Form 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2015
or
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
from
to |
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Commission File Number: 001-14965
The Goldman Sachs Group, Inc.
(Exact name of registrant as specified in its charter)
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Delaware |
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13-4019460 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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200 West Street, New York, N.Y. |
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10282 |
(Address of principal executive offices) |
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(Zip Code) |
(212) 902-1000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated
filer x Accelerated
filer ¨ |
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Non-accelerated filer ¨ (Do not check if a smaller reporting
company) Smaller reporting company ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
¨ Yes x No
APPLICABLE ONLY TO CORPORATE ISSUERS
As of April 17, 2015, there were 432,015,889 shares of the registrants common stock outstanding.
THE GOLDMAN SACHS GROUP, INC
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2015
INDEX
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Form 10-Q Item Number |
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Page No. |
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PART I |
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FINANCIAL INFORMATION |
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2 |
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Item 1 |
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Financial Statements (Unaudited) |
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2 |
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Condensed Consolidated Statements of Earnings for the three months ended March 31,
2015 and March 31, 2014 |
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2 |
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Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31,
2015 and March 31, 2014 |
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3 |
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Condensed Consolidated Statements of Financial Condition as of March 31,
2015 and December 31, 2014 |
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4 |
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Condensed Consolidated Statements of Changes in Shareholders Equity for the three months ended March 31, 2015
and year ended December 31, 2014 |
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5 |
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Condensed Consolidated Statements of Cash Flows for the three months ended March 31,
2015 and March 31, 2014 |
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6 |
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Notes to Condensed Consolidated Financial Statements |
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7 |
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Note 1. Description of Business |
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7 |
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Note 2. Basis of Presentation |
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7 |
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Note 3. Significant Accounting
Policies |
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8 |
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Note 4.
Financial Instruments Owned, at Fair Value and Financial Instruments Sold, |
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But Not Yet Purchased, at Fair Value |
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14 |
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Note 5. Fair Value Measurements |
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15 |
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Note 6. Cash Instruments |
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17 |
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Note 7. Derivatives and Hedging
Activities |
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26 |
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Note 8. Fair Value Option |
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40 |
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Note 9. Loans Receivable |
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47 |
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Note 10. Collateralized Agreements and
Financings |
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49 |
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Note 11. Securitization Activities |
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53 |
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Note 12. Variable Interest Entities |
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56 |
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Note 13. Other Assets |
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60 |
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Note 14. Deposits |
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63 |
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Note 15. Short-Term Borrowings |
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63 |
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Note 16. Long-Term Borrowings |
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64 |
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Note 17. Other Liabilities and Accrued
Expenses |
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66 |
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Note 18. Commitments, Contingencies and
Guarantees |
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67 |
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Note 19. Shareholders Equity |
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73 |
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Note 20. Regulation and Capital Adequacy |
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75 |
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Note 21. Earnings Per Common Share |
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84 |
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Note 22. Transactions with Affiliated Funds |
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84 |
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Note 23. Interest Income and Interest
Expense |
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85 |
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Note 24. Income Taxes |
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86 |
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Note 25. Business Segments |
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87 |
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Note 26. Credit Concentrations |
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89 |
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Note 27. Legal Proceedings |
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90 |
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Report of Independent Registered Public Accounting Firm |
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99 |
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Statistical Disclosures |
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100 |
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Item 2 |
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Managements Discussion and Analysis of Financial Condition and Results of
Operations |
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101 |
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Item 3 |
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Quantitative and Qualitative Disclosures About Market Risk |
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165 |
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Item 4 |
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Controls and Procedures |
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165 |
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PART II |
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OTHER INFORMATION |
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165 |
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Item 1 |
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Legal Proceedings |
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165 |
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Item 2 |
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Unregistered Sales of Equity Securities and Use of Proceeds |
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165 |
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Item 6 |
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Exhibits |
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166 |
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SIGNATURES |
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167 |
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Goldman Sachs March 2015 Form 10-Q |
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1 |
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
THE GOLDMAN SACHS GROUP, INC. AND
SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(Unaudited)
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Three Months
Ended March |
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in millions, except per share amounts |
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2015 |
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2014 |
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Revenues |
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Investment banking |
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$ 1,905 |
|
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$1,779 |
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Investment management |
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1,503 |
|
|
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1,498 |
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Commissions and fees |
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853 |
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872 |
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Market making |
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3,925 |
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2,639 |
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Other principal transactions |
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1,572 |
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1,503 |
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Total non-interest revenues |
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9,758 |
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8,291 |
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Interest income |
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2,035 |
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2,594 |
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Interest expense |
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1,176 |
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1,557 |
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Net interest income |
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859 |
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1,037 |
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Net revenues, including net interest income |
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10,617 |
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9,328 |
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Operating
expenses |
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Compensation and benefits |
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4,459 |
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4,011 |
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Brokerage, clearing, exchange and
distribution fees |
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638 |
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595 |
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Market development |
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139 |
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138 |
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Communications and technology |
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198 |
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200 |
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Depreciation and amortization |
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219 |
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390 |
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Occupancy |
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204 |
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210 |
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Professional fees |
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211 |
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212 |
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Other expenses |
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615 |
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551 |
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Total non-compensation expenses |
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2,224 |
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2,296 |
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Total operating expenses |
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6,683 |
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6,307 |
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Pre-tax earnings |
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3,934 |
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3,021 |
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Provision for taxes |
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1,090 |
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988 |
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Net earnings |
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2,844 |
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2,033 |
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Preferred stock dividends |
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96 |
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84 |
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Net earnings applicable to common shareholders |
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$ 2,748 |
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$1,949 |
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Earnings per common
share |
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Basic |
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$ 6.05 |
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$ 4.15 |
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Diluted |
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5.94 |
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4.02 |
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Dividends declared per common
share |
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$ 0.60 |
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$ 0.55 |
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Average common shares
outstanding |
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Basic |
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453.3 |
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468.6 |
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Diluted |
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462.9 |
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484.6 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
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2 |
|
Goldman Sachs March 2015 Form 10-Q |
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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
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Three Months
Ended March |
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$ in millions |
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2015 |
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2014 |
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Net earnings |
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$2,844 |
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$2,033 |
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Other comprehensive income/(loss) adjustments, net of tax: |
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Currency translation |
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(25 |
) |
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(29 |
) |
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Pension and postretirement liabilities |
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(3 |
) |
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(8 |
) |
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Cash flow hedges |
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1 |
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Other comprehensive loss |
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(28 |
) |
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(36 |
) |
Comprehensive income |
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$2,816 |
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$1,997 |
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
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Goldman Sachs March 2015 Form 10-Q |
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3 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition
(Unaudited)
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As of |
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$ in millions, except per share amounts |
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March
2015 |
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December 2014 |
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Assets |
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Cash and cash equivalents |
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$ 63,129 |
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$ 57,600 |
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Cash and securities segregated for regulatory and other purposes (includes $25,309 and $34,291 at fair value as of March 2015 and
December 2014, respectively) |
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42,323 |
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51,716 |
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Collateralized agreements: |
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Securities purchased under agreements to resell and federal funds sold (includes $111,968 and $126,036 at fair value as of March 2015
and December 2014, respectively) |
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113,225 |
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127,938 |
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Securities borrowed (includes $63,045 and $66,769 at fair value as of March 2015 and December 2014, respectively) |
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166,673 |
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160,722 |
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Receivables: |
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Brokers, dealers and clearing organizations |
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39,712 |
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30,671 |
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Customers and counterparties (includes $6,194 and $6,944 at fair value as of March 2015 and December 2014,
respectively) |
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58,590 |
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63,808 |
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Loans receivable |
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|
32,619 |
|
|
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28,938 |
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Financial instruments owned, at fair value (includes $63,184 and $64,473 pledged as collateral as of March 2015 and
December 2014, respectively) |
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325,938 |
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312,248 |
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Other assets |
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23,249 |
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|
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22,599 |
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Total assets |
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$865,458 |
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$856,240 |
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Liabilities and
shareholders equity |
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|
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Deposits (includes $13,830 and $13,523 at fair value as of March 2015 and December 2014, respectively) |
|
|
$ 86,071 |
|
|
|
$ 83,008 |
|
|
|
Collateralized financings: |
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|
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|
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Securities sold under agreements to repurchase, at fair value |
|
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85,833 |
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|
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88,215 |
|
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Securities loaned (includes $805 and $765 at fair value as of March 2015 and December 2014, respectively) |
|
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6,736 |
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|
5,570 |
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Other secured financings (includes $22,799 and $21,450 at fair value as of March 2015 and December 2014,
respectively) |
|
|
24,093 |
|
|
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22,809 |
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|
|
Payables: |
|
|
|
|
|
|
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Brokers, dealers and clearing organizations |
|
|
8,606 |
|
|
|
6,636 |
|
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Customers and counterparties |
|
|
214,681 |
|
|
|
206,936 |
|
|
|
Financial instruments sold, but not yet purchased, at fair value |
|
|
132,809 |
|
|
|
132,083 |
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|
Unsecured short-term borrowings, including the current portion of unsecured long-term borrowings (includes $18,637 and $18,826 at fair
value as of March 2015 and December 2014, respectively) |
|
|
44,367 |
|
|
|
44,540 |
|
|
|
Unsecured long-term borrowings (includes $17,558 and $16,005 at fair value as of March 2015 and December 2014,
respectively) |
|
|
163,682 |
|
|
|
167,571 |
|
|
|
Other liabilities and accrued expenses (includes $920 and $831 at fair value as of March 2015
and December 2014, respectively) |
|
|
13,453 |
|
|
|
16,075 |
|
Total liabilities |
|
|
780,331 |
|
|
|
773,443 |
|
|
|
Commitments, contingencies and
guarantees |
|
|
|
|
|
|
|
|
Shareholders
equity |
|
|
|
|
|
|
|
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Preferred stock, par value $0.01 per share; aggregate liquidation preference of $9,200 as of both March 2015 and
December 2014 |
|
|
9,200 |
|
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|
9,200 |
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|
Common stock, par value $0.01 per share; 4,000,000,000 shares authorized, 861,211,162 and 852,784,764 shares issued as of March 2015
and December 2014, respectively, and 432,093,034 and 430,259,102 shares outstanding as of March 2015 and December 2014, respectively |
|
|
9 |
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|
9 |
|
|
|
Share-based awards |
|
|
3,924 |
|
|
|
3,766 |
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Nonvoting common stock, par value $0.01 per share; 200,000,000 shares authorized, no shares issued and outstanding |
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
51,008 |
|
|
|
50,049 |
|
|
|
Retained earnings |
|
|
81,455 |
|
|
|
78,984 |
|
|
|
Accumulated other comprehensive loss |
|
|
(771 |
) |
|
|
(743 |
) |
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|
Stock held in treasury, at cost, par value $0.01 per share; 429,118,130 and 422,525,664 shares as
of March 2015 and December 2014, respectively |
|
|
(59,698 |
) |
|
|
(58,468 |
) |
Total shareholders equity |
|
|
85,127 |
|
|
|
82,797 |
|
Total liabilities and shareholders equity |
|
|
$865,458 |
|
|
|
$856,240 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
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|
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|
4 |
|
Goldman Sachs March 2015 Form 10-Q |
|
|
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Shareholders Equity
(Unaudited)
|
|
|
|
|
|
|
|
|
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|
$ in millions |
|
|
Three Months Ended March 2015 |
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|
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Year Ended December 2014 |
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Preferred stock |
|
|
|
|
|
|
|
|
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|
Balance, beginning of year |
|
|
$ 9,200 |
|
|
|
|
|
$ 7,200 |
|
|
|
Issued |
|
|
|
|
|
|
|
|
2,000 |
|
Balance, end of period |
|
|
9,200 |
|
|
|
|
|
9,200 |
|
|
|
Common stock |
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|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
|
9 |
|
|
|
|
|
8 |
|
|
|
Issued |
|
|
|
|
|
|
|
|
1 |
|
Balance, end of period |
|
|
9 |
|
|
|
|
|
9 |
|
|
|
Share-based awards |
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
|
3,766 |
|
|
|
|
|
3,839 |
|
|
|
Issuance and amortization of share-based awards |
|
|
1,818 |
|
|
|
|
|
2,079 |
|
|
|
Delivery of common stock underlying share-based awards |
|
|
(1,604 |
) |
|
|
|
|
(1,725 |
) |
|
|
Forfeiture of share-based awards |
|
|
(26 |
) |
|
|
|
|
(92 |
) |
|
|
Exercise of share-based awards |
|
|
(30 |
) |
|
|
|
|
(335 |
) |
Balance, end of period |
|
|
3,924 |
|
|
|
|
|
3,766 |
|
|
|
Additional paid-in capital |
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
|
50,049 |
|
|
|
|
|
48,998 |
|
|
|
Delivery of common stock underlying share-based awards |
|
|
1,691 |
|
|
|
|
|
2,206 |
|
|
|
Cancellation of share-based awards in satisfaction of withholding tax requirements |
|
|
(1,007 |
) |
|
|
|
|
(1,922 |
) |
|
|
Preferred stock issuance costs |
|
|
|
|
|
|
|
|
(20 |
) |
|
|
Excess net tax benefit related to share-based awards |
|
|
275 |
|
|
|
|
|
788 |
|
|
|
Cash settlement of share-based awards |
|
|
|
|
|
|
|
|
(1 |
) |
Balance, end of period |
|
|
51,008 |
|
|
|
|
|
50,049 |
|
|
|
Retained earnings |
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
|
78,984 |
|
|
|
|
|
71,961 |
|
|
|
Net earnings |
|
|
2,844 |
|
|
|
|
|
8,477 |
|
|
|
Dividends and dividend equivalents declared on common stock and share-based awards |
|
|
(277 |
) |
|
|
|
|
(1,054 |
) |
|
|
Dividends declared on preferred stock |
|
|
(96 |
) |
|
|
|
|
(400 |
) |
Balance, end of period |
|
|
81,455 |
|
|
|
|
|
78,984 |
|
|
|
Accumulated other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
|
(743 |
) |
|
|
|
|
(524 |
) |
|
|
Other comprehensive loss |
|
|
(28 |
) |
|
|
|
|
(219 |
) |
Balance, end of period |
|
|
(771 |
) |
|
|
|
|
(743 |
) |
|
|
Stock held in treasury, at cost |
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
|
(58,468 |
) |
|
|
|
|
(53,015 |
) |
|
|
Repurchased |
|
|
(1,250 |
) |
|
|
|
|
(5,469 |
) |
|
|
Reissued |
|
|
26 |
|
|
|
|
|
49 |
|
|
|
Other |
|
|
(6 |
) |
|
|
|
|
(33 |
) |
Balance, end of period |
|
|
(59,698 |
) |
|
|
|
|
(58,468 |
) |
Total shareholders equity |
|
|
$ 85,127 |
|
|
|
|
|
$ 82,797 |
|
The accompanying notes are an integral part of these
condensed consolidated financial statements.
|
|
|
|
|
|
|
Goldman Sachs March 2015 Form 10-Q |
|
5 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March |
|
$ in millions |
|
|
2015 |
|
|
|
2014 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net earnings |
|
|
$ 2,844 |
|
|
|
$ 2,033 |
|
|
|
Adjustments to reconcile net earnings to net cash provided by/(used for) operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
219 |
|
|
|
390 |
|
|
|
Share-based compensation |
|
|
1,809 |
|
|
|
1,611 |
|
|
|
Gain related to extinguishment of junior subordinated debt |
|
|
(34 |
) |
|
|
|
|
|
|
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
Cash and securities segregated for regulatory and other purposes |
|
|
9,393 |
|
|
|
(10,509 |
) |
|
|
Receivables and payables (excluding loans receivable), net |
|
|
5,733 |
|
|
|
24,591 |
|
|
|
Collateralized transactions (excluding other secured financings), net |
|
|
7,546 |
|
|
|
(25,911 |
) |
|
|
Financial instruments owned, at fair value |
|
|
(13,266 |
) |
|
|
6,645 |
|
|
|
Financial instruments sold, but not yet purchased, at fair value |
|
|
726 |
|
|
|
3,046 |
|
|
|
Other, net |
|
|
(8,251 |
) |
|
|
(6,117 |
) |
Net cash provided by/(used for) operating activities |
|
|
6,719 |
|
|
|
(4,221 |
) |
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Purchase of property, leasehold improvements and equipment |
|
|
(302 |
) |
|
|
(164 |
) |
|
|
Proceeds from sales of property, leasehold improvements and equipment |
|
|
13 |
|
|
|
5 |
|
|
|
Business acquisitions, net of cash acquired |
|
|
(477 |
) |
|
|
(309 |
) |
|
|
Proceeds from sales of investments |
|
|
184 |
|
|
|
306 |
|
|
|
Loans receivable, net |
|
|
(3,681 |
) |
|
|
(3,041 |
) |
Net cash used for investing activities |
|
|
(4,263 |
) |
|
|
(3,203 |
) |
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Unsecured short-term borrowings, net |
|
|
(921 |
) |
|
|
921 |
|
|
|
Other secured financings (short-term), net |
|
|
(26 |
) |
|
|
423 |
|
|
|
Proceeds from issuance of other secured financings (long-term) |
|
|
4,293 |
|
|
|
1,582 |
|
|
|
Repayment of other secured financings (long-term), including the current portion |
|
|
(2,566 |
) |
|
|
(2,240 |
) |
|
|
Proceeds from issuance of unsecured long-term borrowings |
|
|
11,873 |
|
|
|
14,949 |
|
|
|
Repayment of unsecured long-term borrowings, including the current portion |
|
|
(11,319 |
) |
|
|
(9,661 |
) |
|
|
Purchase of trust preferred securities |
|
|
(1 |
) |
|
|
|
|
|
|
Derivative contracts with a financing element, net |
|
|
(46 |
) |
|
|
19 |
|
|
|
Deposits, net |
|
|
3,063 |
|
|
|
650 |
|
|
|
Common stock repurchased |
|
|
(1,250 |
) |
|
|
(1,719 |
) |
|
|
Dividends and dividend equivalents paid on common stock, preferred stock and share-based awards |
|
|
(373 |
) |
|
|
(348 |
) |
|
|
Proceeds from issuance of common stock, including exercise of share-based awards |
|
|
71 |
|
|
|
54 |
|
|
|
Excess tax benefit related to share-based awards |
|
|
275 |
|
|
|
520 |
|
|
|
Cash settlement of share-based awards |
|
|
|
|
|
|
(1 |
) |
Net cash provided by financing activities |
|
|
3,073 |
|
|
|
5,149 |
|
Net increase/(decrease) in cash and cash equivalents |
|
|
5,529 |
|
|
|
(2,275 |
) |
|
|
Cash and cash equivalents, beginning of year |
|
|
57,600 |
|
|
|
61,133 |
|
Cash and cash equivalents, end of period |
|
|
$ 63,129 |
|
|
|
$ 58,858 |
|
SUPPLEMENTAL DISCLOSURES:
Cash payments for interest, net of capitalized interest, were $1.77 billion and $2.26 billion during the three months ended March 2015 and March 2014, respectively.
Cash payments for income taxes, net of refunds, were $451 million and $1.40 billion during the three months ended March 2015 and
March 2014, respectively.
Non-cash activities:
The firm exchanged $262 million of Trust Preferred Securities and common beneficial interests held by the firm for $296 million of the firms junior subordinated debt held by the issuing trust during
the three months ended March 2015. Following the exchange, this junior subordinated debt was extinguished.
The accompanying notes
are an integral part of these condensed consolidated financial statements.
|
|
|
|
|
6 |
|
Goldman Sachs March 2015 Form 10-Q |
|
|
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1.
Description of Business
The Goldman Sachs Group, Inc. (Group Inc.), a Delaware
corporation, together with its consolidated subsidiaries (collectively, the firm), is a leading global investment banking, securities and investment management firm that provides a wide range of financial services to a substantial and diversified
client base that includes corporations, financial institutions, governments and high-net-worth individuals. Founded in 1869, the firm is headquartered in New York and maintains offices in all major financial centers around the world.
The firm reports its activities in the following four business segments:
Investment Banking
The firm provides a broad range of investment banking services to
a diverse group of corporations, financial institutions, investment funds and governments. Services include strategic advisory assignments with respect to mergers and acquisitions, divestitures, corporate defense activities, restructurings,
spin-offs and risk management, and debt and equity underwriting of public offerings and private placements, including local and cross-border transactions, as well as derivative transactions directly related to these activities.
Institutional Client Services
The
firm facilitates client transactions and makes markets in fixed income, equity, currency and commodity products, primarily with institutional clients such as corporations, financial institutions, investment funds and governments. The firm also makes
markets in and clears client transactions on major stock, options and futures exchanges worldwide and provides financing, securities lending and other prime brokerage services to institutional clients.
Investing & Lending
The
firm invests in and originates loans to provide financing to clients. These investments and loans are typically longer-term in nature. The firm makes investments, some of which are consolidated, directly and indirectly through funds that the firm
manages, in debt securities and loans, public and private equity securities, and real estate entities.
Investment Management
The firm provides investment management services and offers investment products (primarily through separately managed accounts and commingled vehicles, such as mutual funds and private investment funds)
across all major asset classes to a diverse set of institutional and individual clients. The firm also offers wealth advisory services, including portfolio management and financial counseling, and brokerage and other transaction services to
high-net-worth individuals and families.
Note 2.
Basis of Presentation
These condensed consolidated financial statements are prepared
in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and include the accounts of Group Inc. and all other entities in which the firm has a controlling financial interest. Intercompany transactions and balances
have been eliminated.
These condensed consolidated financial statements are unaudited and should be read in conjunction with
the audited consolidated financial statements included in the firms Annual Report on Form 10-K for the year ended December 31, 2014. References to the 2014 Form 10-K are to the firms Annual Report on
Form 10-K for the year ended December 31, 2014. The condensed consolidated financial information as of December 31, 2014 has been derived from audited consolidated financial statements not included herein.
These unaudited condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for
a fair statement of the results for the interim periods presented. These adjustments are of a normal, recurring nature. Interim period operating results may not be indicative of the operating results for a full year.
All references to March 2015 and March 2014 refer to the firms periods ended, or the dates, as the context requires,
March 31, 2015 and March 31, 2014, respectively. All references to December 2014 refer to the date December 31, 2014. Any reference to a future year refers to a year ending on December 31 of that year. Certain
reclassifications have been made to previously reported amounts to conform to the current presentation.
|
|
|
|
|
|
|
Goldman Sachs March 2015 Form 10-Q |
|
7 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 3.
Significant Accounting Policies
The firms significant accounting policies include when and how to measure the fair
value of assets and liabilities, accounting for goodwill and identifiable intangible assets, and when to consolidate an entity. See Notes 5 through 8 for policies on fair value measurements, Note 13 for policies on goodwill and
identifiable intangible assets, and below and Note 12 for policies on consolidation accounting. All other significant accounting policies are either discussed below or included in the following footnotes:
|
|
|
|
|
|
|
Financial Instruments Owned, at Fair Value and
Financial Instruments Sold, But Not Yet Purchased,
at Fair Value |
|
|
Note 4 |
|
|
|
Fair Value Measurements |
|
|
Note 5 |
|
|
|
Cash Instruments |
|
|
Note 6 |
|
|
|
Derivatives and Hedging Activities |
|
|
Note 7 |
|
|
|
Fair Value Option |
|
|
Note 8 |
|
|
|
Loans Receivable |
|
|
Note 9 |
|
|
|
Collateralized Agreements and Financings |
|
|
Note 10 |
|
|
|
Securitization Activities |
|
|
Note 11 |
|
|
|
Variable Interest Entities |
|
|
Note 12 |
|
|
|
Other Assets, including Goodwill and
Identifiable Intangible Assets |
|
|
Note 13 |
|
|
|
Deposits |
|
|
Note 14 |
|
|
|
Short-Term Borrowings |
|
|
Note 15 |
|
|
|
Long-Term Borrowings |
|
|
Note 16 |
|
|
|
Other Liabilities and Accrued Expenses |
|
|
Note 17 |
|
|
|
Commitments, Contingencies and Guarantees |
|
|
Note 18 |
|
|
|
Shareholders Equity |
|
|
Note 19 |
|
|
|
Regulation and Capital Adequacy |
|
|
Note 20 |
|
|
|
Earnings Per Common Share |
|
|
Note 21 |
|
|
|
Transactions with Affiliated Funds |
|
|
Note 22 |
|
|
|
Interest Income and Interest Expense |
|
|
Note 23 |
|
|
|
Income Taxes |
|
|
Note 24 |
|
|
|
Business Segments |
|
|
Note 25 |
|
|
|
Credit Concentrations |
|
|
Note 26 |
|
|
|
Legal Proceedings |
|
|
Note 27 |
|
Consolidation
The firm consolidates entities in which the firm has a controlling financial interest. The firm determines whether it has a controlling financial interest in an entity by first evaluating whether the
entity is a voting interest entity or a variable interest entity (VIE).
Voting Interest Entities.
Voting interest entities are entities in which (i) the total equity investment at risk is sufficient to enable the entity to finance its activities independently and (ii) the equity holders have the power to direct the activities of the
entity that most significantly impact its economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity. The usual condition for a controlling financial interest in a voting
interest entity is ownership of a majority voting interest. If the firm has a majority voting interest in a voting interest entity, the entity is consolidated.
Variable Interest Entities. A VIE is an entity that lacks one or more of the
characteristics of a voting interest entity. The firm has a controlling financial interest in a VIE when the firm has a variable interest or interests that provide it with (i) the power to direct the activities of the VIE that most
significantly impact the VIEs economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. See Note 12 for further
information about VIEs.
Equity-Method Investments. When the firm does not have a controlling financial interest in an entity but can exert significant influence over the entitys operating and financial policies, the investment is accounted for
either (i) under the equity method of accounting or (ii) at fair value by electing the fair value option available under U.S. GAAP. Significant influence generally exists when the firm owns 20% to 50% of the entitys common stock or
in-substance common stock.
In general, the firm accounts for investments acquired after the fair value option became
available, at fair value. In certain cases, the firm applies the equity method of accounting to new investments that are strategic in nature or closely related to the firms principal business activities, when the firm has a significant degree
of involvement in the cash flows or operations of the investee or when cost-benefit considerations are less significant. See Note 13 for further information about equity-method investments.
|
|
|
|
|
8 |
|
Goldman Sachs March 2015 Form 10-Q |
|
|
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Investment Funds. The firm has formed numerous investment funds with third-party investors. These funds are typically organized as limited partnerships or limited liability companies for which the firm acts as general
partner or manager. Generally, the firm does not hold a majority of the economic interests in these funds. These funds are usually voting interest entities and generally are not consolidated because third-party investors typically have rights to
terminate the funds or to remove the firm as general partner or manager. Investments in these funds are included in Financial instruments owned, at fair value. See Notes 6, 18 and 22 for further information about investments in
funds.
Use of Estimates
Preparation of these condensed consolidated financial statements requires management to make certain estimates and assumptions, the most
important of which relate to fair value measurements, accounting for goodwill and identifiable intangible assets, discretionary compensation accruals and the provisions for losses that may arise from litigation, regulatory proceedings and tax
audits. These estimates and assumptions are based on the best available information but actual results could be materially different.
Revenue
Recognition
Financial Assets and Financial Liabilities at Fair
Value. Financial instruments owned, at fair value and Financial instruments sold, but not yet purchased, at fair value are recorded at fair value either under the fair value option or in
accordance with other U.S. GAAP. In addition, the firm has elected to account for certain of its other financial assets and financial liabilities at fair value by electing the fair value option. The fair value of a financial instrument is the amount
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices.
Fair value measurements do not include transaction costs. Fair value gains or losses are generally included in Market making for positions in Institutional Client Services and Other principal transactions for positions in
Investing & Lending. See Notes 5 through 8 for further information about fair value measurements.
Investment Banking. Fees from financial advisory assignments and underwriting revenues are recognized in earnings when the services related to the underlying transaction are completed under the terms of the assignment.
Expenses associated with such transactions are deferred until the related revenue is recognized or the assignment is otherwise concluded. Expenses associated with financial advisory assignments are recorded as non-compensation expenses, net of
client reimbursements. Underwriting revenues are presented net of related expenses.
Investment Management. The firm earns management fees and incentive fees for investment management services. Management fees for mutual funds are
calculated as a percentage of daily net asset value and are received monthly. Management fees for hedge funds and separately managed accounts are calculated as a percentage of month-end net asset value and are generally received quarterly.
Management fees for private equity funds are calculated as a percentage of monthly invested capital or commitments and are received quarterly, semi-annually or annually, depending on the fund. All management fees are recognized over the period that
the related service is provided. Incentive fees are calculated as a percentage of a funds or separately managed accounts return, or excess return above a specified benchmark or other performance target. Incentive fees are generally based
on investment performance over a 12-month period or over the life of a fund. Fees that are based on performance over a 12-month period are subject to adjustment prior to the end of the measurement period. For fees that are based on investment
performance over the life of the fund, future investment underperformance may require fees previously distributed to the firm to be returned to the fund. Incentive fees are recognized only when all material contingencies have been resolved.
Management and incentive fee revenues are included in Investment management revenues.
The firm makes payments to
brokers and advisors related to the placement of the firms investment funds. These payments are computed based on either a percentage of the management fee or the investment funds net asset value. Where the firm is principal to the
arrangement, such costs are recorded on a gross basis and included in Brokerage, clearing, exchange and distribution fees, and where the firm is agent to the arrangement, such costs are recorded on a net basis in Investment
management revenues.
|
|
|
|
|
|
|
Goldman Sachs March 2015 Form 10-Q |
|
9 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Commissions and Fees. The firm earns Commissions and fees from executing and clearing client transactions on stock, options and futures markets, as well as over-the-counter (OTC) transactions. Commissions and fees
are recognized on the day the trade is executed.
Transfers of Assets
Transfers of assets are accounted for as sales when the firm has relinquished control over the assets transferred. For transfers of assets accounted for as sales, any related gains or losses are
recognized in net revenues. Assets or liabilities that arise from the firms continuing involvement with transferred assets are measured at fair value. For transfers of assets that are not accounted for as sales, the assets remain in
Financial instruments owned, at fair value and the transfer is accounted for as a collateralized financing, with the related interest expense recognized over the life of the transaction. See Note 10 for further information about
transfers of assets accounted for as collateralized financings and Note 11 for further information about transfers of assets accounted for as sales.
Cash and Cash Equivalents
The firm
defines cash equivalents as highly liquid overnight deposits held in the ordinary course of business. As of March 2015 and December 2014, Cash and cash equivalents included $8.08 billion and $5.79 billion,
respectively, of cash and due from banks, and $55.05 billion and $51.81 billion, respectively, of interest-bearing deposits with banks.
Receivables from Customers and Counterparties
Receivables from customers and counterparties generally relate to collateralized transactions. Such receivables are primarily comprised of customer margin loans, certain transfers of assets accounted for
as secured loans rather than purchases at fair value and collateral posted in connection with certain derivative transactions. Certain of the firms receivables from customers and counterparties are accounted for at fair value under the fair
value option, with changes in fair value generally included in Market making revenues. See Note 8 for further information about receivables from customers and counterparties accounted for at fair value under the fair value option.
Receivables from customers and counterparties not accounted for at fair value are accounted
for at amortized cost net of estimated uncollectible amounts, which generally approximates fair value. While these items are carried at amounts that approximate fair value, they are not accounted for at fair value under the fair value option or at
fair value in accordance with other U.S. GAAP and therefore are not included in the firms fair value hierarchy in Notes 6 through 8. Had these items been included in the firms fair value hierarchy, substantially all would have been
classified in level 2 as of March 2015 and December 2014. Interest on receivables from customers and counterparties is recognized over the life of the transaction and included in Interest income.
Receivables from and Payables to Brokers, Dealers and Clearing Organizations
Receivables from and payables to brokers, dealers and clearing organizations are accounted for at cost plus accrued interest, which
generally approximates fair value. While these receivables and payables are carried at amounts that approximate fair value, they are not accounted for at fair value under the fair value option or at fair value in accordance with other U.S. GAAP and
therefore are not included in the firms fair value hierarchy in Notes 6 through 8. Had these receivables and payables been included in the firms fair value hierarchy, substantially all would have been classified in level 2 as
of March 2015 and December 2014.
Payables to Customers and Counterparties
Payables to customers and counterparties primarily consist of customer credit balances related to the firms prime brokerage
activities. Payables to customers and counterparties are accounted for at cost plus accrued interest, which generally approximates fair value. While these payables are carried at amounts that approximate fair value, they are not accounted for at
fair value under the fair value option or at fair value in accordance with other U.S. GAAP and therefore are not included in the firms fair value hierarchy in Notes 6 through 8. Had these payables been included in the firms fair
value hierarchy, substantially all would have been classified in level 2 as of March 2015 and December 2014. Interest on payables to customers and counterparties is recognized over the life of the transaction and included in
Interest expense.
|
|
|
|
|
10 |
|
Goldman Sachs March 2015 Form 10-Q |
|
|
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Offsetting Assets and Liabilities
To reduce credit exposures on derivatives and securities financing transactions, the firm may enter into master netting agreements or similar arrangements (collectively, netting agreements) with
counterparties that permit it to offset receivables and payables with such counterparties. A netting agreement is a contract with a counterparty that permits net settlement of multiple transactions with that counterparty, including upon the exercise
of termination rights by a non-defaulting party. Upon exercise of such termination rights, all transactions governed by the netting agreement are terminated and a net settlement amount is calculated. In addition, the firm receives and posts cash and
securities collateral with respect to its derivatives and securities financing transactions, subject to the terms of the related credit support agreements or similar arrangements (collectively, credit support agreements). An enforceable credit
support agreement grants the non-defaulting party exercising termination rights the right to liquidate the collateral and apply the proceeds to any amounts owed. In order to assess enforceability of the firms right of setoff under netting and
credit support agreements, the firm evaluates various factors including applicable bankruptcy laws, local statutes and regulatory provisions in the jurisdiction of the parties to the agreement.
Derivatives are reported on a net-by-counterparty basis (i.e., the net payable or receivable for derivative assets and liabilities for a
given counterparty) in the condensed consolidated statements of financial condition when a legal right of setoff exists under an enforceable netting agreement. Resale and repurchase agreements and securities borrowed and loaned transactions with the
same term and currency are presented on a net-by-counterparty basis in the condensed consolidated statements of financial condition when such transactions meet certain settlement criteria and are subject to netting agreements.
In the condensed consolidated statements of financial condition, derivatives are reported net of cash collateral received and posted under
enforceable credit support agreements, when transacted under an enforceable netting agreement. In the condensed consolidated statements of financial condition, resale and repurchase agreements, and securities borrowed and loaned, are not
reported net of the related cash and securities received or posted as collateral. See Note 10 for further information about collateral received and pledged, including rights to deliver or repledge collateral. See Notes 7 and 10 for further
information about offsetting.
Share-based Compensation
The cost of employee services received in exchange for a share-based award is generally measured based on the grant-date fair value of the award. Share-based awards that do not require future service
(i.e., vested awards, including awards granted to retirement-eligible employees) are expensed immediately. Share-based awards that require future service are amortized over the relevant service period. Expected forfeitures are included in
determining share-based employee compensation expense.
The firm pays cash dividend equivalents on outstanding restricted stock
units (RSUs). Dividend equivalents paid on RSUs are generally charged to retained earnings. Dividend equivalents paid on RSUs expected to be forfeited are included in compensation expense. The firm accounts for the tax benefit related to dividend
equivalents paid on RSUs as an increase to additional paid-in capital.
The firm generally issues new shares of common stock
upon delivery of share-based awards. In certain cases, primarily related to conflicted employment (as outlined in the applicable award agreements), the firm may cash settle share-based compensation awards accounted for as equity instruments. For
these awards, whose terms allow for cash settlement, additional paid-in capital is adjusted to the extent of the difference between the value of the award at the time of cash settlement and the grant-date value of the award.
Foreign Currency Translation
Assets and liabilities denominated in non-U.S. currencies are translated at rates of exchange prevailing on the date of the condensed
consolidated statements of financial condition and revenues and expenses are translated at average rates of exchange for the period. Foreign currency remeasurement gains or losses on transactions in nonfunctional currencies are recognized in
earnings. Gains or losses on translation of the financial statements of a non-U.S. operation, when the functional currency is other than the U.S. dollar, are included, net of hedges and taxes, in the condensed consolidated statements of
comprehensive income.
|
|
|
|
|
|
|
Goldman Sachs March 2015 Form 10-Q |
|
11 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Recent Accounting Developments
Reporting Discontinued Operations and
Disclosures of Disposals of Components of an Entity (ASC 205 and ASC 360). In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements
(Topic 205) and Property, Plant, and Equipment (Topic 360) Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU No. 2014-08 limits discontinued operations reporting to
disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entitys operations and financial results. The ASU requires expanded disclosures for discontinued operations and disposals of
individually significant components of an entity that do not qualify for discontinued operations reporting. The ASU was effective for disposals and components classified as held for sale that occurred within annual periods beginning on or after
December 15, 2014, and interim periods within those years. Early adoption was permitted. The firm early adopted ASU No. 2014-08 in 2014 and adoption did not materially affect the firms financial condition, results of operations,
or cash flows.
Revenue from Contracts with Customers (ASC 606). In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU No. 2014-09 provides comprehensive guidance on the recognition of
revenue from customers arising from the transfer of goods and services. The ASU also provides guidance on accounting for certain contract costs, and requires new disclosures. ASU No. 2014-09 is effective for annual reporting periods beginning
after December 15, 2016, including interim periods within that reporting period. In April 2015, the FASB proposed deferring the effective date of ASU No. 2014-09 by one year, to annual reporting periods beginning after
December 15, 2017. Early adoption will be permitted for annual reporting periods beginning after December 15, 2016. The firm is still evaluating the effect of the ASU on its financial condition, results of operations, and cash
flows.
Repurchase-to-Maturity Transactions,
Repurchase Financings, and Disclosures (ASC 860). In June 2014, the FASB issued ASU No. 2014-11, Transfers and Servicing (Topic 860)
Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. ASU No. 2014-11 changes the accounting for repurchase- and resale-to-maturity agreements by requiring that such agreements be recognized as financing
arrangements, and requires that a transfer of a financial asset and a repurchase agreement entered into contemporaneously be accounted for separately. ASU No. 2014-11 also requires additional disclosures about certain transferred financial
assets accounted for as sales and certain securities financing transactions. The accounting changes and additional disclosures about certain transferred financial assets accounted for as sales were effective for the first interim and annual
reporting periods beginning after December 15, 2014. The additional disclosures for securities financing transactions are required for annual reporting periods beginning after December 15, 2014 and for interim reporting periods
beginning after March 15, 2015. Adoption of the accounting changes in ASU No. 2014-11 on January 1, 2015 did not materially affect the firms financial condition, results of operations, or cash flows.
Measuring the Financial Assets and the Financial Liabilities of a Consolidated
Collateralized Financing Entity (ASC 810). In August 2014, the FASB issued ASU No. 2014-13, Consolidation (Topic 810) Measuring the Financial Assets and
the Financial Liabilities of a Consolidated Collateralized Financing Entity (CFE). ASU No. 2014-13 provides an alternative to reflect changes in the fair value of the financial assets and the financial liabilities of the CFE by measuring
either the fair value of the assets or liabilities, whichever is more observable. ASU No. 2014-13 provides new disclosure requirements for those electing this approach, and is effective for interim and annual periods beginning after
December 15, 2015. Early adoption is permitted. Adoption of ASU No. 2014-13 will not materially affect the firms financial condition, results of operations, or cash flows.
|
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12 |
|
Goldman Sachs March 2015 Form 10-Q |
|
|
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Amendments to the Consolidation Analysis
(ASC 810). In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810) Amendments to the Consolidation Analysis. ASU
No. 2015-02 eliminates the deferral of the requirements of ASU No. 2009-17, Consolidations (Topic 810) Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities for certain
interests in investment funds and provides a scope exception from Topic 810 for certain investments in money market funds. The ASU also makes several modifications to the consolidation guidance for VIEs and general partners investments in
limited partnerships, as well as modifications to the evaluation of whether limited partnerships are VIEs or voting interest entities. ASU No. 2015-02 is effective for interim and annual reporting periods beginning after
December 15, 2015. Early adoption is permitted and the firm intends to early adopt in 2015. Adoption of ASU No. 2015-02 is not expected to materially affect the firms financial condition, results of operations, or cash
flows.
Simplifying the Presentation of Debt Issuance Costs (ASC
835). In April 2015, the FASB issued ASU No. 2015-03, Interest Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance
Costs. ASU No. 2015-03 simplifies the presentation of debt issuance costs by requiring that these costs related to a recognized debt liability be presented in the statement of financial condition as a direct reduction from the carrying
amount of that liability. ASU No. 2015-03 is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. Early adoption is permitted and the firm intends to early
adopt in 2015. ASU No. 2015-03 is required to be applied retrospectively to all periods presented beginning in the year of adoption. Adoption will not materially affect the firms financial condition, results of operations, or cash flows.
Disclosures for Investments in Certain
Entities That Calculate Net Asset Value (NAV) per Share (or Its Equivalent) (ASC 820). In May 2015, the FASB issued ASU No. 2015-07, Fair Value Measurement
(Topic 820) Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). ASU No. 2015-07 removes the requirement to include investments in the fair value hierarchy for which the
fair value is measured at NAV using the practical expedient under Fair Value Measurements and Disclosures (Topic 820). ASU No. 2015-07 is effective for annual reporting periods beginning after December 15, 2015,
including interim periods within that reporting period. ASU No. 2015-07 is required to be applied retrospectively to all periods presented beginning in the year of adoption. Early adoption is permitted and the firm intends to early adopt in
2015. Since ASU No. 2015-07 will only impact the firms disclosures, adoption will not affect the firms financial condition, results of operations, or cash flows.
|
|
|
|
|
|
|
Goldman Sachs March 2015 Form 10-Q |
|
13 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
|
|
|
Note 4.
Financial Instruments Owned, at Fair Value and Financial Instruments Sold, But Not Yet Purchased, at Fair Value |
|
|
|
|
Financial instruments owned, at fair value and financial instruments sold, but not yet
purchased, at fair value are accounted for at fair value either under the fair value option or in accordance with other U.S. GAAP. See Note 8 for further information about other financial assets and
financial liabilities accounted for at fair value primarily under the fair value option. The table below presents the firms financial instruments owned, at fair value, including those
pledged as collateral, and financial instruments sold, but not yet purchased, at fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 2015 |
|
|
|
|
As of December 2014 |
|
$ in millions |
|
|
Financial Instruments Owned |
|
|
|
Financial Instruments Sold, But Not Yet Purchased |
|
|
|
|
|
Financial Instruments Owned |
|
|
|
Financial Instruments Sold, But Not Yet Purchased |
|
Commercial paper, certificates of deposit, time deposits and other money market instruments |
|
|
$ 4,811 |
|
|
|
$ |
|
|
|
|
|
$ 3,654 |
|
|
|
$ |
|
|
|
U.S. government and federal agency obligations |
|
|
55,862 |
|
|
|
13,662 |
|
|
|
|
|
48,002 |
|
|
|
12,762 |
|
|
|
Non-U.S. government and agency obligations |
|
|
34,763 |
|
|
|
22,658 |
|
|
|
|
|
37,059 |
|
|
|
20,500 |
|
|
|
Mortgage and other asset-backed loans and securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and securities backed by commercial real estate |
|
|
7,424 |
1 |
|
|
|
|
|
|
|
|
6,582 |
1 |
|
|
1 |
|
|
|
Loans and securities backed by residential real estate |
|
|
11,184 |
2 |
|
|
|
|
|
|
|
|
11,717 |
2 |
|
|
|
|
|
|
Bank loans and bridge loans |
|
|
13,947 |
|
|
|
411 |
4 |
|
|
|
|
15,613 |
|
|
|
464 |
4 |
|
|
Corporate debt securities |
|
|
18,513 |
|
|
|
5,490 |
|
|
|
|
|
21,603 |
|
|
|
5,800 |
|
|
|
State and municipal obligations |
|
|
1,593 |
|
|
|
|
|
|
|
|
|
1,203 |
|
|
|
|
|
|
|
Other debt obligations |
|
|
2,088 |
3 |
|
|
2 |
|
|
|
|
|
3,257 |
3 |
|
|
2 |
|
|
|
Equities and convertible debentures |
|
|
105,178 |
|
|
|
27,171 |
|
|
|
|
|
96,442 |
|
|
|
28,314 |
|
|
|
Commodities |
|
|
3,581 |
|
|
|
991 |
|
|
|
|
|
3,846 |
|
|
|
1,224 |
|
Subtotal |
|
|
258,944 |
|
|
|
70,385 |
|
|
|
|
|
248,978 |
|
|
|
69,067 |
|
|
|
Derivatives |
|
|
66,994 |
|
|
|
62,424 |
|
|
|
|
|
63,270 |
|
|
|
63,016 |
|
Total |
|
|
$325,938 |
|
|
|
$132,809 |
|
|
|
|
|
$312,248 |
|
|
|
$132,083 |
|
1. |
Includes $5.41 billion and $4.41 billion of loans backed by commercial real estate as of March 2015 and December 2014, respectively.
|
2. |
Includes $7.00 billion and $6.43 billion of loans backed by residential real estate as of March 2015 and December 2014, respectively.
|
3. |
Includes $694 million and $618 million of loans backed by consumer loans and other assets as of March 2015 and December 2014,
respectively. |
4. |
Primarily relates to the fair value of unfunded lending commitments for which the fair value option was elected. |
|
|
|
|
|
14 |
|
Goldman Sachs March 2015 Form 10-Q |
|
|
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Gains and Losses from Market Making and Other Principal Transactions
The table below presents Market making revenues by major product type, as well as Other principal transactions
revenues. These gains/(losses) are primarily related to the firms financial instruments owned, at fair value and financial instruments sold, but not yet purchased, at fair value, including both derivative and non-derivative financial
instruments. These gains/(losses) exclude related interest income and interest expense. See Note 23 for further information about interest income and interest expense.
The gains/(losses) in the table below are not representative of the manner in which the firm manages its business activities because many of the firms market-making and client facilitation
strategies utilize financial instruments across various product types. Accordingly, gains or losses in one product type frequently offset gains or losses in other product types. For example, most of the firms longer-term derivatives across
product types are sensitive to changes in interest rates and may be economically hedged with interest rate swaps. Similarly, a significant portion of the firms cash instruments and derivatives across product types has exposure to foreign
currencies and may be economically hedged with foreign currency contracts.
|
|
|
|
|
|
|
|
|
$ in millions
Product Type |
|
Three Months
Ended March |
|
|
|
2015 |
|
|
|
2014 |
|
Interest rates |
|
|
$(2,586 |
) |
|
|
$ (280 |
) |
|
|
Credit |
|
|
932 |
|
|
|
1,180 |
|
|
|
Currencies |
|
|
3,652 |
|
|
|
295 |
|
|
|
Equities |
|
|
1,662 |
|
|
|
683 |
|
|
|
Commodities |
|
|
265 |
|
|
|
761 |
|
Market making |
|
|
3,925 |
|
|
|
2,639 |
|
Other principal transactions 1 |
|
|
1,572 |
|
|
|
1,503 |
|
Total |
|
|
$ 5,497 |
|
|
|
$4,142 |
|
1. |
Other principal transactions are included in the firms Investing & Lending segment. See Note 25 for net revenues, including net interest
income, by product type for Investing & Lending, as well as the amount of net interest income included in Investing & Lending.
|
Note 5.
Fair Value Measurements
The fair value of a financial instrument is the amount that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair
value measurements do not include transaction costs. The firm measures certain financial assets and financial liabilities as a portfolio (i.e., based on its net exposure to market and/or credit risks).
The best evidence of fair value is a quoted price in an active market. If quoted prices in active markets are not available, fair value is
determined by reference to prices for similar instruments, quoted prices or recent transactions in less active markets, or internally developed models that primarily use market-based or independently sourced parameters as inputs including, but not
limited to, interest rates, volatilities, equity or debt prices, foreign exchange rates, commodity prices, credit spreads and funding spreads (i.e., the spread, or difference, between the interest rate at which a borrower could finance a given
financial instrument relative to a benchmark interest rate).
U.S. GAAP has a three-level fair value hierarchy for disclosure
of fair value measurements. The fair value hierarchy prioritizes inputs to the valuation techniques used to measure fair value, giving the highest priority to level 1 inputs and the lowest priority to level 3 inputs. A financial
instruments level in the fair value hierarchy is based on the lowest level of input that is significant to its fair value measurement.
|
|
|
|
|
|
|
Goldman Sachs March 2015 Form 10-Q |
|
15 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The fair value hierarchy is as follows:
Level 1. Inputs are
unadjusted quoted prices in active markets to which the firm had access at the measurement date for identical, unrestricted assets or liabilities.
Level 2. Inputs to valuation techniques are observable, either directly or indirectly.
Level 3.
One or more inputs to valuation techniques are significant and unobservable.
The fair values for substantially all of the
firms financial assets and financial liabilities are based on observable prices and inputs and are classified in levels 1 and 2 of the fair value hierarchy. Certain level 2 and level 3 financial assets and financial liabilities
may require appropriate valuation adjustments that a market participant would require to arrive at fair value for factors such as counterparty and the firms credit quality, funding risk, transfer restrictions, liquidity and bid/offer spreads.
Valuation adjustments are generally based on market evidence.
See Notes 6 through 8 for further information about fair
value measurements of cash instruments, derivatives and other financial assets and financial liabilities accounted for at fair value primarily under the fair value option (including information about unrealized gains and losses related to
level 3 financial assets and financial liabilities, and transfers in and out of level 3), respectively.
The table below presents financial assets and financial liabilities accounted for at fair
value under the fair value option or in accordance with other U.S. GAAP. In the table below, counterparty and cash collateral netting represents the impact on derivatives of netting across levels of the fair value hierarchy. Netting among positions
classified in the same level is included in that level.
|
|
|
|
|
|
|
|
|
|
|
As of |
|
$ in millions |
|
|
March 2015 |
|
|
|
December 2014 |
|
Total level 1 financial assets |
|
|
$ 147,428 |
|
|
|
$ 140,221 |
|
|
|
Total level 2 financial assets |
|
|
451,551 |
|
|
|
468,678 |
|
|
|
Total level 3 financial assets |
|
|
40,124 |
|
|
|
42,005 |
|
|
|
Counterparty and cash collateral netting |
|
|
(106,649 |
) |
|
|
(104,616 |
) |
Total financial assets at fair value |
|
|
$ 532,454 |
|
|
|
$ 546,288 |
|
|
|
Total assets 1 |
|
|
$ 865,458 |
|
|
|
$ 856,240 |
|
|
|
Total level 3 financial assets as a percentage of Total assets |
|
|
4.6% |
|
|
|
4.9% |
|
|
|
Total level 3 financial assets as a percentage of Total financial assets at fair value |
|
|
7.5% |
|
|
|
7.7% |
|
|
|
Total level 1 financial liabilities |
|
|
$ 60,609 |
|
|
|
$ 59,697 |
|
|
|
Total level 2 financial liabilities |
|
|
262,860 |
|
|
|
253,364 |
|
|
|
Total level 3 financial liabilities |
|
|
16,309 |
|
|
|
15,904 |
|
|
|
Counterparty and cash collateral netting |
|
|
(46,587 |
) |
|
|
(37,267 |
) |
Total financial liabilities at fair value |
|
|
$ 293,191 |
|
|
|
$ 291,698 |
|
|
|
Total level 3 financial liabilities as a percentage of Total
financial liabilities at fair value |
|
|
5.6% |
|
|
|
5.5% |
|
1. |
Includes $842 billion and $834 billion as of March 2015 and December 2014, respectively, that is carried at fair value or at amounts that
generally approximate fair value. |
The table below presents a summary of Total level 3 financial assets.
See Notes 6 through 8 for further information about level 3 financial assets.
|
|
|
|
|
|
|
|
|
|
|
Level 3 Financial Assets
as of |
|
$ in millions |
|
|
March 2015 |
|
|
|
December 2014 |
|
Cash instruments |
|
|
$33,017 |
|
|
|
$34,875 |
|
|
|
Derivatives |
|
|
7,069 |
|
|
|
7,074 |
|
|
|
Other financial assets |
|
|
38 |
|
|
|
56 |
|
Total |
|
|
$40,124 |
|
|
|
$42,005 |
|
Level 3 financial assets as of March 2015 decreased compared with December 2014, primarily
reflecting a decrease in level 3 cash instruments. See Note 6 for further information about changes in level 3 cash instruments.
|
|
|
|
|
16 |
|
Goldman Sachs March 2015 Form 10-Q |
|
|
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 6.
Cash Instruments
Cash instruments include U.S. government and federal agency obligations, non-U.S.
government and agency obligations, bank loans and bridge loans, corporate debt securities, equities and convertible debentures, and other non-derivative financial instruments owned and financial instruments sold, but not yet purchased. See below for
the types of cash instruments included in each level of the fair value hierarchy and the valuation techniques and significant inputs used to determine their fair values. See Note 5 for an overview of the firms fair value measurement
policies.
Level 1 Cash Instruments
Level 1 cash instruments include U.S. government obligations and most non-U.S. government obligations, actively traded listed equities, certain government agency obligations and money market
instruments. These instruments are valued using quoted prices for identical unrestricted instruments in active markets.
The
firm defines active markets for equity instruments based on the average daily trading volume both in absolute terms and relative to the market capitalization for the instrument. The firm defines active markets for debt instruments based on both the
average daily trading volume and the number of days with trading activity.
Level 2 Cash Instruments
Level 2 cash instruments include commercial paper, certificates of deposit, time deposits, most government agency obligations,
certain non-U.S. government obligations, most corporate debt securities, commodities, certain mortgage-backed loans and securities, certain bank loans and bridge loans, restricted or less liquid listed equities, most state and municipal obligations
and certain lending commitments.
Valuations of level 2 cash instruments can be verified to quoted prices, recent
trading activity for identical or similar instruments, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. Consideration is given to the nature of the quotations (e.g., indicative or firm) and the
relationship of recent market activity to the prices provided from alternative pricing sources.
Valuation adjustments are
typically made to level 2 cash instruments (i) if the cash instrument is subject to transfer restrictions and/or (ii) for other premiums and liquidity discounts that a market participant would require to arrive at fair value.
Valuation adjustments are generally based on market evidence.
Level 3 Cash Instruments
Level 3 cash instruments have one or more significant valuation inputs that are not observable. Absent evidence to the contrary,
level 3 cash instruments are initially valued at transaction price, which is considered to be the best initial estimate of fair value. Subsequently, the firm uses other methodologies to determine fair value, which vary based on the type of
instrument. Valuation inputs and assumptions are changed when corroborated by substantive observable evidence, including values realized on sales of financial assets.
|
|
|
|
|
|
|
Goldman Sachs March 2015 Form 10-Q |
|
17 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Valuation Techniques and Significant Inputs
The table below presents the valuation techniques and the nature of significant inputs.
These valuation techniques and
significant inputs are generally used to determine the fair values of each type of level 3 cash instrument.
|
|
|
|
|
Level 3 Cash Instruments |
|
|
|
Valuation Techniques and Significant Inputs |
Loans and securities backed by commercial real estate
Collateralized by a single commercial real estate property or a portfolio of properties
May include tranches of varying levels of subordination |
|
|
|
Valuation techniques vary by instrument, but are generally based on discounted cash flow techniques. |
|
|
Significant inputs are generally determined based on relative value analyses and include: |
|
|
Transaction prices in both the underlying collateral and instruments with the same
or similar underlying collateral and the basis, or price difference, to such prices |
|
|
Market yields implied by transactions of similar or related assets and/or current
levels and changes in market indices such as the CMBX (an index that tracks the performance of commercial mortgage bonds) |
|
|
A measure of expected future cash flows in a default scenario (recovery rates)
implied by the value of the underlying collateral, which is mainly driven by current performance of the underlying collateral, capitalization rates and multiples. Recovery rates are expressed as a percentage of notional or face value of the
instrument and reflect the benefit of credit enhancements on certain instruments |
|
|
Timing of expected future cash flows (duration) which, in certain cases, may incorporate the impact of other unobservable inputs (e.g., prepayment speeds)
|
Loans and securities backed by residential real estate
Collateralized by portfolios of residential real estate May include tranches of varying levels of subordination |
|
|
|
Valuation techniques vary by instrument, but are generally based on discounted cash flow techniques. |
|
|
Significant inputs are generally determined based on relative value analyses, which incorporate comparisons to instruments with similar collateral
and risk profiles. Significant inputs include: |
|
|
Transaction prices in both the underlying collateral and instruments with the same
or similar underlying collateral |
|
|
Market yields implied by transactions of similar or related
assets |
|
|
Cumulative loss expectations, driven by default rates, home price projections,
residential property liquidation timelines and related costs |
|
|
Duration, driven by underlying loan prepayment speeds and residential property liquidation timelines |
Bank loans and bridge loans |
|
|
|
Valuation techniques vary by instrument, but are generally based on discounted cash flow techniques. |
|
|
Significant inputs are generally determined based on relative value analyses, which incorporate comparisons both to prices of credit default swaps
that reference the same or similar underlying instrument or entity and to other debt instruments for the same issuer for which observable prices or broker quotations are available. Significant inputs include: |
|
|
Market yields implied by transactions of similar or related assets and/or current
levels and trends of market indices such as CDX and LCDX (indices that track the performance of corporate credit and loans, respectively) |
|
|
Current performance and recovery assumptions and, where the firm uses credit default
swaps to value the related cash instrument, the cost of borrowing the underlying reference obligation |
|
|
Duration |
Non-U.S. government and agency obligations
Corporate debt securities
State and municipal obligations
Other debt obligations |
|
|
|
Valuation techniques vary by instrument, but are generally based on discounted cash flow techniques. |
|
|
Significant inputs are generally determined based on relative value analyses, which incorporate comparisons both to prices of credit default swaps
that reference the same or similar underlying instrument or entity and to other debt instruments for the same issuer for which observable prices or broker quotations are available. Significant inputs include: |
|
|
Market yields implied by transactions of similar or related assets and/or current
levels and trends of market indices such as CDX, LCDX and MCDX (an index that tracks the performance of municipal obligations) |
|
|
Current performance and recovery assumptions and, where the firm uses credit default
swaps to value the related cash instrument, the cost of borrowing the underlying reference obligation |
|
|
Duration |
Equities
and convertible debentures (including private equity investments and investments in real estate entities) |
|
|
|
Recent third-party completed or pending transactions (e.g., merger proposals, tender offers, debt restructurings) are considered to be the best
evidence for any change in fair value. When these are not available, the following valuation methodologies are used, as appropriate: |
|
|
Industry multiples (primarily EBITDA multiples) and public
comparables |
|
|
Transactions in similar instruments |
|
|
Discounted cash flow techniques |
|
|
Third-party appraisals |
|
|
Net asset value per share (NAV) |
|
|
The firm also considers changes in the outlook for the relevant industry and financial performance of the issuer as compared to projected
performance. Significant inputs include: |
|
|
Market and transaction multiples |
|
|
Discount rates, long-term growth rates, earnings compound annual growth rates and
capitalization rates |
|
|
|
|
For equity instruments with debt-like features: market yields implied by transactions of similar or related assets, current performance and recovery assumptions, and duration |
|
|
|
|
|
18 |
|
Goldman Sachs March 2015 Form 10-Q |
|
|
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Significant Unobservable Inputs
The tables below present the ranges of significant unobservable inputs used to value the
firms level 3 cash instruments. These ranges represent the significant unobservable inputs that were used in the valuation of each type of cash instrument. Weighted averages in the tables below are calculated by weighting each input by
the relative fair value of the respective financial instruments. The ranges and weighted averages of these inputs are not representative of the appropriate inputs to use when
calculating the fair value of any one cash instrument. For example, the highest multiple presented in the tables below for private equity investments is appropriate for valuing a specific private
equity investment but may not be appropriate for valuing any other private equity investment. Accordingly, the ranges of inputs presented below do not represent uncertainty in, or possible ranges of, fair value measurements of the firms
level 3 cash instruments.
|
|
|
|
|
|
|
Level 3 Cash
Instruments |
|
Level 3 Assets as of March 2015
($ in millions) |
|
Valuation Techniques and
Significant Unobservable Inputs |
|
Range of Significant Unobservable Inputs (Weighted Average) as of March 2015 |
Loans and securities backed by commercial real estate
Collateralized by a single commercial real estate property or a portfolio of properties
May include tranches of varying levels of subordination |
|
$3,017 |
|
Discounted cash flows: |
|
|
|
|
|
Yield |
|
2.8% to 20.0% (10.4%) |
|
|
|
Recovery rate |
|
20.7% to 97.0% (55.3%) |
|
|
|
Duration (years) |
|
0.4
to 4.5 (2.0) |
|
|
|
Basis
|
|
(6) points to 8 points (2 points) |
Loans and securities backed by residential real estate
Collateralized by portfolios of residential real estate May include tranches of varying levels of subordination |
|
$2,773 |
|
Discounted cash flows: |
|
|
|
|
|
Yield |
|
1.8% to 13.6% (6.9%) |
|
|
|
Cumulative loss rate |
|
1.5% to 95.4% (21.4%) |
|
|
|
Duration (years)
|
|
1.7 to 12.8 (5.1) |
Bank loans and bridge loans |
|
$6,683 |
|
Discounted cash flows: |
|
|
|
|
|
Yield |
|
1.3% to 23.8% (8.6%) |
|
|
|
Recovery rate |
|
19.5% to 85.0% (55.3%) |
|
|
|
Duration (years)
|
|
0.7 to 6.7 (2.5) |
Commercial paper, certificates of deposit, time deposits and other money market instruments
Non-U.S. government and agency obligations
Corporate debt securities State and municipal obligations Other debt
obligations |
|
$3,960 |
|
Discounted cash flows: |
|
|
|
|
|
Yield |
|
0.9% to 17.2% (8.9%) |
|
|
|
Recovery rate |
|
0.0% to 75.0% (62.0%) |
|
|
|
Duration (years)
|
|
0.2 to 18.4 (4.1) |
Equities and convertible debentures (including private equity investments and investments in real estate entities) |
|
$16,584 |
|
Market comparables and discounted cash flows 1: |
|
|
|
|
|
Multiples |
|
0.8x to 19.4x (6.7x) |
|
|
|
Discount rate/yield |
|
3.7% to 25.0% (14.0%) |
|
|
|
Long-term growth rate/ compound annual growth
rate |
|
2.6% to 10.0% (6.2%) |
|
|
|
Capitalization rate
|
|
3.8% to 11.9% (7.7%) |
1. |
The fair value of any one instrument may be determined using multiple valuation techniques. For example, market comparables and discounted cash flows may be
used together to determine fair value. Therefore, the level 3 balance encompasses both of these techniques. |
|
|
|
|
|
|
|
Goldman Sachs March 2015 Form 10-Q |
|
19 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
|
|
|
|
|
Level 3 Cash Instruments
|
|
Level 3 Assets
as of December 2014 ($ in millions) |
|
Valuation Techniques and Significant Unobservable Inputs |
|
Range of Significant Unobservable
Inputs (Weighted Average) as of December 2014 |
Loans and securities backed by commercial real estate
Collateralized by a single commercial real estate property or a portfolio of properties
May include tranches of varying levels of subordination |
|
$3,394 |
|
Discounted cash flows:
|
|
|
|
|
|
Yield |
|
3.2% to 20.0% (10.5%) |
|
|
|
Recovery rate |
|
24.9% to 100.0% (68.3%) |
|
|
|
Duration (years) |
|
0.3 to 4.7 (2.0) |
|
|
|
Basis |
|
(8) points to 13 points (2 points)
|
Loans and securities backed by residential real estate
Collateralized by portfolios of residential real estate May include tranches of varying levels of subordination |
|
$2,545 |
|
Discounted cash flows:
|
|
|
|
|
|
Yield |
|
1.9% to 17.5% (7.6%) |
|
|
|
Cumulative loss rate |
|
0.0% to 95.1% (24.4%) |
|
|
|
Duration (years) |
|
0.5 to 13.0 (4.3) |
Bank loans and bridge loans |
|
$7,346 |
|
Discounted cash flows:
|
|
|
|
|
|
Yield |
|
1.4% to 29.5% (8.7%) |
|
|
|
Recovery rate |
|
26.6% to 92.5% (60.6%) |
|
|
|
Duration (years) |
|
0.3 to 7.8 (2.5) |
Non-U.S. government and agency obligations
Corporate debt securities State and municipal obligations Other debt
obligations |
|
$4,931 |
|
Discounted cash flows:
|
|
|
|
|
|
Yield |
|
0.9% to 24.4% (9.2%) |
|
|
|
Recovery rate |
|
0.0% to 71.9% (59.2%) |
|
|
|
Duration (years) |
|
0.5 to 19.6 (3.7) |
Equities and convertible debentures (including private equity investments and investments in real estate entities) |
|
$16,659 |
|
Market comparables and discounted cash flows 1: |
|
|
|
|
|
Multiples |
|
0.8x to 16.6x (6.5x) |
|
|
|
Discount rate/yield |
|
3.7% to 30.0% (14.4%) |
|
|
|
Long-term growth rate/ compound annual growth rate |
|
1.0% to 10.0% (6.0%)
|
|
|
|
Capitalization rate |
|
3.8% to 13.0% (7.6%) |
1. |
The fair value of any one instrument may be determined using multiple valuation techniques. For example, market comparables and discounted cash flows may be
used together to determine fair value. Therefore, the level 3 balance encompasses both of these techniques. |
Increases in yield, discount rate, capitalization rate, duration or cumulative loss rate used in the valuation of the firms level 3 cash instruments would result in a lower fair value
measurement, while increases in recovery rate, basis, multiples, long-term growth rate or compound annual
growth rate would result in a higher fair value measurement. Due to the distinctive nature of each of the firms level 3 cash instruments, the interrelationship of inputs is not
necessarily uniform within each product type.
|
|
|
|
|
20 |
|
Goldman Sachs March 2015 Form 10-Q |
|
|
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Fair Value of Cash Instruments by Level
The tables below present, by level within the fair value hierarchy, cash instrument assets
and liabilities, at fair value. Cash instrument assets and liabilities are included in
Financial instruments owned, at fair value and Financial instruments sold, but not yet purchased, at fair value, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Instrument Assets at Fair Value as of March 2015 |
|
$ in millions |
|
|
Level 1 |
|
|
|
Level 2 |
|
|
|
Level 3 |
|
|
|
Total |
|
Commercial paper, certificates of deposit, time deposits and other money market instruments |
|
|
$ 461 |
|
|
|
$ 4,340 |
|
|
|
$ 10 |
|
|
|
$ 4,811 |
|
|
|
U.S. government and federal agency obligations |
|
|
25,672 |
|
|
|
30,190 |
|
|
|
|
|
|
|
55,862 |
|
|
|
Non-U.S. government and agency obligations |
|
|
27,682 |
|
|
|
6,986 |
|
|
|
95 |
|
|
|
34,763 |
|
|
|
Mortgage and other asset-backed loans and securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and securities backed by commercial real estate |
|
|
|
|
|
|
4,407 |
|
|
|
3,017 |
|
|
|
7,424 |
|
|
|
Loans and securities backed by residential real estate |
|
|
|
|
|
|
8,411 |
|
|
|
2,773 |
|
|
|
11,184 |
|
|
|
Bank loans and bridge loans |
|
|
|
|
|
|
7,264 |
|
|
|
6,683 |
|
|
|
13,947 |
|
|
|
Corporate debt securities |
|
|
212 |
|
|
|
15,474 |
|
|
|
2,827 |
|
|
|
18,513 |
|
|
|
State and municipal obligations |
|
|
|
|
|
|
1,451 |
|
|
|
142 |
|
|
|
1,593 |
|
|
|
Other debt obligations |
|
|
|
|
|
|
1,202 |
|
|
|
886 |
|
|
|
2,088 |
|
|
|
Equities and convertible debentures |
|
|
78,219 |
|
|
|
10,375 |
|
|
|
16,584 |
2 |
|
|
105,178 |
|
|
|
Commodities |
|
|
|
|
|
|
3,581 |
|
|
|
|
|
|
|
3,581 |
|
Total 1 |
|
|
$132,246 |
|
|
|
$93,681 |
|
|
|
$33,017 |
|
|
|
$258,944 |
|
|
|
|
|
Cash Instrument Liabilities at Fair Value as of March 2015 |
|
$ in millions |
|
|
Level 1 |
|
|
|
Level 2 |
|
|
|
Level 3 |
|
|
|
Total |
|
U.S. government and federal agency obligations |
|
|
$ 13,577 |
|
|
|
$ 85 |
|
|
|
$ |
|
|
|
$ 13,662 |
|
|
|
Non-U.S. government and agency obligations |
|
|
20,599 |
|
|
|
2,059 |
|
|
|
|
|
|
|
22,658 |
|
|
|
Bank loans and bridge loans |
|
|
|
|
|
|
288 |
|
|
|
123 |
|
|
|
411 |
|
|
|
Corporate debt securities |
|
|
5 |
|
|
|
5,478 |
|
|
|
7 |
|
|
|
5,490 |
|
|
|
Other debt obligations |
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
2 |
|
|
|
Equities and convertible debentures |
|
|
26,310 |
|
|
|
830 |
|
|
|
31 |
|
|
|
27,171 |
|
|
|
Commodities |
|
|
|
|
|
|
991 |
|
|
|
|
|
|
|
991 |
|
Total |
|
|
$ 60,491 |
|
|
|
$ 9,732 |
|
|
|
$ 162 |
|
|
|
$ 70,385 |
|
1. |
Includes collateralized debt obligations (CDOs) and collateralized loan obligations (CLOs) backed by real estate and corporate obligations of
$186 million in level 2 and $1.05 billion in level 3. |
2. |
Includes $15.09 billion of private equity investments, $938 million of investments in real estate entities and $556 million of convertible
debentures. |
|
|
|
|
|
|
|
Goldman Sachs March 2015 Form 10-Q |
|
21 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Instrument Assets at Fair Value as of December 2014 |
|
$ in millions |
|
|
Level 1 |
|
|
|
Level 2 |
|
|
|
Level 3 |
|
|
|
Total |
|
Commercial paper, certificates of deposit, time deposits and other money market instruments |
|
|
$ |
|
|
|
$ 3,654 |
|
|
|
$ |
|
|
|
$ 3,654 |
|
|
|
U.S. government and federal agency obligations |
|
|
18,540 |
|
|
|
29,462 |
|
|
|
|
|
|
|
48,002 |
|
|
|
Non-U.S. government and agency obligations |
|
|
30,255 |
|
|
|
6,668 |
|
|
|
136 |
|
|
|
37,059 |
|
|
|
Mortgage and other asset-backed loans and securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and securities backed by commercial real estate |
|
|
|
|
|
|
3,188 |
|
|
|
3,394 |
|
|
|
6,582 |
|
|
|
Loans and securities backed by residential real estate |
|
|
|
|
|
|
9,172 |
|
|
|
2,545 |
|
|
|
11,717 |
|
|
|
Bank loans and bridge loans |
|
|
|
|
|
|
8,267 |
|
|
|
7,346 |
|
|
|
15,613 |
|
|
|
Corporate debt securities |
|
|
249 |
|
|
|
17,539 |
|
|
|
3,815 |
|
|
|
21,603 |
|
|
|
State and municipal obligations |
|
|
|
|
|
|
1,093 |
|
|
|
110 |
|
|
|
1,203 |
|
|
|
Other debt obligations |
|
|
|
|
|
|
2,387 |
|
|
|
870 |
|
|
|
3,257 |
|
|
|
Equities and convertible debentures |
|
|
69,711 |
|
|
|
10,072 |
|
|
|
16,659 |
2 |
|
|
96,442 |
|
|
|
Commodities |
|
|
|
|
|
|
3,846 |
|
|
|
|
|
|
|
3,846 |
|
Total 1 |
|
|
$118,755 |
|
|
|
$95,348 |
|
|
|
$34,875 |
|
|
|
$248,978 |
|
|
|
|
|
Cash Instrument Liabilities at Fair Value as of December 2014 |
|
$ in millions |
|
|
Level 1 |
|
|
|
Level 2 |
|
|
|
Level 3 |
|
|
|
Total |
|
U.S. government and federal agency obligations |
|
|
$ 12,746 |
|
|
|
$ 16 |
|
|
|
$ |
|
|
|
$ 12,762 |
|
|
|
Non-U.S. government and agency obligations |
|
|
19,256 |
|
|
|
1,244 |
|
|
|
|
|
|
|
20,500 |
|
|
|
Mortgage and other asset-backed loans and securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and securities backed by commercial real estate |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
Bank loans and bridge loans |
|
|
|
|
|
|
286 |
|
|
|
178 |
|
|
|
464 |
|
|
|
Corporate debt securities |
|
|
|
|
|
|
5,741 |
|
|
|
59 |
|
|
|
5,800 |
|
|
|
Other debt obligations |
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
2 |
|
|
|
Equities and convertible debentures |
|
|
27,587 |
|
|
|
722 |
|
|
|
5 |
|
|
|
28,314 |
|
|
|
Commodities |
|
|
|
|
|
|
1,224 |
|
|
|
|
|
|
|
1,224 |
|
Total |
|
|
$ 59,589 |
|
|
|
$ 9,234 |
|
|
|
$ 244 |
|
|
|
$ 69,067 |
|
1. |
Includes CDOs and CLOs backed by real estate and corporate obligations of $234 million in level 2 and $1.34 billion in level 3.
|
2. |
Includes $14.93 billion of private equity investments, $1.17 billion of investments in real estate entities and $562 million of convertible
debentures. |
Transfers Between Levels of the Fair Value Hierarchy
Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they
occur. During the three months ended March 2015, transfers into level 2 from level 1 of cash instruments were $141 million, reflecting transfers of public equity securities primarily due to decreased market activity in these
instruments. During the three months ended March 2015, transfers into level 1 from level 2 of cash instruments were $237 million, reflecting transfers of public equity securities due to increased market activity in these
instruments. During the three months ended March 2014, transfers into level 2 from level 1 of cash instruments were $37 million, reflecting transfers of public equity securities due to decreased market activity in these
instruments. During the three months ended March 2014, transfers into level 1 from level 2 of cash instruments were $104 million, reflecting transfers of public equity securities, primarily due to increased market activity in
these instruments.
See level 3 rollforward below for information about transfers between level 2 and
level 3.
Level 3 Rollforward
If a cash instrument asset or liability was transferred to level 3 during a reporting period, its entire gain or loss for the period is included in level 3.
Level 3 cash instruments are frequently economically hedged with level 1 and level 2 cash instruments and/or level 1,
level 2 or level 3 derivatives. Accordingly, gains or losses that are reported in level 3 can be partially offset by gains or losses attributable to level 1 or level 2 cash instruments and/or level 1, level 2 or
level 3 derivatives. As a result, gains or losses included in the level 3 rollforward below do not necessarily represent the overall impact on the firms results of operations, liquidity or capital resources.
|
|
|
|
|
22 |
|
Goldman Sachs March 2015 Form 10-Q |
|
|
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The tables below present changes in fair value for all cash instrument assets and
liabilities categorized as level 3 as of
the end of the period. Purchases in the tables below include both originations and secondary market purchases.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 Cash Instrument Assets at Fair Value for the Three Months Ended March 2015 |
|
$ in millions |
|
|
Balance, beginning of period |
|
|
|
Net realized gains/ (losses) |
|
|
|
Net unrealized gains/(losses) relating to instruments still held at period-end |
|
|
|
Purchases |
|
|
|
Sales |
|
|
|
Settlements |
|
|
|
Transfers into level 3 |
|
|
|
Transfers out of level 3 |
|
|
|
Balance, end of period |
|
Commercial paper, certificates of deposit, time deposits and other money market instruments |
|
|
$ |
|
|
|
$ |
|
|
|
$ (1 |
) |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ 11 |
|
|
|
$ |
|
|
|
$ 10 |
|
|
|
Non-U.S. government and agency obligations |
|
|
136 |
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
(24 |
) |
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
95 |
|
|
|
Mortgage and other asset-backed loans and securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and securities backed by commercial real estate |
|
|
3,394 |
|
|
|
35 |
|
|
|
(20 |
) |
|
|
272 |
|
|
|
(149 |
) |
|
|
(894 |
) |
|
|
414 |
|
|
|
(35 |
) |
|
|
3,017 |
|
|
|
Loans and securities backed by residential real estate |
|
|
2,545 |
|
|
|
48 |
|
|
|
62 |
|
|
|
386 |
|
|
|
(268 |
) |
|
|
(183 |
) |
|
|
280 |
|
|
|
(97 |
) |
|
|
2,773 |
|
|
|
Bank loans and bridge loans |
|
|
7,346 |
|
|
|
99 |
|
|
|
(112 |
) |
|
|
536 |
|
|
|
(403 |
) |
|
|
(890 |
) |
|
|
729 |
|
|
|
(622 |
) |
|
|
6,683 |
|
|
|
Corporate debt securities |
|
|
3,815 |
|
|
|
38 |
|
|
|
(13 |
) |
|
|
169 |
|
|
|
(367 |
) |
|
|
(259 |
) |
|
|
292 |
|
|
|
(848 |
) |
|
|
2,827 |
|
|
|
State and municipal obligations |
|
|
110 |
|
|
|
|
|
|
|
1 |
|
|
|
27 |
|
|
|
(3 |
) |
|
|
1 |
|
|
|
33 |
|
|
|
(27 |
) |
|
|
142 |
|
|
|
Other debt obligations |
|
|
870 |
|
|
|
16 |
|
|
|
7 |
|
|
|
150 |
|
|
|
(41 |
) |
|
|
(55 |
) |
|
|
16 |
|
|
|
(77 |
) |
|
|
886 |
|
|
|
Equities and convertible debentures |
|
|
16,659 |
|
|
|
42 |
|
|
|
519 |
|
|
|
218 |
|
|
|
(114 |
) |
|
|
(593 |
) |
|
|
442 |
|
|
|
(589 |
) |
|
|
16,584 |
|
Total |
|
|
$34,875 |
|
|
|
$279 |
1 |
|
|
$ 443 |
1 |
|
|
$1,759 |
|
|
|
$(1,369 |
) |
|
|
$(2,892 |
) |
|
|
$2,217 |
|
|
|
$(2,295 |
) |
|
|
$33,017 |
|
|
|
|
|
Level 3 Cash Instrument Liabilities at Fair Value for the Three Months Ended March 2015 |
|
$ in millions |
|
|
Balance, beginning of period |
|
|
|
Net realized (gains)/ losses |
|
|
|
Net unrealized (gains)/losses relating to instruments still held at period-end |
|
|
|
Purchases |
|
|
|
Sales |
|
|
|
Settlements |
|
|
|
Transfers into level 3 |
|
|
|
Transfers out of level 3 |
|
|
|
Balance, end of period |
|
Total |
|
|
$ 244 |
|
|
|
$ 3 |
|
|
|
$ (28 |
) |
|
|
$ (56 |
) |
|
|
$ 24 |
|
|
|
$ |
|
|
|
$ 41 |
|
|
|
$ (66 |
) |
|
|
$ 162 |
|
1. |
The aggregate amounts include gains of approximately $94 million, $456 million and $172 million reported in Market making,
Other principal transactions and Interest income, respectively. |
The net unrealized gain on level 3 cash instruments of $471 million (reflecting
$443 million on cash instrument assets and $28 million on cash instrument liabilities) for the three months ended March 2015 primarily reflected gains on private equity investments principally driven by strong corporate performance
and company-specific events.
Transfers into level 3 during the three months ended March 2015 primarily reflected
transfers of certain bank loans and bridge loans, private equity investments and loans and securities backed by commercial real estate from level 2 principally due to reduced price transparency as a result of a lack of market evidence,
including fewer market transactions in these instruments.
Transfers out of level 3 during the three months ended March 2015 primarily
reflected transfers of certain corporate debt securities, bank loans and bridge loans and private equity investments to level 2 principally due to increased price transparency as a result of market evidence, including additional market
transactions in these instruments.
|
|
|
|
|
|
|
Goldman Sachs March 2015 Form 10-Q |
|
23 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 Cash Instrument Assets at Fair Value for the Three Months Ended March 2014 |
|
$ in millions |
|
|
Balance, beginning of period |
|
|
|
Net realized gains/ (losses) |
|
|
|
Net unrealized gains/(losses) relating to instruments still held at period-end |
|
|
|
Purchases |
|
|
|
Sales |
|
|
|
Settlements |
|
|
|
Transfers into level 3 |
|
|
|
Transfers out of level 3 |
|
|
|
Balance, end of period |
|
Non-U.S. government and agency obligations |
|
|
$ 40 |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ 13 |
|
|
|
$ (15 |
) |
|
|
$ (1 |
) |
|
|
$ 8 |
|
|
|
$ |
|
|
|
$ 45 |
|
|
|
Mortgage and other asset-backed loans and securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and securities backed by commercial real estate |
|
|
2,692 |
|
|
|
26 |
|
|
|
79 |
|
|
|
150 |
|
|
|
(58 |
) |
|
|
(264 |
) |
|
|
274 |
|
|
|
(273 |
) |
|
|
2,626 |
|
|
|
Loans and securities backed by residential real estate |
|
|
1,961 |
|
|
|
29 |
|
|
|
84 |
|
|
|
121 |
|
|
|
(54 |
) |
|
|
(69 |
) |
|
|
161 |
|
|
|
(168 |
) |
|
|
2,065 |
|
|
|
Bank loans and bridge loans |
|
|
9,324 |
|
|
|
95 |
|
|
|
140 |
|
|
|
1,342 |
|
|
|
(646 |
) |
|
|
(884 |
) |
|
|
658 |
|
|
|
(342 |
) |
|
|
9,687 |
|
|
|
Corporate debt securities |
|
|
2,873 |
|
|
|
62 |
|
|
|
62 |
|
|
|
312 |
|
|
|
(296 |
) |
|
|
(297 |
) |
|
|
197 |
|
|
|
(281 |
) |
|
|
2,632 |
|
|
|
State and municipal obligations |
|
|
257 |
|
|
|
1 |
|
|
|
2 |
|
|
|
36 |
|
|
|
(53 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
242 |
|
|
|
Other debt obligations |
|
|
807 |
|
|
|
9 |
|
|
|
7 |
|
|
|
56 |
|
|
|
(101 |
) |
|
|
(72 |
) |
|
|
28 |
|
|
|
(94 |
) |
|
|
640 |
|
|
|
Equities and convertible debentures |
|
|
14,685 |
|
|
|
22 |
|
|
|
457 |
|
|
|
624 |
|
|
|
(221 |
) |
|
|
(245 |
) |
|
|
1,501 |
|
|
|
(1,016 |
) |
|
|
15,807 |
|
Total |
|
|
$32,639 |
|
|
|
$244 |
1 |
|
|
$831 |
1 |
|
|
$2,654 |
|
|
|
$(1,444 |
) |
|
|
$(1,833 |
) |
|
|
$2,827 |
|
|
|
$(2,174 |
) |
|
|
$33,744 |
|
|
|
|
|
Level 3 Cash Instrument Liabilities at Fair Value for the Three Months Ended March 2014 |
|
$ in millions |
|
|
Balance, beginning of period |
|
|
|
Net realized (gains)/ losses |
|
|
|
Net unrealized (gains)/losses relating to instruments still held at period-end |
|
|
|
Purchases |
|
|
|
Sales |
|
|
|
Settlements |
|
|
|
Transfers into level 3 |
|
|
|
Transfers out of level 3 |
|
|
|
Balance, end of period |
|
Total |
|
|
$ 297 |
|
|
|
$ (3 |
) |
|
|
$ (41 |
) |
|
|
$ (54 |
) |
|
|
$ 12 |
|
|
|
$ 3 |
|
|
|
$ 11 |
|
|
|
$ (21 |
) |
|
|
$ 204 |
|
1. |
The aggregate amounts include gains of approximately $128 million, $773 million and $174 million reported in Market making,
Other principal transactions and Interest income, respectively. |
The net unrealized gain on level 3 cash instruments of $872 million (reflecting
$831 million on cash instrument assets and $41 million on cash instrument liabilities) for the three months ended March 2014 primarily consisted of gains on private equity investments principally driven by strong corporate performance
and company-specific events and bank loans and bridge loans principally due to company-specific events.
Transfers into
level 3 during the three months ended March 2014 primarily reflected transfers of certain private equity investments and bank loans and bridge loans from level 2 principally due to reduced price transparency as a result of a lack of
market evidence, including market transactions in these instruments.
Transfers out of level 3 during the three months ended March 2014 primarily
reflected transfers of certain private equity investments and bank loans and bridge loans to level 2 primarily due to increased price transparency as a result of market evidence, including market transactions in these instruments.
|
|
|
|
|
24 |
|
Goldman Sachs March 2015 Form 10-Q |
|
|
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
|
|
|
Investments in Funds That Are Calculated Using Net Asset Value Per Share |
|
|
|
|
Cash instruments at fair value include investments in funds that are calculated based on
the net asset value per share (NAV) of the investment fund. The firm uses NAV as its measure of fair value for fund investments when (i) the fund investment does not have a readily determinable fair value and (ii) the NAV of the investment
fund is calculated in a manner consistent with the measurement principles of investment company accounting, including measurement of the underlying investments at fair value.
The firms investments in funds that are calculated using NAV primarily consist of investments in firm-sponsored private equity, credit, real estate and hedge funds where the firm co-invests with
third-party investors.
Private equity funds primarily invest in a broad range of industries worldwide in a variety of
situations, including leveraged buyouts, recapitalizations, growth investments and distressed investments. Credit funds generally invest in loans and other fixed income instruments and are focused on providing private high-yield capital for mid- to
large-sized leveraged and management buyout transactions, recapitalizations, financings, refinancings, acquisitions and restructurings for private equity firms, private family companies and corporate issuers. Real estate funds invest globally,
primarily in real estate companies, loan portfolios, debt recapitalizations and property. The private equity, credit and real estate funds are primarily closed-end funds in which the firms investments are generally not eligible for redemption.
Distributions will be received from these funds as the underlying assets are liquidated or distributed.
The firm also invests
in hedge funds, primarily multi-disciplinary hedge funds that employ a fundamental bottom-up investment approach across various asset classes and strategies including long/short equity, credit, convertibles, risk arbitrage, special situations and
capital structure arbitrage. The firms investments in hedge funds primarily include interests where the underlying assets are illiquid in nature, and proceeds from redemptions will not be received until the underlying assets are liquidated or
distributed.
Many of the funds described above are covered funds as defined by the Volcker
Rule of the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The Board of Governors of the Federal Reserve System (Federal Reserve Board) extended the conformance period through July 2016 for investments in, and
relationships with, covered funds that were in place prior to December 31, 2013, and indicated that it intends to further extend the conformance period through July 2017.
The firm continues to manage its existing funds, taking into account the extension outlined above, and has redeemed $3.00 billion of
its interests in hedge funds since March 2012. In order to be compliant with the Volcker Rule, the firm will be required to reduce most of its interests in the funds in the table below by the prescribed compliance date.
The tables below present the fair value of the firms investments in, and unfunded commitments to, funds that are calculated using
NAV.
|
|
|
|
|
|
|
|
|
|
|
As of March 2015 |
|
$ in millions |
|
|
Fair Value of Investments |
|
|
|
Unfunded Commitments |
|
Private equity funds |
|
|
$6,101 |
|
|
|
$2,129 |
|
|
|
Credit funds |
|
|
874 |
|
|
|
329 |
|
|
|
Hedge funds |
|
|
844 |
|
|
|
|
|
|
|
Real estate funds |
|
|
1,625 |
|
|
|
342 |
|
Total |
|
|
$9,444 |
|
|
|
$2,800 |
|
|
|
|
|
As of December 2014 |
|
$ in millions |
|
|
Fair Value of Investments |
|
|
|
Unfunded Commitments |
|
Private equity funds |
|
|
$6,356 |
|
|
|
$2,181 |
|
|
|
Credit funds |
|
|
1,021 |
|
|
|
390 |
|
|
|
Hedge funds |
|
|
863 |
|
|
|
|
|
|
|
Real estate funds |
|
|
1,604 |
|
|
|
344 |
|
Total |
|
|
$9,844 |
|
|
|
$2,915 |
|
|
|
|
|
|
|
|
Goldman Sachs March 2015 Form 10-Q |
|
25 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 7.
Derivatives and Hedging Activities
Derivative Activities
Derivatives are instruments that derive their value from underlying asset prices, indices,
reference rates and other inputs, or a combination of these factors. Derivatives may be traded on an exchange (exchange-traded) or they may be privately negotiated contracts, which are usually referred to as OTC derivatives. Certain of the
firms OTC derivatives are cleared and settled through central clearing counterparties (OTC-cleared), while others are bilateral contracts between two counterparties (bilateral OTC).
Market-Making. As a
market maker, the firm enters into derivative transactions to provide liquidity to clients and to facilitate the transfer and hedging of their risks. In this capacity, the firm typically acts as principal and is consequently required to commit
capital to provide execution. As a market maker, it is essential to maintain an inventory of financial instruments sufficient to meet expected client and market demands.
Risk Management. The firm also enters into derivatives to actively manage risk exposures
that arise from its market-making and investing and lending activities in derivative and cash instruments. The firms holdings and exposures are hedged, in many cases, on either a portfolio or risk-specific basis, as opposed to an
instrument-by-instrument basis. The offsetting impact of this economic hedging is reflected in the same business segment as the related revenues. In addition, the firm may enter into derivatives designated as hedges under U.S. GAAP. These
derivatives are used to manage interest rate exposure in certain fixed-rate unsecured long-term and short-term borrowings, and deposits, and to manage foreign currency exposure on the net investment in certain non-U.S. operations.
The firm enters into various types of derivatives, including:
|
|
Futures and Forwards. Contracts
that commit counterparties to purchase or sell financial instruments, commodities or currencies in the future. |
|
|
Swaps. Contracts that require
counterparties to exchange cash flows such as currency or interest payment streams. The amounts exchanged are based on the specific terms of the contract with reference to specified rates, financial instruments, commodities, currencies or indices.
|
|
|
Options. Contracts in which the
option purchaser has the right, but not the obligation, to purchase from or sell to the option writer financial instruments, commodities or currencies within a defined time period for a specified price. |
Derivatives are reported on a net-by-counterparty basis (i.e., the net payable or receivable for derivative assets and liabilities for a
given counterparty) when a legal right of setoff exists under an enforceable netting agreement (counterparty netting). Derivatives are accounted for at fair value, net of cash collateral received or posted under enforceable credit support agreements
(cash collateral netting). Derivative assets and liabilities are included in Financial instruments owned, at fair value and Financial instruments sold, but not yet purchased, at fair value, respectively. Substantially all
gains and losses on derivatives not designated as hedges under ASC 815 are included in Market making and Other principal transactions.
|
|
|
|
|
26 |
|
Goldman Sachs March 2015 Form 10-Q |
|
|
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The table below presents the fair value and the notional amount of derivative contracts by
major product type on a gross basis. Gross fair values exclude the effects of both counterparty netting and collateral, and therefore are not representative of the firms exposure. The table below also presents the amounts of counterparty and
cash collateral netting in the condensed consolidated statements of financial condition, as well as cash and securities collateral posted and received under enforceable credit support
agreements that do not meet the criteria for netting under U.S. GAAP. Where the firm has received or posted collateral under credit support agreements, but has not yet determined such agreements
are enforceable, the related collateral has not been netted in the table below. Notional amounts, which represent the sum of gross long and short derivative contracts, provide an indication of the volume of the firms derivative activity and do
not represent anticipated losses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 2015 |
|
|
|
|
As of December 2014 |
|
$ in millions |
|
|
Derivative Assets |
|
|
|
Derivative Liabilities |
|
|
|
Notional
Amount |
|
|
|
|
|
Derivative Assets |
|
|
|
Derivative Liabilities |
|
|
|
Notional
Amount |
|
Derivatives not accounted for as hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange-traded |
|
|
$ 281 |
|
|
|
$ 242 |
|
|
|
$ 3,450,890 |
|
|
|
|
|
$ 228 |
|
|
|
$ 238 |
|
|
|
$ 3,151,865 |
|
|
|
OTC-cleared |
|
|
338,541 |
|
|
|
319,795 |
|
|
|
25,195,387 |
|
|
|
|
|
351,801 |
|
|
|
330,298 |
|
|
|
30,408,636 |
|
|
|
Bilateral OTC |
|
|
455,304 |
|
|
|
431,426 |
|
|
|
13,195,523 |
|
|
|
|
|
434,333 |
|
|
|
409,071 |
|
|
|
13,552,017 |
|
Total interest rates |
|
|
794,126 |
|
|
|
751,463 |
|
|
|
41,841,800 |
|
|
|
|
|
786,362 |
|
|
|
739,607 |
|
|
|
47,112,518 |
|
OTC-cleared |
|
|
6,516 |
|
|
|
6,219 |
|
|
|
403,427 |
|
|
|
|
|
5,812 |
|
|
|
5,663 |
|
|
|
378,099 |
|
|
|
Bilateral OTC |
|
|
40,868 |
|
|
|
36,554 |
|
|
|
1,963,511 |
|
|
|
|
|
49,036 |
|
|
|
44,491 |
|
|
|
2,122,859 |
|
Total credit |
|
|
47,384 |
|
|
|
42,773 |
|
|
|
2,366,938 |
|
|
|
|
|
54,848 |
|
|
|
50,154 |
|
|
|
2,500,958 |
|
Exchange-traded |
|
|
148 |
|
|
|
319 |
|
|
|
19,377 |
|
|
|
|
|
69 |
|
|
|
69 |
|
|
|
17,214 |
|
|
|
OTC-cleared |
|
|
120 |
|
|
|
72 |
|
|
|
15,784 |
|
|
|
|
|
100 |
|
|
|
96 |
|
|
|
13,304 |
|
|
|
Bilateral OTC |
|
|
133,302 |
|
|
|
132,277 |
|
|
|
5,758,907 |
|
|
|
|
|
109,747 |
|
|
|
108,442 |
|
|
|
5,535,685 |
|
Total currencies |
|
|
133,570 |
|
|
|
132,668 |
|
|
|
5,794,068 |
|
|
|
|
|
109,916 |
|
|
|
108,607 |
|
|
|
5,566,203 |
|
Exchange-traded |
|
|
7,212 |
|
|
|
6,844 |
|
|
|
339,954 |
|
|
|
|
|
7,683 |
|
|
|
7,166 |
|
|
|
321,378 |
|
|
|
OTC-cleared |
|
|
285 |
|
|
|
287 |
|
|
|
2,634 |
|
|
|
|
|
313 |
|
|
|
315 |
|
|
|
3,036 |
|
|
|
Bilateral OTC |
|
|
17,707 |
|
|
|
18,913 |
|
|
|
316,911 |
|
|
|
|
|
20,994 |
|
|
|
21,065 |
|
|
|
345,065 |
|
Total commodities |
|
|
25,204 |
|
|
|
26,044 |
|
|
|
659,499 |
|
|
|
|
|
28,990 |
|
|
|
28,546 |
|
|
|
669,479 |
|
Exchange-traded |
|
|
9,411 |
|
|
|
9,304 |
|
|
|
547,669 |
|
|
|
|
|
9,592 |
|
|
|
9,636 |
|
|
|
541,711 |
|
|
|
Bilateral OTC |
|
|
46,138 |
|
|
|
43,309 |
|
|
|
970,916 |
|
|
|
|
|
49,339 |
|
|
|
49,013 |
|
|
|
983,784 |
|
Total equities |
|
|
55,549 |
|
|
|
52,613 |
|
|
|
1,518,585 |
|
|
|
|
|
58,931 |
|
|
|
58,649 |
|
|
|
1,525,495 |
|
Subtotal |
|
|
1,055,833 |
|
|
|
1,005,561 |
|
|
|
52,180,890 |
|
|
|
|
|
1,039,047 |
|
|
|
985,563 |
|
|
|
57,374,653 |
|
Derivatives accounted for as hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTC-cleared |
|
|
2,648 |
|
|
|
19 |
|
|
|
32,801 |
|
|
|
|
|
2,713 |
|
|
|
228 |
|
|
|
31,109 |
|
|
|
Bilateral OTC |
|
|
11,531 |
|
|
|
27 |
|
|
|
81,857 |
|
|
|
|
|
11,559 |
|
|
|
34 |
|
|
|
95,389 |
|
Total interest rates |
|
|
14,179 |
|
|
|
46 |
|
|
|
114,658 |
|
|
|
|
|
14,272 |
|
|
|
262 |
|
|
|
126,498 |
|
OTC-cleared |
|
|
4 |
|
|
|
14 |
|
|
|
1,284 |
|
|
|
|
|
12 |
|
|
|
3 |
|
|
|
1,205 |
|
|
|
Bilateral OTC |
|
|
238 |
|
|
|
1 |
|
|
|
7,176 |
|
|
|
|
|
113 |
|
|
|
13 |
|
|
|
8,431 |
|
Total currencies |
|
|
242 |
|
|
|
15 |
|
|
|
8,460 |
|
|
|
|
|
125 |
|
|
|
16 |
|
|
|
9,636 |
|
Subtotal |
|
|
14,421 |
|
|
|
61 |
|
|
|
123,118 |
|
|
|
|
|
14,397 |
|
|
|
278 |
|
|
|
136,134 |
|
Total gross fair value/notional amount of derivatives |
|
|
$ 1,070,254 |
1 |
|
|
$1,005,622 |
1 |
|
|
$52,304,008 |
|
|
|
|
|
$1,053,444 |
1 |
|
|
$ 985,841 |
1 |
|
|
$57,510,787 |
|
Amounts that have been offset in the condensed consolidated statements of financial condition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange-traded |
|
|
$ (14,506 |
) |
|
|
$ (14,506 |
) |
|
|
|
|
|
|
|
|
$ (15,039 |
) |
|
|
$ (15,039 |
) |
|
|
|
|
|
|
OTC-cleared |
|
|
(324,989 |
) |
|
|
(324,989 |
) |
|
|
|
|
|
|
|
|
(335,792 |
) |
|
|
(335,792 |
) |
|
|
|
|
|
|
Bilateral OTC |
|
|
(558,346 |
) |
|
|
(558,346 |
) |
|
|
|
|
|
|
|
|
(535,839 |
) |
|
|
(535,839 |
) |
|
|
|
|
Total counterparty netting |
|
|
(897,841 |
) |
|
|
(897,841 |
) |
|
|
|
|
|
|
|
|
(886,670 |
) |
|
|
(886,670 |
) |
|
|
|
|
OTC-cleared |
|
|
(22,848 |
) |
|
|
(1,191 |
) |
|
|
|
|
|
|
|
|
(24,801 |
) |
|
|
(738 |
) |
|
|
|
|
|
|
Bilateral OTC |
|
|
(82,571 |
) |
|
|
(44,166 |
) |
|
|
|
|
|
|
|
|
(78,703 |
) |
|
|
(35,417 |
) |
|
|
|
|
Total cash collateral netting |
|
|
(105,419 |
) |
|
|
(45,357 |
) |
|
|
|
|
|
|
|
|
(103,504 |
) |
|
|
(36,155 |
) |
|
|
|
|
Total counterparty and cash collateral netting |
|
|
$(1,003,260 |
) |
|
|
$ (943,198 |
) |
|
|
|
|
|
|
|
|
$ (990,174 |
) |
|
|
$(922,825 |
) |
|
|
|
|
Amounts included in financial instruments owned/financial instruments sold, but not yet purchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange-traded |
|
|
$ 2,546 |
|
|
|
$ 2,203 |
|
|
|
|
|
|
|
|
|
$ 2,533 |
|
|
|
$ 2,070 |
|
|
|
|
|
|
|
OTC-cleared |
|
|
277 |
|
|
|
226 |
|
|
|
|
|
|
|
|
|
158 |
|
|
|
73 |
|
|
|
|
|
|
|
Bilateral OTC |
|
|
64,171 |
|
|
|
59,995 |
|
|
|
|
|
|
|
|
|
60,579 |
|
|
|
60,873 |
|
|
|
|
|
Total amounts included in the condensed consolidated statements of financial
condition |
|
|
$ 66,994 |
|
|
|
$ 62,424 |
|
|
|
|
|
|
|
|
|
$ 63,270 |
|
|
|
$ 63,016 |
|
|
|
|
|
Amounts that have not been offset in the condensed consolidated statements of financial condition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash collateral received/posted |
|
|
$ (664 |
) |
|
|
$ (2,947 |
) |
|
|
|
|
|
|
|
|
$ (980 |
) |
|
|
$ (2,940 |
) |
|
|
|
|
|
|
Securities collateral received/posted |
|
|
(15,237 |
) |
|
|
(18,092 |
) |
|
|
|
|
|
|
|
|
(14,742 |
) |
|
|
(18,159 |
) |
|
|
|
|
Total |
|
|
$ 51,093 |
|
|
|
$ 41,385 |
|
|
|
|
|
|
|
|
|
$ 47,548 |
|
|
|
$ 41,917 |
|
|
|
|
|
1. |
Includes derivative assets and derivative liabilities of $25.75 billion and $24.95 billion, respectively, as of March 2015, and derivative
assets and derivative liabilities of $25.93 billion and $26.19 billion, respectively, as of December 2014, which are not subject to an enforceable netting agreement or are subject to a netting agreement that the firm has not yet
determined to be enforceable. |
|
|
|
|
|
|
|
Goldman Sachs March 2015 Form 10-Q |
|
27 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Valuation Techniques for Derivatives
The firms level 2 and level 3 derivatives are valued using derivative pricing models (e.g., discounted cash flow models, correlation models, and models that incorporate option pricing
methodologies, such as Monte Carlo simulations). Price transparency of derivatives can generally be characterized by product type.
|
|
Interest Rate. In general, the key
inputs used to value interest rate derivatives are transparent, even for most long-dated contracts. Interest rate swaps and options denominated in the currencies of leading industrialized nations are characterized by high trading volumes and tight
bid/offer spreads. Interest rate derivatives that reference indices, such as an inflation index, or the shape of the yield curve (e.g., 10-year swap rate vs. 2-year swap rate) are more complex, but the key inputs are generally observable.
|
|
|
Credit. Price transparency for
credit default swaps, including both single names and baskets of credits, varies by market and underlying reference entity or obligation. Credit default swaps that reference indices, large corporates and major sovereigns generally exhibit the most
price transparency. For credit default swaps with other underliers, price transparency varies based on credit rating, the cost of borrowing the underlying reference obligations, and the availability of the underlying reference obligations for
delivery upon the default of the issuer. Credit default swaps that reference loans, asset-backed securities and emerging market debt instruments tend to have less price transparency than those that reference corporate bonds. In addition, more
complex credit derivatives, such as those sensitive to the correlation between two or more underlying reference obligations, generally have less price transparency. |
|
|
Currency. Prices for currency
derivatives based on the exchange rates of leading industrialized nations, including those with longer tenors, are generally transparent. The primary difference between the price transparency of developed and emerging market currency derivatives is
that emerging markets tend to be observable for contracts with shorter tenors.
|
|
|
Commodity. Commodity derivatives
include transactions referenced to energy (e.g., oil and natural gas), metals (e.g., precious and base) and soft commodities (e.g., agricultural). Price transparency varies based on the underlying commodity, delivery location, tenor and product
quality (e.g., diesel fuel compared to unleaded gasoline). In general, price transparency for commodity derivatives is greater for contracts with shorter tenors and contracts that are more closely aligned with major and/or benchmark commodity
indices. |
|
|
Equity. Price transparency for
equity derivatives varies by market and underlier. Options on indices and the common stock of corporates included in major equity indices exhibit the most price transparency. Equity derivatives generally have observable market prices, except for
contracts with long tenors or reference prices that differ significantly from current market prices. More complex equity derivatives, such as those sensitive to the correlation between two or more individual stocks, generally have less price
transparency. |
Liquidity is essential to observability of all product types. If transaction volumes decline,
previously transparent prices and other inputs may become unobservable. Conversely, even highly structured products may at times have trading volumes large enough to provide observability of prices and other inputs. See Note 5 for an overview
of the firms fair value measurement policies.
Level 1 Derivatives
Level 1 derivatives include short-term contracts for future delivery of securities when the underlying security is a level 1
instrument, and exchange-traded derivatives if they are actively traded and are valued at their quoted market price.
Level 2 Derivatives
Level 2 derivatives include OTC derivatives for which all significant valuation inputs are corroborated by market
evidence and exchange-traded derivatives that are not actively traded and/or that are valued using models that calibrate to market-clearing levels of OTC derivatives. In evaluating the significance of a valuation input, the firm considers, among
other factors, a portfolios net risk exposure to that input.
|
|
|
|
|
28 |
|
Goldman Sachs March 2015 Form 10-Q |
|
|
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The selection of a particular model to value a derivative depends on the contractual terms
of and specific risks inherent in the instrument, as well as the availability of pricing information in the market. For derivatives that trade in liquid markets, model selection does not involve significant management judgment because outputs of
models can be calibrated to market-clearing levels.
Valuation models require a variety of inputs, such as contractual terms,
market prices, yield curves, discount rates (including those derived from interest rates on collateral received and posted as specified in credit support agreements for collateralized derivatives), credit curves, measures of volatility, prepayment
rates, loss severity rates and correlations of such inputs. Significant inputs to the valuations of level 2 derivatives can be verified to market transactions, broker or dealer quotations or other alternative pricing sources with reasonable
levels of price transparency. Consideration is given to the nature of the quotations (e.g., indicative or firm) and the relationship of recent market activity to the prices provided from alternative pricing sources.
Level 3 Derivatives
Level 3 derivatives are valued using models which utilize observable level 1 and/or level 2 inputs, as well as unobservable
level 3 inputs.
|
|
For the majority of the firms interest rate and currency derivatives classified within level 3, significant unobservable inputs include
correlations of certain currencies and interest rates (e.g., the correlation between Euro inflation and Euro interest rates) and specific interest rate volatilities. |
|
|
For level 3 credit derivatives, significant unobservable inputs include illiquid credit spreads and upfront credit points, which are unique to
specific reference obligations and reference entities, recovery rates and certain correlations required to value credit and mortgage derivatives (e.g., the likelihood of default of the underlying reference obligation relative to one another).
|
|
|
For level 3 equity derivatives, significant unobservable inputs generally include equity volatility inputs for options that are very long-dated
and/or have strike prices that differ significantly from current market prices. In addition, the valuation of certain structured trades requires the use of level 3 correlation inputs, such as the correlation of the price performance of two or
more individual stocks or the correlation of the price performance for a basket of stocks to another asset class such as commodities. |
|
|
For level 3 commodity derivatives, significant unobservable inputs include volatilities for options with strike prices that differ
significantly from current market prices and prices or spreads for certain products for which the product quality or physical location of the commodity is not aligned with benchmark indices. |
Subsequent to the initial valuation of a level 3 derivative, the firm updates the level 1 and level 2 inputs to reflect
observable market changes and any resulting gains and losses are recorded in level 3. Level 3 inputs are changed when corroborated by evidence such as similar market transactions, third-party pricing services and/or broker or dealer
quotations or other empirical market data. In circumstances where the firm cannot verify the model value by reference to market transactions, it is possible that a different valuation model could produce a materially different estimate of fair
value. See below for further information about significant unobservable inputs used in the valuation of level 3 derivatives.
Valuation
Adjustments
Valuation adjustments are integral to determining the fair value of derivative portfolios and are used to
adjust the mid-market valuations produced by derivative pricing models to the appropriate exit price valuation. These adjustments incorporate bid/offer spreads, the cost of liquidity, credit valuation adjustments and funding valuation adjustments,
which account for the credit and funding risk inherent in the uncollateralized portion of derivative portfolios. The firm also makes funding valuation adjustments to collateralized derivatives where the terms of the agreement do not permit the firm
to deliver or repledge collateral received. Market-based inputs are generally used when calibrating valuation adjustments to market-clearing levels.
In addition, for derivatives that include significant unobservable inputs, the firm makes model or exit price adjustments to account for the valuation uncertainty present in the transaction.
|
|
|
|
|
|
|
Goldman Sachs March 2015 Form 10-Q |
|
29 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Significant Unobservable Inputs
The tables below present the ranges of significant unobservable inputs used to value the
firms level 3 derivatives as well as averages and medians of these inputs. The ranges represent the significant unobservable inputs that were used in the valuation of each type of derivative. Averages represent the arithmetic average of
the inputs and are not weighted by the relative fair value or notional of the respective financial instruments. An average greater than the median indicates that the majority of inputs are below the average. The ranges, averages and medians of these
inputs are not representative of the appropriate inputs to use when calculating the fair value of any one derivative. For example, the highest correlation presented in the tables below for
interest rate derivatives is appropriate for valuing a specific interest rate derivative but may not be appropriate for valuing any other interest rate derivative. Accordingly, the ranges of inputs presented below do not represent uncertainty in, or
possible ranges of, fair value measurements of the firms level 3 derivatives.
|
|
|
|
|
|
|
Level 3 Derivative Product Type |
|
Net Level 3
Assets/(Liabilities)
as of March 2015
($ in millions) |
|
Valuation Techniques and
Significant Unobservable Inputs |
|
Range of Significant Unobservable Inputs
(Average / Median) as of March 2015 |
Interest rates |
|
$(36) |
|
Option pricing models:
Correlation 1
Volatility |
|
(16)% to 90% (49% / 40%)
36 basis points per annum (bpa) to 154 bpa (87 bpa / 62 bpa) |
Credit |
|
$3,589 |
|
Option pricing models, correlation
models and discounted cash flows models 2:
Correlation 1
Credit spreads
Upfront credit points Recovery rates |
|
5% to 98% (68% /
70%)
2 basis points (bps) to 633 bps (106 bps / 75 bps) 3
0 points to 99 points (39 points / 29 points)
18% to 73% (47% / 40%) |
Currencies |
|
$(182) |
|
Option pricing models:
Correlation 1
|
|
55% to 80% (69% / 73%) |
Commodities |
|
$(1,386) |
|
Option pricing models and discounted
cash flows models 2: Volatility Spread per million British
Thermal units (MMBTU) of natural gas Spread per Metric Tonne (MT) of coal
Spread per barrel of oil and refined products
|
|
16% to 76% (34% /
31%) $(1.78) to $4.61 ($(0.10) / $(0.02))
$(9.50) to $5.00 ($(4.17)
/ $(7.46)) 3 $(7.33) to $49.08 ($6.34 / $1.71) 3
|
Equities |
|
$(774) |
|
Option pricing models:
Correlation 1
Volatility
|
|
28% to 99% (63% / 60%)
5% to 84% (25% / 24%) |
1. |
The range of unobservable inputs for correlation across derivative product types (i.e., cross-asset correlation) was (34)% to 80% (Average: 30% / Median:
40%). |
2. |
The fair value of any one instrument may be determined using multiple valuation techniques. For example, option pricing models and discounted cash flows
models are typically used together to determine fair value. Therefore, the level 3 balance encompasses both of these techniques. |
3. |
The difference between the average and the median for these spread inputs indicates that the majority of the inputs fall in the lower end of the range.
|
|
|
|
|
|
30 |
|
Goldman Sachs March 2015 Form 10-Q |
|
|
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
|
|
|
|
|
Level 3 Derivative Product Type |
|
Net
Level 3 Assets/(Liabilities)
as of December 2014 ($ in millions) |
|
Valuation Techniques and
Significant Unobservable Inputs |
|
Range of Significant Unobservable Inputs (Average / Median)
as of December 2014 |
Interest rates |
|
$(40) |
|
Option pricing models:
Correlation 1
Volatility |
|
(16)% to 84% (37% / 40%)
36 basis points per annum (bpa) to 156 bpa (100 bpa / 115 bpa) |
Credit |
|
$3,530 |
|
Option pricing models, correlation
models and discounted cash flows models 2: Correlation 1
Credit spreads Upfront credit points Recovery rates
|
|
5% to 99% (71% /
72%)
1 basis points (bps) to 700 bps (116 bps / 79 bps) 3
0 points to 99 points (40 points / 30 points)
14% to 87% (44% / 40%) |
Currencies |
|
$(267) |
|
Option pricing models:
Correlation 1
|
|
55% to 80% (69% / 73%) |
Commodities |
|
$(1,142) |
|
Option pricing models and
discounted cash flows models 2: Volatility Spread per MMBTU of natural
gas Spread per MT of coal
Spread per barrel of oil and refined products
|
|
16% to 68% (33% /
32%) $(1.66) to $4.45 ($(0.13) / $(0.03))
$(10.50) to $3.00 ($(4.04) / $(6.74))
$(15.35) to $80.55 ($22.32 / $13.50) 3 |
Equities |
|
$(1,375) |
|
Option pricing models:
Correlation 1
Volatility
|
|
30% to 99% (62% / 55%)
5% to 90% (23% / 21%) |
1. |
The range of unobservable inputs for correlation across derivative product types (i.e., cross-asset correlation) was (34)% to 80% (Average: 33% / Median:
35%). |
2. |
The fair value of any one instrument may be determined using multiple valuation techniques. For example, option pricing models and discounted cash flows
models are typically used together to determine fair value. Therefore, the level 3 balance encompasses both of these techniques. |
3. |
The difference between the average and the median for these spread inputs indicates that the majority of the inputs fall in the lower end of the range.
|
|
|
|
|
|
|
|
Goldman Sachs March 2015 Form 10-Q |
|
31 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Range of Significant Unobservable Inputs
The following provides further information about the ranges of significant unobservable inputs used to value the firms level 3
derivative instruments.
|
|
Correlation. Ranges for correlation
cover a variety of underliers both within one market (e.g., equity index and equity single stock names) and across markets (e.g., correlation of an interest rate and a foreign exchange rate), as well as across regions. Generally, cross-asset
correlation inputs are used to value more complex instruments and are lower than correlation inputs on assets within the same derivative product type. |
|
|
Volatility. Ranges for volatility
cover numerous underliers across a variety of markets, maturities and strike prices. For example, volatility of equity indices is generally lower than volatility of single stocks. |
|
|
Credit spreads, upfront credit points and recovery rates. The ranges for credit spreads, upfront credit points and recovery rates cover a variety of underliers (index and single names), regions, sectors, maturities and credit qualities (high-yield and
investment-grade). The broad range of this population gives rise to the width of the ranges of significant unobservable inputs. |
|
|
Commodity prices and spreads. The
ranges for commodity prices and spreads cover variability in products, maturities and locations.
|
Sensitivity of Fair Value Measurement to Changes in Significant Unobservable Inputs
The following provides a description of the directional sensitivity of the firms level 3 fair value
measurements to changes in significant unobservable inputs, in isolation. Due to the distinctive nature of each of the firms level 3 derivatives, the interrelationship of inputs is not necessarily uniform within each product type.
|
|
Correlation. In general, for
contracts where the holder benefits from the convergence of the underlying asset or index prices (e.g., interest rates, credit spreads, foreign exchange rates, inflation rates and equity prices), an increase in correlation results in a higher fair
value measurement. |
|
|
Volatility. In general, for
purchased options an increase in volatility results in a higher fair value measurement. |
|
|
Credit spreads, upfront credit points and recovery rates. In general, the fair value of purchased credit protection increases as credit spreads or upfront credit points increase or recovery rates decrease. Credit spreads, upfront credit points and recovery
rates are strongly related to distinctive risk factors of the underlying reference obligations, which include reference entity-specific factors such as leverage, volatility and industry, market-based risk factors, such as borrowing costs or
liquidity of the underlying reference obligation, and macroeconomic conditions. |
|
|
Commodity prices and spreads. In
general, for contracts where the holder is receiving a commodity, an increase in the spread (price difference from a benchmark index due to differences in quality or delivery location) or price results in a higher fair value measurement.
|
|
|
|
|
|
32 |
|
Goldman Sachs March 2015 Form 10-Q |
|
|
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Fair Value of Derivatives by Level
The tables below present the fair value of derivatives on a gross basis by level and major
product type as well as the impact of netting. The gross fair values exclude the effects of both counterparty netting and collateral netting, and therefore are not representative of the firms exposure.
Counterparty netting is reflected in each level to the extent that receivable and payable balances are netted within the same level and is included in Counterparty and cash collateral
netting. Where the counterparty netting is across levels, the netting is reflected in Cross-Level Netting.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets at Fair Value as of March 2015 |
|
$ in millions |
|
|
Level 1 |
|
|
|
Level 2 |
|
|
|
Level 3 |
|
|
|
Cross-Level Netting |
|
|
|
Cash Collateral Netting |
|
|
|
Total |
|
Interest rates |
|
|
$ 97 |
|
|
|
$ 807,600 |
|
|
|
$ 608 |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ 808,305 |
|
|
|
Credit |
|
|
|
|
|
|
39,917 |
|
|
|
7,467 |
|
|
|
|
|
|
|
|
|
|
|
47,384 |
|
|
|
Currencies |
|
|
|
|
|
|
133,650 |
|
|
|
162 |
|
|
|
|
|
|
|
|
|
|
|
133,812 |
|
|
|
Commodities |
|
|
|
|
|
|
24,507 |
|
|
|
697 |
|
|
|
|
|
|
|
|
|
|
|
25,204 |
|
|
|
Equities |
|
|
5 |
|
|
|
54,778 |
|
|
|
766 |
|
|
|
|
|
|
|
|
|
|
|
55,549 |
|
Gross fair value of derivative assets |
|
|
102 |
|
|
|
1,060,452 |
|
|
|
9,700 |
|
|
|
|
|
|
|
|
|
|
|
1,070,254 |
|
|
|
Counterparty and cash collateral netting |
|
|
|
|
|
|
(893,980 |
) |
|
|
(2,631 |
) |
|
|
(1,230 |
) |
|
|
(105,419 |
) |
|
|
(1,003,260 |
) |
Fair value included in financial instruments owned |
|
|
$102 |
|
|
|
$ 166,472 |
|
|
|
$ 7,069 |
|
|
|
$(1,230 |
) |
|
|
$(105,419 |
) |
|
|
$ 66,994 |
|
|
|
|
|
Derivative Liabilities at Fair Value as of March 2015 |
|
$ in millions |
|
|
Level 1 |
|
|
|
Level 2 |
|
|
|
Level 3 |
|
|
|
Cross-Level Netting |
|
|
|
Cash Collateral Netting |
|
|
|
Total |
|
Interest rates |
|
|
$115 |
|
|
|
$ 750,750 |
|
|
|
$ 644 |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ 751,509 |
|
|
|
Credit |
|
|
|
|
|
|
38,895 |
|
|
|
3,878 |
|
|
|
|
|
|
|
|
|
|
|
42,773 |
|
|
|
Currencies |
|
|
|
|
|
|
132,339 |
|
|
|
344 |
|
|
|
|
|
|
|
|
|
|
|
132,683 |
|
|
|
Commodities |
|
|
|
|
|
|
23,961 |
|
|
|
2,083 |
|
|
|
|
|
|
|
|
|
|
|
26,044 |
|
|
|
Equities |
|
|
3 |
|
|
|
51,070 |
|
|
|
1,540 |
|
|
|
|
|
|
|
|
|
|
|
52,613 |
|
Gross fair value of derivative liabilities |
|
|
118 |
|
|
|
997,015 |
|
|
|
8,489 |
|
|
|
|
|
|
|
|
|
|
|
1,005,622 |
|
|
|
Counterparty and cash collateral netting |
|
|
|
|
|
|
(893,980 |
) |
|
|
(2,631 |
) |
|
|
(1,230 |
) |
|
|
(45,357 |
) |
|
|
(943,198 |
) |
Fair value included in financial instruments sold, but not yet purchased |
|
|
$118 |
|
|
|
$ 103,035 |
|
|
|
$ 5,858 |
|
|
|
$(1,230 |
) |
|
|
$ (45,357 |
) |
|
|
$ 62,424 |
|
|
|
|
|
Derivative Assets at Fair Value as of December 2014 |
|
$ in millions |
|
|
Level 1 |
|
|
|
Level 2 |
|
|
|
Level 3 |
|
|
|
Cross-Level Netting |
|
|
|
Cash Collateral Netting |
|
|
|
Total |
|
Interest rates |
|
|
$123 |
|
|
|
$ 800,028 |
|
|
|
$ 483 |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ 800,634 |
|
|
|
Credit |
|
|
|
|
|
|
47,190 |
|
|
|
7,658 |
|
|
|
|
|
|
|
|
|
|
|
54,848 |
|
|
|
Currencies |
|
|
|
|
|
|
109,891 |
|
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
110,041 |
|
|
|
Commodities |
|
|
|
|
|
|
28,124 |
|
|
|
866 |
|
|
|
|
|
|
|
|
|
|
|
28,990 |
|
|
|
Equities |
|
|
175 |
|
|
|
58,122 |
|
|
|
634 |
|
|
|
|
|
|
|
|
|
|
|
58,931 |
|
Gross fair value of derivative assets |
|
|
298 |
|
|
|
1,043,355 |
|
|
|
9,791 |
|
|
|
|
|
|
|
|
|
|
|
1,053,444 |
|
|
|
Counterparty and cash collateral netting |
|
|
|
|
|
|
(882,841 |
) |
|
|
(2,717 |
) |
|
|
(1,112 |
) |
|
|
(103,504 |
) |
|
|
(990,174 |
) |
Fair value included in financial instruments owned |
|
|
$298 |
|
|
|
$ 160,514 |
|
|
|
$ 7,074 |
|
|
|
$(1,112 |
) |
|
|
$(103,504 |
) |
|
|
$ 63,270 |
|
|
|
|
|
Derivative Liabilities at Fair Value as of December 2014 |
|
$ in millions |
|
|
Level 1 |
|
|
|
Level 2 |
|
|
|
Level 3 |
|
|
|
Cross-Level Netting |
|
|
|
Cash Collateral Netting |
|
|
|
Total |
|
Interest rates |
|
|
$ 14 |
|
|
|
$ 739,332 |
|
|
|
$ 523 |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ 739,869 |
|
|
|
Credit |
|
|
|
|
|
|
46,026 |
|
|
|
4,128 |
|
|
|
|
|
|
|
|
|
|
|
50,154 |
|
|
|
Currencies |
|
|
|
|
|
|
108,206 |
|
|
|
417 |
|
|
|
|
|
|
|
|
|
|
|
108,623 |
|
|
|
Commodities |
|
|
|
|
|
|
26,538 |
|
|
|
2,008 |
|
|
|
|
|
|
|
|
|
|
|
28,546 |
|
|
|
Equities |
|
|
94 |
|
|
|
56,546 |
|
|
|
2,009 |
|
|
|
|
|
|
|
|
|
|
|
58,649 |
|
Gross fair value of derivative liabilities |
|
|
108 |
|
|
|
976,648 |
|
|
|
9,085 |
|
|
|
|
|
|
|
|
|
|
|
985,841 |
|
|
|
Counterparty and cash collateral netting |
|
|
|
|
|
|
(882,841 |
) |
|
|
(2,717 |
) |
|
|
(1,112 |
) |
|
|
(36,155 |
) |
|
|
(922,825 |
) |
Fair value included in financial instruments sold, but not yet purchased |
|
|
$108 |
|
|
|
$ 93,807 |
|
|
|
$ 6,368 |
|
|
|
$(1,112 |
) |
|
|
$ (36,155 |
) |
|
|
$ 63,016 |
|
|
|
|
|
|
|
|
Goldman Sachs March 2015 Form 10-Q |
|
33 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Level 3 Rollforward
If a derivative was transferred to level 3 during a reporting period, its entire gain
or loss for the period is included in level 3. Transfers between levels are reported at the beginning of the reporting period in which they occur. In the tables below, negative amounts for transfers into level 3 and positive amounts for
transfers out of level 3 represent net transfers of derivative liabilities.
Gains and losses on level 3 derivatives
should be considered in the context of the following:
|
|
A derivative with level 1 and/or level 2 inputs is classified in level 3 in its entirety if it has at least one significant
level 3 input. |
|
|
If there is one significant level 3 input, the entire gain or loss from adjusting only observable inputs (i.e., level 1 and level 2
inputs) is classified as level 3. |