability hedge sell remaining shares common stock underlying investment smfg lapse equal installments february 7 2006 february 7 2007 connection public offering smfg common stock parent company separately agreed smfg restrictions lapse february 7 2006 instead lapse march 9 2006 effective february 1 2006 conversion price parent company’s smfg preferred stock shares smfg common stock ¥320900 price subject downward adjustment price smfg common stock time conversion less conversion price subject floor ¥105800 merchant banking overrides parent company entitled receive merchant banking overrides ie increased share fund’s income gains return funds’ goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued investments exceeds certain threshold returns overrides based investment performance life merchant banking fund future investment underperformance may require amounts override previously distributed parent company returned funds accordingly overrides recognized condensed nonconsolidated statements earnings material contingencies resolved overrides included “principal investments” condensed nonconsolidated statements earnings goodwill cost acquired companies excess fair value identifiable net assets acquisition date accordance statement financial accounting standards sfas 142 “goodwill intangible assets” goodwill tested least annually impairment loss triggered estimated fair value operating segment less estimated net book value loss calculated difference estimated fair value goodwill carrying value property leasehold improvements equipment property leasehold improvements equipment net accumulated depreciation amortization included “other assets” condensed nonconsolidated statements financial condition property equipment placed service prior december 1 2001 depreciated accelerated cost recovery method property equipment placed service december 1 2001 depreciated straightline basis useful life asset leasehold improvements useful life improvement shorter term lease amortized accelerated cost recovery method placed service prior december 1 2001 leasehold improvements amortized straightline basis useful life improvement term lease whichever shorter property leasehold improvements equipment tested potential impairment whenever events changes circumstances suggest asset’s asset group’s carrying value may fully recoverable accordance sfas 144 impairment loss calculated difference estimated fair value carrying value asset group recognized sum expected undiscounted cash flows relating asset group less corresponding carrying value foreign currency translation assets liabilities denominated nonus currencies translated rates exchange prevailing date condensed nonconsolidated statements financial condition revenues expenses translated average rates exchange fiscal year parent company seeks reduce net investment exposure fluctuations foreign exchange rates use foreign currency forward contracts foreign currencydenominated debt foreign currency forward contracts hedge effectiveness assessed based changes forward exchange rates accordingly forward points reflected component currency translation adjustment “accumulated comprehensive income” condensed nonconsolidated statements financial condition foreign currencydenominated debt hedge effectiveness assessed based changes spot rates foreign currency remeasurement gains losses transactions nonfunctional currencies included condensed nonconsolidated statements earnings goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued income taxes deferred tax assets liabilities recognized temporary differences financial reporting tax bases parent company’s assets liabilities valuation allowances established reduce deferred tax assets amount likely realized parent company’s tax assets liabilities presented component “other assets” “other liabilities accrued expenses” respectively condensed nonconsolidated statements financial condition tax provisions computed accordance sfas 109 “accounting income taxes” contingent liabilities related income taxes recorded criteria loss recognition sfas 5 “accounting contingencies” amended met cash equivalents parent company defines cash equivalents highly liquid overnight deposits held ordinary course business affiliate transactions substantially firm’s unsecured liquidity raised parent company parent company lends necessary funds subsidiaries affiliates regulated meet financing capital requirements addition parent company advances regulated subsidiaries necessary capital meet regulatory requirements funding included “loans affiliates” “subordinated loans affiliates” condensed nonconsolidated statements financial condition intercompany exposure managed requiring senior subordinated intercompany loans maturities equal shorter maturities aggregate borrowings parent company policy ensures subsidiaries’ obligations parent company generally mature advance parent company’s thirdparty borrowings addition many subsidiaries affiliates pledge collateral loan value cover intercompany borrowings subordinated debt order mitigate parent company liquidity risk equity investments subsidiaries generally funded equity capital included “investments subsidiaries” condensed nonconsolidated statements financial condition parent company enters derivative contracts affiliates hedge net investment nonus operations manage interest rate currency exposure longterm borrowings certain shortterm borrowings manage exposure borrowings parent company uses derivatives effectively convert substantial portion longterm borrowings us dollarbased floating rate obligations parent company applies fairvalue hedge accounting derivative contracts hedge benchmark interest rate ie london interbank offered rate libor fixed rate longterm borrowings derivative balances affiliates included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” condensed nonconsolidated statements financial condition 279 billion 464 million 740 billion 139 million november 2005 november 2004 respectively interest income largely generated loans made affiliates parent company also allocates substantially rental costs relating properties occupied certain subsidiaries affiliates parent company additionally allocates cost stockbased compensation programs subsidiaries affiliates relating costs associated employees subsidiaries affiliates goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued note 2 shortterm borrowings parent company obtains thirdparty unsecured shortterm borrowings primarily issuance promissory notes commercial paper bank loans shortterm borrowings also include portion longterm borrowings maturing within one year financial statement date certain longterm borrowings redeemable within one year financial statement date option holder carrying value shortterm obligations approximates fair value due shortterm nature shortterm borrowings third parties set forth addition parent company may borrow overnight funds certain subsidiaries affiliates unsecured basis november 2005 november 2004 amounts 144 billion 871 million respectively included “unsecured shortterm borrowings affiliates” condensed nonconsolidated statements financial condition note 3 longterm borrowings parent company obtains unsecured longterm borrowings consist principally senior borrowings maturities extending 2035 longterm borrowings third parties set forth goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued longterm borrowings third parties fiscal maturity date set forth 1 longterm borrowings maturing within one year financial statement date certain longterm borrowings redeemable within one year financial statement date option holder included shortterm borrowings condensed nonconsolidated statements financial condition 2 longterm borrowings repayable option parent company reflected contractual maturity dates certain longterm borrowings redeemable prior maturity option holder reflected dates options become exercisable parent company enters derivative contracts affiliates interest rate futures contracts interest rate swap agreements currency swap agreements equitylinked indexed contracts effectively convert substantial portion longterm borrowings us dollarbased floating rate obligations accordingly aggregate carrying value longterm borrowings related hedges approximates fair value effective weighted average interest rates longterm borrowings third parties hedging activities set forth goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued longterm borrowings affiliates set forth longterm borrowings affiliates fiscal maturity date set forth 1 longterm borrowings maturing within one year financial statement date certain longterm borrowings redeemable within one year financial statement date option holder included shortterm borrowings condensed nonconsolidated statements financial condition deferrable interest junior subordinated debentures february 2004 goldman sachs capital trust wholly owned delaware statutory trust formed parent company exclusive purposes issuing 275 billion guaranteed preferred beneficial interests 85 million common beneficial interests trust ii investing proceeds sale purchase junior subordinated debentures parent company iii engaging activities necessary incidental purposes preferred beneficial interests purchased third parties november 2005 parent company held common beneficial interests parent company right time defer payment interest junior subordinated debentures therefore cause payment dividends trust’s preferred beneficial interests deferred case ten consecutive semiannual periods extension period parent company permitted among things goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued pay dividends make certain repurchases common stock trust permitted pay distributions common beneficial interests held parent company unless dividends payable preferred beneficial interests paid full note 4 commitments contingencies guarantees commitments letters credit parent company provides letters credit issued various banks counterparties lieu securities cash satisfy various collateral requirements letters credit outstanding 25 million november 2005 november 2004 merchant banking commitments parent company acts investor merchant banking transactions includes making longterm investments equity debt securities privately negotiated transactions corporate acquisitions real estate transactions connection activities parent company commitments invest 349 billion 104 billion corporate real estate investment funds november 2005 november 2004 respectively constructionrelated commitments parent company constructionrelated commitments 19 million november 2005 november 2004 august 2005 parent company entered agreement acquire variable annuity variable life insurance business hanover insurance group inc formerly allmerica financial corporation including wholly owned life insurance subsidiary allmerica financial life insurance annuity company transaction closed december 30 2005 purchase price approximately 271 million upfront estimated 34 million three years subject final adjustments parent company purchase commitments 10 million november 2004 leases parent company contractual obligations longterm noncancelable lease agreements principally office space expiring various dates 2029 certain agreements subject periodic escalation provisions increases real estate taxes charges future minimum rental payments net minimum sublease rentals generally reimbursed affiliates set forth goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued contingencies parent company involved number judicial regulatory arbitration proceedings concerning matters arising connection conduct businesses management believes based currently available information results proceedings aggregate material adverse effect parent company’s financial condition may material parent company’s operating results particular period depending part upon operating results period given inherent difficulty predicting outcome parent company’s litigation regulatory matters particularly cases proceedings substantial indeterminate damages fines sought parent company cannot estimate losses ranges losses cases proceedings reasonable possibility loss may incurred guarantees effective january 30 2006 parent company guaranteed payment obligations goldman sachs co principal us brokerdealer subsidiary nonrecourse payment obligations addition parent company guarantees many obligations consolidated subsidiaries transactionbytransaction basis negotiated counterparty parent company unable develop estimate maximum payout subsidiary guarantees however guaranteed obligations also obligations consolidated subsidiaries included consolidated statements financial condition disclosed note 6 consolidated financial statements part ii item 8 annual report form 10k parent company’s liabilities guarantor separately disclosed herein connection certain asset sales securitization transactions parent company may guarantee collection contractual cash flows connection merchant banking activities parent company may issue loan guarantees secure financing addition parent company provides letters credit guarantees limited basis enable clients enhance credit standing complete transactions connection parent company’s establishment trust parent company effectively provided full unconditional guarantee beneficial interests trust held third parties timely payment parent company interest junior subordinated debentures amounts due performance obligations transaction documents sufficient cover payments due trust beneficial interests result management believes unlikely parent company make payments related trust required junior subordinated debentures connection certain expenses incurred trust goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued following tables set forth certain information parent company’s guarantees november 2005 november 2004 1 includes guarantee payments scheduled made life trust could shortened event parent company redeemed junior subordinated debentures issued fund trust see note 5 consolidated financial statements part ii item 8 annual report form 10k information regarding trust 2 amounts represent anticipated losses connection contracts normal course business parent company indemnifies guarantees certain service providers clearing custody agents trustees administrators specified potential losses connection acting agent providing services parent company subsidiaries affiliates parent company also indemnifies clients potential losses incurred event specified thirdparty service providers including subcustodians thirdparty brokers improperly execute transactions parent company unable develop estimate maximum payout guarantees indemnifications however management believes unlikely parent company make material payments arrangements liabilities related guarantees indemnifications recognized condensed nonconsolidated statements financial condition november 2005 november 2004 goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued parent company provides representations warranties counterparties connection variety commercial transactions occasionally indemnifies potential losses caused breach representations warranties parent company may also provide indemnifications protecting changes adverse application certain us tax laws connection ordinarycourse transactions securities issuances borrowings derivatives addition parent company may provide indemnifications counterparties protect event additional taxes owed payments withheld due either change adverse application certain nonus tax laws indemnifications generally standard contractual terms entered normal course business generally stated notional amounts included indemnifications contingencies triggering obligation indemnify expected occur parent company unable develop estimate maximum payout guarantees indemnifications however management believes unlikely parent company make material payments arrangements liabilities related arrangements recognized condensed nonconsolidated statements financial condition november 2005 november 2004 note 5 shareholders’ equity dividends declared per common share 100 fiscal 2005 100 fiscal 2004 074 fiscal 2003 december 14 2005 board directors parent company board declared dividend 025 per share paid february 23 2006 common shareholders record january 24 2006 fiscal 2005 parent company issued 70000 shares preferred stock three series set forth following table preferred stock series share preferred stock par value 001 liquidation preference 25000 represented 1000 depositary shares redeemable parent company’s option redemption price equal 25000 plus declared unpaid dividends parent company’s ability declare pay dividends purchase redeem otherwise acquire common stock subject certain restrictions event parent company fails pay set aside full dividends preferred stock latest completed dividend period preferred stock also preference parent company’s common stock upon liquidation goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued dividends declared per share series preferred stock 57872 fiscal 2005 december 14 2005 board declared dividend per preferred share 32328 43056 35368 series b series c preferred stock respectively paid february 10 2006 preferred shareholders record january 26 2006 fiscal 2005 parent company repurchased 637 million shares common stock total cost 711 billion fiscal 2004 parent company repurchased 187 million shares common stock total cost 181 billion average price paid per share repurchased shares 11157 9629 years ended november 2005 november 2004 respectively addition satisfy minimum statutory employee tax withholding requirements related delivery shares underlying restricted stock units parent company cancelled 16 million restricted stock units total cost 163 million fiscal 2005 cancelled 91 million restricted stock units total cost 870 million fiscal 2004 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized date february 7 2006 ii1 power attorney know persons presents person whose signature appears constitutes appoints henry paulson jr lloyd c blankfein david viniar gregory k palm esta e stecher severally true lawful attorneyinfact power substitution resubstitution sign name place stead capacities things execute instruments attorney may deem necessary advisable securities exchange act 1934 rules regulations requirements us securities exchange commission connection annual report form 10k amendments hereto fully intents purposes might could person hereby ratifies confirms said attorneysinfact agents acting alone substitute substitutes may lawfully cause done virtue hereof pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated ii2item 15 exhibits financial statement schedules documents filed part report 1 consolidated financial statements consolidated financial statements required filed annual report form 10k listed page hereof part ii item 8 hereof 2 financial statement schedule financial statement schedule required annual report form 10k listed page hereof required schedule appears pages hereof 3 exhibits 21 plan incorporation incorporated reference corresponding exhibit registrant’s registration statement form s1 33374449 31 restated certificate incorporation goldman sachs group inc incorporated reference exhibit 31 registrant’s annual report form 10k fiscal year ended november 25 2005 32 amended restated bylaws goldman sachs group inc incorporated reference exhibit 31 registrant’s current report form 8k filed december 12 2006 33 certificate designations goldman sachs group inc relating series preferred stock incorporated reference exhibit 3 group inc’s registration statement form 8a filed may 23 2006 41 indenture dated may 19 1999 goldman sachs group inc bank new york trustee incorporated reference exhibit 6 registrant’s registration statement form 8a filed june 29 1999 42 subordinated debt indenture dated february 20 2004 goldman sachs group inc bank new york trustee incorporated reference exhibit 42 registrant’s annual report form 10k fiscal year ended november 28 2003 43 warrant indenture dated february 14 2006 goldman sachs group inc bank new york trustee incorporated reference exhibit 434 registrant’s posteffective amendment 3 form s3 filed march 1 2006 certain instruments defining rights holders longterm debt securities registrant subsidiaries omitted pursuant item 601b4iii regulation sk registrant hereby undertakes furnish sec upon request copies instruments 101 goldman sachs amended restated stock incentive plan incorporated reference exhibit 101 registrant’s quarterly report form 10q period ended february 28 2003  102 goldman sachs defined contribution plan incorporated reference exhibit 1016 registrant’s registration statement form s1 33375213  103 goldman sachs amended restated restricted partner compensation plan incorporated reference exhibit 101 registrant’s quarterly report form 10q period ended february 24 2006  104 form employment agreement preipo participating managing directors incorporated reference exhibit 1019 registrant’s registration statement form s1 33375213  105 form agreement relating noncompetition covenants incorporated reference exhibit 1020 registrant’s registration statement form s1 33375213  106 form option agreement discretionary options incorporated reference exhibit 1024 registrant’s registration statement form s1 33375213  107 tax indemnification agreement dated may 7 1999 among goldman sachs group inc various parties incorporated reference exhibit 1025 registrant’s registration statement form s1 33375213 108 amended restated shareholders’ agreement dated june 22 2004 among goldman sachs group inc various parties incorporated reference exhibit amendment 54 schedule 13d filed june 23 2004 relating registrant’s common stock 109 instrument indemnification incorporated reference exhibit 1027 registrant’s registration statement form s1 33375213 1010 form indemnification agreement incorporated reference exhibit 1028 registrant’s annual report form 10k fiscal year ended november 26 1999 1011 registration rights instrument dated december 10 1999 incorporated reference exhibit g amendment 1 schedule 13d filed december 17 1999 relating registrant’s common stock 00556295 1012 supplemental registration rights instrument dated december 10 1999 incorporated reference exhibit h amendment 1 schedule 13d filed december 17 1999 relating registrant’s common stock 1013 form indemnification agreement incorporated reference exhibit 1044 registrant’s annual report form 10k fiscal year ended november 26 1999 1014 form indemnification agreement dated july 5 2000 incorporated reference exhibit 101 registrant’s quarterly report form 10q period ended august 25 2000 1015 amendment 1 dated september 5 2000 tax indemnification agreement dated may 7 1999 incorporated reference exhibit 103 registrant’s quarterly report form 10q period ended august 25 2000 1016 supplemental registration rights instrument dated december 21 2000 incorporated reference exhibit aa amendment 12 schedule 13d filed january 23 2001 relating registrant’s common stock 1017 supplemental registration rights instrument dated december 21 2001 incorporated reference exhibit 44 registrant’s registration statement form s3 33374006 1018 supplemental registration rights instrument dated december 20 2002 incorporated reference exhibit 44 registrant’s registration statement form s3 333101093 1019 letter dated february 6 2001 goldman sachs group inc dr ruth j simmons incorporated reference exhibit 1063 registrant’s annual report form 10k fiscal year ended november 24 2000  1020 letter dated february 6 2001 goldman sachs group inc mr john h bryan incorporated reference exhibit 1064 registrant’s annual report form 10k fiscal year ended november 24 2000  1021 letter dated february 6 2001 goldman sachs group inc mr james johnson incorporated reference exhibit 1065 registrant’s annual report form 10k fiscal year ended november 24 2000  1022 letter dated february 6 2001 goldman sachs group inc lord browne madingley incorporated reference exhibit 1066 registrant’s annual report form 10k fiscal year ended november 24 2000  1023 letter dated december 18 2002 goldman sachs group inc mr william w george incorporated reference exhibit 1039 registrant’s annual report form 10k fiscal year ended november 29 2002  1024 letter dated june 20 2003 goldman sachs group inc mr claes dahlbäck incorporated reference exhibit 101 registrant’s quarterly report form 10q period ended may 30 2003  1025 letter dated june 20 2003 goldman sachs group inc mr edward liddy incorporated reference exhibit 102 registrant’s quarterly report form 10q period ended may 30 2003  1026 supplemental registration rights instrument dated december 19 2003 incorporated reference exhibit 44 registrant’s registration statement form s3 333110371 1027 letter dated march 31 2004 goldman sachs group inc ms lois juliber incorporated reference exhibit 101 registrant’s quarterly report form 10q period ended may 28 2004  1028 letter dated april 6 2005 goldman sachs group inc mr stephen friedman incorporated reference exhibit 101 registrant’s current report form 8k filed april 8 2005  1029 form amendment dated november 27 2004 agreement relating noncompetition covenants dated may 7 1999 incorporated reference exhibit 1032 registrant’s annual report form 10k fiscal year ended november 26 2004  1030 form rsu award agreement pmd discount stock program subject transfer restrictions  1031 form rsu award agreement pmd discount stock program subject transfer restrictions  1032 goldman sachs group inc nonqualified deferred compensation plan us participating managing directors incorporated reference exhibit 1032 registrant’s annual report form 10k fiscal year ended november 25 2005  1033 goldman sachs group inc nonqualified deferred compensation plan us extended managing directors select employees incorporated reference exhibit 1036 registrant’s annual report form 10k fiscal year ended november 26 2004  1034 goldman sachs group inc nonqualified deferred compensation plan uk participating managing directors incorporated reference exhibit 1034 registrant’s annual report form 10k fiscal year ended november 25 2005  1035 goldman sachs group inc nonqualified deferred compensation uk extended managing directors select uk employees incorporated reference exhibit 1038 registrant’s annual report form 10k fiscal year ended november 26 2004  1036 form yearend option award agreement  1037 form yearend rsu award agreement  1038 form yearend restricted stock award agreement incorporated reference exhibit 103 registrant’s current report form 8k filed december 9 2005  1039 form nonemployee director option award agreement  1040 form nonemployee director rsu award agreement  1041 description nonemployee director compensation  1042 description certain benefits participating managing directors incorporated reference exhibit 1042 registrant’s annual report form 10k fiscal year ended november 25 2005  1043 form onetime rsu award agreement  1044 ground lease dated august 23 2005 battery park city authority dba hugh l carey battery park city authority landlord goldman sachs headquarters llc tenant incorporated reference exhibit 101 registrant’s current report form 8k filed august 26 2005 1045 general guarantee agreement dated january 30 2006 made goldman sachs group inc incorporated reference exhibit 1045 registrant’s annual report form 10k fiscal year ended november 25 2005 1046 letter dated november 10 2006 goldman sachs group inc mr rajat k gupta incorporated reference exhibit 991 registrant’s current report form 8k filed november 13 2006  1047 goldman sachs co executive life insurance policy certificate metropolitan life insurance company participating managing directors incorporated reference exhibit 101 registrant’s quarterly report form 10q period ended august 25 2006  1048 form goldman sachs co executive life insurance policy pacific life annuity company participating managing directors including policy specifications form restriction policy owner’s rights incorporated reference exhibit 102 registrant’s quarterly report form 10q period ended august 25 2006  1049 form signature card 2006 yearend awards  1050 form employment agreement postipo participating managing directors  1051 form second amendment dated november 25 2006 agreement relating noncompetition covenants dated may 7 1999 amended effective november 27 2004  121 statement computation ratios earnings fixed charges ratios earnings combined fixed charges preferred stock dividends 211 list significant subsidiaries goldman sachs group inc 231 consent independent registered public accounting firm 241 powers attorney included signature page 311 rule 13a14a certifications 321 section 1350 certifications 991 report independent registered public accounting firm selected financial data  exhibit management contract compensatory plan arrangement goldman sachs group inc index financial statements financial statement schedule items 15a1 15a2 schedules listed omitted absence conditions required information consolidated financial statements notes thereto schedule goldman sachs group inc parent company condensed nonconsolidated statements earnings accompanying notes integral part condensed nonconsolidated financial statements schedule goldman sachs group inc parent company condensed nonconsolidated statements financial condition accompanying notes integral part condensed nonconsolidated financial statements schedule goldman sachs group inc parent company condensed nonconsolidated statements cash flows supplemental disclosures cash payments thirdparty interest net capitalized interest 611 billion 369 billion 170 billion years ended november 2006 november 2005 november 2004 respectively cash payments income taxes net refunds 286 billion 152 billion 284 million years ended november 2006 november 2005 november 2004 respectively accompanying notes integral part condensed nonconsolidated financial statements schedule goldman sachs group inc parent company notes condensed nonconsolidated financial statements note 1 significant accounting policies basis presentation condensed nonconsolidated financial statements goldman sachs group inc parent company delaware corporation read conjunction consolidated financial statements goldman sachs group inc subsidiaries firm notes thereto consolidated financial statements included part ii item 8 annual report form 10k condensed nonconsolidated financial statements reflect results operations financial condition cash flows parent company investments subsidiaries accounted using equity method accounting prescribed accounting principles board apb opinion 18 “the equity method accounting investments common stock” unless otherwise stated herein references november 2006 november 2005 november 2004 refer parent company’s fiscal years ended dates context requires november 24 2006 november 25 2005 november 26 2004 respectively certain reclassifications made previously reported amounts conform current presentation parent company’s significant accounting policies identical used firm extent applicable parent company’s activities information regarding firm’s significant accounting policies refer note 2 consolidated financial statements part ii item 8 annual report form 10k use estimates condensed nonconsolidated financial statements prepared accordance generally accepted accounting principles require management make certain estimates assumptions important estimates assumptions relate fair value measurements accounting goodwill identifiable intangible assets provision potential losses may arise litigation regulatory proceedings tax audits although estimates assumptions based best available information actual results could materially different estimates equity method investments substantially firm’s unsecured funding raised parent company parent company lends necessary funds subsidiaries regulated meet asset financing capital requirements addition parent company provides regulated subsidiaries necessary capital meet regulatory requirements funding included “loans subsidiaries” “subordinated loans subsidiaries” condensed nonconsolidated statements financial condition intercompany exposure managed requiring senior subordinated intercompany loans maturities equal shorter maturities aggregate borrowings parent company policy ensures subsidiaries’ obligations parent company generally mature advance parent company’s thirdparty borrowings addition many subsidiaries pledge collateral loan value cover intercompany borrowings subordinated debt order mitigate parent company liquidity risk equity investments subsidiaries generally funded equity goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued capital included “investments subsidiaries” condensed nonconsolidated statements financial condition parent company enters derivative contracts subsidiaries hedge net investment nonus operations manage interest rate currency exposure unsecured longterm borrowings certain unsecured shortterm borrowings manage exposure borrowings parent company uses derivatives effectively convert substantial portion unsecured longterm borrowings us dollarbased floating rate obligations parent company applies fair value hedge accounting derivative contracts hedge benchmark interest rate ie london interbank offered rate libor fixed rate unsecured longterm borrowings derivative balances subsidiaries included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” condensed nonconsolidated statements financial condition 616 billion 347 million 279 billion 464 million november 2006 november 2005 respectively interest income largely generated loans made subsidiaries parent company also allocates substantially rental costs relating properties occupied certain subsidiaries parent company additionally allocates cost sharebased compensation programs subsidiaries relating costs associated employees subsidiaries note 2 unsecured shortterm borrowings parent company obtains thirdparty unsecured shortterm borrowings primarily issuance promissory notes commercial paper hybrid debt instruments november 2006 november 2005 borrowings 3263 billion 3998 billion respectively amounts include portion thirdparty unsecured longterm borrowings maturing within one year financial statement date thirdparty unsecured longterm borrowings redeemable within one year financial statement date option holder carrying value shortterm obligations approximates fair value due shortterm nature unsecured shortterm borrowings third parties set forth 1 hybrid debt instruments financial instruments contain bifurcatable embedded derivatives 117 billion accounted fair value statement financial accounting standards sfas 155 “accounting certain hybrid financial instruments amendment fasb statements 133 140” november 2006 2 weighted average interest rates borrowings 533 417 november 2006 november 2005 respectively weighted average interest rates giving effect hedging activities 536 416 november 2006 november 2005 respectively weighted average interest rates november 2006 excluded hybrid debt instruments accounted fair value sfas 155 goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued addition parent company may borrow overnight funds certain subsidiaries unsecured basis november 2006 november 2005 amounts 154 billion 144 billion respectively included “unsecured shortterm borrowings subsidiaries” condensed nonconsolidated statements financial condition note 3 unsecured longterm borrowings parent company obtains thirdparty unsecured longterm borrowings consist principally senior borrowings maturities extending 2036 november 2006 november 2005 borrowings 11904 billion 7976 billion respectively unsecured longterm borrowings third parties set forth 1 november 2006 november 2005 interest rates us dollar fixed rate obligations ranged 388 1200 november 2006 november 2005 interest rates nonus dollar fixed rate obligations ranged 067 888 2 floating interest rates generally based libor federal funds rate certain equitylinked indexed instruments included floating rate obligations 3 includes 198 billion hybrid financial instruments accounted fair value sfas 155 november 2006 goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued unsecured longterm borrowings third parties maturity date set forth 1 unsecured longterm borrowings maturing within one year financial statement date certain unsecured longterm borrowings redeemable within one year financial statement date option holder included unsecured shortterm borrowings condensed nonconsolidated statements financial condition 2 unsecured longterm borrowings repayable prior maturity option parent company reflected contractual maturity dates unsecured longterm borrowings redeemable prior maturity option holder reflected dates options become exercisable parent company enters derivative contracts subsidiaries interest rate futures contracts interest rate swap agreements currency swap agreements equitylinked indexed contracts effectively convert substantial portion thirdparty unsecured longterm borrowings us dollarbased floating rate obligations accordingly carrying value unsecured longterm borrowings approximated fair value november 2006 november 2005 effective weighted average interest rates unsecured longterm borrowings third parties set forth 1 includes fixed rate obligations converted floating rate obligations derivative contracts goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued unsecured longterm borrowings subsidiaries set forth 1 november 2006 november 2005 interest rates us dollar fixed rate obligations ranged 468 578 november 2006 november 2005 interest rates nonus dollar fixed rate obligations ranged 544 600 2 floating interest rates generally based libor federal funds rate unsecured longterm borrowings subsidiaries maturity date set forth 1 unsecured longterm borrowings maturing within one year financial statement date certain unsecured longterm borrowings redeemable within one year financial statement date option holder included unsecured shortterm borrowings condensed nonconsolidated statements financial condition subordinated borrowings unsecured longterm borrowings third parties include 734 billion 288 billion subordinated borrowings november 2006 november 2005 respectively set forth subordinated notes november 2006 parent company 450 billion subordinated notes outstanding maturities ranging 2008 2036 effective weighted average interest rate subordinated notes 545 giving effect derivative contracts used convert fixed rate obligations floating rate obligations november 2005 parent company 40 million subordinated notes outstanding maturing 2008 interest rate 1200 notes junior right payment parent company’s senior indebtedness goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued refer note 5 consolidated financial statements part ii item 8 annual report form 10k information junior subordinated debentures issued parent company goldman sachs capital trust note 4 commitments contingencies guarantees commitments letters credit parent company provides letters credit issued various banks counterparties lieu securities cash satisfy various collateral requirements letters credit outstanding 171 million 25 million november 2006 november 2005 respectively merchant banking commitments parent company acts investor merchant banking transactions includes making longterm investments equity debt instruments privately negotiated transactions corporate acquisitions real estate transactions connection activities parent company commitments invest 634 billion 349 billion corporate real estate investment funds november 2006 november 2005 respectively constructionrelated commitments november 2006 november 2005 parent company constructionrelated commitments 2 million 19 million respectively parent company commitments 2 million 305 million november 2006 november 2005 respectively leases parent company contractual obligations longterm noncancelable lease agreements principally office space expiring various dates 2029 certain agreements subject periodic escalation provisions increases real estate taxes charges future minimum rental payments net minimum sublease rentals generally reimbursed subsidiaries set forth contingencies refer note 6 consolidated financial statements part ii item 8 annual report form 10k information contingencies goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued guarantees parent company guaranteed payment obligations goldman sachs co principal us brokerdealer subsidiary nonrecourse payment obligations addition parent company guarantees many obligations consolidated subsidiaries transactionbytransaction basis negotiated counterparty parent company unable develop estimate maximum payout subsidiary guarantees however guaranteed obligations also obligations consolidated subsidiaries included consolidated statements financial condition disclosed note 6 consolidated financial statements part ii item 8 annual report form 10k parent company’s liabilities guarantor separately disclosed herein following tables set forth certain information parent company’s guarantees november 2006 november 2005 1 includes guarantee payments scheduled made life trust could shortened event parent company redeems junior subordinated debentures issued fund trust see note 5 consolidated financial statements part ii item 8 annual report form 10k information regarding trust 2 carrying value guarantees liability 4 million november 2006 november 2005 3 amounts represent anticipated losses connection contracts refer note 6 consolidated financial statements part ii item 8 annual report form 10k information regarding parent company’s guarantees signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized goldman sachs group inc david viniar name david viniar title chief financial officer date february 5 2007 ii1 power attorney know persons presents person whose signature appears constitutes appoints lloyd c blankfein gary cohn jon winkelried david viniar gregory k palm esta e stecher severally true lawful attorneyinfact power substitution resubstitution sign name place stead capacities things execute instruments attorney may deem necessary advisable securities exchange act 1934 rules regulations requirements us securities exchange commission connection annual report form 10k amendments hereto fully intents purposes might could person hereby ratifies confirms said attorneysinfact agents acting alone substitute substitutes may lawfully cause done virtue hereof pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated ii2 ii3item 15 exhibits financial statement schedules documents filed part report 1 consolidated financial statements consolidated financial statements required filed annual report form 10k included part ii item 8 hereof 2 exhibits  exhibit management contract compensatory plan arrangement information furnished filed purposes sections 11 12 securities act 1933 section 18 securities exchange act 1934 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized goldman sachs group inc david viniar name david viniar title chief financial officer date february 26 2010 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated ii1 ii2item 15 exhibits financial statement schedules documents filed part report 1 consolidated financial statements consolidated financial statements required filed form 10k included part ii item 8 hereof 2 exhibits  exhibit management contract compensatory plan arrangement information furnished filed purposes sections 11 12 securities act 1933 section 18 securities exchange act 1934 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized goldman sachs group inc david viniar name david viniar title chief financial officer date february 28 2011 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated ii1 ii2item 15 exhibits financial statement schedules documents filed part report 1 consolidated financial statements consolidated financial statements required filed form 10k included part ii item 8 hereof 2 exhibits goldman sachs 2011 form 10k goldman sachs 2011 form 10k  exhibit management contract compensatory plan arrangement information furnished filed purposes sections 11 12 securities act 1933 section 18 securities exchange act 1934 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized date february 28 2012 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated ii2 goldman sachs 2011 form 10kitem 15 exhibits financial statement schedules documents filed part report 1 consolidated financial statements consolidated financial statements required filed form 10k included part ii item 8 hereof 2 exhibits goldman sachs group inc subsidiaries goldman sachs group inc subsidiaries goldman sachs group inc subsidiaries signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized date february 28 2013 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules documents filed part report 1 consolidated financial statements consolidated financial statements required filed 2013 form 10k included part ii item 8 hereof 2 exhibits goldman sachs group inc subsidiaries goldman sachs group inc subsidiaries goldman sachs group inc subsidiaries goldman sachs group inc subsidiaries signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized date february 27 2014 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules documents filed part report 1 consolidated financial statements consolidated financial statements required filed 2014 form 10k included part ii item 8 hereof 2 exhibits goldman sachs group inc subsidiaries goldman sachs group inc subsidiaries goldman sachs group inc subsidiaries signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized date february 20 2015 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules documents filed part report 1 consolidated financial statements consolidated financial statements required filed form 10k included part ii item 8 hereof 2 exhibits 11 second amended restated distribution agreement dated december 28 2018 mediumterm notes series n goldman sachs group inc 12 form underwriting agreement subordinated debt securities goldman sachs group inc issued subordinated debt indenture dated february 20 2004 goldman sachs group inc bank new york mellon trustee goldman sachs group inc subsidiaries goldman sachs group inc subsidiaries goldman sachs group inc subsidiaries goldman sachs group inc subsidiaries signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules documents filed part report 1 consolidated financial statements consolidated financial statements required filed form 10k included part ii item 8 hereof 2 exhibits 21 plan incorporation incorporated reference exhibit 21 registrant’s registration statement form s1 33374449 31 restated certificate incorporation goldman sachs group inc amended november 25 2019 32 certificate designations goldman sachs group inc relating series preferred stock incorporated reference exhibit 31 registrant’s current report form 8k filed january 28 2020 33 amended restated bylaws goldman sachs group inc amended february 18 2016 incorporated reference exhibit 32 registrant’s annual report form 10k fiscal year ended december 31 2015 41 description goldman sachs group inc’s securities registered pursuant section 12 securities exchange act 1934 goldman sachs 2019 form 10k goldman sachs group inc subsidiaries 42 indenture dated may 19 1999 goldman sachs group inc bank new york trustee incorporated reference exhibit 6 registrant’s registration statement form 8a filed june 29 1999 43 subordinated debt indenture dated february 20 2004 goldman sachs group inc bank new york trustee incorporated reference exhibit 42 registrant’s annual report form 10k fiscal year ended november 28 2003 44 warrant indenture dated february 14 2006 goldman sachs group inc bank new york trustee incorporated reference exhibit 434 registrant’s posteffective amendment 3 form s3 filed march 1 2006 45 senior debt indenture dated december 4 2007 among gs finance corp issuer goldman sachs group inc guarantor bank new york trustee incorporated reference exhibit 469 registrant’s posteffective amendment 10 form s3 filed december 4 2007 46 senior debt indenture dated july 16 2008 goldman sachs group inc bank new york mellon trustee incorporated reference exhibit 482 registrant’s posteffective amendment 11 form s3 333130074 filed july 17 2008 47 fourth supplemental indenture dated december 31 2016 goldman sachs group inc bank new york mellon trustee respect senior debt indenture dated july 16 2008 incorporated reference exhibit 41 registrant’s current report form 8k filed january 6 2017 48 senior debt indenture dated october 10 2008 among gs finance corp issuer goldman sachs group inc guarantor bank new york mellon trustee incorporated reference exhibit 470 registrant’s registration statement form s3 333154173 filed october 10 2008 49 first supplemental indenture dated february 20 2015 among gs finance corp issuer goldman sachs group inc guarantor bank new york mellon trustee respect senior debt indenture dated october 10 2008 incorporated reference exhibit 47 registrant’s annual report form 10k fiscal year ended december 31 2014 410 fourth supplemental indenture dated august 21 2018 among gs finance corp issuer goldman sachs group inc guarantor bank new york mellon incorporated reference exhibit 41 registrant’s quarterly report form 10q period ended september 30 2018 411 ninth supplemental subordinated debt indenture dated may 20 2015 goldman sachs group inc bank new york mellon trustee respect subordinated debt indenture dated february 20 2004 incorporated reference exhibit 41 registrant’s current report form 8k filed may 22 2015 412 tenth supplemental subordinated debt indenture dated july 7 2017 goldman sachs group inc bank new york mellon trustee respect subordinated debt indenture dated february 20 2004 incorporated reference exhibit 489 registrant’s registration statement form s3 333219206 filed july 10 2017 certain instruments defining rights holders longterm debt securities registrant subsidiaries omitted pursuant item 601b4iii regulation sk registrant hereby undertakes furnish sec upon request copies instruments 101 goldman sachs amended restated stock incentive plan 2018 incorporated reference exhibit 101 registrant’s annual report form 10k fiscal year ended december 31 2018 † 102 goldman sachs partner compensation plan incorporated reference exhibit 1018 registrant’s registration statement form s1 33374449 † 103 goldman sachs amended restated restricted partner compensation plan incorporated reference exhibit 101 registrant’s quarterly report form 10q period ended february 24 2006 † 104 form employment agreement participating managing directors applicable executive officers incorporated reference exhibit 1019 registrant’s registration statement form s1 33375213 † 105 form agreement relating noncompetition covenants incorporated reference exhibit 1020 registrant’s registration statement form s1 33375213 † goldman sachs 2019 form 10k goldman sachs group inc subsidiaries 106 amended restated shareholders’ agreement effective december 31 2019 among goldman sachs group inc various parties 107 instrument indemnification incorporated reference exhibit 1027 registrant’s registration statement form s1 33375213 108 form indemnification agreement incorporated reference exhibit 1028 registrant’s annual report form 10k fiscal year ended november 26 1999 109 form indemnification agreement incorporated reference exhibit 1044 registrant’s annual report form 10k fiscal year ended november 26 1999 1010 form indemnification agreement dated july 5 2000 incorporated reference exhibit 101 registrant’s quarterly report form 10q period ended august 25 2000 1011 amendment 1 dated september 5 2000 tax indemnification agreement dated may 7 1999 incorporated reference exhibit 103 registrant’s quarterly report form 10q period ended august 25 2000 1012 form amendment dated november 27 2004 agreement relating noncompetition covenants dated may 7 1999 incorporated reference exhibit 1032 registrant’s annual report form 10k fiscal year ended november 26 2004 † 1013 goldman sachs group inc nonqualified deferred compensation plan us participating managing directors terminated december 15 2008 incorporated reference exhibit 1036 registrant’s annual report form 10k fiscal year ended november 30 2007 † 1014 form yearend option award agreement incorporated reference exhibit 1036 registrant’s annual report form 10k fiscal year ended november 28 2008 † 1015 form nonemployee director option award agreement incorporated reference exhibit 1034 registrant’s annual report form 10k fiscal year ended december 31 2009 † 1016 form nonemployee director rsu award agreement pre2015 incorporated reference exhibit 1021 registrant’s annual report form 10k fiscal year ended december 31 2014 † 1017 ground lease dated august 23 2005 battery park city authority dba hugh l carey battery park city authority landlord goldman sachs headquarters llc tenant incorporated reference exhibit 101 registrant’s current report form 8k filed august 26 2005 1018 general guarantee agreement dated january 30 2006 made goldman sachs group inc relating certain obligations goldman sachs co llc incorporated reference exhibit 1045 registrant’s annual report form 10k fiscal year ended november 25 2005 1019 goldman sachs co llc executive life insurance policy certificate metropolitan life insurance company participating managing directors incorporated reference exhibit 101 registrant’s quarterly report form 10q period ended august 25 2006 † 1020 form goldman sachs co llc executive life insurance policy pacific life annuity company participating managing directors including policy specifications form restriction policy owner’s rights incorporated reference exhibit 102 registrant’s quarterly report form 10q period ended august 25 2006 † 1021 form second amendment dated november 25 2006 agreement relating noncompetition covenants dated may 7 1999 amended effective november 27 2004 incorporated reference exhibit 1051 registrant’s annual report form 10k fiscal year ended november 24 2006 † goldman sachs 2019 form 10k goldman sachs group inc subsidiaries 1022 description pmd retiree medical program incorporated reference exhibit 1025 registrant’s annual report form 10k fiscal year ended december 31 2018 † 1023 letter dated june 28 2008 goldman sachs group inc mr lakshmi n mittal incorporated reference exhibit 991 registrant’s current report form 8k filed june 30 2008 † 1024 general guarantee agreement dated december 1 2008 made goldman sachs group inc relating certain obligations goldman sachs bank usa incorporated reference exhibit 480 registrant’s posteffective amendment 2 form s3 filed march 19 2009 1025 form onetime rsu award agreement pre2015 incorporated reference exhibit 1032 registrant’s annual report form 10k fiscal year ended december 31 2014 † 1026 amendments certain nonemployee director equity award agreements incorporated reference exhibit 1069 registrant’s annual report form 10k fiscal year ended november 28 2008 † 1027 form yearend rsu award agreement fully vested pre2015 incorporated reference exhibit 1036 registrant’s annual report form 10k fiscal year ended december 31 2014 † 1028 form yearend rsu award agreement fully vested pre2015 incorporated reference exhibit 1037 registrant’s annual report form 10k fiscal year ended december 31 2014 † 1029 form yearend rsu award agreement base andor supplemental pre2015 incorporated reference exhibit 1038 registrant’s annual report form 10k fiscal year ended december 31 2014 † 1030 form yearend restricted stock award agreement fully vested pre2015 incorporated reference exhibit 1041 registrant’s annual report form 10k fiscal year ended december 31 2013 † 1031 form yearend restricted stock award agreement base andor supplemental pre2015 incorporated reference exhibit 1041 registrant’s annual report form 10k fiscal year ended december 31 2014 † 1032 form fixed allowance rsu award agreement pre2015 incorporated reference exhibit 1043 registrant’s annual report form 10k fiscal year ended december 31 2014 † 1033 form deed gift incorporated reference exhibit 101 registrant’s quarterly report form 10q period ended june 30 2010 † 1034 goldman sachs longterm performance incentive plan dated december 17 2010 incorporated reference exhibit 101 registrant’s current report form 8k filed december 23 2010 † 1035 form performancebased restricted stock unit award agreement pre2015 incorporated reference exhibit 102 registrant’s current report form 8k filed december 23 2010 † 1036 form performancebased option award agreement incorporated reference exhibit 103 registrant’s current report form 8k filed december 23 2010 † 1037 form performancebased cash compensation award agreement pre2015 incorporated reference exhibit 104 registrant’s current report form 8k filed december 23 2010 † 1038 amended restated general guarantee agreement dated november 21 2011 made goldman sachs group inc relating certain obligations goldman sachs bank usa incorporated reference exhibit 41 registrant’s current report form 8k filed november 21 2011 1039 form aircraft time sharing agreement incorporated reference exhibit 1061 registrant’s annual report form 10k fiscal year ended december 31 2011 † 1040 description compensation arrangements executive officer incorporated reference exhibit 101 registrant’s quarterly report form 10q period ended june 30 2012 † 1041 goldman sachs group inc clawback policy effective january 1 2015 incorporated reference exhibit 1053 registrant’s annual report form 10k fiscal year ended december 31 2014 1042 form nonemployee director rsu award agreement † goldman sachs 2019 form 10k goldman sachs group inc subsidiaries 1043 form onetime rsu award agreement † 1044 form yearend rsu award agreement fully vested † 1045 form yearend rsu award agreement fully vested † 1046 form yearend rsu award agreement base fully vested andor supplemental † 1047 form yearend shortterm rsu award agreement † 1048 form yearend restricted stock award agreement fully vested † 1049 form yearend restricted stock award agreement fully vested incorporated reference exhibit 1053 registrant’s annual report form 10k fiscal year ended december 31 2017 † 1050 form yearend shortterm restricted stock award agreement incorporated reference exhibit 1057 registrant’s annual report form 10k fiscal year ended december 31 2015 † 1051 form fixed allowance rsu award agreement † 1052 form fixed allowance restricted stock award agreement † 1053 form fixed allowance deferred cash award agreement incorporated reference exhibit 1059 registrant’s annual report form 10k fiscal year ended december 31 2015 † 1054 form performancebased restricted stock unit award agreement † 1055 form performancebased restricted stock unit award agreement fully vested † 1056 form performancebased cash compensation award agreement incorporated reference exhibit 1061 registrant’s annual report form 10k fiscal year ended december 31 2015 † 1057 form signature card equity awards † 1058 amended restated general guarantee agreement dated september 28 2018 made goldman sachs group inc relating certain obligations goldman sachs bank usa incorporated reference exhibit 41 registrant’s current report form 8k filed september 28 2018 1059 amended restated general guarantee agreement dated september 28 2018 made goldman sachs group inc relating certain obligations goldman sachs co llc incorporated reference exhibit 991 registrant’s current report form 8k filed september 28 2018 1060 lease dated august 17 2018 farringdon street partners limited farringdon street nominee limited landlord goldman sachs international tenant incorporated reference exhibit 103 registrant’s quarterly report form 10q period ended september 30 2018 211 list significant subsidiaries goldman sachs group inc 231 consent independent registered public accounting firm 311 rule 13a14a certifications 321 section 1350 certifications information furnished filed purposes sections 11 12 securities act 1933 section 18 securities exchange act 1934 991 report independent registered public accounting firm selected financial data pursuant rules 405 406 regulation st following information formatted ixbrl inline extensible business reporting language consolidated statements earnings years ended december 31 2019 december 31 2018 december 31 2017 ii consolidated statements comprehensive income years ended december 31 2019 december 31 2018 december 31 2017 iii consolidated balance sheets december 31 2019 december 31 2018 iv consolidated statements changes shareholders’ equity years ended december 31 2019 december 31 2018 december 31 2017 v consolidated statements cash flows years ended december 31 2019 december 31 2018 december 31 2017 vi notes consolidated financial statements vii cover page cover page interactive data file formatted ixbrl exhibit 101 † exhibit management contract compensatory plan arrangement goldman sachs 2019 form 10k signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated david solomon name david solomon capacity director chairman chief executive officer principal executive officer date february 20 2020 michele burns name michele burns capacity director date february 20 2020 drew g faust name drew g faust capacity director date february 20 2020 mark flaherty name mark flaherty capacity director date february 20 2020 ellen j kullman name ellen j kullman capacity director date february 20 2020 lakshmi n mittal name lakshmi n mittal capacity director date february 20 2020 adebayo ogunlesi name adebayo ogunlesi capacity director date february 20 2020 peter oppenheimer name peter oppenheimer capacity director date february 20 2020 jan e tighe name jan e tighe capacity director date february 20 2020 david viniar name david viniar capacity director date february 20 2020 mark winkelman name mark winkelman capacity director date february 20 2020 stephen scherr name stephen scherr capacity chief financial officer principal financial officer date february 20 2020 sheara fredman name sheara fredman capacity chief accounting officer principal accounting officer date february 20 2020 goldman sachs 2019 form 10kitem 15 exhibit financial statement schedules documents filed part report 1 consolidated financial statements consolidated financial statements required filed form 10k included part ii item 8 hereof 2 exhibits goldman sachs 2020 form 10k goldman sachs group inc subsidiaries goldman sachs 2020 form 10k goldman sachs group inc subsidiaries goldman sachs 2020 form 10k goldman sachs group inc subsidiaries goldman sachs 2020 form 10k goldman sachs group inc subsidiaries goldman sachs 2020 form 10k goldman sachs group inc subsidiaries goldman sachs 2020 form 10k signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated goldman sachs 2020 form 10knanitem 15 exhibits financial statement schedules documents filed part report 1 consolidated financial statements consolidated financial statements required filed 2015 form 10k included part ii item 8 hereof 2 exhibits 21 plan incorporation incorporated reference corresponding exhibit registrant’s registration statement form s1 33374449 31 restated certificate incorporation goldman sachs group inc amended april 28 2015 incorporated reference exhibit 31 registrant’s quarterly report form 10q period ended march 31 2015 32 amended restated bylaws goldman sachs group inc amended february 18 2016 41 indenture dated may 19 1999 goldman sachs group inc bank new york trustee incorporated reference exhibit 6 registrant’s registration statement form 8a filed june 29 1999 42 subordinated debt indenture dated february 20 2004 goldman sachs group inc bank new york trustee incorporated reference exhibit 42 registrant’s annual report form 10k fiscal year ended november 28 2003 43 warrant indenture dated february 14 2006 goldman sachs group inc bank new york trustee incorporated reference exhibit 434 registrant’s posteffective amendment 3 form s3 filed march 1 2006 44 senior debt indenture dated december 4 2007 among gs finance corp issuer goldman sachs group inc guarantor bank new york trustee incorporated reference exhibit 469 registrant’s posteffective amendment 10 form s3 filed december 4 2007 45 senior debt indenture dated july 16 2008 goldman sachs group inc bank new york mellon trustee incorporated reference exhibit 482 registrant’s posteffective amendment 11 form s3 333130074 filed july 17 2008 46 senior debt indenture dated october 10 2008 among gs finance corp issuer goldman sachs group inc guarantor bank new york mellon trustee incorporated reference exhibit 470 registrant’s registration statement form s3 333154173 filed october 10 2008 47 first supplemental indenture dated february 20 2015 among gs finance corp issuer goldman sachs group inc guarantor bank new york mellon trustee respect senior debt indenture dated october 10 2008 incorporated reference exhibit 47 registrant’s annual report form 10k fiscal year ended december 31 2014 48 ninth supplemental subordinated debt indenture dated may 20 2015 goldman sachs group inc bank new york mellon trustee respect subordinated debt indenture dated february 20 2004 incorporated reference exhibit 41 registrant’s current report form 8k filed may 22 2015 certain instruments defining rights holders longterm debt securities registrant subsidiaries omitted pursuant item 601b4iii regulation sk registrant hereby undertakes furnish sec upon request copies instruments 101 goldman sachs amended restated stock incentive plan 2015 incorporated reference annex b registrant’s definitive proxy statement schedule 14a filed april 10 2015  102 goldman sachs amended restated restricted partner compensation plan incorporated reference exhibit 101 registrant’s quarterly report form 10q period ended february 24 2006  goldman sachs group inc subsidiaries 103 form employment agreement participating managing directors applicable executive officers incorporated reference exhibit 1019 registrant’s registration statement form s1 33375213  104 form agreement relating noncompetition covenants incorporated reference exhibit 1020 registrant’s registration statement form s1 33375213  105 tax indemnification agreement dated may 7 1999 among goldman sachs group inc various parties incorporated reference exhibit 1025 registrant’s registration statement form s1 33375213 106 amended restated shareholders’ agreement effective january 15 2015 among goldman sachs group inc various parties incorporated reference exhibit 106 registrant’s annual report form 10k fiscal year ended december 31 2014 107 instrument indemnification incorporated reference exhibit 1027 registrant’s registration statement form s1 33375213 108 form indemnification agreement incorporated reference exhibit 1028 registrant’s annual report form 10k fiscal year ended november 26 1999 109 form indemnification agreement incorporated reference exhibit 1044 registrant’s annual report form 10k fiscal year ended november 26 1999 1010 form indemnification agreement dated july 5 2000 incorporated reference exhibit 101 registrant’s quarterly report form 10q period ended august 25 2000 1011 amendment 1 dated september 5 2000 tax indemnification agreement dated may 7 1999 incorporated reference exhibit 103 registrant’s quarterly report form 10q period ended august 25 2000 1012 letter dated february 6 2001 goldman sachs group inc mr james johnson incorporated reference exhibit 1065 registrant’s annual report form 10k fiscal year ended november 24 2000  1013 letter dated december 18 2002 goldman sachs group inc mr william w george incorporated reference exhibit 1039 registrant’s annual report form 10k fiscal year ended november 29 2002  1014 form amendment dated november 27 2004 agreement relating noncompetition covenants dated may 7 1999 incorporated reference exhibit 1032 registrant’s annual report form 10k fiscal year ended november 26 2004  1015 goldman sachs group inc nonqualified deferred compensation plan us participating managing directors terminated december 15 2008 incorporated reference exhibit 1036 registrant’s annual report form 10k fiscal year ended november 30 2007  1016 form yearend option award agreement incorporated reference exhibit 1036 registrant’s annual report form 10k fiscal year ended november 28 2008  1017 amendments 2005 2006 yearend rsu option award agreements incorporated reference exhibit 1044 registrant’s annual report form 10k fiscal year ended november 30 2007  1018 form nonemployee director option award agreement incorporated reference exhibit 1034 registrant’s annual report form 10k fiscal year ended december 31 2009  1019 form nonemployee director rsu award agreement pre2015 incorporated reference exhibit 1021 registrant’s annual report form 10k fiscal year ended december 31 2014  1020 ground lease dated august 23 2005 battery park city authority dba hugh l carey battery park city authority landlord goldman sachs headquarters llc tenant incorporated reference exhibit 101 registrant’s current report form 8k filed august 26 2005 1021 general guarantee agreement dated january 30 2006 made goldman sachs group inc relating certain obligations goldman sachs co incorporated reference exhibit 1045 registrant’s annual report form 10k fiscal year ended november 25 2005 goldman sachs group inc subsidiaries 1022 goldman sachs co executive life insurance policy certificate metropolitan life insurance company participating managing directors incorporated reference exhibit 101 registrant’s quarterly report form 10q period ended august 25 2006  1023 form goldman sachs co executive life insurance policy pacific life annuity company participating managing directors including policy specifications form restriction policy owner’s rights incorporated reference exhibit 102 registrant’s quarterly report form 10q period ended august 25 2006  1024 form second amendment dated november 25 2006 agreement relating noncompetition covenants dated may 7 1999 amended effective november 27 2004 incorporated reference exhibit 1051 registrant’s annual report form 10k fiscal year ended november 24 2006  1025 description pmd retiree medical program incorporated reference exhibit 102 registrant’s quarterly report form 10q period ended february 29 2008  1026 letter dated june 28 2008 goldman sachs group inc mr lakshmi n mittal incorporated reference exhibit 991 registrant’s current report form 8k filed june 30 2008  1027 general guarantee agreement dated december 1 2008 made goldman sachs group inc relating certain obligations goldman sachs bank usa incorporated reference exhibit 480 registrant’s posteffective amendment 2 form s3 filed march 19 2009 1028 guarantee agreement dated november 28 2008 amended effective january 1 2010 goldman sachs group inc goldman sachs bank usa incorporated reference exhibit 1051 registrant’s annual report form 10k fiscal year ended december 31 2009 1029 form onetime rsu award agreement pre2015 incorporated reference exhibit 1032 registrant’s annual report form 10k fiscal year ended december 31 2014  1030 amendments certain nonemployee director equity award agreements incorporated reference exhibit 1069 registrant’s annual report form 10k fiscal year ended november 28 2008  1031 form yearend rsu award agreement fully vested pre2015 incorporated reference exhibit 1036 registrant’s annual report form 10k fiscal year ended december 31 2014  1032 form yearend rsu award agreement fully vested pre2015 incorporated reference exhibit 1037 registrant’s annual report form 10k fiscal year ended december 31 2014  1033 form yearend rsu award agreement base andor supplemental pre2015 incorporated reference exhibit 1038 registrant’s annual report form 10k fiscal year ended december 31 2014  1034 form yearend shortterm rsu award agreement pre2015 incorporated reference exhibit 1039 registrant’s annual report form 10k fiscal year ended december 31 2014  1035 form yearend restricted stock award agreement fully vested pre2015 incorporated reference exhibit 1041 registrant’s annual report form 10k fiscal year ended december 31 2013  1036 form yearend restricted stock award agreement base andor supplemental pre2015 incorporated reference exhibit 1041 registrant’s annual report form 10k fiscal year ended december 31 2014  1037 form yearend shortterm restricted stock award agreement pre2015 incorporated reference exhibit 1042 registrant’s annual report form 10k fiscal year ended december 31 2014  1038 form fixed allowance rsu award agreement pre2015 incorporated reference exhibit 1043 registrant’s annual report form 10k fiscal year ended december 31 2014  1039 general guarantee agreement dated march 2 2010 made goldman sachs group inc relating obligations goldman sachs execution clearing lp incorporated reference exhibit 101 registrant’s quarterly report form 10q period ended march 31 2010 1040 form deed gift incorporated reference registrant’s quarterly report form 10q period ended june 30 2010  goldman sachs group inc subsidiaries 1041 goldman sachs longterm performance incentive plan dated december 17 2010 incorporated reference registrant’s current report form 8k filed december 23 2010  1042 form performancebased restricted stock unit award agreement pre2015 incorporated reference registrant’s current report form 8k filed december 23 2010  1043 form performancebased option award agreement incorporated reference registrant’s current report form 8k filed december 23 2010  1044 form performancebased cash compensation award agreement pre2015 incorporated reference registrant’s current report form 8k filed december 23 2010  1045 amended restated general guarantee agreement dated november 21 2011 made goldman sachs group inc relating certain obligations goldman sachs bank usa incorporated reference exhibit 41 registrant’s current report form 8k filed november 21 2011 1046 form aircraft time sharing agreement incorporated reference exhibit 1061 registrant’s annual report form 10k fiscal year ended december 31 2011  1047 description compensation arrangements executive officer incorporated reference registrant’s quarterly report form 10q period ended june 30 2012  1048 goldman sachs group inc clawback policy effective january 1 2015 incorporated reference exhibit 1053 registrant’s annual report form 10k fiscal year ended december 31 2014 1049 form nonemployee director rsu award agreement  1050 form onetime rsu award agreement  1051 form yearend rsu award agreement fully vested  1052 form yearend rsu award agreement fully vested  1053 form yearend rsu award agreement base andor supplemental  1054 form yearend shortterm rsu award agreement  1055 form yearend restricted stock award agreement fully vested  1056 form yearend restricted stock award agreement fully vested  1057 form yearend shortterm restricted stock award agreement  1058 form fixed allowance rsu award agreement  1059 form fixed allowance deferred cash award agreement  1060 form performancebased restricted stock unit award agreement  1061 form performancebased cash compensation award agreement  1062 form signature card equity awards  121 statement computation ratios earnings fixed charges ratios earnings combined fixed charges preferred stock dividends 211 list significant subsidiaries goldman sachs group inc 231 consent independent registered public accounting firm 311 rule 13a14a certifications 321 section 1350 certifications 991 report independent registered public accounting firm selected financial data 992 debt trust securities registered section 12b exchange act interactive data files pursuant rule 405 regulation st consolidated statements earnings years ended december 31 2015 december 31 2014 december 31 2013 ii consolidated statements comprehensive income years ended december 31 2015 december 31 2014 december 31 2013 iii consolidated statements financial condition december 31 2015 december 31 2014 iv consolidated statements changes shareholders’ equity years ended december 31 2015 december 31 2014 december 31 2013 v consolidated statements cash flows years ended december 31 2015 december 31 2014 december 31 2013 vi notes consolidated financial statements  exhibit management contract compensatory plan arrangement information furnished filed purposes sections 11 12 securities act 1933 section 18 securities exchange act 1934 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized date february 19 2016 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules documents filed part report 1 consolidated financial statements consolidated financial statements required filed form 10k included part ii item 8 hereof 2 exhibits goldman sachs group inc subsidiaries goldman sachs group inc subsidiaries goldman sachs group inc subsidiaries goldman sachs group inc subsidiaries signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized goldman sachs group inc harvey schwartz name harvey schwartz title president cochief operating officer chief financial officer date february 24 2017 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules documents filed part report 1 consolidated financial statements consolidated financial statements required filed form 10k included part ii item 8 hereof 2 exhibits goldman sachs group inc subsidiaries goldman sachs group inc subsidiaries goldman sachs group inc subsidiaries goldman sachs group inc subsidiaries signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules documents filed part report 1 consolidated financial statements consolidated financial statements required filed annual report form 10k listed page hereof part ii item 8 hereof 2 financial statement schedule financial statement schedule required annual report form 10k listed page hereof required schedule appears pages hereof 3 exhibits  exhibit management contract compensatory plan arrangement goldman sachs group inc index financial statements financial statement schedule items 15a1 15a2 schedules listed omitted absence conditions required information consolidated financial statements notes thereto schedule goldman sachs group inc parent company condensed nonconsolidated statements earnings accompanying notes integral part condensed nonconsolidated financial statements schedule goldman sachs group inc parent company condensed nonconsolidated statements financial condition accompanying notes integral part condensed nonconsolidated financial statements schedule goldman sachs group inc parent company condensed nonconsolidated statements cash flows supplemental disclosures cash payments thirdparty interest net capitalized interest 778 billion 611 billion 369 billion years ended november 2007 november 2006 november 2005 respectively cash payments income taxes net refunds 327 billion 286 billion 152 billion years ended november 2007 november 2006 november 2005 respectively accompanying notes integral part condensed nonconsolidated financial statements schedule goldman sachs group inc parent company notes condensed nonconsolidated financial statements note 1 significant accounting policies basis presentation condensed nonconsolidated financial statements goldman sachs group inc parent company delaware corporation read conjunction consolidated financial statements goldman sachs group inc subsidiaries firm notes thereto consolidated financial statements included part ii item 8 annual report form 10k condensed nonconsolidated financial statements reflect results operations financial condition cash flows parent company investments subsidiaries accounted using equity method accounting prescribed accounting principles board apb opinion 18 “the equity method accounting investments common stock” investments subsidiaries acquired subsequent firm’s adoption statement financial accounting standards sfas 159 “the fair value option financial assets financial liabilities” beginning 2007 parent company generally elected apply fair value option accounting investments see notes 2 3 consolidated financial statements part ii item 8 annual report form 10k information regarding firm’s accounting sfas 159 unless otherwise stated herein references november 2007 november 2006 november 2005 refer parent company’s fiscal years ended dates context requires november 30 2007 november 24 2006 november 25 2005 respectively certain reclassifications made previously reported amounts conform current presentation parent company’s significant accounting policies identical used firm extent applicable parent company’s activities information regarding firm’s significant accounting policies refer note 2 consolidated financial statements part ii item 8 annual report form 10k use estimates condensed nonconsolidated financial statements prepared accordance generally accepted accounting principles require management make certain estimates assumptions important estimates assumptions relate fair value measurements accounting goodwill identifiable intangible assets provision potential losses may arise litigation regulatory proceedings tax audits although estimates assumptions based best available information actual results could materially different estimates financing subsidiaries substantially firm’s unsecured funding raised parent company parent company lends necessary funds subsidiaries regulated meet asset financing capital requirements addition parent company provides regulated subsidiaries necessary capital meet regulatory requirements funding included “loans subsidiaries” “subordinated loans subsidiaries” condensed nonconsolidated statements financial condition intercompany exposure managed requiring senior subordinated intercompany loans maturities equal shorter maturities goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued aggregate borrowings parent company policy ensures subsidiaries’ obligations parent company generally mature advance parent company’s thirdparty borrowings addition many subsidiaries pledge collateral loan value cover intercompany borrowings subordinated debt order mitigate parent company liquidity risk equity investments subsidiaries generally funded equity capital included “investments subsidiaries” condensed nonconsolidated statements financial condition parent company enters derivative contracts subsidiaries hedge net investment nonus operations manage interest rate currency exposure unsecured longterm borrowings certain unsecured shortterm borrowings manage exposure borrowings parent company uses derivatives effectively convert substantial portion unsecured longterm borrowings us dollarbased floating rate obligations parent company applies fair value hedge accounting derivative contracts hedge benchmark interest rate ie london interbank offered rate libor fixed rate unsecured longterm borrowings derivative balances subsidiaries included “financial instruments owned fair value” “financial instruments sold yet purchased fair value” condensed nonconsolidated statements financial condition 1510 billion 620 million 616 billion 347 million november 2007 november 2006 respectively interest income largely generated loans made subsidiaries parent company also allocates substantially rental costs relating properties occupied certain subsidiaries parent company additionally allocates cost sharebased compensation programs subsidiaries relating costs associated employees subsidiaries note 2 unsecured shortterm borrowings parent company obtains thirdparty unsecured shortterm borrowings primarily issuance promissory notes commercial paper hybrid financial instruments november 2007 november 2006 borrowings 4658 billion 3263 billion respectively amounts include portion thirdparty unsecured longterm borrowings maturing within one year financial statement date thirdparty unsecured longterm borrowings redeemable within one year financial statement date option holder parent company accounts promissory notes commercial paper certain hybrid financial instruments fair value sfas 155 “accounting certain hybrid financial instruments amendment fasb statements 133 140” sfas 159 see notes 2 3 consolidated financial statements part ii item 8 annual report form 10k information regarding firm’s accounting sfas 155 sfas 159 thirdparty shortterm borrowings recorded fair value recorded based amount cash received plus accrued interest amounts approximate fair value due shortterm nature obligations goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued unsecured shortterm borrowings third parties set forth 1 weighted average interest rates borrowings giving effect hedging activities 530 536 november 2007 november 2006 respectively weighted average interest rates november 2007 november 2006 excluded financial instruments accounted fair value sfas 155 sfas 159 addition parent company may obtain unsecured shortterm borrowings certain subsidiaries november 2007 november 2006 amounts 514 billion 154 billion respectively included “unsecured shortterm borrowings subsidiaries” condensed nonconsolidated statements financial condition note 3 unsecured longterm borrowings parent company’s thirdparty unsecured longterm borrowings extend 2043 consist principally senior borrowings november 2007 november 2006 borrowings 15700 billion 11904 billion respectively parent company accounts certain unsecured longterm borrowings fair value sfas 155 sfas 159 applies fair value hedge accounting certain unsecured longterm borrowings sfas 133 “accounting derivative instruments hedging activities” see notes 2 3 consolidated financial statements part ii item 8 annual report form 10k information regarding firm’s accounting sfas 133 sfas 155 sfas 159 unsecured longterm borrowings third parties set forth 1 november 2007 november 2006 interest rates us dollar fixed rate obligations ranged 388 1004 388 1200 respectively november 2007 november 2006 interest rates nonus dollar fixed rate obligations ranged 067 888 2 floating interest rates generally based libor federal funds target rate equitylinked indexed instruments included floating rate obligations goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued unsecured longterm borrowings third parties maturity date set forth 1 unsecured longterm borrowings maturing within one year financial statement date certain unsecured longterm borrowings redeemable within one year financial statement date option holder included unsecured shortterm borrowings condensed nonconsolidated statements financial condition 2 unsecured longterm borrowings repayable prior maturity option parent company reflected contractual maturity dates unsecured longterm borrowings redeemable prior maturity option holder reflected dates options become exercisable parent company enters derivative contracts subsidiaries interest rate futures contracts interest rate swap agreements currency swap agreements commodity contracts equitylinked indexed contracts effectively convert substantial portion thirdparty unsecured longterm borrowings us dollarbased floating rate obligations accordingly carrying value unsecured longterm borrowings approximated fair value november 2007 november 2006 effective weighted average interest rates unsecured longterm borrowings third parties set forth 1 includes fixed rate obligations converted floating rate obligations derivative contracts 2 weighted average interest rates november 2007 november 2006 excluded financial instruments accounted fair value sfas 155 sfas 159 goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued unsecured longterm borrowings subsidiaries set forth 1 november 2007 interest rate us dollar fixed rate obligations 468 november 2006 ranged 468 578 november 2007 interest rate nonus dollar fixed rate obligations 600 november 2006 ranged 544 600 2 floating interest rates generally based libor federal funds target rate equitylinked indexed instruments included floating rate obligations unsecured longterm borrowings subsidiaries maturity date set forth 1 unsecured longterm borrowings maturing within one year financial statement date certain unsecured longterm borrowings redeemable within one year financial statement date option holder included unsecured shortterm borrowings condensed nonconsolidated statements financial condition subordinated borrowings unsecured longterm borrowings third parties include subordinated borrowings outstanding principal amounts 1600 billion 734 billion november 2007 november 2006 respectively set forth subordinated notes november 2007 parent company 1091 billion subordinated notes outstanding maturities ranging fiscal 2009 2037 effective weighted average interest rate subordinated notes 574 giving effect derivative contracts used convert fixed rate obligations floating rate obligations november 2006 parent company 450 billion subordinated notes outstanding maturities ranging 2008 2036 effective weighted average interest rate 545 notes junior right payment parent company’s senior indebtedness goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued junior subordinated debt issued trust connection trust preferred securities parent company issued 284 billion junior subordinated debentures first quarter 2004 goldman sachs capital trust refer note 5 consolidated financial statements part ii item 8 annual report form 10k information junior subordinated debentures issued parent company trust junior subordinated debt issued trusts connection fixedtofloating floating rate normal automatic preferred enhanced capital securities second quarter 2007 parent company issued total 225 billion remarketable junior subordinated notes goldman sachs capital ii goldman sachs capital iii trusts refer note 5 consolidated financial statements part ii item 8 annual report form 10k information junior subordinated debentures issued parent company trusts note 4 commitments contingencies guarantees commitments letters credit parent company provides letters credit issued various banks counterparties lieu securities cash satisfy various collateral requirements letters credit outstanding 222 million 171 million november 2007 november 2006 respectively investment commitments connection firm’s merchant banking investing activities parent company invests private equity real estate assets directly funds firm raises manages connection activities parent company commitments invest 1290 billion 634 billion november 2007 november 2006 respectively including 1232 billion 439 billion respectively commitments invest funds managed firm constructionrelated commitments november 2007 november 2006 parent company constructionrelated commitments 2 million leases parent company contractual obligations longterm noncancelable lease agreements principally office space expiring various dates 2029 certain agreements subject periodic escalation provisions increases real estate taxes charges future minimum rental payments net minimum sublease rentals generally reimbursed subsidiaries set forth goldman sachs group inc parent company notes condensed nonconsolidated financial statements continued contingencies refer note 6 consolidated financial statements part ii item 8 annual report form 10k information contingencies guarantees parent company guaranteed payment obligations goldman sachs co principal us brokerdealer subsidiary nonrecourse payment obligations addition parent company guarantees many obligations consolidated subsidiaries transactionbytransaction basis negotiated counterparty parent company unable develop estimate maximum payout subsidiary guarantees however guaranteed obligations also obligations consolidated subsidiaries included consolidated statements financial condition disclosed note 6 consolidated financial statements part ii item 8 annual report form 10k parent company’s liabilities guarantor separately disclosed herein following tables set forth certain information parent company’s guarantees november 2007 november 2006 1 amounts represent anticipated losses connection contracts 2 carrying value guarantees liability 3 million 4 million november 2007 november 2006 respectively refer note 6 consolidated financial statements part ii item 8 annual report form 10k information regarding parent company’s guarantees signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized goldman sachs group inc david viniar name david viniar title chief financial officer date january 28 2008 ii1 power attorney know persons presents person whose signature appears constitutes appoints lloyd c blankfein gary cohn jon winkelried david viniar gregory k palm esta e stecher severally true lawful attorneyinfact power substitution resubstitution sign name place stead capacities things execute instruments attorney may deem necessary advisable securities exchange act 1934 rules regulations requirements us securities exchange commission connection annual report form 10k amendments hereto fully intents purposes might could person hereby ratifies confirms said attorneysinfact agents acting alone substitute substitutes may lawfully cause done virtue hereof pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated ii2 ii3item 15 exhibits financial statement schedules documents filed part report 1 consolidated financial statements consolidated financial statements required filed annual report form 10k included part ii item 8 hereof 2 exhibits  exhibit management contract compensatory plan arrangement signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized goldman sachs group inc david viniar name david viniar title chief financial officer date january 26 2009 ii1 power attorney know persons presents person whose signature appears constitutes appoints lloyd c blankfein gary cohn jon winkelried david viniar gregory k palm esta e stecher severally true lawful attorneyinfact power substitution resubstitution sign name place stead capacities things execute instruments attorney may deem necessary advisable securities exchange act 1934 rules regulations requirements us securities exchange commission connection annual report form 10k amendments hereto fully intents purposes might could person hereby ratifies confirms said attorneysinfact agents acting alone substitute substitutes may lawfully cause done virtue hereof pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated ii2 ii3