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25WAYS WE SAW THE

WORLD CHANGE IN 2013


EMERGING TRENDS, TRANSFORMATIVE IMPACTS
AND HOW WE ARE HELPING OUR CLIENTS AROUND
THE WORLD DRIVE AND LEVERAGE THEM
INSIDE

COLLABORATION
AND COMMERCE
OPPORTUNITIES
IN ENERGY
TECHNOLOGY’S
NEXT WAVE
DIVERSE
POWER SOURCES
TRANSFORMATIONAL
ENTREPRENEURS
INTEGRATED
STRATEGIES FOR
MANAGING RISK
BIG-STEP
INNOVATIONS
GAME-CHANGING
PLATFORMS

Goldman Sachs 2013 Annual Report


The Goldman Sachs Business Principles

Our clients’ interests We make an unusual effort to We constantly strive to anticipate


always come first. identify and recruit the very best the rapidly changing needs of our
Our experience shows that if we person for every job. clients and to develop new services
serve our clients well, our own Although our activities are measured in to meet those needs.
success will follow. billions of dollars, we select our people We know that the world of finance will
one by one. In a service business, not stand still and that complacency
Our assets are our people,
we know that without the best people, can lead to extinction.
capital and reputation.
we cannot be the best firm.
If any of these is ever diminished, the We regularly receive confidential
last is the most difficult to restore. We We offer our people the opportunity information as part of our normal
are dedicated to complying fully with to move ahead more rapidly than is client relationships.
the letter and spirit of the laws, rules possible at most other places. To breach a confidence or to use
and ethical principles that govern us. Advancement depends on merit and confidential information improperly or
Our continued success depends upon we have yet to find the limits to the carelessly would be unthinkable.
unswerving adherence to this standard. responsibility our best people are able
Our business is highly competitive,
to assume. For us to be successful,
Our goal is to provide superior and we aggressively seek to expand
our men and women must reflect the
returns to our shareholders. our client relationships.
diversity of the communities and cultures
Profitability is critical to achieving However, we must always be fair
in which we operate. That means
superior returns, building our capital, competitors and must never denigrate
we must attract, retain and motivate
and attracting and keeping our best other firms.
people from many backgrounds and
people. Significant employee stock
perspectives. Being diverse is Integrity and honesty are
ownership aligns the interests of our
not optional; it is what we must be. at the heart of our business.
employees and our shareholders.
We expect our people to maintain high
We stress teamwork
We take great pride in the ethical standards in everything they do,
in everything we do.
professional quality of our work. both in their work for the firm and in
While individual creativity is always
We have an uncompromising their personal lives.
encouraged, we have found that team
determination to achieve excellence
effort often produces the best results.
in everything we undertake. Though
We have no room for those who put their
we may be involved in a wide variety
personal interests ahead of the interests
and heavy volume of activity, we
of the firm and its clients.
would, if it came to a choice, rather
be best than biggest. The dedication of our people to
the firm and the intense effort
We stress creativity and
they give their jobs are greater
imagination in everything we do.
than one finds in most other
While recognizing that the old way may
organizations.
still be the best way, we constantly
We think that this is an important
strive to find a better solution to a
part of our success.
client’s problems. We pride ourselves
on having pioneered many of the We consider our size an asset
practices and techniques that have that we try hard to preserve.
become standard in the industry. We want to be big enough to undertake
the largest project that any of our clients
could contemplate, yet small enough to
maintain the loyalty, the intimacy and the
esprit de corps that we all treasure and
that contribute greatly to our success.
Lloyd C. Blankfein
Chairman and
Chief Executive Officer
(right)

Gary D. Cohn
President and
Chief Operating Officer
(left)

In front of Julie Mehretu’s


MURAL at 200 West Street

Fellow Shareholders:
This past year for the global economy may be best described have taken over the last several years in three important
as one of incremental, but noticeable improvement. In the areas: strengthening our balance sheet, allocating capital
United States, the economic recovery finally began to take efficiently across our businesses and managing our
hold with continued underlying economic growth and slowly costs prudently.
accelerating gains in the labor market. In Europe, while
For 2013, the firm produced net revenues of $34.2 billion
conditions remained broadly difficult, we began to see nascent
and net earnings of $8.0 billion, an eight percent increase
growth and, in certain countries, such as the United Kingdom,
from $7.5 billion of net earnings in 2012. Diluted earnings per
a more advanced recovery.
common share were $15.46 compared with $14.13 for 2012.
Fears of a sharp slowdown in China receded somewhat Our return on average common shareholders’ equity (ROE)
and the country’s new leadership signaled a more assertive was 11.0 percent. Book value per common share increased by
posture on economic and financial reform. In Japan, aggressive approximately five percent during 2013 and has grown from
fiscal and monetary policies spurred a reinvigorated economic $20.94 at the end of our first year as a public company in 1999
and financial environment. to $152.48, a compounded annual growth rate of approximately
15 percent over this period. Our capital management in 2013
At the same time, political impasse in the United States for
reflected a prudent approach as our capital ratios continued
much of the year and uncertainty over central bank policy
to improve despite returning $7.2 billion to common
both highlighted and, to some extent, contributed to the
shareholders through share buybacks and dividends.
fragility of the economic recovery. As a result, many of our
clients remained cautious, which hindered a broad-based In this year’s letter, we would like to review the significant
resumption of their business activities. steps we have taken in recent years to adapt and respond to
the post-financial crisis world, and, building on those efforts,
Amidst these shifting factors, we are pleased to report
our priorities for enhancing returns to our shareholders going
that Goldman Sachs performed relatively well, generating
forward. In that vein, we also will discuss our competitive
solid results for the year. This was the by-product of our
position across our major businesses. Lastly, we want to
commitment to a core set of businesses and actions we
share with you some of the initiatives we undertook related
to our people, culture and business standards and practices.

Goldman Sachs 2013 Annual Report 1


Letter to Shareholders

Adapting and Positioning the Firm Shareholders’ Equity


The past year marked the five-year anniversary of the global financial crisis. (in billions)

Later in the letter, we will discuss the impact of the changes we have made Our shareholders’ equity has grown from
nearly $43 billion at the end of 2007 to more
from the extensive review of our business standards and practices. Importantly, than $78 billion at the end of 2013, an
this is also an opportune time to highlight the significant actions the firm has increase of 83 percent.
$78
taken over the last five years related to our capital, liquidity and overall financial
profile to adapt to the realities of the operating and, more specifically, regulatory $43
environment. Some of those actions are represented to the right.

We have focused not only on strengthening our balance sheet, but also on ensuring
2007 2013
$78
that we are allocating capital efficiently both to meet the needs of our clients and
to generate stronger returns going forward. $43
26.2x
New regulation is pushing the industry to be even more sensitive to risk-adjusted Gross Leverage

returns, whether through higher capital requirements or the application of stress Our leverage ratio has fallen$78
by more than
2007
one-half from 26 11.6x
2013
times at the end of 2007 to
tests. Over time, this may translate into greater pricing discipline across the entire $43 at the end of 2013.
less than 12 times
industry, which we view as a positive development.
2007
26.2x 2013
Well in advance of any regulations being finalized, we have been focused on $78
2007 2013
developing and implementing tools to help us better price the provision of liquidity
$43 11.6x
to the marketplace, and better manage our capital usage. In that regard, at the
conclusion of 2013, our estimated transitional Basel III Advanced Common Equity $96
26.2x
Tier 1 ratio was in excess of 11 percent. 2007 2013
2007 2013
$40
11.6x
Another important capital management effort that we have undertaken is refining
our business mix in light of new capital requirements. Certain businesses, like the
Level 3 Assets
Americas reinsurance and European insurance businesses, no longer generated (in billions) 26.2x
1Q08
$96 2013
2007 2013
attractive returns under a Basel III framework and, as a result, we opted to sell We have reduced our holdings of level 3, or
a majority stake in them. illiquid, assets by nearly 6011.6x
percent since the
$40
first quarter of 2008 to $40 billion.
20.2%
Even with investments, such as the longstanding one that Goldman Sachs had in $96
2007 2013
Industrial and Commercial Bank of China Limited (ICBC), which was both strategic 1Q08 2013

and financial, we elected to make adjustments given the new capital requirements. 5.1% $40
Collectively, ICBC and our insurance businesses used approximately 125 basis
points of the Basel III Advanced Common Equity Tier 1 ratio and consumed 2007
$96 2013
20.2%
1Q08 2013
$40 billion of balance sheet.
$40
While these are three larger, public examples, we continue to make risk-adjusted 5.1%
return decisions across the firm every day. GCE/Assets
20.2%
2007 pool (Global
1Q08
Our excess liquidity 2013 Core Excess),
Shareholder Returns as a percentage of our total assets, has
As a firm, we have a long track record of delivering superior returns to our grown from more than 5 percent at the end
5.1%
of 2007 to more than 20 percent in 2013.
shareholders over the cycle. We demonstrated this before the financial crisis, during
20.2%
it and after. If you look at our average ROE since the onset of the financial crisis 2007 2013
in 2007, we have outperformed each of our U.S. competitors, having produced an
average ROE during this period of more than four times the peer average. 5.1%

Nevertheless, while we have generated solid returns in the last five years, they
2007 2013
fall below our aspirations. We are committed to improving them notwithstanding

2 Goldman Sachs 2013 Annual Report


the challenges presented in the current environment. At the generally increased at a lower rate than net revenues, thereby
same time, we want to protect our ability to provide significant driving operating leverage and enhancing shareholder returns.
upside to shareholders as the economic cycle turns.
The firm remains committed to operating efficiently for
By focusing on revenues, expenses and capital efficiency, our shareholders, while providing world-class service to our
we are building near-term benefits, but also driving material clients. Of course, maintaining discipline around costs
operating leverage into our business. requires making tough decisions regarding staffing levels
and compensation. We have strived to get the balance right,
Our performance over the last few years is an important
between improving shareholder returns and investing in the
example of the firm’s ability to proactively manage a cyclical
future of our client franchise. To do so, we have leveraged
business and to capitalize on creating operating leverage
technology, adjusted our allocation of resources and managed
in our business model. In 2011, we announced an initial
both compensation and non-compensation expenses.
$1.2 billion expense savings initiative, the size of which was
subsequently increased twice, ultimately reaching a run-rate Our expense savings initiatives included enhancements in
of $1.9 billion. In 2012, a 19 percent increase in net revenues technology and greater geographic diversity in our workforce.
translated into an 82 percent increase in pre-tax earnings and Currently, we have approximately 8,200 staff, or roughly
a ROE expansion to 10.7 percent. In 2013, despite essentially 25 percent of our workforce, located in Bangalore, Salt Lake
unchanged net revenues, our continued focus on expenses City, Dallas and Singapore, compared with 10 percent in
enabled us to grow pre-tax earnings by five percent and 2007. Additionally, 38 percent of all campus and experienced
expand ROE to 11.0 percent. Longer term, we expect that hires since 2011 have been hired into those offices.
a more robust environment will enable us to deliver even
We were among the first global banks to embark on
more operating leverage to our shareholders.
an expense savings initiative and, although painful, the
With respect to capital management, our strong capital exercise was necessary. Being an early mover allowed
generation and balance sheet management have allowed us to ongoing recognition of savings over the past two years and
grow our Basel III ratio while returning capital to shareholders. protected returns in what continues to be a challenging
Since year-end 2010, we have repurchased approximately operating environment.
$17 billion of our shares, and reduced our basic share count
by approximately 80 million shares or 15 percent, while our Growth and the State of Our Client Franchise
U.S. peers, taken together, actually showed an average While we have strengthened our balance sheet, prioritized
increase in share count. Our approach drives shareholder efficient capital allocation and taken a disciplined approach
value through both higher returns and growth in earnings to costs, we have continued to invest in a broad set of
per common share. institutionally focused businesses that have a track record
of providing higher returns than many other businesses within
Controlling Costs
financial services. Because of a consistent focus on our
In addition to effective capital management, we are acutely
clients’ needs and orienting our businesses to meet their
focused on expense management as a lever for driving
ongoing objectives, we believe we have provided solid
incremental shareholder returns. From 2009 through 2013,
returns in a challenging period, while seeking to protect our
our average compensation and benefits expense to net
ability to provide significant upside to our shareholders as
revenues ratio was approximately 880 basis points lower
the economic cycle turns.
than the average ratio from 2000 to 2007.
We believe our businesses are particularly well positioned
Compensation and benefits is our largest expense and we
for the time when broad-based growth resumes. And, we
remain committed to paying for performance. In lower net
see reasons to be confident in the fundamentals of the global
revenue years, like 2008 and 2011, we demonstrated
economy. While emerging markets typically entail higher risk
significant flexibility in our compensation and benefits
and volatility, we believe that over time they will generate
expense. In years with net revenue growth, this expense
stronger growth as the middle class in those countries

Goldman Sachs 2013 Annual Report 3


Letter to Shareholders

expands and consumption and investment trends evolve. Institutional Client Services
In developed economies, greater CEO confidence is In Institutional Client Services, our equities franchise is
driving more strategic acquisitions as more companies are built on the premise of providing a broad suite of services
committing to longer term growth plans. Investor sentiment to our investing clients. This means having a state-of-the-art
has also rebounded, and more companies are taking electronic platform, comprehensive prime brokerage services
advantage of a better operating environment to raise equity and the capacity to be an effective liquidity provider for
and debt. In the U.S., the process of ending quantitative our clients.
easing has begun, and while unsettling for certain markets,
It also means leveraging our global technology platform to
the move to a more normalized market environment is
have a scalable “high touch” and “low touch” approach to
necessary and ultimately reassuring. All of these trends
meeting our clients’ needs. It is not sustainable to have only
play to the strengths and position of our businesses.
one approach if your goal is to serve a diverse set of clients
Investment Banking and to produce strong returns. Clients determine how they
Investment Banking not only includes our advisory and engage the firm, and they are increasingly looking to transact
financing services; it also serves as an important source of electronically with us in both cash and derivative products.
opportunities for all parts of the firm. For example, working The long-term demand, however, for product innovation and
with clients in our financing business often drives demand “high touch” services remains. So, our ability to offer unique
for hedging solutions, while our advisory franchise can create solutions across equities products continues to be critical
opportunities for co-investment with our business partners. to our clients. This dual approach of “high touch” and
We continue to demonstrate outperformance in our advisory “low touch” is a by-product of the many market structure
franchise. In 2013, we ranked first in both announced and and regulatory changes in the equity markets over the past
completed global mergers and acquisitions. 15 years. Our ability to adjust to a changing regulatory
environment has been critical to maintaining a leadership
Our equity underwriting franchise was equally strong in position within our Equities business.
2013, ranking first in global equity and equity-related
offerings, common stock offerings and initial public offerings This is also true in Fixed Income, Currency and Commodities
(IPOs). We served as bookrunner on eight of the ten largest Client Execution (FICC). We maintain a leading position
IPOs for the year. The technology sector was especially active across a broad range of products and geographies, with
and Goldman Sachs was the lead-left bookrunner for nearly a focus on being responsive to our clients’ needs. There is
twice as many technology IPOs in the U.S. than the next considerable discussion about the outlook for FICC given
most active underwriter. the numerous regulatory changes taking place and the
lower client volumes. We remain committed to our FICC
In debt underwriting, we had our best year ever in net businesses, which, here again, reflects the value our clients
revenues. While we believe that we could further strengthen place on the services that we provide in these markets.
our league table position, we do not aim to be ranked first in And, our commitment has allowed our client franchise to
this business. Despite our natural desire to be ranked at the grow. Over the past three years, for example, the number
top of any league table, we believe achieving that position, of corporate and growth market relationships have each
in this case, would require a significant increase in lending grown by approximately 30 percent.
at rates that would ultimately dilute long-term returns. Our
approach could change to the extent that regulatory changes Some of our competitors may elect to deemphasize or exit
drive more attractive pricing. some FICC businesses, given their particular circumstances.
But, we believe this is likely to increase the value that clients
More broadly, the past year represented one of our place on the services provided by those who remain,
strongest market share performances in our advisory and especially as broader economic activity rebounds and the
underwriting franchises since 2000. trading environment improves.

4 Goldman Sachs 2013 Annual Report


”The past year As performance has improved, so have asset inflows.
represented one of We had net sales in long-term assets under supervision
our strongest market of $41 billion, the highest since 2007, which were broadly

share performances distributed across our three key client channels: High-net-
worth individuals, Third-party distributed and Institutional.
in our advisory This focus on performance has been a critical component
and underwriting in generating our highest net revenues for Investment
franchises Management since 2007.

since 2000.” Investing & Lending


Investing & Lending includes direct investing, our investing
through funds, as well as lending to both corporations and
For our FICC businesses, providing liquidity to our investing
high-net-worth individuals.
clients requires us to take risk, and as a consequence, FICC
is the largest consumer of our capital. Our commitment to Our investing activity, including co-investing with our clients,
these businesses does not mean that we haven’t taken has established itself as an important complement to our
significant action regarding how we utilize capital. We have other franchise businesses. We have a history of strong
meaningfully reduced risk-weighted assets in FICC and are investment performance over the years, and that reputation,
very focused on managing it for risk-adjusted returns. Chasing along with deep client relationships, have allowed us to
revenue market share within FICC businesses can lead to invest in opportunities that are not available to others.
risk management lapses and inferior returns. Focusing on
Our debt investments are driven by senior loan and mezzanine
the right balance between risk, revenue and returns has
investments, and our direct financing and lending businesses.
been important to building a leading global franchise and
Our Investing & Lending business includes approximately
consistently delivering strong returns for our shareholders.
$31 billion of direct loans, primarily extended to corporate
Investment Management clients and high-net-worth individuals. Our equity investments
With total assets under supervision surpassing a record include private equity funds, direct equity investments and
trillion dollars, our Investment Management business is hedge fund investments. The “Volcker Rule,” which we will
one of the largest in the world. We have a strong position discuss in more detail, limits our ability to invest in hedge
across a diverse set of products spanning all major asset funds and private equity through a fund structure; as such, for
classes and geographies. And, despite the challenging market some time now in anticipation, we have been redeeming our
environment, we have been able to grow long-term assets hedge fund investments to be compliant. While we’ve been
under supervision by 36 percent since the beginning of 2007. actively harvesting our private equity funds, solid asset price
performance has kept balance sheet levels relatively flat.
Additionally, we have expanded our defined contribution
franchise, with approximately $50 billion in new assets Our investing and lending activities are synergistic
from our acquisition of Dwight Asset Management and with our other activities and are valuable to our clients.
our pending acquisition of Deutsche Bank’s stable We remain committed to these businesses and, now with
value business. greater regulatory clarity, we know that with the necessary
adjustments, we will continue to work with our clients
Like our other businesses, success in Investment
as an investor.
Management is a function of performing for our clients.
Our asset-weighted mutual fund performance has been
Regulation
above the industry average for nine consecutive quarters
In December, regulators passed the final Volcker Rule,
through 2013. Two-thirds of our mutual fund assets were
which restricts banking entities’ proprietary trading activities
ranked in the top two quartiles by Morningstar across
and certain interests in, and relationships with, hedge funds
one, three and five year performance periods.
and private equity funds.

Goldman Sachs 2013 Annual Report 5


Letter to Shareholders

Throughout the rulemaking process, we stated that it was


”The quality and
critical that the rulemaking proceed in a way that is not breadth of our client
counterproductive to the ability of companies and investors franchise are a direct
to continue to use the capital markets to accomplish their
business objectives.
by-product of our
ability to attract and
Importantly, the final Volcker Rule explicitly permitted market
making, lending and investing on balance sheet. Regulators
retain high-caliber
allowed these activities because financial intermediation plays professionals.”
an essential role in capital raising and risk management,
supporting broader economic activity and growth. people available. It is incumbent upon us to ensure that
As we indicated earlier, while the rule was only recently we are always adapting to the realities of a workplace,
finalized, we have been preparing to comply with certain especially one now shaped by instant connectivity.
portions of the rule for nearly three years. We liquidated This past year, we closely examined the day-to-day work
substantially all of our proprietary trading positions, specifically environment for junior bankers and its connection to
our Principal Strategies and our Global Macro Proprietary long-term career development. After that review, we
positions. And in 2012, we announced our intention to announced a series of initiatives so that these young
redeem certain hedge fund investments. Since then, we professionals receive more regular feedback and career
have redeemed approximately $2.2 billion of hedge fund development guidance, more time with their managers and
investments and we will continue to redeem our interests. clients and more consistent and predictable periods when
We are now focused on ensuring that we are in the position they can plan to be out of the office. We also are using new
to effectively and efficiently comply with the requirements technology that will make the process of creating client-
of this new and significant legal regime. related materials easier. The goal through these initiatives is
to recognize the difference between untargeted effort and
Our People productive work. Our measures of success will continue to
The quality and breadth of our client franchise are a direct be the quality of thought and work we do for our clients,
by-product of our ability to attract and retain high-caliber something that is sustainable only in a workplace that
professionals. As an investment bank, our main asset is emphasizes productivity over the expectation of hours in the
our people and the advice and solutions that they provide to office and greater balance in pursuit of a long-term career.
our clients. Great people build great relationships. And, we
are fortunate to have a diverse group of young people from Business Standards & Practices
around the world who continue to view Goldman Sachs as As we have written to you in the past, we have spent
a great place to begin and sustain their careers. For our latest enormous time and effort, as a firm, reviewing and improving
analyst class, more than 43,000 candidates applied for 1,900 our business standards and practices. In January 2011, we
positions. We accepted about four percent of those applicants published the Report of the Business Standards Committee
and of those receiving offers, more than 80 percent accepted. (BSC), which was the culmination of an extensive eight-
month review encompassing every major business, region
In 2013, we were proud to be named as one of Fortune
and activity of the firm. The report made 39 recommendations
magazine’s “100 Best Companies to Work For.” Goldman
for change in the above areas.
Sachs is one of only five companies to be recognized every
year that the Great Place to Work Institute has issued its In January 2011, we established the BSC Implementation
list since 1984. Oversight Group, which for the next two years was
responsible for overseeing the implementation of each
Of course, we operate in a global and competitive industry
recommendation. By February 2013, all 39 recommendations
and we seek to attract from the broadest pool of talented
had been fully implemented.

6 Goldman Sachs 2013 Annual Report


In May 2013, we released another public report, the Business Corporate Engagement
Standards Committee Impact Report, which discussed the In 2013, Goldman Sachs committed more than $200 million
changes we made as a result of the BSC implementation to philanthropic endeavors, including our tradition of strong
and how they impacted our firm. We identified three unifying engagement through Goldman Sachs Gives and expanding
themes across the 39 recommendations, which capture 10,000 Women and 10,000 Small Businesses to include
the areas of greatest change and impact on the firm: new academic and non-profit partners.
(1) clients, and the higher standard of care we apply in
serving them; (2) reputational sensitivity and awareness, Goldman Sachs Gives
and its importance in everything we do; and (3) the individual Goldman Sachs Gives is a donor-advised fund through
and collective accountability of our people. which participating managing directors (PMDs) of the firm
can recommend grants to qualified non-profit organizations
Most significantly, for all our employees, the experience of around the world. Since the inception of Goldman Sachs Gives,
initiating, approving and executing a transaction for a client PMD compensation has been reduced by approximately
at Goldman Sachs is now fundamentally different. This $1.2 billion to fund Goldman Sachs Gives, and approximately
difference reflects significant changes to processes, business 15,000 grants totaling more than $720 million have been
standards, documentation and transaction approvals, all of made to various organizations in 38 countries. Since the fund
which impact our approach to decision making. was created, more than $350 million has been granted to
Process matters and the BSC changes have led to our community organizations supporting veterans, poverty
processes being more clear, comprehensive and consistent. alleviation, medical research and other significant areas of
Business standards reflect the heightened scrutiny we bring need. In addition, more than $145 million has been granted
to our own actions and activities, the role we play as a large to approximately 180 colleges and universities to support
financial institution and the responsibilities we have to our financial aid. In 2013, more generally, approximately
clients and to global financial intermediation. Documentation $150 million was distributed through more than 4,500
supporting our processes is more standardized and organized individual grants.
around escalation procedures. Transaction approvals focus on
10,000 Small Businesses
the core goals of serving our clients’ long-term interests and
10,000 Small Businesses expanded its network of cities and
protecting the firm’s reputation. Taken together, these changes
partners to provide small businesses with the education,
result in better judgments and decision making, which are
business services and capital they need to grow and create
among the most important impacts emerging from the BSC.
jobs. By year’s end, 10,000 Small Businesses was operating
The work underlying the BSC is part of a much larger, in more than 20 sites in the U.S. and United Kingdom. In the
ongoing commitment by the firm to be self-aware, to be U.S., we launched new sites in Philadelphia, Miami and
open to change and to learn the right lessons from recent Detroit. In addition, loans through the program began to be
experiences. Going forward, we know we will inevitably offered in Oregon, Washington, Tennessee, Virginia and
make mistakes, but we commit to learn from them and Maine. In the fall, we announced a new national partnership
respond in a way that meets the high expectations of our that allows qualified small business owners anywhere in the
clients, shareholders, other stakeholders, regulators and U.S. to receive training at Babson College, one of the nation’s
the broader public. leading entrepreneurial schools.
On our Web site, in addition to the two reports, you can In the United Kingdom, we hosted the first gathering of
view other relevant material, including a discussion on the 10,000 Small Businesses alumni from across the country,
impact of the Client and Business Standards Committee, with more than 200 businesses attending. In conjunction
an illustrated example of the life cycle of a client transaction with the event, academic program partners released a
and video excerpts from the Chairman’s Forum, which was progress report on the graduating businesses to date
a series of internal discussions led by senior management showing that 66 percent of U.K. program participants had
on how we conduct ourselves in serving our clients and grown revenue and 77 percent of them had created jobs.
protecting the firm’s reputation.

Goldman Sachs 2013 Annual Report 7


Letter to Shareholders

10,000 Women risks in Europe and the political impasse in Washington, D.C.
2013 represented an important milestone for our 10,000 appear less likely than a year ago. Collectively, we have made
Women initiative. In December, the 10,000th woman entered a lot of progress.
the program and is expected to graduate in 2014. Since it
Of course, concerns about emerging economies, the effect
was announced in 2008, this program has provided 10,000
of the Federal Reserve’s “taper,” and a host of other issues
underserved women entrepreneurs with a business and
may challenge sentiment and complicate the recovery. As
management education, access to mentors and networks,
we look at the longer term fundamentals, however, we
and links to capital.10,000 Women has drawn participants
remain optimistic.
from more than 40 countries around the world. Delivered
through a network of 90 academic and non-profit partners, For Goldman Sachs, our businesses are well positioned
10,000 Women continues to yield promising results. More and our client franchise is strong. We have taken important
than 80 percent of surveyed graduates have increased actions to manage efficiently our capital and cost structure.
revenues and more than 70 percent have added new jobs. As a result, we are confident that we have achieved
significant operating leverage for our shareholders, which
We are focused on the next chapter of 10,000 Women
will become only clearer with an improving economic
and recently announced a new partnership with the
environment. Our culture of teamwork and client focus
International Finance Corporation (IFC), a member of the
has never been more alive and vibrant and continues to
World Bank Group, to create the first-ever global finance
define who we are and the work we do. We remain intent
facility dedicated exclusively to women-owned small and
on learning from the experience of recent years but maintain
medium enterprises. Goldman Sachs Foundation, IFC and
a firm eye on the future to do our part to contribute to
other investors will contribute up to $600 million to the
economic growth and opportunity. In the process, we
facility, which will enable approximately 100,000 women
are confident that Goldman Sachs will produce significant
entrepreneurs to access capital. 10,000 Women remains
value for our shareholders.
committed to expanding business and management
education to reach more high-potential women entrepreneurs
around the world. Through the capital this partnership will
raise, women entrepreneurs will have a much greater
chance of reaching their full potential.

Lloyd C. Blankfein
Looking Ahead Chairman and Chief Executive Officer
In our shareholder letter to you for 2006, we wrote that
“we are always cognizant that conditions can change quickly
and in unforeseen ways…One of the worst things we could
do, as a firm and as individuals, is to begin to believe that the
laws of economics do not apply to us — that somehow
markets aren’t cyclical.” Gary D. Cohn
President and Chief Operating Officer
Much of the last five years has been challenged by the cyclical
downturn. We believe that the upcoming year may very well
represent the progression into a stronger global economy.
But, this has not been a passive exercise. The banking sector,
especially in the U.S., is well capitalized; companies are
operating with strong balance sheets; new ways to tap
sources of energy are making U.S. manufacturing more
competitive; the housing market is recovering and individuals
have significantly reduced their debt. In addition, the tail

8 Goldman Sachs 2013 Annual Report


25
HOW IS THE LANDSCAPE EVOLVING?
WHAT OPPORTUNITIES ARE ON THE HORIZON?
WHICH COMPANIES ARE CHANGING THE GAME?
WHAT ARE THE CHALLENGES? WHAT ARE THE RISKS?
AND WHAT TRANSFORMATIVE
TRENDS ARE EMERGING?
AT GOLDMAN SACHS, THESE QUESTIONS
ARE TOP OF MIND FOR OUR CLIENTS.
Working with our clients globally, we seek out opportunity as the world changes. We work to
provide solutions to complex challenges and bring together experts to explore near-term solutions
and long-term ideas. While the people of Goldman Sachs apply their expertise across a range
of disciplines, four themes in particular — Technology Energy Entrepreneurship and
Risk Management — stand out as among the most notable for our business in 2013.
With a focus on these areas, this year’s annual report highlights 25 trends that made an
impact over the past year, and discusses how Goldman Sachs helps clients navigate some
of the most critical and dynamic sectors of today’s global economy.

Goldman Sachs 2013 Annual Report 9


TECHNOLOGY IS
TOUCHING EVERY CORNER
OF OUR WORLD : DRIVING
RADICAL CHANGE ACROSS
COMMUNICATIONS,
ENCOURAGING STRATEGIC
COLLABORATION AND
REINVENTING GLOBAL
COMMERCE
At Goldman Sachs, we see concurrent revolutions within
the technology space: the shift of computing from hardware
to cloud and from desktops to mobile devices. Through these
and other developments, technology is reshaping the way we
live — a change that will provide enormous opportunities for
people to participate in the global economy. As a strategic
1
advisor and a source of capital, Goldman Sachs works not only
with companies at the forefront of technological breakthroughs,
but also within dozens of other industries undergoing
technology-driven transformation.

10 Goldman Sachs 2013 Annual Report


2
Advanced
technology is

E - COMMERCE enabling doctors


to detect diseases

PLATFORMS CONTINUE earlier — which


means helping to

TO TRANSFORM save more lives


MASSACHUSETTS-BASED HOLOGIC

THE WAY WE SHOP has become a driving force in early


detection, ranging from cancer to

AND SELL
infectious diseases. The company’s
3-D mammographic technology, for
example, allows doctors to spot very
As e-commerce soars and the first real digital small cancers that might have previously
generation comes into its own, online shopping gone undetected, an advance with a
platforms will grow, adapt and compete for
profound impact on outcomes. As
market share. In 2013, Goldman Sachs helped
both established e-commerce sites and new Hologic has evolved, Goldman Sachs
innovators take significant steps, serving as has maintained a close relationship,
lead underwriter for zulily’s $291 million IPO and helping to assess potential acquisitions
RetailMeNot’s $187 million follow-on, as well and arranging access to capital that
as advisor to travel aggregator Priceline on its supported the company’s growth into
$1.8 billion acquisition of Kayak, enabling the
an $8.5 billion enterprise.
company to add leading-edge apps for comparing
hundreds of travel sites at once.
According to Goldman Sachs research, digital
commerce adoption and expansion is anticipated
to further accelerate, with annual growth reaching
nearly 17 percent within the next three years.
NO
3
Cloud computing has revolutionized
data sharing and storage, setting
a new standard for collaboration
around the world
This game-changing technology has enabled the storage
and sharing of huge volumes of data, the birth of entirely
new business models and the ability to work collaboratively
from any location around the globe. At our third annual
Cloud Computing Conference, Goldman Sachs brought
together a range of leaders — including technology
innovators in cloud computing, executives from some
of the most interesting companies driving this shift and
venture capitalists. This group shared ideas on an array
of critical cloud innovations and topics that are creating
opportunity in the technology space and beyond.

View video
Key insights from the conference: goldmansachs.com/
our-thinking/our-conferences/cloud-computing-conference

Goldman Sachs 2013 Annual Report 11


TECHNOLOGY
Monetization of mobile

TECHNOLOGY
NO
5 presents huge opportunities
for those who can crack
the code

COMPANIES ARE SETTING Companies are

4
racing to find ways to capitalize
AN UNPRECEDENTED on the growth of mobile
technology, whether in mobile

PACE FOR GROWTH, payments, mobile content,


location-based services or

FACING STRATEGIC the explosion of valuable


data generated by the use

DECISION POINTS of mobile devices.

QUICKLY “The question


is, who can best take advan-
tage?” says James Covello,
head of Technology, Media and
Telecommunications Equity
Research at Goldman Sachs.
“Whether we’re talking about
consumer transactions or social
networking, which companies
Global sales
will benefit the most from the
of smartphones and tablets
ubiquity of compute?”
now outpace those of PCs and
laptops. According to the UN View video
International Telecommunication James Covello talks about mobile
Union, mobile subscriptions technology and other themes at
will top the world’s population goldmansachs.com/our-thinking/our-
sometime in 2014. conferences/technology-conference

Goldman Sachs team members supporting the Twitter IPO: Joseph Ghobrial,
Anthony Noto, Nick Giovanni, Christopher Lapointe, Ryan Nolan and Brian Dong,
Investment Banking Division

have become some


of the world’s largest and most impactful
businesses — they’re growing faster than
6
many of the companies that came before
them, and arrive at critical decision points more The ubiquity of online access has dramatically increased opportunities for
creating businesses, according to Anthony Noto, global co-head of our
quickly. In 2013, Goldman Sachs advised Technology, Media and Telecommunications Group in the Investment Banking
Division, and George Lee, chairman of our Global Technology, Media and
some of the best-known technology companies Telecommunications Group and chief information officer for the Investment
Banking Division. This change has created a global system of “costless
during watershed moments. In November, distribution,” says Noto, allowing “a lot more capital to invest and reap the
we were the lead underwriter on Twitter’s rewards of a large, globally distributed user base.” The advance of mobile,
adds George Lee, hastens the trend by making that user base accessible
$2.1 billion IPO, the biggest tech debut of the 24/7. “Companies are now really focused on meeting the needs of consumers
who are walking around with very capable computers in their hands,” he
year. Incorporated only seven years ago, the says. “In the next five to ten years, almost every human on earth will have
access to extraordinary amounts of computing power. That pervasiveness
company now has 241 million active monthly of technology is driving change at an unprecedented level and pace.”
users who, among them, send more than a
View video
billion tweets every two days. Anthony Noto and George Lee explore rapid changes
in the technology sector and what to expect next.
Go to: goldmansachs.com/annual-report-2013/lee-noto

Goldman Sachs 2013 Annual Report


7
A Busy Franchise

THE NEXT WAVE


OF DISRUPTIVE 2013: AN ACTIVE
TECHNOLOGIES YEAR FOR THE FIRM’S
WILL BRING FORTH TECHNOLOGY, MEDIA
EVEN GREATER
TRANSFORMATION AND TELECOM TEAM
GLOBAL INVESTMENT RESEARCH
Working closely with leading
What is the next generation of technology and emerging technology
innovations that our clients should be companies to help them achieve
thinking about? This is a question we are their business goals, Goldman
always considering. A Global Investment
Sachs’ Technology, Media and
Research report, The Search for Creative
Destruction, highlights some of the exciting Telecommunications Group
technologies that are reinventing, once again, helped plan and execute a wide
the notion of what’s possible: range of transactions in 2013,
including, for U.S.- listed marketed
3-D PRINTING Compared to traditional manufacturing,
3-D printing will drive greater customization, reduce costs transactions, 15 technology IPOs
for complex designs and lower overhead on short-run and 12 follow-on equity offerings
parts. Already growing at over 20 percent annually, the as the lead manager. Over the
adoption of 3-D manufacturing is expected to continue
on its path of rapid acceleration.
span of a little more than a week
in September, the team advised
BIG DATA SOLUTIONS Companies and organizations on or executed seven major
everywhere are seeking to garner insights from the
mountains of data collected by PCs, sensors, smart- deals, including the largest
phones, tablets and other devices, enabling them to better M&A transaction in a decade.
synthesize the world’s information. Poised to attract even
greater demand, such technologies help companies to Notable transactions, in addition to
get a better sense of customers’ needs and identify others mentioned in this report, include:
important market developments and product trends.
Apple’s $17 billion debt offering —
Read the report SOFTWARE-DEFINED NETWORKING (SDN) While this inaugural issuance played a key role
The Search for Creative the rest of tech has moved to the cloud, networking in the company’s $100 billion capital return
Destruction. Go to: largely remains trapped in a paradigm of hardware
program and was the largest-ever
goldmansachs.com/ and software boxes that are manually configured and
corporate debt offering at the time
annual-report-2013/search nonscalable. SDN liberates networking from expensive
hardware, making it easier and cheaper for technology
(below) 3-D Printer Vodafone’s sale of the U.S. group
administrators to respond to changing business needs.
The field is likely to create new platform leaders and
which owns its 45 percent interest in
high-margin software companies. Verizon Wireless to Verizon Communications
Inc. for a total consideration of $130 billion,
as well as Vodafone’s $11.5 billion
acquisition of Kabel Deutschland

Softbank’s $21.6 billion acquisition


of a majority stake in Sprint

Dell’s $24.4 billion take-private


transaction

News Corporation’s separation into


two publicly traded companies, 21st
Century Fox and News Corporation

Tesla Motors’ $1.0 billion dual-tranche


offering ($360 million common stock and
$660 million convertible senior notes)

LinkedIn’s $1.4 billion follow-on


equity offering

Goldman Sachs 2013 Annual Report 13


ADVANCES IN
ENERGY EFFICIENCY
AND RESOURCES CREATE
A UNIQUE OPPORTUNITY
FOR SMART LONG-TERM
INVESTMENTS THAT
MAXIMIZE THE BENEFITS
OF AN INTEGRATED
8
ENERGY MIX
Changes in the global energy landscape — including
NO
9
shifting demand-side dynamics, increased production SMART GRID NETWORKS
from shale oil and gas in North America, and advances ARE DRIVING EFFICIENCY
in technology — are providing significant opportunities
for investment while also driving sustainable economic
ALONG THE ELECTRICAL
growth, enhanced competitiveness and responsible GRID
development of energy resources.

14 Goldman Sachs 2013 Annual Report


Bridging the Divide

THE SHALE OIL AND


GAS REVOLUTION WILL
CONTRIBUTE TO NORTH
INVESTMENT IS NOW
AMERICAN ENERGY CRUCIAL TO TURNING
INDEPENDENCE — AND
OFFERS NEW OPPORTUNITIES
ENERGY PROMISE
FOR COORDINATION INTO REALITY
AND GROWTH
GLOBAL INVESTMENT RESEARCH

With the production of shale gas increas-


ing dramatically, and oil production rapidly
rising, the macro effects of the shale
revolution are being felt around the world.
The most dramatic impact is the gradual
loosening of oil price constraints that have
persistently threatened economic expan-
sion in developed economies. According
to Goldman Sachs research, the ability
of shale to drive a resurgence of energy According to Jeff Currie,
production in North America is creating global head of Commodities
powerful economic benefits. The revolu-
tion will contribute structurally to a more Research in the Global
Illustration showing
North American
stable oil market, in which global demand Investment Research
shale plays can rise without placing the same upward Division at Goldman Sachs,
pressure on energy prices. Other likely
Basins
outcomes include an end to the drag a crucial task is “coupling
Current plays energy prices can place on household the rapid advances in
incomes, improvement in the U.S. trade
Stacked plays energy supply with
Shallowest
balance by 1.2 percent of GDP by 2017,
Intermediate and strengthening of the U.S. dollar by investments that enable
Deepest 5 –10 percent, according to Goldman society to benefit, whether
Sachs research.
Prospective in manufacturing,
shale plays
Read the report transportation or the
Source: U.S.
Energy Information Global Economics Weekly: 12/40 – generation of power.”
Administration The shale revolution and the global
economy. Go to: goldmansachs.com/ As that process unfolds, Goldman
annual-report-2013/shale Sachs is focused on helping bring
important stakeholders together
to overcome impediments. “We
don’t just have a role as an advisor
and source of capital for energy
companies,” Currie says. “We can
also help facilitate the dialogue
that is needed right now between
policy on one side and finance
on the other.”
WITH NEW SMART GRID TECHNOLOGY, utilities worldwide are better
able to maximize the efficiency of the electrical grid while enabling
customers to reduce their costs. One of the clear leaders in this space
is Silver Spring Networks, whose smart grid networking platforms
connect millions of devices along the grid that generate, control and
monitor power. These networks provide a wealth of data that enables
utilities to enhance efficiency, increase reliability and automate manual
services, including meter reading. They also enable households to View video
monitor their own energy use and make adjustments during times of Jeff Currie speaks about the shale
revolution and the path to balancing supply
expensive peak demand. In 2013, as lead bookrunner, we helped and demand. Go to: goldmansachs.com/
Silver Spring Networks raise $93 million through an IPO. annual-report-2013/jeff-currie

Goldman Sachs 2013 Annual Report 15


10
ENERGY
Rethinking the Grid

THE GOLDMAN SACHS CLEAN ENERGY ECOSYSTEM


SUMMIT EXPLORED NEW APPROACHES FOR
DISTRIBUTION AND SUPPLY
In 2013, Goldman Sachs hosted the Second
Annual Clean Energy Ecosystem Summit in
Menlo Park, California. This conference brought
together leaders of the world’s most innovative
energy start-ups; key decision makers of the
largest energy, technology and industrial
companies globally; influential investors; and
leaders across research, government and
finance to share insights, foster a dynamic
dialogue and — ultimately — be a catalyst for
growth and innovation in clean energy.

RELIABLE, RESILIENT, View video


Thought leaders from inside and outside the firm share insights
on renewable oils, emerging energy collaborations and other clean

CLEAN AND COMPACT: energy topics: goldmansachs.com/our-thinking/our-conferences/


clean-energy-ecosystem-summit

ON-SITE DISTRIBUTED
POWER IS GAINING 11
NO
Clean energy
and renewable
ATTENTION – AND companies are
not only driving
TRACTION change in the
production of
Bloom Energy, one of many innovative energy but
businesses for which Goldman Sachs has also in its
provided advice and financing, is part of
a growing movement toward distributed
consumption
on-site energy production. Its main concept:
fuel cells that turn natural gas or biogas With a growing global population and increasing per capita consumption
into electricity — cleanly, reliably and at a of energy, finding new ways to produce energy is of paramount importance.
“We have made good progress toward our target of financing and investing
competitive cost for commercial enterprises
$40 billion in clean energy over the next decade,” says Stuart Bernstein,
including data centers, government facilities global head of both the Clean Technology and Renewables Group and the
and utilities. In the wake of Hurricane Sandy, Venture Capital Coverage Group at Goldman Sachs. “Our work is wide
ranging in industries from renewable power production to electric vehicles
Bloom’s fuel cells were up and running when
to grid optimization to demand response.” Highlighting our work in solar,
other sources of power were unavailable. Bernstein says, ”While there continues to be innovation upstream producing
photovoltaic panels more efficiently, our work with downstream solar clients
View video allowed companies installing photovoltaic panels on homes, businesses
KR Sridhar, CEO, explains Bloom Energy’s vision: ensuring
and military installations to provide lower energy costs to their end users.”
that everyone on the planet has access to reliable, affordable,
sustainable power. Go to: goldmansachs.com/our-thinking/
our-conferences/builders-and-innovators-2013
View video
Stuart Bernstein describes the commercial opportunity
of clean energy and renewables. Go to: goldmansachs.com/
annual-report-2013/stuart-bernstein

16 Goldman Sachs 2013 Annual Report


12
As the industry evolves,
energy companies are
positioning for success with
support from innovative
financing solutions

WHEN NRG ENERGY, INC., America’s largest


competitive generation business, completed
the IPO of NRG Yield, it created a first-of-its-
kind business in the U.S. that is focused on
keeping pace with the country’s growing need
for environmentally responsible power. NRG
Yield consists predominantly of renewable
and gas-fired generation capacity that has
been contracted over the long term by its
utility customers. NRG Yield also proved to
be a compelling investment opportunity for
a variety of investors. The key: securities that
offered generally stable, long-term cash flow
with the prospect for growth. Yield Company
structures enable energy businesses such
as NRG to expand the investor base for its
portfolio of assets, creating a cost-of-capital
advantage to economically fund the acquisition
and development of assets that are well-
positioned for the future. Co-led by Goldman
Sachs, the $495 million offering attracted
a wide range of yield-conscious investors.
A portion of the proceeds from the IPO
allows the company to continue investing
in the future of the industry, such as the
250-megawatt California Valley Solar Ranch,
a utility-scale power plant with 10 vast solar
arrays that follow the path of the sun, and
capture up to 25 percent more energy than
traditional systems.

Goldman Sachs team members who supported the


NRG Yield IPO: John Yanchek, Chuck Park, Jeff Pollard,
Georgios Triantafyllou, Olympia McNerney, Matt Gibson,
Shaan Goswami, Investment Banking Division

13
As both developed and emerging market economies seek
to create more diversified energy streams, wind power, both
stand-alone and grid-connected, is becoming a more substantial
energy source. In India, ReNew Power, whose mission is
to enable the country to meet ambitious renewable energy
targets, has already become a leader in the fast-growing
renewable energy industry, with close to 400 megawatts of
IN THE SPECTRUM OF operating wind capacity. To date, Goldman Sachs and affiliated
ENERGY SOURCES, WIND funds have invested $320 million to help ReNew Power expand,
IS MAKING AN IMPORTANT and Goldman Sachs has entered into a deal with ReNew to
CONTRIBUTION purchase wind power for our office in Bangalore.

Goldman Sachs 2013 Annual Report 17


THE NEXT GENERATION
OF ENTREPRENEURS IS
CAPITALIZING ON A FASTER
INNOVATION CYCLE, NEW
TECHNOLOGIES AND A MORE
CONNECTED LANDSCAPE
In 2013, a rising generation of technology-savvy entrepreneurs
brought new products and disruptive ideas into the global spotlight.
The most productive innovators of 2013 set ambitious goals and
were successful due to their creativity, market insights, unshakable
fortitude and strategic execution. At Goldman Sachs, we work with
new entrants and disruptive companies that change the way
businesses compete and drive progress.

18 Goldman Sachs 2013 Annual Report


14
IN A WORLD OF
LARGELY INCREMENTAL
INNOVATION, RADICAL
THINKERS CAN HAVE
THE BIGGEST IMPACT
NO ONE EPITOMIZES TRANSFORMATION more than
Elon Musk. From his trailblazing electric car company,
Tesla Motors, to his proposed solar-powered Hyperloop
intercity transporter, Musk’s ideas are intended not merely
to challenge convention — but to shatter it. Simply put,
Musk doesn’t know how to think small. As his ideas
continue to move from concept to reality, they often do
so with the assistance of Goldman Sachs. For example,
in 2013, we helped to raise over $1 billion in financing
for Tesla Motors, serving as sole manager and lead left
bookrunner for respective offerings of common stock
and convertible bonds.

Goldman Sachs 2013 Annual Report 19


ENTREPRENEURSHIP

15 STRONG
NETWORKS AMONG
ENTREPRENEURS ARE
HELPING INNOVATORS
GROW THEIR
BUSINESSES AND “When you’re an “Take advantage of the
SCALE QUICKLY entrepreneur, your
passion and vision
opportunities in front of you,
take a risk, jump.”
are so strong that it’s Elizabeth Cutler, SoulCycle co-founder
almost impossible for and co-CEO, looks forward to expanding
her company to new cities, overseas and
somebody to knock across the Internet.
you over.”
Julie Rice, SoulCycle
“The 2013 Builders & Innovators Summit co-founder and co-CEO,
brought together a group of entrepreneurs helped found the popular
that are doing really interesting work — so that indoor cycling chain because
they can network, and have an opportunity she believed spin class “could
be so much more.”
to interact with other innovators who have
been successful at building businesses and
establishing their platforms. Our goal is for
the entrepreneurs to take away best practices,
connections and relationships that will help
them achieve their goals.” — David Solomon, “If you’re doing something
co-head of the Investment Banking Division you’re deeply passionate about,
at Goldman Sachs that’s giving you meaning, that
you believe in, the journey is as
The Summit gives 100 rising entrepreneurs
the chance to share ideas among their peers much a satisfactory experience
and learn from some of the most seasoned as the goal.”
“I’m not selling
business and financial leaders in the world. something that’s just a Daniel Lubetzky, KIND Healthy Snacks
founder and CEO, created a revolutionary
product for me. This is line of healthy snacks made from ingredients
View video
David Solomon on the challenges and opportunities my life, and I’m all in.” you can see and pronounce®.
facing entrepreneurs today. Go to: goldmansachs.com/ Ben Milne, Dwolla co-founder
annual-report-2013/david-solomon and CEO, founded a stand-alone
payment network and infra- View their videos
structure after seeing his profits Go to: goldmansachs.com/our-thinking/
diminished by credit card fees. our-conferences/builders-and-innovators-2013

16
NO
First-movers do not always rise to
the top — creativity, a sound business
model and a keen understanding of
consumer preferences set enduring
NO
17
As data becomes a key strategic resource
for businesses, powerful data storage solutions
are becoming mission-critical. Nimble Storage
CEO Suresh Vasudevan saw this opportunity
and helped companies around the world rethink
market leaders apart their traditional approaches to data storage. The
EENTREPRENEURS
NTREPRENEURS idea: a hybrid, Flash-optimized storage platform
powered by a new storage operating system
DANIEL EK AND MARTIN LORENTZON in Sweden saw a sea change in
WITH THE RIGHT that integrates the speed of solid-state storage
the way the world discovers, buys and listens to music. Founded in 2008,
Spotify became a global leader in online music subscription because Ek and ANSWER, AT THE with the efficiency of high-capacity disk storage.
Lorentzon identified the right mix of a successful freemium model, social RIGHT MOMENT, The result: a new solution that delivers higher
performance, uses less hardware and provides
networking features and a service that gives users access to over 20 million EXPERIENCE RAPID next-generation support through an innovative
tracks. The company has grown with strategic advice and financing from
a number of investors, including Goldman Sachs. Spotify now has over
GROWTH cloud-based service. In December, Nimble
raised $193 million in its IPO, lead managed
24 million active users and over 6 million paying subscribers worldwide. by Goldman Sachs.

20 Goldman Sachs 2013 Annual Report


18
NO

We’ve continued to expand


U.S. entrepreneurs
are continuing to create
new jobs
Adding New Jobs
20
Goldman Sachs’10,000 Small
Businesses program in the
U.S., helping entrepreneurs CLOSING THE CREDIT GAP : PROVIDING
across the country to create
jobs and economic opportunity
by providing greater access
45% 18 % CAPITAL FOR WOMEN ENTREPRENEURS
GROWS BUSINESSES AND HELPS
to education, capital and
of 10,000 Small
LOCAL COMMUNITIES
business support services. Businesses participants THE GOLDMAN SACHS 10,000 Women
Through collaboration with added new jobs For comparison,
6 months after 18 percent of U.S. initiative reached an important milestone
leading business schools, the small businesses
graduating in December when the 10,000th
$500 million program delivers surveyed by the NSBA
added jobs from July woman was enrolled in business and
an integrated curriculum of
2012 to July 2013 management education. To further
management classes and the

55
professional support to develop deepen its commitment to women

98
a strategic and customized entrepreneurs around the world,

%
%
business growth plan. In a Goldman Sachs 10,000 Women recently
recent survey conducted by launched a $50 million new partnership
Babson College, 63.7 percent with IFC to create the first-ever global
of program graduates increased finance facility for women-owned small
revenues within six months and medium enterprises (SMEs), which
and 44.8 percent added of the businesses will enable approximately 100,000
in the U.S. have
new jobs. women to access capital. New research

20
fewer than
by Goldman Sachs, Giving Credit Where
Read the report It Is Due, shows that access to credit
Stimulating Small Business is the biggest constraint on growth for
Growth at: goldmansachs.com/ women-owned SMEs, and that closing
citizenship/10000-small-businesses/ of all jobs provided this credit gap for women could increase
US/news-and-events/10ksb-impact-
report-2014/program-report.pdf
in the U.S. are from per capita income in BRIC and Next
11 countries by an average of 12 percent
EMPLOYEES small businesses by 2030. Coupled with the business and
management education that 10,000

19
Women will continue to provide globally,
the capital this new partnership will
catalyze will give women entrepreneurs
a greater chance of reaching their full
In the U.K., local potential. The Goldman Sachs Foundation
economies benefit will provide a $32 million anchor
meaningfully from investment in order to catalyze capital
from commercial investors and bilateral
communities of donors. The facility will extend lines of
entrepreneurs credit and share risk with local banks in
emerging markets, enabling them to
In the United Kingdom, high-growth entrepreneurial on-lend to women-owned SMEs. In
businesses generate a disproportionate number of jobs “Small business owners are, by their very order to spur innovative approaches to
nature, very entrepreneurial. Often, they’re lending to women entrepreneurs, The
and innovations. Such businesses are the primary focus experts in their field. What they sometimes Goldman Sachs Foundation will provide
of 10,000 Small Businesses U.K., a Goldman Sachs aren’t, are experts in running a business.
an $18 million anchor donation to fund
Foundation initiative that offers entrepreneurs business Our 10,000 Small Businesses program
capacity building support for banks and
aims to give people core skills necessary
training, networking opportunities and support in accessing to grow a business.” — Michelle Pinggera, women borrowers. This support will
capital. A key objective of the program is to help create international chief of staff at Goldman Sachs address the barriers to banks deploying
capital and women entrepreneurs
networks of local “communities of entrepreneurs” across
View video accessing it.
the country. Community building was a major focus of the
Michelle Pinggera on developing
last gathering of program alumni in London, who convened entrepreneurs and10,000 Small View video
not only for the chance to hear about growth strategies Businesses U.K. Go to: goldmansachs.com/ Learn about how 10,000 Women is helping
from notable corporate leaders, but also for the opportunity annual-report-2013/michelle-pinggera to create access to capital for women
entrepreneurs. Go to: goldmansachs.com/
to meet other entrepreneurs, make business connections our-thinking/focus-on/investing-in-women/
and find solutions to commonly shared problems. capital-for-women-entrepreneurs.html

Goldman Sachs 2013 Annual Report 21


IN TODAY’S COMPLEX
ENVIRONMENT, CLIENTS
ARE FOCUSED NOT ONLY
ON GROWTH, BUT ALSO ON
NAVIGATING A WORLD OF
COMPLICATED AND, OFTEN,
INTERCONNECTED RISKS
From fluctuating currencies to shareholder activists and myriad
2
environmental challenges, assessing and managing risk is
increasingly complex — and critical. That’s why, more than ever,
both companies and investors view risk as a highly strategic
issue — and why we have seen a rapid rise in risk consciousness
more broadly. Our clients turn to Goldman Sachs for our deep
risk management expertise to help them manage their most
important and complex risk exposures.

22 Goldman Sachs 2013 Annual Report


1
NO

22
Risk management
has become a
FOR COMPANY C-suite issue,
driving company
LEADERS, ACTIVIST leaders to seek
more sophisticated
INVESTORS PRESENT analysis and
advice
NEW CHALLENGES –
AND OPPORTUNITIES
According to Gene Sykes, co-head of
Global Mergers & Acquisitions at Goldman
Sachs, the rise of shareholder activism is
one of the most profound recent shifts
in corporate governance.

Q: What’s different?
A: Through proxy rules and other changes, large “THE WORLD IS MORE COMPLEX ,
shareholders have gained more power, whether
they’re seeking return on capital or trying to
markets are more volatile,
influence M&A strategy. and the economy, with each
Q: How are companies responding? passing year, is more global
A: By understanding that the relationship has in nature,” says Jim Esposito,
fundamentally changed. They can no longer make
big decisions without possible pushback — or they
head of the EMEA Financing
may be forced to make big decisions they might Group at Goldman Sachs.
not make on their own.
“With global interconnected-
Q: How does it affect Goldman Sachs?
A: It’s an issue we have to help clients manage ness on the rise, company
because it affects all public companies. It’s now managers now view risk
at the center of M&A and other aspects of our
business.
management as a strategic
priority, spanning a variety
View video of markets including curren-
Gene Sykes explores the origins and evolution of the
activist shareholder movement. Go to: goldmansachs.com/ cies, commodities, credit
our-thinking/trends-in-our-business/investment-banking/ and equities.” Esposito adds
sykes/index.html
that “clients seek our advice
because risk management
is part of our DNA.”

View video
Jim Esposito on risk management.
Go to: goldmansachs.com/annual-report-
2013/jim-esposito

Goldman Sachs 2013 Annual Report 23


RISK MANAGEMENT

NO AS CHALLENGES RISE, THE “We always look comprehensively and consistently

23
across risks, both in the analytics we use and in
the way our risk managers work together and
VALUE OF AN INTEGRATED are integrated.

RISK MANAGEMENT
Our job is to look around corners and figure out what
could happen that we may not yet have anticipated,”
says Liz Robinson, Global Treasurer of Goldman Sachs.

INFRASTRUCTURE HAS “Instead of looking separately at market risk versus credit


risk versus reputational, liquidity or operational risk, we

BECOME CLEARER look across the spectrum of those risks to understand


how they interrelate.”

THAN EVER View video


Liz Robinson describes the complexity of global
risk management. Go to: goldmansachs.com/annual-
report-2013/liz-robinson

24
A WAVE OF EUROPEAN
COMPANIES IS CUTTING
COSTS, AND CREDIT
RISKS, BY TURNING TO
CAPITAL MARKETS
Goldman Sachs team members supporting the Avanza transaction: Eduard van Wyk,
Michal Antosik, Giovanni Rigodanza, Thomas Turner, Nicola Stewart, Michael Marsh,
Francisco Cabeza, Investment Banking Division

IN SEEKING TO INCREASE THE FLEXIBILITY of the capital structure at one of its portfolio
companies — Spanish bus company Avanza Group — Doughty Hanson, the private equity
firm, had two goals in mind. First, like many companies across Europe, it sought to replace
a rigid, syndicated loan facility with a new financing structure that would allow greater
flexibility and reduce reliance on bank capital. Second, it sought to ensure that any new
capital structure would remain in place should the firm decide to monetize its stake in
Avanza in the future. With the help of Goldman Sachs, Doughty Hanson overcame both
challenges with the issuance of €490 million in high-yield bonds with an innovative feature
known as “portability,” which ensured that financing could remain in place when the
company was purchased by new owners.

24 Goldman Sachs 2013 Annual Report


25
Managing Risks Within

The strength and integrity


of our client franchise is
vital to the firm’s continued
success. Sustaining the firm’s
focus on the interrelationship
between client service,
business standards and
reputational risk is the
responsibility of the Client
and Business Standards
Committee (CBSC).

How does the CBSC operate?

Convening senior leaders several


times a month, the CBSC is able to address
pressing issues from multiple perspectives
because it includes representatives from all
of our client-facing divisions and our major
control functions at the firm.

Allowing time for open discussion at


the beginning of every meeting, committee
members are free to raise any concerns
related to clients, business standards
and reputational risk, whether specific to
Goldman Sachs or the broader financial
services industry.

Receiving regular reports from both


Kevin Smith, Kyung-Ah Park and David Sperry, client-facing and control divisions, the CBSC
members of the Goldman Sachs Environmental Markets Group monitors the current state of our client
franchise, challenges facing our clients and
As companies consider their risk the financial performance of our businesses.

profile, environmental risk management Focusing on key risks — every


report to the CBSC from our business
is increasingly important units and control functions must provide
From the pressures of rising population and consumption to urbanization and an assessment of ongoing and emerging
risks. By requiring business units to engage
climate change, the need to pursue sustainability and manage environmental
in the discipline of preparing key risk
risks is a growing imperative both for our clients and for Goldman Sachs.
assessments, the committee ensures that
The Environmental Markets Group at Goldman Sachs works closely with reputational risk remains at the forefront
deal teams to conduct enhanced due diligence on transactions that involve of business leaders’ thinking.
significant environmental issues and, where appropriate, advise clients on how
to mitigate these risks. Whether it is working with an extractive company in Working with a network of divisional
strengthening its commitment to sustainable development or engaging with and regional CBSCs — subcommittees
an emerging market power company in facilitating the adoption of industry ensure that distant risk issues rise to the
top, and that every level of the firm remains
best practices, through proactive engagement with our clients we are able to
focused on the importance of the client
differentiate our advice and create a better outcome for the environment, our
franchise and managing reputational risk.
clients and our own risk management. Given the breadth of the clients we
work with, over time, we also play a part in facilitating better environmental
practices and policies across industries and geographies, and ensuring a
more sustainable outcome.
Go to: goldmansachs.com/
Our approach to environmental risk management is guided by our business-standards
Environmental Policy Framework and 14 sector and subsector guidelines.
Go to: goldmansachs.com/environmentalmarkets

Goldman Sachs 2013 Annual Report 25


People and Culture

IN A CONSTANTLY CHANGING
WORLD, OUR ABILITY TO RECRUIT,
DEVELOP AND MOTIVATE THE MOST
TALENTED AND ENTREPRENEURIAL
PEOPLE IS FUNDAMENTAL TO
SERVING OUR CLIENTS

“We’ve built a culture that values teamwork, collaboration and


dialogue and a workplace where people know they will learn, that
they’re valued, and that they will make an impact.
Our ability to serve our clients with excellence depends on our people,”
says Edith Cooper, global head of Human Capital Management at
Goldman Sachs. “That’s why we must not only attract talented people,
but make sure they continue to develop. In 2013, we invested heavily
in professional development and promoting our core values, with
the certainty,” says Cooper “that it’s the power of the whole that really
makes an impact on our clients and the world.”

View video
Edith Cooper, global head of Human
Capital Management, speaks about the
people and culture at Goldman Sachs.
Go to: goldmansachs.com/
annual-report-2013/edith-cooper

26 Goldman Sachs 2013 Annual Report


Mark Matthews, Executive Office; Helen Lee, Technology;
Sumedha Majumdar, GSBank

HELPING DEVELOP
EXCEPTIONAL MANAGERS RECRUITING AND
We believe there is a direct link between effective
leadership and client success, and we integrate leadership
DEVELOPING THE
development at every level of our organization. At the
top, Pine Street leverages our culture, business principles
and decades of leadership experience to define the
expectations of our leaders and their responsibilities
NEXT GENERATION
to the firm, our people and our clients. Pine Street utilizes
a variety of channels — including classroom sessions,
We are competing for the best people globally.
executive coaching and experience-based learning — Not only must we offer superior career opportunities;
to provide practical training to help our leaders fulfill those we must evolve our talent management strategy
expectations and responsibilities. We provide intensive to keep pace with the changing needs of the
sessions for managing directors hired laterally to Goldman
Sachs, to ensure a smooth transition during their first three
market. This year, we increased our presence across
months at the firm. Another important program is our social media outlets, and trained leaders to better
Managing Director Leadership Acceleration Initiative. manage a generation that is more globally aware
This innovative six-month engagement for high-potential and technologically proficient than ever before.
leaders brings together cross-disciplinary groups to work
together on strategic assignments aimed at addressing
We also enriched the extensive professional and
some of the firm’s most pressing issues. leadership offerings of Goldman Sachs University,
with hundreds of courses delivered in the
Among the most important responsibilities of Goldman
Sachs leaders is furthering our unique, highly collaborative classroom, through webcasts and convenient
culture that places a premium on teamwork, integrity and e-learning modules. Most importantly, we
excellence. Our culture is the DNA of our firm and continued to emphasize an apprenticeship
essential to our success. It has helped us recruit, develop
culture in which our junior team members learn
and retain generations of talented people who thrive on
collaborating in a team environment, solving challenges by working closely with seasoned professionals.
and providing outstanding service to our clients. We believe this is critical to developing the next
generation of Goldman Sachs leaders, who
will best serve our clients, manage our capital,
manage our risk and grow our business.

Goldman Sachs 2013 Annual Report 27


Elyse Goodman, Investment Management Division,
participant in the Returnship program

STRENGTHENING THE
TALENT POOL THROUGH
A COMMITMENT
(top) Laura Posthumus, Internal Audit, and
(bottom) Caleb West, Finance, two of the participants
in the Veteran’s Integration Program

TO DIVERSITY BUILDING A BRIDGE TO


We believe that diversity in the workplace is a powerful
OPPORTUNITY WHERE
competitive advantage, and our commitment to diversity IT IS LACKING
was demonstrated throughout 2013. Goldman Sachs
was once again named one of Fortune magazine’s We also believe in promoting diversity and
100 Best Companies to Work For, and a Best Place to apprenticeship in the outside world. That’s
Work by the Human Rights Campaign Foundation, an why we were the first firm to support the
advocacy group for LGBT Americans. We also continued London Evening Standard ’s Ladder for
London, a campaign to match unemployed
to promote diversity through a number of important young adults with internships in a wide range
initiatives. These include: our Returnship Program which of industries. In 2013, a group of 10 interns
helps people, many of them women, restart their careers worked in various parts of our London office,
after an extended and voluntary absence from the filling positions in Technology, Operations,
Human Capital Management, Securities,
workforce, and our Veterans Integration Program, which Investment Banking, and Corporate Services
provides servicemen and servicewomen exiting the & Real Estate. In the year since the campaign
military with an opportunity to develop their professional began, 400 companies have joined the effort.
skills and strengthen their understanding of financial More than 11,200 young adults have greatly
enhanced their career prospects — an
services, preparing them for future careers where many important achievement in a city where one
of the skills they learned during their service, including in four young adults is unemployed.
teamwork and leadership, are valued.

28 Goldman Sachs 2013 Annual Report


Our Business

The Goldman Sachs Group, Inc. 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.
We report our activities in the following four business segments:

Investment Banking Investment Banking


We provide a broad range of investment banking services to a diverse group of Net Revenues (in millions)
corporations, financial institutions, investment funds and governments. Services
include strategic advisory assignments with respect to mergers and acquisitions, 2013 $6,004
divestitures, corporate defense activities, risk management, restructurings
and spin-offs, and debt and equity underwriting of public offerings and private 2012 $4,926
2013 $6,004
placements, including domestic and cross-border transactions, as well as 2011 $4,355
derivative transactions directly related to these activities. 2012 $4,926

2011
2013 $4,355 $6,004

2012 $4,926
2013 $6,004
Institutional Client Services 2011
Institutional Client Services $4,355
We facilitate client transactions and make markets in fixed income, equity, 2013
Net Revenues (in millions)
2012 $15,721
$4,926
currency and commodity products, primarily with institutional clients such 2012 $18,124
2011 $4,355
as corporations, financial institutions, investment funds and governments. 2013 $15,721
We also make markets in and clear client transactions on major stock, 2011 $17,280
options and futures exchanges worldwide and provide financing, securities 2012 $18,124
lending and other prime brokerage services to institutional clients. 2011
2013 $17,280
$15,721

2012 $18,124
2013 $15,721
2011
2013 $17,280
$7,018
2012 $18,124
2012 $5,891
Investing & Lending 2013
2011
Investing & Lending $7,018
$17,280
2011 $2,142
We invest in and originate loans to provide financing to clients. These Net Revenues (in millions)
2012 $5,891
investments and loans are typically longer term in nature. We make
investments, some of which are consolidated, directly and indirectly through 2011
2013 $2,142 $7,018
funds that we manage, in debt securities and loans, public and private equity
2012 $5,891
securities, and real estate entities.
2013 $7,018
2011 $2,142
2013
2012 $5,891 $5,463
2012 $5,222
2011 $2,142
2013 $5,463
2011 $5,034
2012 $5,222
Investment Management Investment Management
2011 $5,034
2013 $5,463
We provide investment management services and offer investment Net Revenues (in millions)
products (primarily through separately managed accounts and commingled 2012 $5,222
vehicles, such as mutual funds and private investment funds) across all 2013 $5,463
2011 $5,034
major asset classes to a diverse set of institutional and individual clients.
2012 $5,222
We also offer wealth advisory services, including portfolio management and
financial counseling, and brokerage and other transaction services to high- 2011 $5,034
net-worth individuals and families.

Goldman Sachs 2013 Annual Report 29


Financial Highlights

For the Year Ended or as of December


$ and share amounts in millions, except per share amounts 2013 2012 2011
Operating Results
Net revenues $ 34,206 $ 34,163 $ 28,811
Pre-tax earnings 11,737 11,207 6,169
Net earnings 8,040 7,475 4,442
Net earnings applicable to common shareholders 7,726 7,292 2,510
Return on average common shareholders’ equity 11.0% 10.7% 3.7%
Common Share Data
Diluted earnings per common share $ 15.46 $ 14.13 $ 4.51
Average diluted common shares outstanding 499.6 516.1 556.9
Dividends declared per common share $ 2.05 $ 1.77 $ 1.40
Book value per common share 152.48 144.67 130.31
Tangible book value per common share 1 143.11 134.06 119.72
Ending stock price 177.26 127.56 90.43
Financial Condition and Selected Ratios
Total assets $ 911,507 $938,555 $923,225
Unsecured long-term borrowings 160,965 167,305 173,545
Total shareholders’ equity 78,467 75,716 70,379
Leverage ratio 2 11.6x 12.4x 13.1x
Tier 1 common ratio 3 14.6% 14.5% 12.1%
Tier 1 capital ratio 3 16.7% 16.7% 13.8%
Selected Data
Total staff 32,900 32,400 33,300
Assets under supervision (in billions) $ 1,042 $ 965 $ 895

1. Tangible book value per common share is computed by dividing tangible common shareholders’ equity (total shareholders’ equity less preferred stock, goodwill
and identifiable intangible assets) by the number of common shares outstanding, including restricted stock units granted to employees with no future service
requirements. See “Financial Information — Management’s Discussion and Analysis — Equity Capital — Other Capital Metrics” for further information about our
tangible common shareholders’ equity and tangible book value per common share, which are both non-GAAP measures.
2. The leverage ratio equals total assets divided by total shareholders’ equity.
3. The Tier 1 common ratio and the Tier 1 capital ratio are computed using risk-weighted assets (RWAs) calculated in accordance with the Federal Reserve Board’s
risk-based capital requirements, which are based on Basel 1, and as of December 2013 also reflect the revised market risk regulatory capital requirements which
became effective on January 1, 2013. The Tier 1 common ratio and the Tier 1 capital ratio as of December 2012 and December 2011 are prior to the implementation
of the revised market risk regulatory capital requirements. The Tier 1 common ratio equals Tier 1 common capital divided by RWAs. See “Financial Information —
Management’s Discussion and Analysis — Equity Capital — Consolidated Regulatory Capital Ratios” for further information about our Tier 1 common ratio, which
is a non-GAAP measure, and our Tier 1 capital ratio.

30 Goldman Sachs 2013 Annual Report


Financial Information — Table of Contents

Management’s Discussion and Analysis Notes to Consolidated Financial Statements


Introduction 32 Note 1 — Description of Business 115
Executive Overview 33 Note 2 — Basis of Presentation 115
Business Environment 35 Note 3 — Significant Accounting Policies 116
Critical Accounting Policies 37 Note 4 — Financial Instruments Owned, at Fair
Recent Accounting Developments 40 Value and Financial Instruments Sold, But Not Yet
Use of Estimates 41 Purchased, at Fair Value 121
Results of Operations 42 Note 5 — Fair Value Measurements 123
Regulatory Developments 55 Note 6 — Cash Instruments 125
Balance Sheet and Funding Sources 57 Note 7 — Derivatives and Hedging Activities 134
Equity Capital 64 Note 8 — Fair Value Option 151
Off-Balance-Sheet Arrangements and Note 9 — Collateralized Agreements and Financings 160
Contractual Obligations 75 Note 10 — Securitization Activities 165
Overview and Structure of Risk Management 78 Note 11 — Variable Interest Entities 168
Liquidity Risk Management 83 Note 12 — Other Assets 172
Market Risk Management 90 Note 13 — Goodwill and Identifiable Intangible
Credit Risk Management 97 Assets 173
Operational Risk Management 105 Note 14 — Deposits 176
Certain Risk Factors That May Affect Our Note 15 — Short-Term Borrowings 177
Businesses 106 Note 16 — Long-Term Borrowings 177
Note 17 — Other Liabilities and Accrued Expenses 180
Note 18 — Commitments, Contingencies and
Management’s Report on Internal Control Guarantees 181
over Financial Reporting 108
Note 19 — Shareholders’ Equity 187
Note 20 — Regulation and Capital Adequacy 190
Report of Independent Registered Note 21 — Earnings Per Common Share 195
Public Accounting Firm 109 Note 22 — Transactions with Affiliated Funds 195
Note 23 — Interest Income and Interest Expense 196
Consolidated Financial Statements Note 24 — Income Taxes 197
Note 25 — Business Segments 200
Consolidated Statements of Earnings 110
Note 26 — Credit Concentrations 204
Consolidated Statements of Comprehensive Income 111
Note 27 — Legal Proceedings 205
Consolidated Statements of Financial Condition 112
Note 28 — Employee Benefit Plans 212
Consolidated Statements of Changes
in Shareholders’ Equity 113 Note 29 — Employee Incentive Plans 212
Consolidated Statements of Cash Flows 114 Note 30 — Parent Company 215

Supplemental Financial Information


Quarterly Results 216
Common Stock Price Range 217
Common Stock Performance 218
Selected Financial Data 219
Statistical Disclosures 220

Goldman Sachs 2013 Annual Report 31


Management’s Discussion and Analysis

Introduction
The Goldman Sachs Group, Inc. (Group Inc.) is a leading In this discussion and analysis of our financial condition
global investment banking, securities and investment and results of operations, we have included information
management firm that provides a wide range of financial that may constitute “forward-looking statements” within
services to a substantial and diversified client base that the meaning of the safe harbor provisions of the U.S.
includes corporations, financial institutions, governments Private Securities Litigation Reform Act of 1995.
and high-net-worth individuals. Founded in 1869, the firm Forward-looking statements are not historical facts, but
is headquartered in New York and maintains offices in all instead represent only our beliefs regarding future events,
major financial centers around the world. many of which, by their nature, are inherently uncertain
and outside our control. This information includes
We report our activities in four business segments:
statements other than historical information or statements
Investment Banking, Institutional Client Services,
of current condition and may relate to our future plans
Investing & Lending and Investment Management. See
and objectives and results, among other things, and may
“Results of Operations” below for further information
also include statements about the effect of changes to the
about our business segments.
capital and leverage rules applicable to banks and bank
When we use the terms “Goldman Sachs,” “the firm,” holding companies, the impact of the Dodd-Frank Act on
“we,” “us” and “our,” we mean Group Inc., a Delaware our businesses and operations, and various legal
corporation, and its consolidated subsidiaries. proceedings or mortgage-related contingencies as set forth
under “Legal Proceedings” and “Certain Mortgage-
References to “the 2013 Form 10-K” are to our Annual
Related Contingencies” in Notes 27 and 18, respectively,
Report on Form 10-K for the year ended
to the consolidated financial statements, as well as
December 31, 2013. All references to 2013, 2012 and 2011
statements about the results of our Dodd-Frank Act and
refer to our years ended, or the dates, as the context
firm stress tests, statements about the objectives and
requires, December 31, 2013, December 31, 2012 and
effectiveness of our risk management and liquidity
December 31, 2011, respectively. Any reference to a future
policies, statements about trends in or growth
year refers to a year ending on December 31 of that year.
opportunities for our businesses, statements about our
Certain reclassifications have been made to previously
future status, activities or reporting under U.S. or non-
reported amounts to conform to the current presentation.
U.S. banking and financial regulation, and statements
about our investment banking transaction backlog. By
identifying these statements for you in this manner, we are
alerting you to the possibility that our actual results and
financial condition may differ, possibly materially, from
the anticipated results and financial condition indicated in
these forward-looking statements. Important factors that
could cause our actual results and financial condition to
differ from those indicated in these forward-looking
statements include, among others, those discussed below
under “Certain Risk Factors That May Affect Our
Businesses” as well as “Risk Factors” in Part I, Item 1A of
the 2013 Form 10-K and “Cautionary Statement Pursuant
to the U.S. Private Securities Litigation Reform Act of
1995” in Part I, Item 1 of the 2013 Form 10-K.

32 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

Executive Overview
The firm generated net earnings of $8.04 billion for 2013, Investment Banking
compared with $7.48 billion for 2012 and $4.44 billion for Net revenues in Investment Banking increased significantly
2011. Our diluted earnings per common share were $15.46 compared with 2012, reflecting significantly higher net
for 2013, compared with $14.13 for 2012 and $4.51 for revenues in Underwriting, due to strong net revenues in
2011. Return on average common shareholders’ equity both equity and debt underwriting. Net revenues in equity
(ROE) 1 was 11.0% for 2013, compared with 10.7% for underwriting were significantly higher compared with
2012 and 3.7% for 2011. 2012, reflecting an increase in client activity, particularly in
initial public offerings. Net revenues in debt underwriting
Book value per common share increased approximately 5%
were significantly higher compared with 2012, principally
to $152.48 and tangible book value per common share 2
due to leveraged finance activity. Net revenues in Financial
increased approximately 7% to $143.11 compared with the
Advisory were essentially unchanged compared with 2012.
end of 2012. 3 During the year, the firm repurchased
39.3 million shares of its common stock for a total cost of Institutional Client Services
$6.17 billion, while maintaining strong capital levels. Our Net revenues in Institutional Client Services decreased
Tier 1 capital ratio was 16.7% and our Tier 1 common compared with 2012, reflecting lower net revenues in both
ratio 4 was 14.6% as of December 2013 (in each case under Fixed Income, Currency and Commodities Client
Basel I and also reflecting the revised market risk regulatory Execution and Equities.
capital requirements which became effective on
The decrease in Fixed Income, Currency and Commodities
January 1, 2013).
Client Execution compared with 2012 reflected
The firm generated net revenues of $34.21 billion for 2013. significantly lower net revenues in interest rate products
These results reflected significantly higher net revenues in compared with a solid 2012, and significantly lower net
Investment Banking, as well as higher net revenues in revenues in mortgages compared with a strong 2012. In
Investing & Lending and Investment Management addition, net revenues in currencies were slightly lower,
compared with 2012. These increases were offset by lower while net revenues in credit products and commodities were
net revenues in Institutional Client Services compared essentially unchanged compared with 2012. Fixed Income,
with 2012. Currency and Commodities Client Execution operated in a
generally challenging environment during much of 2013, as
An overview of net revenues for each of our business
macroeconomic concerns and uncertainty led to
segments is provided below.
challenging market-making conditions and generally lower
levels of activity.

1. See “Results of Operations — Financial Overview” below for further information about our calculation of ROE.
2. Tangible book value per common share is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies. See “Equity
Capital — Other Capital Metrics” below for further information about our calculation of tangible book value per common share.
3. In October 2013, Berkshire Hathaway Inc. and certain of its subsidiaries (collectively, Berkshire Hathaway) exercised in full the warrant to purchase shares of the
firm’s common stock, which required net share settlement and resulted in a reduction of approximately 3% to both book value per common share and tangible book
value per common share. See “Equity Capital — Equity Capital Management” below for further information about the Berkshire Hathaway warrant.
4. Tier 1 common ratio is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies. See “Equity Capital —
Consolidated Regulatory Capital Ratios” below for further information about our Tier 1 common ratio.

Goldman Sachs 2013 Annual Report 33


Management’s Discussion and Analysis

Investment Management
The decrease in Equities compared with 2012 was due to Net revenues in Investment Management increased
the sale of our Americas reinsurance business 1 in 2013 and compared with 2012, reflecting higher management and
the sale of our hedge fund administration business in 2012. other fees, primarily due to higher average assets under
Net revenues in equities client execution (excluding net supervision. During the year, total assets under supervision
revenues from our Americas reinsurance business) were increased $77 billion to $1.04 trillion. Long-term assets
higher compared with 2012, including significantly higher under supervision increased $81 billion, including net
net revenues in cash products, partially offset by inflows of $41 billion 2, reflecting inflows in fixed income
significantly lower net revenues in derivatives. and equity assets, partially offset by outflows in alternative
Commissions and fees were slightly higher compared with investment assets. Net market appreciation of $40 billion
2012. Securities services net revenues were significantly during the year was primarily in equity assets. Liquidity
lower compared with 2012, primarily due to the sale of our products decreased $4 billion.
hedge fund administration business in 2012 (2012 included
Our businesses, by their nature, do not produce predictable
a gain on sale of $494 million). During 2013, Equities
earnings. Our results in any given period can be materially
operated in an environment characterized by a significant
affected by conditions in global financial markets,
increase in global equity prices, particularly in Japan and
economic conditions generally and other factors. For a
the U.S., and generally lower volatility levels.
further discussion of the factors that may affect our future
The net loss attributable to the impact of changes in our operating results, see “Certain Risk Factors That
own credit spreads on borrowings for which the fair value May Affect Our Businesses” below, as well as “Risk
option was elected was $296 million ($220 million and Factors” in Part I, Item 1A of the 2013 Form 10-K.
$76 million related to Fixed Income, Currency and
Commodities Client Execution and equities client
execution, respectively) for 2013, compared with a net loss
of $714 million ($433 million and $281 million related to
Fixed Income, Currency and Commodities Client
Execution and equities client execution, respectively)
for 2012.
Investing & Lending
Net revenues in Investing & Lending increased compared
with 2012, reflecting a significant increase in net gains from
investments in equity securities, driven by company-specific
events and stronger corporate performance, as well as
significantly higher global equity prices. In addition, net
gains and net interest income from debt securities and loans
were slightly higher, while other net revenues, related to our
consolidated investments, were lower compared with 2012.

1. In April 2013, we completed the sale of a majority stake in our Americas reinsurance business and no longer consolidate this business. Net revenues related to the
Americas reinsurance business were $317 million for 2013 and $1.08 billion for 2012. See Note 12 to the consolidated financial statements for further information
about this sale.
2. Fixed income flows for 2013 include $10 billion in assets managed by the firm related to our Americas reinsurance business, in which a majority stake was sold in
April 2013, that were previously excluded from assets under supervision as they were assets of a consolidated subsidiary.

34 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

Business Environment
Real gross domestic product (GDP), although generally The rate of unemployment continued to remain elevated in
rising, appeared to remain subdued in most major many advanced economies. During 2013, the U.S. Federal
economies. Market sentiment improved in advanced Reserve, the Bank of England and the Bank of Japan each
economies, supported by better private sector growth left policy interest rates unchanged, while the European
prospects in the United States and signs of a turnaround in Central Bank reduced its policy interest rate. In
the Euro area, while monetary policy generally remained December 2013, the U.S. Federal Reserve announced that it
accommodative. Improvements in the U.S. economy would begin to scale back its asset purchase program by
reflected favorable developments in unemployment and $10 billion to $75 billion per month. The U.S. dollar
housing, even though a reduction in fiscal spending weakened against both the Euro and the British pound,
weighed on growth. These improvements resulted in tighter while it strengthened significantly against the Japanese yen.
credit spreads, significantly higher global equity prices and
United States
generally lower levels of volatility. However, signals during
In the United States, real GDP increased by 1.9% in 2013,
the year from the U.S. Federal Reserve that it would begin
compared with an increase of 2.8% in 2012. Growth
tapering its asset purchase program contributed to a rise in
decelerated on the back of a significant contraction in
U.S. interest rates and a more challenging environment,
federal government spending as a result of sequestration, as
particularly for emerging markets. In addition, continued
well as a slowdown in fixed investment. House prices,
political uncertainty, particularly the political debate in the
house sales and housing starts increased, although the rise
United States surrounding the government shutdown and a
in U.S. bond yields drove mortgage interest rates higher.
potential breach of the debt ceiling, generally resulted in
Industrial production expanded in 2013, but at a slower
heightened risk aversion. These concerns also weighed on
pace than in the previous year. Although political
investment banking activity as industry-wide mergers and
uncertainty around the federal government shutdown led to
acquisitions activity declined compared with 2012.
some temporary deterioration, business and consumer
Industry-wide equity underwriting activity improved and
confidence generally improved during the year, primarily
industry-wide debt underwriting activity remained solid.
reflecting continued improvement in the private sector.
For a further discussion of how market conditions may
Measures of inflation were lower compared with 2012. The
affect our businesses, see “Certain Risk Factors That
unemployment rate declined during 2013, but remained
May Affect Our Businesses” below as well as “Risk
elevated. The U.S. Federal Reserve maintained its federal
Factors” in Part I, Item 1A of the 2013 Form 10-K.
funds rate at a target range of zero to 0.25% during the year
Global and announced in December 2013 a reduction in its
During 2013, real GDP growth appeared to decline in many monthly program to purchase U.S. Treasury securities and
advanced economies and emerging markets. In advanced mortgage-backed securities. In addition, the U.S. Federal
economies, the slowdown primarily reflected a decline in Reserve affirmed its commitment to keep short-term
fixed investment growth in the United States and continued interest rates exceptionally low for some time, even after
weakness in the Euro area. In emerging markets, growth in the unemployment rate falls to 6.5% or inflation rises
domestic demand decreased and current account balances materially. The yield on the 10-year U.S. Treasury note rose
worsened. Unemployment levels declined in some by 126 basis points during 2013 to 3.04%. In equity
economies compared with 2012, including the United markets, the NASDAQ Composite Index, the S&P 500
States, but increased in others, particularly in the Euro area. Index and the Dow Jones Industrial Average increased by
38%, 30% and 26%, respectively, during 2013.

Goldman Sachs 2013 Annual Report 35


Management’s Discussion and Analysis

Europe The Bank of Japan also changed its main operating target
In the Euro area, real GDP declined by 0.4% in 2013, for money market operations from the uncollateralized
compared with a decrease of 0.6% in 2012. The overnight call rate to the monetary base, which is set to
contraction was principally due to continued weakness in increase annually by approximately 60-70 trillion yen. The
domestic demand, primarily reflecting further declines in yield on 10-year Japanese government bonds fell by 5 basis
fixed investment and consumer spending. Business and points during the year to 0.74%. The Japanese yen
consumer confidence remained at low levels and measures depreciated by 21% against the U.S. dollar and, in equity
of core inflation decelerated further during the year. The markets, the Nikkei 225 Index increased by 57%. In China,
unemployment rate remained elevated, particularly in Italy real GDP increased by 7.7% in 2013, broadly in line with
and Spain. Political uncertainty in Italy and the debt crisis in the increase in the previous year, although impacted by less
Cyprus temporarily increased market volatility earlier in supportive monetary policies and tightening financial
the year, while private sector lending conditions remained conditions. Measures of inflation remained moderate and
very tight in periphery countries. To address these issues, The People’s Bank of China kept the reserve requirement
the European Central Bank decreased its main refinancing ratio unchanged. The Chinese yuan appreciated by 3%
operations rate by 50 basis points to 0.25%, and adopted against the U.S. dollar and, in equity markets, the Shanghai
forward guidance for the future path of interest rates as a Composite Index fell by 7%. In India, real GDP increased
new part of its monetary policy tools. The Euro appreciated by an estimated 4.7% in 2013, compared with an increase
by 5% against the U.S. dollar. In the United Kingdom, real of 5.1% in 2012. Growth decelerated, primarily reflecting a
GDP increased by 1.8% in 2013, compared with an further softening in domestic demand growth and only
increase of 0.3% in 2012. The Bank of England maintained slight improvements in the current account balance. The
its official bank rate at 0.50% and also introduced forward rate of wholesale inflation declined compared with 2012.
guidance for the future path of interest rates, contingent on The Indian rupee depreciated by 12% against the U.S.
the evolution of employment and inflation. The British dollar, while, in equity markets, the BSE Sensex Index
pound appreciated by 2% against the U.S. dollar. Long- increased by 9%. Equity markets in Hong Kong and South
term government bond yields generally increased during the Korea were slightly higher, as the Hang Seng Index
year, except in the periphery countries where yields fell. In increased by 3% and the KOSPI Composite Index increased
equity markets, the DAX Index, the CAC 40 Index, the by 1% during 2013.
Euro Stoxx 50 Index and the FTSE 100 Index increased by
Other Markets
25%, 18%, 18% and 14%, respectively, during 2013.
In Brazil, real GDP increased by an estimated 2.2% in
Asia 2013, compared with an increase of 1.0% in 2012. Growth
In Japan, real GDP increased by 1.6% in 2013, compared accelerated on the back of increasing domestic demand and
with an increase of 1.4% in 2012. Growth was supported fixed investment. The Brazilian real depreciated by 15%
by significant increases in private housing investment and in against the U.S. dollar and, in equity markets, the Bovespa
public fixed investment. However, the trade balance Index decreased by 15% during 2013. In Russia, real GDP
continued to deteriorate during 2013. Measures of inflation increased by 1.3% in 2013, compared with an increase of
turned positive during the year, but remain far from the 3.4% in 2012. This slowdown primarily reflected a decline
Bank of Japan’s newly adopted 2% inflation target. In in domestic demand growth and a contraction in
addition, the Bank of Japan, under new leadership, investment growth, particularly during the middle of the
introduced a new program of quantitative and qualitative year. The Russian ruble depreciated by 8% against the U.S.
monetary easing, which included a significant increase in dollar, while, in equity markets, the MICEX Index
the size and mandate of its asset purchases, as well as a increased by 2% during 2013.
commitment to a more targeted communication strategy.

36 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

Critical Accounting Policies


Fair Value
Fair Value Hierarchy. Financial instruments owned, at fair Instruments categorized within level 3 of the fair value
value and Financial instruments sold, but not yet hierarchy are those which require one or more significant
purchased, at fair value (i.e., inventory), as well as certain inputs that are not observable. As of December 2013 and
other financial assets and financial liabilities, are reflected December 2012, level 3 assets represented 4.4% and 5.0%,
in our consolidated statements of financial condition at fair respectively, of our total assets. Absent evidence to the
value (i.e., marked-to-market), with related gains or losses contrary, instruments classified within level 3 of the fair
generally recognized in our consolidated statements of value hierarchy are initially valued at transaction price,
earnings. The use of fair value to measure financial which is considered to be the best initial estimate of fair
instruments is fundamental to our risk management value. Subsequent to the transaction date, we use other
practices and is our most critical accounting policy. methodologies to determine fair value, which vary based on
the type of instrument. Estimating the fair value of level 3
The fair value of a financial instrument is the amount that
financial instruments requires judgments to be made. These
would be received to sell an asset or paid to transfer a
judgments include:
liability in an orderly transaction between market
participants at the measurement date. We measure certain ‰ determining the appropriate valuation methodology and/
financial assets and financial liabilities as a portfolio (i.e., or model for each type of level 3 financial instrument;
based on its net exposure to market and/or credit risks). In
‰ determining model inputs based on an evaluation of all
determining fair value, the hierarchy under U.S. generally
relevant empirical market data, including prices
accepted accounting principles (U.S. GAAP) gives (i) the
evidenced by market transactions, interest rates, credit
highest priority to unadjusted quoted prices in active
spreads, volatilities and correlations; and
markets for identical, unrestricted assets or liabilities
(level 1 inputs), (ii) the next priority to inputs other than ‰ determining appropriate valuation adjustments, including
level 1 inputs that are observable, either directly or those related to illiquidity or counterparty credit quality.
indirectly (level 2 inputs), and (iii) the lowest priority to
Regardless of the methodology, valuation inputs and
inputs that cannot be observed in market activity (level 3
assumptions are only changed when corroborated by
inputs). Assets and liabilities are classified in their entirety
substantive evidence.
based on the lowest level of input that is significant to their
fair value measurement. Controls Over Valuation of Financial Instruments.
Market makers and investment professionals in our
The fair values for substantially all of our financial assets
revenue-producing units are responsible for pricing our
and financial liabilities are based on observable prices and
financial instruments. Our control infrastructure is
inputs and are classified in levels 1 and 2 of the fair value
independent of the revenue-producing units and is
hierarchy. Certain level 2 and level 3 financial assets and
fundamental to ensuring that all of our financial
financial liabilities may require appropriate valuation
instruments are appropriately valued at market-clearing
adjustments that a market participant would require to
levels. In the event that there is a difference of opinion in
arrive at fair value for factors such as counterparty and the
situations where estimating the fair value of financial
firm’s credit quality, funding risk, transfer restrictions,
instruments requires judgment (e.g., calibration to market
liquidity and bid/offer spreads. Valuation adjustments are
comparables or trade comparison, as described below), the
generally based on market evidence.
final valuation decision is made by senior managers in
control and support functions that are independent of the
revenue-producing units. This independent price
verification is critical to ensuring that our financial
instruments are properly valued.

Goldman Sachs 2013 Annual Report 37


Management’s Discussion and Analysis

Price Verification. All financial instruments at fair value in Review of Net Revenues. Independent control and
levels 1, 2 and 3 of the fair value hierarchy are subject to support functions ensure adherence to our pricing policy
our independent price verification process. The objective of through a combination of daily procedures, including the
price verification is to have an informed and independent explanation and attribution of net revenues based on the
opinion with regard to the valuation of financial underlying factors. Through this process we independently
instruments under review. Instruments that have one or validate net revenues, identify and resolve potential fair
more significant inputs which cannot be corroborated by value or trade booking issues on a timely basis and seek to
external market data are classified within level 3 of the fair ensure that risks are being properly categorized
value hierarchy. Price verification strategies utilized by our and quantified.
independent control and support functions include:
Review of Valuation Models. The firm’s independent
‰ Trade Comparison. Analysis of trade data (both internal model validation group, consisting of quantitative
and external where available) is used to determine the professionals who are separate from model developers,
most relevant pricing inputs and valuations. performs an independent model approval process. This
process incorporates a review of a diverse set of model and
‰ External Price Comparison. Valuations and prices are
trade parameters across a broad range of values (including
compared to pricing data obtained from third parties
extreme and/or improbable conditions) in order to
(e.g., broker or dealers, MarkIt, Bloomberg, IDC,
critically evaluate:
TRACE). Data obtained from various sources is
compared to ensure consistency and validity. When ‰ the model’s suitability for valuation and risk management
broker or dealer quotations or third-party pricing of a particular instrument type;
vendors are used for valuation or price verification,
‰ the model’s accuracy in reflecting the characteristics of
greater priority is generally given to
the related product and its significant risks;
executable quotations.
‰ the suitability of the calculation techniques incorporated
‰ Calibration to Market Comparables. Market-based
in the model;
transactions are used to corroborate the valuation of
positions with similar characteristics, risks ‰ the model’s consistency with models for similar
and components. products; and
‰ Relative Value Analyses. Market-based transactions ‰ the model’s sensitivity to input parameters
are analyzed to determine the similarity, measured in and assumptions.
terms of risk, liquidity and return, of one instrument
New or changed models are reviewed and approved prior
relative to another or, for a given instrument, of one
to being put into use. Models are evaluated and re-
maturity relative to another.
approved annually to assess the impact of any changes in
‰ Collateral Analyses. Margin calls on derivatives are the product or market and any market developments in
analyzed to determine implied values which are used to pricing theories.
corroborate our valuations.
‰ Execution of Trades. Where appropriate, trading desks
are instructed to execute trades in order to provide
evidence of market-clearing levels.
‰ Backtesting. Valuations are corroborated by
comparison to values realized upon sales.
See Notes 5 through 8 to the consolidated financial
statements for further information about fair
value measurements.

38 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

Level 3 Financial Assets at Fair Value. The table below See Notes 5 through 8 to the consolidated financial
presents financial assets measured at fair value and the statements for further information about changes in level 3
amount of such assets that are classified within level 3 of the financial assets and fair value measurements.
fair value hierarchy.
Total level 3 financial assets were $40.01 billion
and $47.10 billion as of December 2013 and
December 2012, respectively.

As of December 2013 As of December 2012


Total at Level 3 Total at Level 3
in millions Fair Value Total Fair Value Total
Commercial paper, certificates of deposit, time deposits
and other money market instruments $ 8,608 $ — $ 6,057 $ —
U.S. government and federal agency obligations 71,072 — 93,241 —
Non-U.S. government and agency obligations 40,944 40 62,250 26
Mortgage and other asset-backed loans and securities:
Loans and securities backed by commercial real estate 6,596 2,692 9,805 3,389
Loans and securities backed by residential real estate 9,025 1,961 8,216 1,619
Bank loans and bridge loans 17,400 9,324 22,407 11,235
Corporate debt securities 17,412 2,873 20,981 2,821
State and municipal obligations 1,476 257 2,477 619
Other debt obligations 3,129 807 2,251 1,185
Equities and convertible debentures 101,024 14,685 96,454 14,855
Commodities 4,556 — 11,696 —
Total cash instruments 281,242 32,639 335,835 35,749
Derivatives 57,879 7,076 71,176 9,920
Financial instruments owned, at fair value 339,121 39,715 407,011 45,669
Securities segregated for regulatory and other purposes 31,937 — 30,484 —
Securities purchased under agreements to resell 161,297 63 141,331 278
Securities borrowed 60,384 — 38,395 —
Receivables from customers and counterparties 7,416 235 7,866 641
Other assets 1 18 — 13,426 507
Total $600,173 $40,013 $638,513 $47,095

1. December 2012 consists of assets classified as held for sale related to our Americas reinsurance business, in which a majority stake was sold in April 2013, primarily
consisting of securities accounted for as available-for-sale and insurance separate account assets. See Notes 3 and 12 to the consolidated financial statements for
further information about the sale of our Americas reinsurance business.

Goldman Sachs 2013 Annual Report 39


Management’s Discussion and Analysis

Goodwill. Goodwill is the cost of acquired companies in Identifiable Intangible Assets. We amortize our
excess of the fair value of net assets, including identifiable identifiable intangible assets over their estimated lives or
intangible assets, at the acquisition date. Goodwill is based on economic usage for certain commodities-related
assessed annually in the fourth quarter for impairment, or intangibles. Identifiable intangible assets are tested for
more frequently if events occur or circumstances change impairment whenever events or changes in circumstances
that indicate an impairment may exist, by first assessing suggest that an asset’s or asset group’s carrying value may
qualitative factors to determine whether it is more likely not be fully recoverable. See Note 13 to the consolidated
than not that the fair value of a reporting unit is less than its financial statements for the carrying value and estimated
carrying amount. If the results of the qualitative assessment remaining lives of our identifiable intangible assets by
are not conclusive, a quantitative goodwill test would be major asset class.
performed by comparing the estimated fair value of each
A prolonged period of market weakness or significant
reporting unit with its estimated net book value.
changes in regulation could adversely impact our businesses
During the fourth quarter of 2013, we assessed goodwill for and impair the value of our identifiable intangible assets. In
impairment. The qualitative assessment required addition, certain events could indicate a potential
management to make judgments and to evaluate several impairment of our identifiable intangible assets, including
factors, which included, but were not limited to, weaker business performance resulting in a decrease in our
macroeconomic conditions, industry and market customer base and decreases in revenues from
considerations, cost factors, overall financial performance, commodities-related customer contracts and relationships.
entity-specific events, events affecting reporting units and Management judgment is required to evaluate whether
sustained changes in our stock price. Based on our indications of potential impairment have occurred, and to
evaluation of these factors, we determined that it was more test intangibles for impairment if required.
likely than not that the fair value of each of the reporting
An impairment loss, generally calculated as the difference
units exceeded its respective carrying amount, and
between the estimated fair value and the carrying value of
therefore, we determined that goodwill was not impaired
an asset or asset group, is recognized if the total of the
and that a quantitative goodwill impairment test was
estimated undiscounted cash flows relating to the asset or
not required.
asset group is less than the corresponding carrying value.
If we experience a prolonged period of weakness in the
See Note 12 to the consolidated financial statements for
business environment or financial markets, our goodwill
impairments of our identifiable intangible assets.
could be impaired in the future. In addition, significant
changes to critical inputs of the goodwill impairment test
(e.g., cost of equity) could cause the estimated fair value of
our reporting units to decline, which could result in an Recent Accounting Developments
impairment of goodwill in the future. See Note 3 to the consolidated financial statements for
See Note 13 to the consolidated financial statements for information about Recent Accounting Developments.
further information about our goodwill.

40 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

Use of Estimates
The use of generally accepted accounting principles requires Significant judgment is required in making these estimates
management to make certain estimates and assumptions. In and our final liabilities may ultimately be materially
addition to the estimates we make in connection with fair different. Our total estimated liability in respect of litigation
value measurements, and the accounting for goodwill and and regulatory proceedings is determined on a case-by-case
identifiable intangible assets, the use of estimates and basis and represents an estimate of probable losses after
assumptions is also important in determining provisions for considering, among other factors, the progress of each case
losses that may arise from litigation, regulatory proceedings or proceeding, our experience and the experience of others
and tax audits. in similar cases or proceedings, and the opinions and views
of legal counsel.
We estimate and provide for potential losses that may arise
out of litigation and regulatory proceedings to the extent In accounting for income taxes, we estimate and provide for
that such losses are probable and can be reasonably potential liabilities that may arise out of tax audits to the
estimated. In addition, we estimate the upper end of the extent that uncertain tax positions fail to meet the
range of reasonably possible aggregate loss in excess of the recognition standard under FASB Accounting Standards
related reserves for litigation proceedings where the firm Codification 740. See Note 24 to the consolidated financial
believes the risk of loss is more than slight. See Notes 18 statements for further information about accounting for
and 27 to the consolidated financial statements for income taxes.
information on certain judicial, regulatory and
legal proceedings.

Goldman Sachs 2013 Annual Report 41


Management’s Discussion and Analysis

Results of Operations
The composition of our net revenues has varied over time as Factors” in Part I, Item 1A of the 2013 Form 10-K for a
financial markets and the scope of our operations have further discussion of the impact of economic and market
changed. The composition of net revenues can also vary conditions on our results of operations.
over the shorter term due to fluctuations in U.S. and global
Financial Overview
economic and market conditions. See “Certain Risk Factors
The table below presents an overview of our financial results.
That May Affect Our Businesses” below and “Risk

Year Ended December


$ in millions, except per share amounts 2013 2012 2011
Net revenues $34,206 $34,163 $28,811
Pre-tax earnings 11,737 11,207 6,169
Net earnings 8,040 7,475 4,442
Net earnings applicable to common shareholders 7,726 7,292 2,510
Diluted earnings per common share 15.46 14.13 4.51 2
Return on average common shareholders’ equity 1 11.0% 10.7% 3.7% 2

1. ROE is computed by dividing net earnings applicable to common shareholders by average monthly common shareholders’ equity. The table below presents our
average common shareholders’ equity.

Average for the


Year Ended December
in millions 2013 2012 2011
Total shareholders’ equity $77,353 $72,530 $72,708
Preferred stock (6,892) (4,392) (3,990)
Common shareholders’ equity $70,461 $68,138 $68,718

2. Excluding the impact of the preferred dividend of $1.64 billion in the first quarter of 2011 (calculated as the difference between the carrying value and the
redemption value of the preferred stock), related to the redemption of our 10% Cumulative Perpetual Preferred Stock, Series G (Series G Preferred Stock) held by
Berkshire Hathaway, diluted earnings per common share were $7.46 and ROE was 5.9% for 2011. We believe that presenting our results for 2011 excluding this
dividend is meaningful, as it increases the comparability of period-to-period results. Diluted earnings per common share and ROE excluding this dividend are non-
GAAP measures and may not be comparable to similar non-GAAP measures used by other companies. The tables below present the calculation of net earnings
applicable to common shareholders, diluted earnings per common share and average common shareholders’ equity excluding the impact of this dividend.

Year Ended
in millions, except per share amount December 2011
Net earnings applicable to common shareholders $ 2,510
Impact of the Series G Preferred Stock dividend 1,643
Net earnings applicable to common shareholders, excluding the impact of the Series G Preferred Stock dividend 4,153
Divided by: average diluted common shares outstanding 556.9
Diluted earnings per common share, excluding the impact of the Series G Preferred Stock dividend $ 7.46

Average for the


Year Ended
in millions December 2011
Total shareholders’ equity $72,708
Preferred stock (3,990)
Common shareholders’ equity 68,718
Impact of the Series G Preferred Stock dividend 1,264
Common shareholders’ equity, excluding the impact of the Series G Preferred Stock dividend $69,982

42 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

Net Revenues 2012 versus 2011. Investment banking revenues on the


2013 versus 2012. Net revenues on the consolidated consolidated statements of earnings were $4.94 billion for
statements of earnings were $34.21 billion for 2013, 2012, 13% higher than 2011, reflecting significantly higher
essentially unchanged compared with 2012. 2013 included revenues in underwriting, due to strong revenues in debt
significantly higher investment banking revenues, as well as underwriting. Revenues in debt underwriting were
higher other principal transactions revenues and investment significantly higher compared with 2011, primarily
management revenues. In addition, commissions and fees reflecting higher revenues from investment-grade and
were slightly higher compared with 2012. These increases leveraged finance activity. Revenues in equity underwriting
were offset by lower market-making revenues and lower net were lower compared with 2011, primarily reflecting a
interest income compared with 2012. decline in industry-wide initial public offerings. Revenues in
financial advisory were essentially unchanged compared
2012 versus 2011. Net revenues on the consolidated
with 2011.
statements of earnings were $34.16 billion for 2012, 19%
higher than 2011, reflecting significantly higher other Investment management
principal transactions revenues, as well as higher market- During 2013, investment management revenues reflected an
making revenues, investment banking revenues and operating environment generally characterized by improved
investment management revenues compared with 2011. asset prices, particularly in equities, resulting in appreciation
These increases were partially offset by significantly lower in the value of client assets. In addition, the mix of average
net interest income and lower commissions and fees assets under supervision shifted slightly compared with 2012
compared with 2011. from liquidity products to long-term assets under
supervision, primarily due to growth in equity and fixed
Non-interest Revenues
income assets. In the future, if asset prices were to decline, or
Investment banking
investors favor asset classes that typically generate lower fees
During 2013, investment banking revenues reflected an
or investors withdraw their assets, investment management
operating environment generally characterized by improved
revenues would likely be negatively impacted. In addition,
industry-wide equity underwriting activity, particularly in
continued concerns about the global economic outlook could
initial public offerings, as global equity prices significantly
result in downward pressure on assets under supervision.
increased during the year. In addition, industry-wide debt
underwriting activity remained solid, and included 2013 versus 2012. Investment management revenues on
significantly higher leveraged finance activity, as interest the consolidated statements of earnings were $5.19 billion
rates remained low. However, ongoing macroeconomic for 2013, 5% higher than 2012, reflecting higher
concerns continued to weigh on investment banking management and other fees, primarily due to higher
activity as industry-wide mergers and acquisitions activity average assets under supervision.
declined compared with 2012. If macroeconomic concerns
2012 versus 2011. Investment management revenues on
continue and result in lower levels of client activity,
the consolidated statements of earnings were $4.97 billion
investment banking revenues would likely be
for 2012, 6% higher than 2011, due to significantly higher
negatively impacted.
incentive fees, partially offset by slightly lower management
2013 versus 2012. Investment banking revenues on the and other fees.
consolidated statements of earnings were $6.00 billion for
Commissions and fees
2013, 22% higher than 2012, reflecting significantly higher
During 2013, commissions and fees reflected an
revenues in underwriting, due to strong revenues in both
environment characterized by higher average daily volumes
equity and debt underwriting. Revenues in equity
in listed cash equities in Asia and Europe and lower average
underwriting were significantly higher compared with
daily volumes in listed cash equities in the United States,
2012, reflecting an increase in client activity, particularly in
and generally lower volatility levels compared with 2012. If
initial public offerings. Revenues in debt underwriting were
market volumes were to decline, commissions and fees
significantly higher compared with 2012, principally due to
would likely be negatively impacted.
leveraged finance activity. Revenues in financial advisory
were essentially unchanged compared with 2012. 2013 versus 2012. Commissions and fees on the
consolidated statements of earnings were $3.26 billion for
2013, slightly higher than 2012, primarily reflecting higher
commissions and fees in Asia and Europe. During 2013,
our average daily volumes were higher in Asia and Europe
and lower in the United States compared with 2012,
consistent with listed cash equity market volumes.

Goldman Sachs 2013 Annual Report 43


Management’s Discussion and Analysis

2012 versus 2011. Commissions and fees on the revenues included significantly higher revenues in securities
consolidated statements of earnings were $3.16 billion for services compared with 2011, reflecting a gain of
2012, 16% lower than 2011, reflecting lower commissions $494 million on the sale of our hedge fund
and fees in the United States, Europe and Asia. Our average administration business.
daily volumes during 2012 were lower in each of these
Other principal transactions
regions compared with 2011, consistent with listed cash
“Other principal transactions” is comprised of revenues
equity market volumes.
(excluding net interest) from our investing activities and the
Market making origination of loans to provide financing to clients. In
“Market making” is comprised of revenues (excluding net addition, “Other principal transactions” includes revenues
interest) from client execution activities related to making related to our consolidated investments. Other principal
markets in interest rate products, credit products, transactions are included in our Investing &
mortgages, currencies, commodities and equity products. Lending segment.
Market-making activities are included in our Institutional
During 2013, other principal transactions revenues
Client Services segment.
generally reflected favorable company-specific events and
During 2013, market-making revenues reflected a strong corporate performance, as well as the impact of
challenging operating environment that required continual significantly higher global equity prices and tighter
reassessment of the outlook for the global economy, as corporate credit spreads. However, concerns about the
uncertainty about when the U.S. Federal Reserve would outlook for the global economy and uncertainty over
begin tapering its asset purchase program, as well as financial regulatory reform continue to impact the global
constant global political risk and uncertainty, were marketplace. If equity markets decline or credit spreads
interspersed with improvements in the U.S. economy over widen, other principal transactions revenues would likely
the course of the year. As a result, our clients’ risk appetite be negatively impacted.
and activity levels fluctuated during 2013. Compared with
2013 versus 2012. Other principal transactions revenues
2012, activity levels were generally lower, global equity
on the consolidated statements of earnings were
prices significantly increased and credit spreads tightened. If
$6.99 billion for 2013, 19% higher than 2012, reflecting a
macroeconomic concerns continue over the long term,
significant increase in net gains from investments in equity
market-making revenues would likely continue to be
securities, driven by company-specific events and stronger
negatively impacted.
corporate performance, as well as significantly higher
2013 versus 2012. Market-making revenues on the global equity prices. In addition, net gains from debt
consolidated statements of earnings were $9.37 billion for securities and loans were slightly higher, while revenues
2013, 17% lower than 2012. The decrease compared with related to our consolidated investments were lower
2012 was primarily due to significantly lower revenues in compared with 2012.
equity products, mortgages and interest rate products, as
2012 versus 2011. Other principal transactions revenues
well as lower revenues in currencies. The decrease in equity
on the consolidated statements of earnings were
products was due to the sale of our Americas reinsurance
$5.87 billion for 2012 compared with $1.51 billion for
business in 2013, the sale of our hedge fund administration
2011. The increase compared with 2011 reflected a
business in 2012 (2012 included a gain on sale of
significant increase in net gains from investments in equity
$494 million) and lower revenues in derivatives, partially
securities, primarily in public equities, principally due to the
offset by significantly higher revenues in cash products
impact of an increase in global equity prices during 2012
compared with 2012. Revenues in commodities were
after equity prices in Europe and Asia declined significantly
higher, while revenues in credit products were essentially
during 2011. Net gains from equity securities included a
unchanged compared with 2012. In December 2013, we
gain in 2012 and a loss in 2011 related to our investment in
completed the sale of a majority stake in our European
the ordinary shares of Industrial and Commercial Bank of
insurance business and recognized a gain of $211 million.
China Limited (ICBC). The increase compared with 2011
2012 versus 2011. Market-making revenues on the also reflected a significant increase in net gains from debt
consolidated statements of earnings were $11.35 billion for securities and loans, primarily due to approximately
2012, 22% higher than 2011, primarily reflecting $1 billion of unrealized losses related to relationship
significantly higher revenues in mortgages and higher lending activities, including the effect of hedges, in 2011
revenues in interest rate products, credit products and and the impact of a more favorable credit environment as
equity cash products, partially offset by significantly lower credit spreads tightened during 2012 after widening during
revenues in commodities. In addition, market-making 2011. These increases were partially offset by lower
revenues related to our consolidated investments.

44 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

Net Interest Income Operating Expenses


2013 versus 2012. Net interest income on the consolidated Our operating expenses are primarily influenced by
statements of earnings was $3.39 billion for 2013, 13% compensation, headcount and levels of business activity.
lower than 2012. The decrease compared with 2012 was Compensation and benefits includes salaries, discretionary
primarily due to lower average yields on financial compensation, amortization of equity awards and other
instruments owned, at fair value, partially offset by lower items such as benefits. Discretionary compensation is
interest expense on financial instruments sold, but not yet significantly impacted by, among other factors, the level of
purchased, at fair value and collateralized financings. net revenues, overall financial performance, prevailing labor
markets, business mix, the structure of our share-based
2012 versus 2011. Net interest income on the consolidated
compensation programs and the external environment.
statements of earnings was $3.88 billion for 2012, 25%
lower than 2011. The decrease compared with 2011 The table below presents our operating expenses and total
was primarily due to lower average yields on staff (which includes employees, consultants and
financial instruments owned, at fair value and temporary staff).
collateralized agreements.
See “Statistical Disclosures — Distribution of Assets,
Liabilities and Shareholders’ Equity” for further
information about our sources of net interest income.

Year Ended December


$ in millions 2013 2012 2011
Compensation and benefits $12,613 $12,944 $12,223

Brokerage, clearing, exchange and distribution fees 2,341 2,208 2,463


Market development 541 509 640
Communications and technology 776 782 828
Depreciation and amortization 1,322 1,738 1,865
Occupancy 839 875 1,030
Professional fees 930 867 992
Insurance reserves 1 176 598 529
Other expenses 2,931 2,435 2,072
Total non-compensation expenses 9,856 10,012 10,419
Total operating expenses $22,469 $22,956 $22,642
Total staff at period-end 32,900 32,400 33,300

1. Related revenues are included in “Market making” in the consolidated statements of earnings.

Goldman Sachs 2013 Annual Report 45


Management’s Discussion and Analysis

2013 versus 2012. Operating expenses on the consolidated Non-compensation expenses on the consolidated
statements of earnings were $22.47 billion for 2013, 2% statements of earnings were $10.01 billion for 2012, 4%
lower than 2012. Compensation and benefits expenses on lower compared with 2011. The decrease compared with
the consolidated statements of earnings were $12.61 billion 2011 primarily reflected lower brokerage, clearing,
for 2013, 3% lower compared with $12.94 billion for exchange and distribution fees, lower occupancy expenses
2012. The ratio of compensation and benefits to net and a decrease in depreciation and amortization expenses,
revenues for 2013 was 36.9% compared with 37.9% for principally due to lower impairment charges. In addition,
2012. Total staff increased 2% during 2013. market development expenses and professional fees
declined compared with 2011, primarily reflecting the
Non-compensation expenses on the consolidated
impact of expense reduction initiatives. These decreases
statements of earnings were $9.86 billion for 2013, 2%
were partially offset by higher other expenses and increased
lower than 2012. The decrease compared with 2012
insurance reserves related to our reinsurance business. The
included a decline in insurance reserves, reflecting the sale
increase in other expenses compared with 2011 primarily
of our Americas reinsurance business, and a decrease in
reflected higher net provisions for litigation and regulatory
depreciation and amortization expenses, primarily
proceedings and higher charitable contributions. Net
reflecting lower impairment charges and lower operating
provisions for litigation and regulatory proceedings were
expenses related to consolidated investments. These
$448 million during 2012 (including a settlement with the
decreases were partially offset by an increase in other
Federal Reserve Board regarding the independent
expenses, due to higher net provisions for litigation and
foreclosure review) compared with $175 million for 2011.
regulatory proceedings, and higher brokerage, clearing,
Charitable contributions were $225 million during 2012,
exchange and distribution fees. Net provisions for litigation
including $159 million to Goldman Sachs Gives, our
and regulatory proceedings for 2013 were $962 million
donor-advised fund, and $10 million to The Goldman
(primarily comprised of net provisions for mortgage-related
Sachs Foundation, compared with $163 million during
matters) compared with $448 million for 2012 (including a
2011, including $78 million to Goldman Sachs Gives and
settlement with the Board of Governors of the Federal
$25 million to The Goldman Sachs Foundation.
Reserve System (Federal Reserve Board) regarding the
Compensation was reduced to fund the charitable
independent foreclosure review). 2013 included a
contribution to Goldman Sachs Gives. The firm asks its
charitable contribution of $155 million to Goldman Sachs
participating managing directors to make
Gives, our donor-advised fund. Compensation was reduced
recommendations regarding potential charitable recipients
to fund this charitable contribution to Goldman Sachs
for this contribution.
Gives. The firm asks its participating managing directors to
make recommendations regarding potential charitable Provision for Taxes
recipients for this contribution. The effective income tax rate for 2013 was 31.5%, down
from 33.3% for 2012. The decrease from 33.3% to 31.5%
2012 versus 2011. Operating expenses on the consolidated
was primarily due to a determination that certain non-U.S.
statements of earnings were $22.96 billion for 2012,
earnings will be permanently reinvested abroad.
essentially unchanged compared with 2011. Compensation
and benefits expenses on the consolidated statements of The effective income tax rate for 2012 was 33.3%, up from
earnings were $12.94 billion for 2012, 6% higher 28.0% for 2011. The increase from 28.0% to 33.3% was
compared with $12.22 billion for 2011. The ratio of primarily due to the earnings mix and a decrease in the
compensation and benefits to net revenues for 2012 was impact of permanent benefits.
37.9%, compared with 42.4% for 2011. Total staff
The rules related to the deferral of U.S. tax on certain non-
decreased 3% during 2012.
repatriated active financing income expired effective
December 31, 2013. This change is not expected to have a
material impact on our financial condition, results of
operations or cash flows for the year ending
December 2014.

46 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

Segment Operating Results


The table below presents the net revenues, operating expenses and pre-tax earnings/(loss) of our segments.

Year Ended December


in millions 2013 2012 2011
Investment Banking Net revenues $ 6,004 $ 4,926 $ 4,355
Operating expenses 3,475 3,330 2,995
Pre-tax earnings $ 2,529 $ 1,596 $ 1,360
Institutional Client Services Net revenues $15,721 $18,124 $17,280
Operating expenses 11,782 12,480 12,837
Pre-tax earnings $ 3,939 $ 5,644 $ 4,443
Investing & Lending Net revenues $ 7,018 $ 5,891 $ 2,142
Operating expenses 2,684 2,666 2,673
Pre-tax earnings/(loss) $ 4,334 $ 3,225 $ (531)
Investment Management Net revenues $ 5,463 $ 5,222 $ 5,034
Operating expenses 4,354 4,294 4,020
Pre-tax earnings $ 1,109 $ 928 $ 1,014
Total Net revenues $34,206 $34,163 $28,811
Operating expenses 22,469 22,956 22,642
Pre-tax earnings $11,737 $11,207 $ 6,169

Total operating expenses in the table above include the Net revenues in our segments include allocations of interest
following expenses that have not been allocated to income and interest expense to specific securities,
our segments: commodities and other positions in relation to the cash
generated by, or funding requirements of, such underlying
‰ charitable contributions of $155 million for 2013,
positions. See Note 25 to the consolidated financial
$169 million for 2012 and $103 million for 2011; and
statements for further information about our
‰ real estate-related exit costs of $19 million for 2013, business segments.
$17 million for 2012 and $14 million for 2011. Real
The cost drivers of Goldman Sachs taken as a whole —
estate-related exit costs are included in “Depreciation and
compensation, headcount and levels of business activity —
amortization” and “Occupancy” in the consolidated
are broadly similar in each of our business segments.
statements of earnings.
Compensation and benefits expenses within our segments
reflect, among other factors, the overall performance of
Goldman Sachs as well as the performance of individual
businesses. Consequently, pre-tax margins in one segment
of our business may be significantly affected by the
performance of our other business segments. A discussion
of segment operating results follows.

Goldman Sachs 2013 Annual Report 47


Management’s Discussion and Analysis

Investment Banking
Our Investment Banking segment is comprised of: 2013 versus 2012. Net revenues in Investment Banking
were $6.00 billion for 2013, 22% higher than 2012.
Financial Advisory. Includes strategic advisory
assignments with respect to mergers and acquisitions, Net revenues in Financial Advisory were $1.98 billion,
divestitures, corporate defense activities, risk management, essentially unchanged compared with 2012. Net revenues
restructurings and spin-offs, and derivative transactions in Underwriting were $4.03 billion, 36% higher than 2012,
directly related to these client advisory assignments. due to strong net revenues in both equity and debt
underwriting. Net revenues in equity underwriting were
Underwriting. Includes public offerings and private
significantly higher compared with 2012, reflecting an
placements, including domestic and cross-border
increase in client activity, particularly in initial public
transactions, of a wide range of securities, loans and other
offerings. Net revenues in debt underwriting were
financial instruments, and derivative transactions directly
significantly higher compared with 2012, principally due to
related to these client underwriting activities.
leveraged finance activity.
The table below presents the operating results of our
During 2013, Investment Banking operated in an
Investment Banking segment.
environment generally characterized by improved industry-
wide equity underwriting activity, particularly in initial
Year Ended December
public offerings, as global equity prices significantly
in millions 2013 2012 2011
increased during the year. In addition, industry-wide debt
Financial Advisory $1,978 $1,975 $1,987
underwriting activity remained solid, and included
Equity underwriting 1,659 987 1,085
significantly higher leveraged finance activity, as interest
Debt underwriting 2,367 1,964 1,283
Total Underwriting 4,026 2,951 2,368
rates remained low. However, ongoing macroeconomic
Total net revenues 6,004 4,926 4,355 concerns continued to weigh on investment banking
Operating expenses 3,475 3,330 2,995 activity as industry-wide mergers and acquisitions activity
Pre-tax earnings $2,529 $1,596 $1,360 declined compared with 2012. If macroeconomic concerns
continue and result in lower levels of client activity, net
The table below presents our financial advisory and revenues in Investment Banking would likely be
underwriting transaction volumes. 1 negatively impacted.
During 2013, our investment banking transaction backlog
Year Ended December
increased significantly due to significantly higher estimated
in billions 2013 2012 2011
net revenues from both potential advisory transactions and
Announced mergers and acquisitions $ 625 $ 739 $ 616
potential underwriting transactions. The increase in
Completed mergers and acquisitions 633 575 656
Equity and equity-related offerings 2 91 57 55 underwriting reflects significantly higher estimated net
Debt offerings 3 280 242 206 revenues from potential equity underwriting transactions,
primarily in initial public offerings, and higher estimated
1. Source: Thomson Reuters. Announced and completed mergers and
net revenues from potential debt underwriting transactions,
acquisitions volumes are based on full credit to each of the advisors in a
transaction. Equity and equity-related offerings and debt offerings are based principally from leveraged finance activity.
on full credit for single book managers and equal credit for joint book
managers. Transaction volumes may not be indicative of net revenues in a
given period. In addition, transaction volumes for prior periods may vary from
amounts previously reported due to the subsequent withdrawal or a change
in the value of a transaction.
2. Includes Rule 144A and public common stock offerings, convertible offerings
and rights offerings.
3. Includes non-convertible preferred stock, mortgage-backed securities, asset-
backed securities and taxable municipal debt. Includes publicly registered
and Rule 144A issues. Excludes leveraged loans.

48 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

Our investment banking transaction backlog represents an During 2012, Investment Banking operated in an
estimate of our future net revenues from investment environment generally characterized by continued concerns
banking transactions where we believe that future revenue about the outlook for the global economy and political
realization is more likely than not. We believe changes in uncertainty. These concerns weighed on investment
our investment banking transaction backlog may be a banking activity, as completed mergers and acquisitions
useful indicator of client activity levels which, over the long activity declined compared with 2011, and equity and
term, impact our net revenues. However, the time frame for equity-related underwriting activity remained low,
completion and corresponding revenue recognition of particularly in initial public offerings. However, industry-
transactions in our backlog varies based on the nature of wide debt underwriting activity improved compared with
the assignment, as certain transactions may remain in our 2011, as credit spreads tightened and interest rates
backlog for longer periods of time and others may enter and remained low.
leave within the same reporting period. In addition, our
During 2012, our investment banking transaction backlog
transaction backlog is subject to certain limitations, such as
increased due to an increase in potential debt underwriting
assumptions about the likelihood that individual client
transactions, primarily reflecting an increase in leveraged
transactions will occur in the future. Transactions may be
finance transactions, and an increase in potential advisory
cancelled or modified, and transactions not included in the
transactions. These increases were partially offset by a
estimate may also occur.
decrease in potential equity underwriting transactions
Operating expenses were $3.48 billion for 2013, 4% higher compared with the end of 2011, reflecting uncertainty in
than 2012, due to increased compensation and benefits market conditions.
expenses, primarily resulting from higher net revenues. Pre-
Operating expenses were $3.33 billion for 2012, 11%
tax earnings were $2.53 billion in 2013, 58% higher
higher than 2011, due to increased compensation and
than 2012.
benefits expenses, primarily resulting from higher net
2012 versus 2011. Net revenues in Investment Banking revenues. Pre-tax earnings were $1.60 billion in 2012, 17%
were $4.93 billion for 2012, 13% higher than 2011. higher than 2011.
Net revenues in Financial Advisory were $1.98 billion,
essentially unchanged compared with 2011. Net revenues
in Underwriting were $2.95 billion, 25% higher than 2011,
due to strong net revenues in debt underwriting. Net
revenues in debt underwriting were significantly higher
compared with 2011, primarily reflecting higher net
revenues from investment-grade and leveraged finance
activity. Net revenues in equity underwriting were lower
compared with 2011, primarily reflecting a decline in
industry-wide initial public offerings.

Goldman Sachs 2013 Annual Report 49


Management’s Discussion and Analysis

Institutional Client Services


Our Institutional Client Services segment is comprised of: Equities. Includes client execution activities related to
making markets in equity products and commissions and
Fixed Income, Currency and Commodities Client
fees from executing and clearing institutional client
Execution. Includes client execution activities related to
transactions on major stock, options and futures exchanges
making markets in interest rate products, credit products,
worldwide, as well as over-the-counter transactions.
mortgages, currencies and commodities.
Equities also includes our securities services business, which
We generate market-making revenues in these activities in provides financing, securities lending and other prime
three ways: brokerage services to institutional clients, including hedge
funds, mutual funds, pension funds and foundations, and
‰ In large, highly liquid markets (such as markets for U.S.
generates revenues primarily in the form of interest rate
Treasury bills or certain mortgage pass-through
spreads or fees.
certificates), we execute a high volume of transactions for
our clients for modest spreads and fees. The table below presents the operating results of our
Institutional Client Services segment.
‰ In less liquid markets (such as mid-cap corporate bonds,
growth market currencies or certain non-agency
Year Ended December
mortgage-backed securities), we execute transactions for
in millions 2013 2012 2011
our clients for spreads and fees that are generally
somewhat larger. Fixed Income, Currency and
Commodities Client Execution $ 8,651 $ 9,914 $ 9,018
‰ We also structure and execute transactions involving Equities client execution 1 2,594 3,171 3,031
customized or tailor-made products that address our Commissions and fees 3,103 3,053 3,633
clients’ risk exposures, investment objectives or other Securities services 1,373 1,986 1,598
Total Equities 7,070 8,210 8,262
complex needs (such as a jet fuel hedge for an airline).
Total net revenues 15,721 18,124 17,280
Given the focus on the mortgage market, our mortgage Operating expenses 11,782 12,480 12,837
activities are further described below. Pre-tax earnings $ 3,939 $ 5,644 $ 4,443

Our activities in mortgages include commercial mortgage- 1. In April 2013, we completed the sale of a majority stake in our Americas
reinsurance business and no longer consolidate this business. Net revenues
related securities, loans and derivatives, residential related to the Americas reinsurance business were $317 million for 2013,
mortgage-related securities, loans and derivatives $1.08 billion for 2012 and $880 million for 2011. See Note 12 to the
(including U.S. government agency-issued collateralized consolidated financial statements for further information about this sale.

mortgage obligations, other prime, subprime and Alt-A 2013 versus 2012. Net revenues in Institutional Client
securities and loans), and other asset-backed securities, Services were $15.72 billion for 2013, 13% lower
loans and derivatives. than 2012.
We buy, hold and sell long and short mortgage positions, Net revenues in Fixed Income, Currency and Commodities
primarily for market making for our clients. Our inventory Client Execution were $8.65 billion for 2013, 13% lower
therefore changes based on client demands and is generally than 2012, reflecting significantly lower net revenues in
held for short-term periods. interest rate products compared with a solid 2012, and
See Notes 18 and 27 to the consolidated financial significantly lower net revenues in mortgages compared
statements for information about exposure to mortgage with a strong 2012. The decrease in interest rate products
repurchase requests, mortgage rescissions and and mortgages primarily reflected the impact of a more
mortgage-related litigation. challenging environment and lower activity levels
compared with 2012. In addition, net revenues in
currencies were slightly lower, while net revenues in credit
products and commodities were essentially unchanged
compared with 2012. In December 2013, we completed the
sale of a majority stake in our European insurance business
and recognized a gain of $211 million.

50 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

Net revenues in Equities were $7.07 billion for 2013, 14% Operating expenses were $11.78 billion for 2013, 6%
lower compared with 2012, due to the sale of our Americas lower than 2012, due to decreased compensation and
reinsurance business 1 in 2013 and the sale of our hedge benefits expenses, primarily resulting from lower net
fund administration business in 2012. Net revenues in revenues, and lower expenses as a result of the sale of a
equities client execution (excluding net revenues from our majority stake in our Americas reinsurance business in
Americas reinsurance business) were higher compared with April 2013. These decreases were partially offset by
2012, including significantly higher net revenues in cash increased net provisions for litigation and regulatory
products, partially offset by significantly lower net revenues proceedings, primarily comprised of net provisions for
in derivatives. Commissions and fees were slightly higher mortgage-related matters, and higher brokerage, clearing,
compared with 2012, reflecting higher commissions and exchange and distribution fees. Pre-tax earnings were
fees in Asia and Europe, partially offset by lower $3.94 billion in 2013, 30% lower than 2012.
commissions and fees in the United States. Our average
2012 versus 2011. Net revenues in Institutional Client
daily volumes during 2013 were higher in Asia and Europe
Services were $18.12 billion for 2012, 5% higher
and lower in the United States compared with 2012,
than 2011.
consistent with listed cash equity market volumes.
Securities services net revenues were significantly lower Net revenues in Fixed Income, Currency and Commodities
compared with 2012, primarily due to the sale of our hedge Client Execution were $9.91 billion for 2012, 10% higher
fund administration business in 2012 (2012 included a gain than 2011. These results reflected strong net revenues in
on sale of $494 million). During 2013, Equities operated in mortgages, which were significantly higher compared with
an environment characterized by a significant increase in 2011 in both residential and commercial products. In
global equity prices, particularly in Japan and the U.S., and addition, net revenues in credit products and interest rate
generally lower volatility levels. products were solid and higher compared with 2011. The
increase in mortgages, credit products and interest rates
The net loss attributable to the impact of changes in our
primarily reflected the impact of improved market-making
own credit spreads on borrowings for which the fair value
conditions, including tighter credit spreads, compared with
option was elected was $296 million ($220 million and
2011. These increases were partially offset by significantly
$76 million related to Fixed Income, Currency and
lower net revenues in commodities and slightly lower net
Commodities Client Execution and equities client
revenues in currencies. The decrease in commodities
execution, respectively) for 2013, compared with a net loss
primarily reflected more challenging market-making
of $714 million ($433 million and $281 million related to
conditions, in part driven by lower levels of
Fixed Income, Currency and Commodities Client
market volatility.
Execution and equities client execution, respectively)
for 2012.
During 2013, Institutional Client Services operated in a
challenging environment that required continual
reassessment of the outlook for the global economy, as
uncertainty about when the U.S. Federal Reserve would
begin tapering its asset purchase program, as well as
constant global political risk and uncertainty, were
interspersed with improvements in the U.S. economy over
the course of the year. As a result, our clients’ risk appetite
and activity levels fluctuated during 2013. Compared with
2012, activity levels were generally lower, global equity
prices significantly increased and credit spreads tightened. If
macroeconomic concerns continue over the long term, net
revenues in Fixed Income, Currency and Commodities
Client Execution and Equities would likely continue to be
negatively impacted.

1. In April 2013, we completed the sale of a majority stake in our Americas reinsurance business and no longer consolidate this business. Net revenues related to the
Americas reinsurance business were $317 million for 2013, $1.08 billion for 2012 and $880 million for 2011. See Note 12 to the consolidated financial statements for
further information about this sale.

Goldman Sachs 2013 Annual Report 51


Management’s Discussion and Analysis

Net revenues in Equities were $8.21 billion for 2012, Operating expenses were $12.48 billion for 2012, 3%
essentially unchanged compared with 2011. Net revenues lower than 2011, primarily due to lower brokerage,
in securities services were significantly higher compared clearing, exchange and distribution fees, and lower
with 2011, reflecting a gain of $494 million on the sale of impairment charges, partially offset by higher net
our hedge fund administration business. In addition, provisions for litigation and regulatory proceedings. Pre-
equities client execution net revenues were higher than tax earnings were $5.64 billion in 2012, 27% higher
2011, primarily reflecting significantly higher results in than 2011.
cash products, principally due to increased levels of client
Investing & Lending
activity. These increases were offset by lower commissions
Investing & Lending includes our investing activities and
and fees, reflecting declines in the United States, Europe and
the origination of loans to provide financing to clients.
Asia. Our average daily volumes during 2012 were lower in
These investments, some of which are consolidated, and
each of these regions compared with 2011, consistent with
loans are typically longer-term in nature. We make
listed cash equity market volumes. During 2012, Equities
investments, directly and indirectly through funds that we
operated in an environment generally characterized by an
manage, in debt securities and loans, public and private
increase in global equity prices and lower volatility levels.
equity securities, and real estate entities.
The net loss attributable to the impact of changes in our
The table below presents the operating results of our
own credit spreads on borrowings for which the fair value
Investing & Lending segment.
option was elected was $714 million ($433 million and
$281 million related to Fixed Income, Currency and
Year Ended December
Commodities Client Execution and equities client
in millions 2013 2012 2011
execution, respectively) for 2012, compared with a net gain
Equity securities $3,930 $2,800 $ 603
of $596 million ($399 million and $197 million related to
Debt securities and loans 1,947 1,850 96
Fixed Income, Currency and Commodities Client
Other 1,141 1,241 1,443
Execution and equities client execution, respectively) Total net revenues 7,018 5,891 2,142
for 2011. Operating expenses 2,684 2,666 2,673
Pre-tax earnings/(loss) $4,334 $3,225 $ (531)
During 2012, Institutional Client Services operated in an
environment generally characterized by continued broad
2013 versus 2012. Net revenues in Investing & Lending
market concerns and uncertainties, although positive
were $7.02 billion for 2013, 19% higher than 2012,
developments helped to improve market conditions. These
reflecting a significant increase in net gains from investments
developments included certain central bank actions to ease
in equity securities, driven by company-specific events and
monetary policy and address funding risks for European
stronger corporate performance, as well as significantly
financial institutions. In addition, the U.S. economy posted
higher global equity prices. In addition, net gains and net
stable to improving economic data, including favorable
interest income from debt securities and loans were slightly
developments in unemployment and housing. These
higher, while other net revenues, related to our consolidated
improvements resulted in tighter credit spreads, higher
investments, were lower compared with 2012. If equity
global equity prices and lower levels of volatility. However,
markets decline or credit spreads widen, net revenues in
concerns about the outlook for the global economy and
Investing & Lending would likely be negatively impacted.
continued political uncertainty, particularly the political
debate in the United States surrounding the fiscal cliff, Operating expenses were $2.68 billion for 2013, essentially
generally resulted in client risk aversion and lower activity unchanged compared with 2012. Operating expenses
levels. Also, uncertainty over financial regulatory during 2013 included lower impairment charges and lower
reform persisted. operating expenses related to consolidated investments,
partially offset by increased compensation and benefits
expenses due to higher net revenues compared with 2012.
Pre-tax earnings were $4.33 billion in 2013, 34% higher
than 2012.

52 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

2012 versus 2011. Net revenues in Investing & Lending Investment Management
were $5.89 billion for 2012 compared with $2.14 billion Investment Management provides investment management
for 2011. The increase compared with 2011 reflected a services and offers investment products (primarily through
significant increase in net gains from investments in equity separately managed accounts and commingled vehicles,
securities, primarily in public equities, principally due to the such as mutual funds and private investment funds) across
impact of an increase in global equity prices during 2012 all major asset classes to a diverse set of institutional and
after equity prices in Europe and Asia declined significantly individual clients. Investment Management also offers
during 2011. Net gains from equity securities included a wealth advisory services, including portfolio management
gain of $408 million in 2012 and a loss of $517 million in and financial counseling, and brokerage and other
2011 related to our investment in the ordinary shares of transaction services to high-net-worth individuals
ICBC. The increase compared with 2011 also reflected a and families.
significant increase in net gains from debt securities and
Assets under supervision include assets under management
loans, primarily due to approximately $1 billion of
and other client assets. Assets under management include
unrealized losses related to relationship lending activities,
client assets where we earn a fee for managing assets on a
including the effect of hedges, in 2011 and the impact of a
discretionary basis. This includes net assets in our mutual
more favorable credit environment as credit spreads
funds, hedge funds, credit funds and private equity funds
tightened during 2012 after widening during 2011. These
(including real estate funds), and separately managed
increases were partially offset by lower other net revenues,
accounts for institutional and individual investors. Other
principally related to our consolidated investments.
client assets include client assets invested with third-party
Operating expenses were $2.67 billion for 2012, essentially managers, bank deposits and advisory relationships where
unchanged compared with 2011. Pre-tax earnings were we earn a fee for advisory and other services, but do not
$3.23 billion in 2012, compared with a pre-tax loss of have investment discretion. Assets under supervision do not
$531 million in 2011. include the self-directed brokerage assets of our clients.
Long-term assets under supervision represent assets under
supervision excluding liquidity products. Liquidity
products represent money markets and bank deposit assets.
Assets under supervision typically generate fees as a
percentage of net asset value, which vary by asset class and
are affected by investment performance as well as asset
inflows and redemptions. Asset classes such as alternative
investment and equity assets typically generate higher fees
relative to fixed income and liquidity product assets. The
average effective management fee (which excludes non-
asset-based fees) we earned on our assets under supervision
was 40 basis points for 2013, 39 basis points for 2012 and
41 basis points for 2011.
In certain circumstances, we are also entitled to receive
incentive fees based on a percentage of a fund’s or a
separately managed account’s return, or when the return
exceeds a specified benchmark or other performance
targets. Incentive fees are recognized only when all material
contingencies are resolved.

Goldman Sachs 2013 Annual Report 53


Management’s Discussion and Analysis

Year Ended December


The table below presents the operating results of our
Investment Management segment. in billions 2013 2012 2011
Balance, beginning of year $ 965 $895 $917
Net inflows/(outflows)
Year Ended December
Alternative investments (13) 1 (1)
in millions 2013 2012 2011 Equity 13 (17) (5)
Management and other fees $4,386 $4,105 $4,188 Fixed income 41 34 (9)
Incentive fees 662 701 323 Long-term AUS net inflows/(outflows) 41 1 18 2 (15) 3
Transaction revenues 415 416 523 Liquidity products (4) 3 (12)
Total net revenues 5,463 5,222 5,034 Total AUS net inflows/(outflows) 37 21 (27)
Operating expenses 4,354 4,294 4,020 Net market appreciation/(depreciation) 40 49 5
Pre-tax earnings $1,109 $ 928 $1,014 Balance, end of year $1,042 $965 $895

The tables below present our period-end assets under 1. Fixed income flows for 2013 include $10 billion in assets managed by the
firm related to our Americas reinsurance business, in which a majority stake
supervision (AUS) by asset class and by distribution was sold in April 2013, that were previously excluded from assets under
channel, as well as a summary of the changes in our assets supervision as they were assets of a consolidated subsidiary.
under supervision. 2. Includes $34 billion of fixed income asset inflows in connection with our
acquisition of Dwight Asset Management Company LLC and $5 billion of
fixed income and equity asset outflows related to our liquidation of Goldman
As of December Sachs Asset Management Korea Co., Ltd.
in billions 2013 2012 2011 3. Includes $6 billion of asset inflows across all asset classes in connection with
Assets under management $ 919 $ 854 $ 828 our acquisitions of Goldman Sachs Australia Pty Ltd and Benchmark Asset
Other client assets 123 111 67 Management Company Private Limited.
Total AUS $1,042 $ 965 $ 895
The table below presents our average monthly assets under
Asset Class supervision by asset class.
Alternative investments 1 $ 142 $ 151 $ 148
Equity 208 153 147 Average for the
Fixed income 446 411 353 Year Ended December
Long-term AUS 796 715 648 in billions 2013 2012 2011
Liquidity products 246 250 247 Alternative investments $ 145 $149 $152
Total AUS $1,042 $ 965 $ 895 Equity 180 153 162
Fixed income 425 384 353
Distribution Channel
Long-term AUS 750 686 667
Directly distributed: Liquidity products 235 238 240
Institutional $ 363 $ 343 $ 294
Total AUS $ 985 $924 $907
High-net-worth individuals 330 294 274
Third-party distributed:
Institutional, high-net-worth individuals
and retail 349 328 327
Total AUS $1,042 $ 965 $ 895

1. Primarily includes hedge funds, credit funds, private equity, real estate,
currencies, commodities and asset allocation strategies.

54 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

2013 versus 2012. Net revenues in Investment Management Operating expenses were $4.29 billion for 2012, 7% higher
were $5.46 billion for 2013, 5% higher than 2012, reflecting than 2011, due to increased compensation and benefits
higher management and other fees, primarily due to higher expenses. Pre-tax earnings were $928 million in 2012, 8%
average assets under supervision. During the year, total assets lower than 2011.
under supervision increased $77 billion to $1.04 trillion.
Geographic Data
Long-term assets under supervision increased $81 billion,
See Note 25 to the consolidated financial statements for a
including net inflows of $41 billion 1, reflecting inflows in
summary of our total net revenues, pre-tax earnings and net
fixed income and equity assets, partially offset by outflows in
earnings by geographic region.
alternative investment assets. Net market appreciation of
$40 billion during the year was primarily in equity assets.
Liquidity products decreased $4 billion.
Regulatory Developments
During 2013, Investment Management operated in an
environment generally characterized by improved asset prices, Our businesses are subject to significant and evolving
particularly in equities, resulting in appreciation in the value of regulation. The U.S. Dodd-Frank Wall Street Reform and
client assets. In addition, the mix of average assets under Consumer Protection Act (Dodd-Frank Act), enacted in
supervision shifted slightly compared with 2012 from liquidity July 2010, significantly altered the financial regulatory
products to long-term assets under supervision, primarily due regime within which we operate. In addition, other reforms
to growth in equity and fixed income assets. In the future, if have been adopted or are being considered by other
asset prices were to decline, or investors favor asset classes that regulators and policy makers worldwide. The Dodd-Frank
typically generate lower fees or investors withdraw their assets, Act and these other reforms may affect our businesses. We
net revenues in Investment Management would likely be expect that the principal areas of impact from regulatory
negatively impacted. In addition, continued concerns about reform for us will be increased regulatory capital
the global economic outlook could result in downward requirements and increased regulation and restriction on
pressure on assets under supervision. certain activities. However, given that many of the new and
proposed rules are highly complex, the full impact of
Operating expenses were $4.35 billion for 2013, up slightly regulatory reform will not be known until the rules are
compared to 2012, due to increased compensation and implemented and market practices develop under the
benefits expenses, primarily resulting from higher net final regulations.
revenues. Pre-tax earnings were $1.11 billion in 2013, 20%
higher than 2012. See “Business — Regulation” in Part I, Item 1 of the 2013
Form 10-K for more information on the laws, rules and
2012 versus 2011. Net revenues in Investment regulations and proposed laws, rules and regulations that
Management were $5.22 billion for 2012, 4% higher than apply to us and our operations. In addition, see “Equity
2011, due to significantly higher incentive fees, partially Capital — Revised Capital Framework” below and
offset by lower transaction revenues and slightly lower Note 20 to the consolidated financial statements for
management and other fees. During 2012, assets under information about regulatory developments as they relate
supervision increased $70 billion to $965 billion. Long- to our regulatory capital, leverage and liquidity ratios.
term assets under supervision increased $67 billion,
including net inflows of $18 billion 2, reflecting inflows in Impact of Increased Regulation and Restriction on
fixed income assets, partially offset by outflows in equity Certain Activities
assets. Net market appreciation of $49 billion during 2012 There has been increased regulation of, and limitations on,
was primarily in fixed income and equity assets. In our activities, including the Dodd-Frank prohibition on
addition, liquidity products increased $3 billion. “proprietary trading” and the limitation on the sponsorship
of, and investment in covered funds (as defined in the
During 2012, Investment Management operated in an Volcker Rule). In addition, there are increased regulation
environment generally characterized by improved asset of, and restrictions on, over-the-counter (OTC) derivatives
prices, resulting in appreciation in the value of client assets. markets and transactions, particularly related to swaps and
However, the mix of average assets under supervision security-based swaps.
shifted slightly from asset classes that typically generate
higher fees, primarily equity and alternative investment
assets, to asset classes that typically generate lower fees,
primarily fixed income assets, compared with 2011.
1. Fixed income flows for 2013 include $10 billion in assets managed by the firm related to our Americas reinsurance business, in which a majority stake was sold in
April 2013, that were previously excluded from assets under supervision as they were assets of a consolidated subsidiary.
2. Includes $34 billion of fixed income asset inflows in connection with our acquisition of Dwight Asset Management Company LLC and $5 billion of fixed income and
equity asset outflows related to our liquidation of Goldman Sachs Asset Management Korea Co., Ltd.

Goldman Sachs 2013 Annual Report 55


Management’s Discussion and Analysis

Volcker Rule. In December 2013, the final rules to We continue to manage our existing funds, taking into
implement the provisions of the Dodd-Frank Act referred to account the transition periods under the Volcker Rule. As a
as the “Volcker Rule” were adopted. We are required to be result, in March 2012, we began redeeming certain interests
in compliance with the rule (including the development of in our hedge funds and will continue to do so.
an extensive compliance program) by July 2015 with
For certain of our covered funds, in order to be compliant
certain provisions of the rule subject to possible extensions
with the Volcker Rule by the prescribed compliance date, to
through July 2017.
the extent that the underlying investments of the particular
The Volcker rule prohibits “proprietary trading,” but will funds are not sold, the firm may be required to sell its
allow activities such as underwriting, market making and investments in such funds. If that occurs, the firm may
risk-mitigation hedging. In anticipation of the final rule, we receive a value for its investments that is less than the then
evaluated this prohibition and determined that businesses carrying value as there could be a limited secondary market
that engage in “bright line” proprietary trading were most for these investments and the firm may be unable to sell
likely to be prohibited. In 2010 and 2011, we liquidated them in orderly transactions.
substantially all of our Global Macro Proprietary and
Although our net revenues from investments in our private
Principal Strategies trading positions.
equity, credit, real estate and hedge funds may vary from
Based on what we know as of the date of this filing, we do period to period, our aggregate net revenues from these
not expect the impact of the prohibition of proprietary investments were not material to our aggregate total net
trading to be material to our financial condition, results of revenues over the period from 1999 through 2013.
operations or cash flows. However, the rule is highly
Swap Dealers and Derivatives Regulation. The Dodd-
complex, and its impact will not be known until market
Frank Act also provides for significantly increased
practices are fully developed.
regulation of and restrictions on derivative markets, and we
In addition to the prohibition on proprietary trading, the have registered certain subsidiaries as “swap dealers” under
Volcker rule limits the sponsorship of, and investment in, the U.S. Commodity Futures Trading Commission (CFTC)
“covered funds” (as defined in the rule) by banking entities, rules. See “Business — Regulation” in Part I, Item 1 of the
including Group Inc. and its subsidiaries. It also limits 2013 Form 10-K for a discussion of the requirements
certain types of transactions between us and our sponsored imposed by the Dodd-Frank Act and the status of SEC and
funds, similar to the limitations on transactions between CFTC rulemaking, as well as non-U.S. regulation, in this
depository institutions and their affiliates as described area. The full application of new derivatives rules across
below under “— Transactions with Affiliates.” Covered different national and regulatory jurisdictions has not yet
funds include our private equity funds, certain of our credit been fully established.
and real estate funds, and our hedge funds. The limitation
on investments in covered funds requires us to reduce our
investment in each such fund to 3% or less of the fund’s net
asset value, and to reduce our aggregate investment in all
such funds to 3% or less of our Tier 1 capital. In
anticipation of the final rule, we limited our initial
investment in certain new covered funds to 3% of the
fund’s net asset value.

56 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

Balance Sheet and Funding Sources


Balance Sheet Management
One of our most important risk management disciplines is Quarterly Planning. We prepare a quarterly balance sheet
our ability to manage the size and composition of our plan that combines our projected total assets and
balance sheet. While our asset base changes due to client composition of assets with our expected funding sources
activity, market fluctuations and business opportunities, and capital levels for the upcoming quarter. The objectives
the size and composition of our balance sheet reflect (i) our of this quarterly planning process are:
overall risk tolerance, (ii) our ability to access stable
‰ to develop our near-term balance sheet projections,
funding sources and (iii) the amount of equity capital
taking into account the general state of the financial
we hold.
markets and expected business activity levels;
Although our balance sheet fluctuates on a day-to-day
‰ to ensure that our projected assets are supported by an
basis, our total assets at quarterly and year-end dates are
adequate amount and tenor of funding and that our
generally not materially different from those occurring
projected capital and liquidity metrics are within
within our reporting periods.
management guidelines and regulatory requirements; and
In order to ensure appropriate risk management, we seek to
‰ to allow business risk managers and managers from our
maintain a liquid balance sheet and have processes in place
independent control and support functions to objectively
to dynamically manage our assets and liabilities
evaluate balance sheet limit requests from business
which include:
managers in the context of the firm’s overall balance sheet
‰ quarterly planning; constraints. These constraints include the firm’s liability
profile and equity capital levels, maturities and plans for
‰ business-specific limits;
new debt and equity issuances, share repurchases, deposit
‰ monitoring of key metrics; and trends and secured funding transactions.
‰ scenario analyses. To prepare our quarterly balance sheet plan, business risk
managers and managers from our independent control and
support functions meet with business managers to review
current and prior period metrics and discuss expectations
for the upcoming quarter. The specific metrics reviewed
include asset and liability size and composition, aged
inventory, limit utilization, risk and performance measures,
and capital usage.
Our consolidated quarterly plan, including our balance
sheet plans by business, funding and capital projections,
and projected capital and liquidity metrics, is reviewed by
the Firmwide Finance Committee. See “Overview and
Structure of Risk Management” for an overview of our risk
management structure.

Goldman Sachs 2013 Annual Report 57


Management’s Discussion and Analysis

Business-Specific Limits. The Firmwide Finance Balance Sheet Allocation


Committee sets asset and liability limits for each business In addition to preparing our consolidated statements of
and aged inventory limits for certain financial instruments financial condition in accordance with U.S. GAAP, we
as a disincentive to hold inventory over longer periods of prepare a balance sheet that generally allocates assets to our
time. These limits are set at levels which are generally close businesses, which is a non-GAAP presentation and may not
to actual operating levels in order to ensure prompt be comparable to similar non-GAAP presentations used by
escalation and discussion among business managers and other companies. We believe that presenting our assets on
managers in our independent control and support functions this basis is meaningful because it is consistent with the way
on a routine basis. The Firmwide Finance Committee management views and manages risks associated with the
reviews and approves balance sheet limits on a quarterly firm’s assets and better enables investors to assess the
basis and may also approve changes in limits on an ad hoc liquidity of the firm’s assets.
basis in response to changing business needs or
Below is a description of the captions in the following table,
market conditions.
which presents this balance sheet allocation.
Monitoring of Key Metrics. We monitor key balance
Excess Liquidity and Cash. We maintain substantial
sheet metrics daily both by business and on a consolidated
excess liquidity to meet a broad range of potential cash
basis, including asset and liability size and composition,
outflows and collateral needs in the event of a stressed
aged inventory, limit utilization, risk measures and capital
environment. See “Liquidity Risk Management” below for
usage. We allocate assets to businesses and review and
details on the composition and sizing of our excess liquidity
analyze movements resulting from new business activity as
pool or “Global Core Excess” (GCE). In addition to our
well as market fluctuations.
excess liquidity, we maintain other operating cash balances,
Scenario Analyses. We conduct scenario analyses to primarily for use in specific currencies, entities, or
determine how we would manage the size and composition jurisdictions where we do not have immediate access to
of our balance sheet and maintain appropriate funding, parent company liquidity.
liquidity and capital positions in a variety of situations:
Secured Client Financing. We provide collateralized
‰ These scenarios cover short-term and long-term time financing for client positions, including margin loans
horizons using various macroeconomic and firm-specific secured by client collateral, securities borrowed, and resale
assumptions. We use these analyses to assist us in agreements primarily collateralized by government
developing longer-term funding plans, including the level obligations. As a result of client activities, we are required
of unsecured debt issuances, the size of our secured to segregate cash and securities to satisfy regulatory
funding program and the amount and composition of our requirements. Our secured client financing arrangements,
equity capital. We also consider any potential future which are generally short-term, are accounted for at fair
constraints, such as limits on our ability to grow our asset value or at amounts that approximate fair value, and
base in the absence of appropriate funding. include daily margin requirements to mitigate counterparty
credit risk.
‰ Through our capital planning and stress testing process,
which incorporates our internally designed stress tests
and those required under the CCAR and Dodd-Frank Act
Stress Tests (DFAST) as well as our resolution and
recovery planning, we further analyze how we would
manage our balance sheet and risks through the duration
of a severe crisis, and we develop plans to access funding,
generate liquidity, and/or redeploy or issue equity capital,
as appropriate.

58 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

As of December
Institutional Client Services. In Institutional Client
Services, we maintain inventory positions to facilitate in millions 2013 2012

market-making in fixed income, equity, currency and Excess liquidity (Global Core Excess) $184,070 $174,622
Other cash 5,793 6,839
commodity products. Additionally, as part of market-
Excess liquidity and cash 189,863 181,461
making activities, we enter into resale or securities
Secured client financing 263,386 229,442
borrowing arrangements to obtain securities which we can Inventory 255,534 318,323
use to cover transactions in which we or our clients have Secured financing agreements 79,635 76,277
sold securities that have not yet been purchased. The Receivables 39,557 36,273
receivables in Institutional Client Services primarily relate Institutional Client Services 374,726 430,873
to securities transactions. Public equity 1 4,308 5,948
Private equity 16,236 17,401
Investing & Lending. In Investing & Lending, we make Debt 2 23,274 25,386
investments and originate loans to provide financing to Receivables and other 3 17,205 8,421
clients. These investments and loans are typically longer- Investing & Lending 61,023 57,156
term in nature. We make investments, directly and Total inventory and related assets 435,749 488,029
indirectly through funds that we manage, in debt securities, Other assets 22,509 39,623 4
loans, public and private equity securities, real estate Total assets $911,507 $938,555
entities and other investments. 1. December 2012 includes $2.08 billion related to our investment in the
ordinary shares of ICBC, which was sold in the first half of 2013.
Other Assets. Other assets are generally less liquid, non-
2. Includes $15.76 billion and $16.50 billion as of December 2013 and
financial assets, including property, leasehold December 2012, respectively, of direct loans primarily extended to corporate
improvements and equipment, goodwill and identifiable and private wealth management clients that are accounted for at fair value.
intangible assets, income tax-related receivables, equity- 3. Includes $14.90 billion and $6.50 billion as of December 2013 and
method investments, assets classified as held for sale and December 2012, respectively, of loans held for investment that are
accounted for at amortized cost, net of estimated uncollectible amounts.
miscellaneous receivables. Such loans are primarily comprised of corporate loans and loans to private
wealth management clients.
4. Includes assets related to our Americas reinsurance business classified as
held for sale, in which a majority stake was sold in April 2013. See Note 12 to
the consolidated financial statements for further information.

Goldman Sachs 2013 Annual Report 59


Management’s Discussion and Analysis

The tables below present the reconciliation of this balance business segment disclosed in Note 25 to the consolidated
sheet allocation to our U.S. GAAP balance sheet. In the financial statements because total assets disclosed in
tables below, total assets for Institutional Client Services Note 25 include allocations of our excess liquidity and cash,
and Investing & Lending represent the inventory and secured client financing and other assets.
related assets. These amounts differ from total assets by

As of December 2013
Excess Secured Institutional
Liquidity Client Client Investing & Other Total
in millions and Cash 1 Financing Services Lending Assets Assets
Cash and cash equivalents $ 61,133 $ — $ — $ — $ — $ 61,133
Cash and securities segregated for regulatory and other purposes — 49,671 — — — 49,671
Securities purchased under agreements to resell and federal
funds sold 64,595 61,510 35,081 546 — 161,732
Securities borrowed 25,113 94,899 44,554 — — 164,566
Receivables from brokers, dealers and clearing organizations — 6,650 17,098 92 — 23,840
Receivables from customers and counterparties — 50,656 22,459 15,820 — 88,935
Financial instruments owned, at fair value 39,022 — 255,534 44,565 — 339,121
Other assets — — — — 22,509 22,509
Total assets $189,863 $263,386 $374,726 $61,023 $22,509 $911,507

As of December 2012
Excess Secured Institutional
Liquidity Client Client Investing & Other Total
in millions and Cash 1 Financing Services Lending Assets Assets
Cash and cash equivalents $ 72,669 $ — $ — $ — $ — $ 72,669
Cash and securities segregated for regulatory and other purposes — 49,671 — — — 49,671
Securities purchased under agreements to resell and federal
funds sold 28,018 84,064 28,960 292 — 141,334
Securities borrowed 41,699 47,877 47,317 — — 136,893
Receivables from brokers, dealers and clearing organizations — 4,400 14,044 36 — 18,480
Receivables from customers and counterparties — 43,430 22,229 7,215 — 72,874
Financial instruments owned, at fair value 39,075 — 318,323 49,613 — 407,011
Other assets — — — — 39,623 39,623
Total assets $181,461 $229,442 $430,873 $57,156 $39,623 $938,555

1. Includes unencumbered cash, U.S. government and federal agency obligations (including highly liquid U.S. federal agency mortgage-backed obligations), and
German, French, Japanese and United Kingdom government obligations.

As of December 2013, total assets decreased $27.05 billion derivatives and commodities. In addition, other assets
from December 2012 due to a decrease in assets related to decreased $17.11 billion primarily due to the sale of a
institutional client services and other assets, partially offset majority stake in our Americas reinsurance business in
by an increase in secured client financing and excess April 2013. Secured client financing increased
liquidity and cash. Assets related to institutional client $33.94 billion reflecting an increase in collateralized
services decreased $56.15 billion primarily due to a agreements, primarily due to an increase in client activity.
decrease in financial instruments owned, at fair value as a Excess liquidity and cash also increased $8.40 billion
result of decreases in U.S. government and federal agency reflecting an increase in collateralized agreements, partially
obligations, non-U.S. government and agency obligations, offset by a decrease in cash and cash equivalents.

60 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

Balance Sheet Analysis and Metrics


As of December 2013, total assets on our consolidated The table below presents information on our assets,
statements of financial condition were $911.51 billion, a unsecured long-term borrowings, shareholders’ equity and
decrease of $27.05 billion from December 2012. This leverage ratios.
decrease was primarily due to a decrease in financial
instruments owned, at fair value of $67.89 billion, As of December
primarily due to decreases in U.S. government and federal $ in millions 2013 2012
agency obligations, non-U.S. government and agency Total assets $911,507 $938,555
obligations, derivatives and commodities, and a decrease in Unsecured long-term borrowings $160,965 $167,305
other assets of $17.11 billion, primarily due to the sale of a Total shareholders’ equity $ 78,467 $ 75,716
majority stake in our Americas reinsurance business in Leverage ratio 11.6x 12.4x
April 2013. These decreases were partially offset by an Debt to equity ratio 2.1x 2.2x
increase in collateralized agreements of $48.07 billion, due
Leverage ratio. The leverage ratio equals total assets
to firm and client activity.
divided by total shareholders’ equity and measures the
As of December 2013, total liabilities on our consolidated proportion of equity and debt the firm is using to finance
statements of financial condition were $833.04 billion, a assets. This ratio is different from the Tier 1 leverage ratio
decrease of $29.80 billion from December 2012. This included in “Equity Capital — Consolidated Regulatory
decrease was primarily due to a decrease in other liabilities Capital Ratios” below, and further described in Note 20 to
and accrued expenses of $26.35 billion, primarily due to the consolidated financial statements.
the sale of a majority stake in both our Americas
Debt to equity ratio. The debt to equity ratio equals
reinsurance business in April 2013 and our European
unsecured long-term borrowings divided by total
insurance business in December 2013, and a decrease in
shareholders’ equity.
collateralized financings of $9.24 billion, primarily due to
firm financing activities. This decrease was partially offset
by an increase in payables to customers and counterparties
of $10.21 billion.
As of December 2013, our total securities sold under
agreements to repurchase, accounted for as collateralized
financings, were $164.78 billion, which was 5% higher and
4% higher than the daily average amount of repurchase
agreements during the quarter ended and year ended
December 2013, respectively. The increase in our
repurchase agreements relative to the daily average during
2013 was primarily due to an increase in client activity at
the end of the period. As of December 2012, our total
securities sold under agreements to repurchase, accounted
for as collateralized financings, were $171.81 billion, which
was essentially unchanged and 3% higher than the daily
average amount of repurchase agreements during the
quarter ended and year ended December 2012, respectively.
The increase in our repurchase agreements relative to the
daily average during 2012 was primarily due to an increase
in firm financing activities at the end of the period. The level
of our repurchase agreements fluctuates between and
within periods, primarily due to providing clients with
access to highly liquid collateral, such as U.S. government
and federal agency, and investment-grade sovereign
obligations through collateralized financing activities.

Goldman Sachs 2013 Annual Report 61


Management’s Discussion and Analysis

Funding Sources
Our primary sources of funding are secured financings, Secured Funding. We fund a significant amount of
unsecured long-term and short-term borrowings, and inventory on a secured basis. Secured funding is less
deposits. We seek to maintain broad and diversified sensitive to changes in our credit quality than unsecured
funding sources globally across products, programs, funding, due to our posting of collateral to our lenders.
markets, currencies and creditors to avoid Nonetheless, we continually analyze the refinancing risk of
funding concentrations. our secured funding activities, taking into account trade
tenors, maturity profiles, counterparty concentrations,
We raise funding through a number of different
collateral eligibility and counterparty rollover probabilities.
products, including:
We seek to mitigate our refinancing risk by executing term
‰ collateralized financings, such as repurchase agreements, trades with staggered maturities, diversifying
securities loaned and other secured financings; counterparties, raising excess secured funding, and pre-
funding residual risk through our GCE.
‰ long-term unsecured debt (including structured notes)
through syndicated U.S. registered offerings, U.S. We seek to raise secured funding with a term appropriate
registered and Rule 144A medium-term note programs, for the liquidity of the assets that are being financed, and we
offshore medium-term note offerings and other seek longer maturities for secured funding collateralized by
debt offerings; asset classes that may be harder to fund on a secured basis
especially during times of market stress. Substantially all of
‰ savings and demand deposits through deposit sweep
our secured funding, excluding funding collateralized by
programs and time deposits through internal and third-
liquid government obligations, is executed for tenors of one
party broker-dealers; and
month or greater. Assets that may be harder to fund on a
‰ short-term unsecured debt through U.S. and non-U.S. secured basis during times of market stress include certain
hybrid financial instruments, commercial paper and financial instruments in the following categories: mortgage
promissory note issuances and other methods. and other asset-backed loans and securities, non-investment
grade corporate debt securities, equities and convertible
Our funding is primarily raised in U.S. dollar, Euro, British
debentures and emerging market securities. Assets that are
pound and Japanese yen. We generally distribute our
classified as level 3 in the fair value hierarchy are generally
funding products through our own sales force and third-
funded on an unsecured basis. See Notes 5 and 6 to the
party distributors to a large, diverse creditor base in a
consolidated financial statements for further information
variety of markets in the Americas, Europe and Asia. We
about the classification of financial instruments in the fair
believe that our relationships with our creditors are critical
value hierarchy and “— Unsecured Long-Term
to our liquidity. Our creditors include banks, governments,
Borrowings” below for further information about the use
securities lenders, pension funds, insurance companies,
of unsecured long-term borrowings as a source of funding.
mutual funds and individuals. We have imposed various
internal guidelines to monitor creditor concentration across
our funding programs.

62 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

The weighted average maturity of our secured funding, GS Bank USA has access to funding through the Federal
excluding funding collateralized by highly liquid securities Reserve Bank discount window. While we do not rely on
eligible for inclusion in our GCE, exceeded 100 days as of this funding in our liquidity planning and stress testing, we
December 2013. maintain policies and procedures necessary to access this
funding and test discount window borrowing procedures.
A majority of our secured funding for securities not eligible
for inclusion in the GCE is executed through term Unsecured Long-Term Borrowings. We issue unsecured
repurchase agreements and securities lending contracts. We long-term borrowings as a source of funding for inventory
also raise financing through other types of collateralized and other assets and to finance a portion of our GCE. We
financings, such as secured loans and notes. issue in different tenors, currencies and products to
maximize the diversification of our investor base. The table
below presents our quarterly unsecured long-term
borrowings maturity profile through the fourth quarter of
2019 as of December 2013.

Unsecured Long-Term Borrowings Maturity Profile


$ in millions
15,000
14,000
13,000
12,000
11,000
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
5

15

15

ar 5
Ju 16

Se 16

ec 6

ar 6
Ju 17

Se 17

ec 7

ar 7
Ju 18

Se 18

ec 8
18

Ju 19

Se 19

ec 9
19
01

1
20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20
2
ar

ec

ar

p
Ju

Se
M

M
D

Quarters Ended

The weighted average maturity of our unsecured long-term to convert a substantial portion of our long-term
borrowings as of December 2013 was approximately eight borrowings into floating-rate obligations in order to
years. To mitigate refinancing risk, we seek to limit the manage our exposure to interest rates. See Note 16 to the
principal amount of debt maturing on any one day or consolidated financial statements for further information
during any week or year. We enter into interest rate swaps about our unsecured long-term borrowings.

Goldman Sachs 2013 Annual Report 63


Management’s Discussion and Analysis

Deposits. As part of our efforts to diversify our funding Equity Capital


base, deposits have become a more meaningful share of our
Capital adequacy is of critical importance to us. Our
funding activities mainly through GS Bank USA and
objective is to be conservatively capitalized in terms of the
Goldman Sachs International Bank (GSIB). The table below
amount and composition of our equity base, both relative
presents the type and sources of our deposits.
to our risk exposures and compared to external
requirements and benchmarks. Accordingly, we have in
As of December 2013
place a comprehensive capital management policy that
Type of Deposit
provides a framework and set of guidelines to assist us in
Savings and Demand 1 Time 2
in millions
determining the level and composition of capital that we
Private bank deposits 3 $30,475 $ 212 target and maintain.
Certificates of deposit — 19,709
Deposit sweep programs 4 15,511 — We determine the appropriate level and composition of our
Institutional 33 4,867 equity capital by considering multiple factors including our
Total 5 $46,019 $24,788 current and future consolidated regulatory capital
1. Represents deposits with no stated maturity.
requirements, the results of our capital planning and stress
testing process and other factors such as rating agency
2. Weighted average maturity of approximately three years.
guidelines, subsidiary capital requirements, the business
3. Substantially all were from overnight deposit sweep programs related to
private wealth management clients. environment, conditions in the financial markets, and
4. Represents long-term contractual agreements with several U.S. broker-
assessments of potential future losses due to adverse
dealers who sweep client cash to FDIC-insured deposits. changes in our business and market environments. Our
5. Deposits insured by the FDIC as of December 2013 were approximately capital planning and stress testing process incorporates our
$41.22 billion. internally designed stress tests and those required under
Unsecured Short-Term Borrowings. A significant CCAR and DFAST, and is also designed to identify and
portion of our short-term borrowings was originally long- measure material risks associated with our business
term debt that is scheduled to mature within one year of the activities, including market risk, credit risk and operational
reporting date. We use short-term borrowings to finance risk. We project sources and uses of capital given a range of
liquid assets and for other cash management purposes. We business environments, including stressed conditions. In
issue hybrid financial instruments, commercial paper and addition, as part of our comprehensive capital management
promissory notes. policy, we maintain a contingency capital plan that
provides a framework for analyzing and responding to an
As of December 2013, our unsecured short-term actual or perceived capital shortfall.
borrowings, including the current portion of unsecured
long-term borrowings, were $44.69 billion. See Note 15 to As required by the Federal Reserve Board’s annual CCAR
the consolidated financial statements for further guidelines, U.S. bank holding companies with total
information about our unsecured short-term borrowings. consolidated assets of $50 billion or greater submit capital
plans for review by the Federal Reserve Board. The purpose
of the Federal Reserve Board’s review is to ensure that these
institutions have a robust, forward-looking capital
planning process that accounts for their unique risks and
that permits continued operations during times of economic
and financial stress.

64 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

The Federal Reserve Board evaluates a bank holding capital position and ratios under the hypothetical stressed
company based, in part, on whether it has the capital environment. We provide additional information on our
necessary to continue operating under the baseline and internal stress testing process, our internally developed
stress scenarios provided by the Federal Reserve Board and severely adverse scenario used for mid-cycle DFAST and a
under the scenarios developed by the bank holding summary of the results on our web site as described under
company. This evaluation also takes into account a bank “Business — Available Information” in Part I, Item 1 of the
holding company’s process for identifying risk, its controls 2013 Form 10-K.
and governance for capital planning, and its guidelines for
Our consolidated regulatory capital requirements are
making capital planning decisions. In addition, as part of its
determined by the Federal Reserve Board, as
review, the Federal Reserve Board evaluates a bank holding
described below.
company’s plan to make capital distributions (i.e., dividend
payments, repurchases or redemptions of stock, As of December 2013, our total shareholders’ equity was
subordinated debt or other capital securities) across a range $78.47 billion (consisting of common shareholders’
of macroeconomic scenarios and firm-specific assumptions. equity of $71.27 billion and preferred stock of
Additionally, the Federal Reserve Board evaluates a bank $7.20 billion). As of December 2012, our total
holding company’s plan to issue capital. shareholders’ equity was $75.72 billion (consisting of
common shareholders’ equity of $69.52 billion and
In addition, the DFAST rules require us to conduct stress
preferred stock of $6.20 billion). See “— Consolidated
tests on a semi-annual basis and publish a summary of
Regulatory Capital Ratios” below for information
certain results. The annual DFAST submission is
regarding the impact of regulatory developments.
incorporated into the CCAR submission. The Federal
Reserve Board also conducts its own annual stress tests and Consolidated Regulatory Capital
publishes a summary of certain results. The Federal Reserve Board is the primary regulator of
Group Inc., a bank holding company under the Bank
As part of our initial 2013 CCAR submission, the Federal
Holding Company Act of 1956 (BHC Act) and a financial
Reserve Board informed us that it did not object to our
holding company under amendments to the BHC Act
proposed capital actions, including the repurchase of
effected by the U.S. Gramm-Leach-Bliley Act of 1999. As a
outstanding common stock, a potential increase in our
bank holding company, we are subject to consolidated risk-
quarterly common stock dividend and the possible
based regulatory capital requirements. These requirements
issuance, redemption and modification of other capital
are computed in accordance with the Federal Reserve
securities through the first quarter of 2014. As required by
Board’s risk-based capital regulations which, as of
the Federal Reserve Board, we resubmitted our 2013
December 2013, were based on the Basel I Capital Accord
capital plan in September 2013, incorporating certain
of the Basel Committee and also reflected the Federal
enhancements to our stress testing process. In
Reserve Board’s revised market risk regulatory capital
December 2013, the Federal Reserve Board informed us
requirements which became effective on January 1, 2013.
that it did not object to our resubmitted capital plan. We
These capital requirements are expressed as capital ratios
submitted our 2014 CCAR to the Federal Reserve in
that compare measures of capital to risk-weighted assets
January 2014 and expect to publish a summary of our
(RWAs). The capital regulations also include requirements
annual DFAST results in March 2014. See “Business —
with respect to leverage. The firm’s capital levels are also
Available Information” in Part I, Item 1 of the 2013
subject to qualitative judgments by its regulators about
Form 10-K.
components of capital, risk weightings and other factors.
In addition, we submitted the results of our mid-cycle Beginning January 1, 2014, the Federal Reserve Board
DFAST to the Federal Reserve Board in July 2013 and implemented revised consolidated regulatory capital and
published a summary of our mid-cycle DFAST results under leverage requirements.
our internally developed severely adverse scenario in
See Note 20 to the consolidated financial statements for
September 2013. Our internally developed severely adverse
additional information regarding the firm’s current RWAs,
scenario is designed to stress the firm’s risks and
required minimum capital ratios and the Revised Capital
idiosyncratic vulnerabilities and assess the firm’s pro-forma
Framework (defined below).

Goldman Sachs 2013 Annual Report 65


Management’s Discussion and Analysis

Consolidated Regulatory Capital Ratios


The table below presents information about our regulatory As of December

capital ratios and Tier 1 leverage ratio under Basel I, as $ in millions 2013 2012
implemented by the Federal Reserve Board. The Common shareholders’ equity $ 71,267 $ 69,516
information as of December 2013 reflects the revised Goodwill (3,705) (3,702)
market risk regulatory capital requirements. The Identifiable intangible assets (671) (1,397)
Equity investments in certain entities (3,314) (4,805)
information as of December 2012 is prior to the
Disallowed deferred tax assets (498) (1,261)
implementation of these revised market risk regulatory
Debt valuation adjustment 10 (180)
capital requirements. In the table below: Other adjustments 159 (124)
‰ Equity investments in certain entities primarily represent Tier 1 Common Capital 63,248 58,047
Perpetual non-cumulative preferred stock 7,200 6,200
a portion of our nonconsolidated equity investments.
Junior subordinated debt issued to trusts 1 2,063 2,750
‰ Disallowed deferred tax assets represent certain deferred Other adjustments (40) (20)
tax assets that are excluded from regulatory capital based Tier 1 Capital 72,471 66,977
upon an assessment which, in addition to other factors, Qualifying subordinated debt 12,773 13,342
Junior subordinated debt issued to trusts 1 687 —
includes an estimate of future taxable income.
Other adjustments 172 87
‰ Debt valuation adjustment represents the cumulative Tier 2 Capital 13,632 13,429
change in the fair value of our unsecured borrowings Total Capital $ 86,103 $ 80,406
attributable to the impact of changes in our own credit Credit RWAs $268,247 $287,526
spreads (net of tax at the applicable tax rate). Market RWAs 164,979 112,402
Total RWAs $433,226 $399,928
‰ Other adjustments within our Tier 1 common capital Tier 1 Common Ratio 2 14.6% 14.5%
include net unrealized gains/(losses) on available-for-sale Tier 1 Capital Ratio 16.7% 16.7%
securities (net of tax at the applicable tax rate), the Total Capital Ratio 19.9% 20.1%
cumulative change in our pension and postretirement Tier 1 Leverage Ratio 3 8.1% 7.3%
liabilities (net of tax at the applicable tax rate) and 1. On January 1, 2013, we began to incorporate the Dodd-Frank Act’s phase-
investments in certain nonconsolidated entities. out of regulatory capital treatment for junior subordinated debt issued to
trusts by allowing for only 75% of these capital instruments to be included in
‰ Qualifying subordinated debt represents subordinated Tier 1 capital and 25% to be designated as Tier 2 capital in the calculation of
debt issued by Group Inc. with an original term to our current capital ratios. In July 2013, the Agencies finalized the phase-out
provisions of these capital instruments. See Note 16 to the consolidated
maturity of five years or greater. The outstanding amount financial statements for additional information about the junior subordinated
of subordinated debt qualifying for Tier 2 capital is debt issued to trusts.
reduced, or discounted, upon reaching a remaining 2. The Tier 1 common ratio equals Tier 1 common capital divided by RWAs. We
maturity of five years. See Note 16 to the consolidated believe that the Tier 1 common ratio is meaningful because it is one of the
measures that we, our regulators and investors use to assess capital
financial statements for additional information about our adequacy. The Tier 1 common ratio is a non-GAAP measure and may not be
subordinated debt. comparable to similar non-GAAP measures used by other companies.
3. See Note 20 to the consolidated financial statements for additional
information about the firm’s Tier 1 leverage ratio.

66 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

Our Tier 1 capital ratio was 16.7%, unchanged compared Risk-Weighted Assets
with December 2012 primarily reflecting an increase in RWAs under the Federal Reserve Board’s risk-based capital
RWAs, offset by an increase in Tier 1 capital. The increase requirements are calculated based on measures of credit
in RWAs was primarily driven by the implementation of the risk and market risk.
revised market risk regulatory capital requirements. These
RWAs for credit risk reflect amounts for on-balance-sheet
requirements are a significant part of the regulatory capital
and off-balance-sheet exposures. Credit risk requirements
changes that will ultimately be reflected in our Basel III
for on-balance-sheet assets, such as receivables and cash,
capital ratios.
are generally based on the balance sheet value. Credit risk
The table below presents the changes in Tier 1 common requirements for securities financing transactions are
capital, Tier 1 capital and Tier 2 capital during 2013 determined based upon the positive net exposure for each
and 2012. trade, and include the effect of counterparty netting and
collateral, as applicable. For off-balance-sheet exposures,
Year Ended including commitments and guarantees, a credit equivalent
December December amount is calculated based on the notional amount of each
in millions 2013 2012 trade. Requirements for OTC derivatives are based on a
Tier 1 Common Capital combination of positive net exposure and a percentage of
Balance, beginning of period $58,047 $55,162
the notional amount of each trade, and include the effect of
Increase in common shareholders’ equity 1,751 2,237
counterparty netting and collateral, as applicable. All such
(Increase)/decrease in goodwill (3) 100
Decrease in identifiable intangible assets 726 269 assets and exposures are then assigned a risk weight
(Increase)/decrease in equity investments depending on, among other things, whether the
in certain entities 1,491 (249) counterparty is a sovereign, bank or a qualifying securities
(Increase)/decrease in disallowed deferred firm or other entity (or if collateral is held, depending on the
tax assets 763 (188) nature of the collateral).
Change in debt valuation adjustment 190 484
Change in other adjustments 283 232 As of December 2012, RWAs for market risk were
Balance, end of period $63,248 $58,047 determined by reference to the firm’s Value-at-Risk (VaR)
Tier 1 Capital model, supplemented by the standardized measurement
Balance, beginning of period $66,977 $63,262 method used to determine RWAs for specific risk for
Net increase in Tier 1 common capital 5,201 2,885
certain positions. Under the Federal Reserve Board’s revised
Increase in perpetual non-cumulative
preferred stock 1,000 3,100
market risk regulatory capital requirements, which became
Change in junior subordinated debt issued effective on January 1, 2013, the methodology for
to trusts — (2,250) calculating RWAs for market risk was changed. RWAs for
Redesignation of junior subordinated debt market risk are determined using VaR, stressed VaR,
issued to trusts (687) — incremental risk, comprehensive risk and a standardized
Change in other adjustments (20) (20) measurement method for specific risk.
Balance, end of period 72,471 66,977
Tier 2 Capital
Balance, beginning of period 13,429 13,881
Decrease in qualifying subordinated debt (569) (486)
Redesignation of junior subordinated debt
issued to trusts 687 —
Change in other adjustments 85 34
Balance, end of period 13,632 13,429
Total Capital $86,103 $80,406

See “Business — Regulation” in Part I, Item 1 of the 2013


Form 10-K and Note 20 to the consolidated financial
statements for additional information about our regulatory
capital ratios and related regulatory requirements,
including pending and proposed regulatory changes.

Goldman Sachs 2013 Annual Report 67


Management’s Discussion and Analysis

VaR is the potential loss in value of inventory positions, as The table below presents information on the components of
well as certain other financial assets and financial liabilities, RWAs within our consolidated regulatory capital ratios,
due to adverse market movements over a defined time which were based on Basel I, as implemented by the Federal
horizon with a specified confidence level. For both risk Reserve Board, and also reflected the revised market risk
management purposes and regulatory capital calculations regulatory capital requirements.
we use a single VaR model which captures risks including
interest rates, equity prices, currency rates and commodity As of
prices. VaR used for regulatory capital requirements December
in millions 2013
(regulatory VaR) differs from risk management VaR due to Credit RWAs
different time horizons and confidence levels (10-day and OTC derivatives $ 94,753
99% for regulatory VaR vs. one-day and 95% for risk Commitments and guarantees 1 47,397
management VaR), as well as differences in the scope of Securities financing transactions 2 30,010
positions on which VaR is calculated. Stressed VaR is the Other 3 96,087
potential loss in value of inventory positions during a Total Credit RWAs 268,247
period of significant market stress. Incremental risk is the Market RWAs
Regulatory VaR 13,425
potential loss in value of non-securitized inventory
Stressed VaR 38,250
positions due to the default or credit migration of issuers of Incremental risk 9,463
financial instruments over a one-year time horizon. Comprehensive risk 18,150
Comprehensive risk is the potential loss in value, due to Specific risk 85,691
price risk and defaults, within the firm’s credit correlation Total Market RWAs 164,979
positions. The standardized measurement method is used to Total RWAs 4 $433,226
determine RWAs for specific risk for certain positions by
1. Principally includes certain commitments to extend credit and letters
applying supervisory defined risk-weighting factors to such of credit.
positions after applicable netting is performed. 2. Represents resale and repurchase agreements and securities borrowed and
loaned transactions.
We provide additional information on regulatory VaR,
3. Principally includes receivables from customers, certain loans, other assets,
stressed VaR, incremental risk, comprehensive risk and the and cash and cash equivalents.
standardized measurement method for specific risk on our 4. Under the current regulatory capital framework, there is no explicit
web site as described under “Business — Available requirement for Operational risk.
Information” in Part I, Item 1 of the 2013 Form 10-K.

68 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

The table below presents the changes in these RWAs from Revised Capital Framework
December 31, 2012 to December 31, 2013. The Agencies have approved revised risk-based capital and
leverage ratio regulations establishing a new comprehensive
Period Ended capital framework for U.S. banking organizations (Revised
in millions December 2013 Capital Framework). These regulations are largely based on
Risk-Weighted Assets the Basel Committee’s December 2010 final capital
Balance, December 31, 2012 $399,928
framework for strengthening international capital
Credit RWAs
Decrease in OTC derivatives (12,516) standards (Basel III), and significantly revise the risk-based
Increase in commitments and guarantees 1,390 capital and leverage ratio requirements applicable to bank
Decrease in securities financing transactions (17,059) holding companies as compared to the previous U.S. risk-
Change in other 8,906 based capital and leverage ratio rules, and thereby,
Change in Credit RWAs (19,279) implement certain provisions of the Dodd-Frank Act.
Market RWAs
Increase related to the revised market risk rules 127,608 Under the Revised Capital Framework, Group Inc. is an
Decrease in regulatory VaR (2,038) “Advanced approach” banking organization. See Note 20
Decrease in stressed VaR (13,700) to the consolidated financial statements for further
Decrease in incremental risk (17,350) information about the Revised Capital Framework,
Decrease in comprehensive risk (9,568) including the difference between the “Standardized
Decrease in specific risk (32,375)
approach” and the Basel III Advanced approach.
Change in Market RWAs 52,577
Total RWAs, end of period $433,226 Estimated Capital Ratios. We estimate that the firm’s
ratio of Basel III Common Equity Tier 1 (CET1) to RWAs
Credit RWAs decreased $19.28 billion compared with calculated under the Basel III Advanced approach (Basel III
December 2012, primarily due to a decrease in securities Advanced CET1 ratio) as of December 2013 would have
financing exposure. Market RWAs increased by been 9.8% on a fully phased-in basis (i.e., after the
$52.58 billion compared with December 2012, reflecting expiration of transition provisions). The estimate of the
the impact of the revised market risk regulatory capital Basel III Advanced CET1 ratio will continue to evolve as we
requirements, which became effective on January 1, 2013, assess the details of these rules and discuss their
partially offset by, among other things, a decrease in interpretation and application with our regulators.
specific risk due to a decrease in inventory.
Management believes that the estimated Basel III Advanced
We also attribute RWAs to our business segments. As of CET1 ratio is meaningful because it is one of the measures
December 2013, approximately 80% of RWAs were that we, our regulators and investors use to assess capital
attributed to our Institutional Client Services segment and adequacy. The estimated Basel III Advanced CET1 ratio is a
substantially all of the remaining RWAs were attributed to non-GAAP measure as of December 2013 and may not be
our Investing & Lending segment. comparable to similar non-GAAP measures used by other
companies (as of that date). It will become a formal
regulatory measure for the firm on April 1, 2014.

Goldman Sachs 2013 Annual Report 69


Management’s Discussion and Analysis

The table below presents a reconciliation of our common Effective January 1, 2014, Group Inc.’s capital and leverage
shareholders’ equity to the estimated Basel III Advanced ratios are calculated under, and subject to the minimums as
CET1 on a fully phased-in basis. defined in, the Revised Capital Framework. The changes to
the definition of capital and minimum ratios, subject to
As of transitional provisions, were effective beginning
December January 1, 2014. RWAs are based on Basel I Adjusted, as
$ in millions 2013
Common shareholders’ equity $ 71,267
defined in Note 20 to the consolidated financial statements.
The firm will transition to Basel III beginning on
Goodwill (3,705)
April 1, 2014. Including the impact of the changes to the
Identifiable intangible assets (671)
Deferred tax liabilities 908
definition of regulatory capital and reflecting the
Goodwill and identifiable intangible assets, net of transitional provisions effective in 2014, our estimated
deferred tax liabilities (3,468) CET1 ratio (CET1 to RWAs on a Basel I Adjusted basis) as
Deductions for investments in nonconsolidated of December 2013 would have been essentially unchanged
financial institutions 1 (9,091) as compared to our Tier 1 common ratio under Basel I.
Other adjustments 2 (489)
Basel III CET1 $ 58,219 Regulatory Leverage Ratios. The Revised Capital
Basel III Advanced RWAs $594,662 Framework increased the minimum Tier 1 leverage ratio
Basel III Advanced CET1 Ratio 9.8% applicable to us from 3% to 4% effective January 1, 2014.
1. This deduction, which represents the fully phased-in requirement, is the In addition, the Revised Capital Framework will introduce
amount by which our investments in the capital of nonconsolidated financial
a new Tier 1 supplementary leverage ratio (supplementary
institutions exceed certain prescribed thresholds. During both the transitional
period and thereafter, no deduction will be required if the applicable leverage ratio) for Advanced approach banking
proportion of our investments in the capital of nonconsolidated financial organizations. The supplementary leverage ratio compares
institutions falls below the prescribed thresholds.
Tier 1 capital (as defined under the Revised Capital
2. Principally includes credit valuation adjustments on derivative liabilities and
Framework) to a measure of leverage exposure, defined as
debt valuation adjustments, as well as other required credit risk-
based deductions. the sum of the firm’s assets less certain CET1 deductions
plus certain off-balance-sheet exposures, including a
In addition, beginning with the first quarter of 2015, measure of derivatives exposures and commitments. The
subject to transitional provisions, we will also be required Revised Capital Framework requires a minimum
to disclose ratios calculated under the Standardized supplementary leverage ratio of 3%, effective
approach. Our estimated CET1 ratio under the January 1, 2018, but with disclosure required beginning in
Standardized approach (Standardized CET1 ratio) on a the first quarter of 2015. In addition, subsequent to the
fully phased-in basis was approximately 60 basis points approval of the Revised Capital Framework, the Agencies
lower than our estimated Basel III Advanced CET1 ratio in issued a proposal to increase the minimum supplementary
the table above. leverage ratio requirement for the largest U.S. banks (those
Both the Basel III Advanced CET1 ratio and the deemed to be global systemically important banking
Standardized CET1 ratio are subject to transitional institutions (G-SIBs) under the Basel G-SIB framework).
provisions. Reflecting the transitional provisions that These proposals would require the firm and other G-SIBs to
became effective January 1, 2014, our estimated Basel III meet a 5% supplementary leverage ratio (comprised of the
Advanced CET1 ratio and our estimated Standardized minimum requirement of 3% plus a 2% buffer). As of
CET1 ratio are approximately 150 basis points higher than December 2013, our estimated supplementary leverage
the respective CET1 ratios on a fully phased-in basis as of ratio based on the Revised Capital Framework
December 2013. approximates this proposed minimum.
In addition, the Basel Committee recently finalized
revisions that would increase the size of the leverage
exposure for purposes of the supplementary leverage ratio,
but would retain a minimum supplementary leverage ratio
requirement of 3%. It is not known with certainty at this
point whether the U.S. regulators will adopt this revised
definition of leverage into their rules and proposals for the
supplementary leverage ratio.

70 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

Other Developments Stress Testing. Our stress testing process incorporates an


The Basel Committee and the Financial Stability Board internal capital adequacy assessment with the objective of
(established at the direction of the leaders of the Group of ensuring that the firm is appropriately capitalized relative to
20) have also recently issued several consultative papers the risks in our business. As part of our assessment, we
which propose further changes to capital regulations. In project sources and uses of capital given a range of business
particular, the Basel Committee has issued consultation environments, including stressed conditions. Our stress
papers on a “Fundamental Review of the Trading Book” scenarios incorporate our internally designed stress tests
and “Revisions to the Securitization Framework” that and those required under CCAR and DFAST and are
could have an impact on the level of the firm’s RWAs and designed to capture our specific vulnerabilities and risks
regulatory capital ratios. and to analyze whether the firm holds an appropriate
amount of capital. Our goal is to hold sufficient capital to
The European Union (EU) finalized legislation to
ensure we remain adequately capitalized after experiencing
implement Basel III, which became effective on
a severe stress event. Our assessment of capital adequacy is
January 1, 2014. The Dodd-Frank Act, other reform
viewed in tandem with our assessment of liquidity
initiatives proposed and announced by the Agencies, the
adequacy and is integrated into the overall risk
Basel Committee, and other governmental entities and
management structure, governance and policy framework
regulators (including the EU and the U.K.’s Financial
of the firm.
Services Authority (FSA) which was replaced by the
Prudential Regulation Authority and the Financial Conduct Internal Risk-Based Capital Assessment. As part of our
Authority (FCA) on April 1, 2013) are not in all cases capital planning and stress testing process, we perform an
consistent with one another, which adds further uncertainty internal risk-based capital assessment. This assessment
to the firm’s future capital, leverage and liquidity incorporates market risk, credit risk and operational risk.
requirements, and those of the firm’s subsidiaries. Market risk is calculated by using VaR calculations
supplemented by risk-based add-ons which include risks
The Dodd-Frank Act contains provisions that require the
related to rare events (tail risks). Credit risk utilizes
registration of all swap dealers, major swap participants,
assumptions about our counterparties’ probability of
security-based swap dealers and major security-based swap
default and the size of our losses in the event of a default.
participants. The firm has registered certain subsidiaries as
Operational risk is calculated based on scenarios
“swap dealers” under the CFTC rules, including GS&Co.,
incorporating multiple types of operational failures as well
GS Bank USA, Goldman Sachs International (GSI), and
as incorporating internal and external actual loss
J. Aron & Company. These entities and other entities that
experience. Backtesting is used to gauge the effectiveness of
would require registration under the CFTC or SEC rules
models at capturing and measuring relevant risks.
will be subject to regulatory capital requirements, which
have not been finalized by the CFTC and SEC. Capital Attribution. We attribute capital usage to each of
our businesses based upon regulatory capital requirements
Capital Planning and Stress Testing Process
as well as our internal risk-based capital assessment. We
Our capital planning and stress testing process incorporates
manage the levels of our capital usage based upon the
our internally designed stress tests and those required under
established balance sheet and risk limits.
CCAR and DFAST. The process is designed to identify and
measure material risks associated with our business Contingency Capital Plan. As part of our comprehensive
activities. We also attribute capital usage to each of our capital management policy, we maintain a contingency
businesses and maintain a contingency capital plan. capital plan. Our contingency capital plan provides a
framework for analyzing and responding to a perceived or
actual capital deficiency, including, but not limited to,
identification of drivers of a capital deficiency, as well as
mitigants and potential actions. It outlines the appropriate
communication procedures to follow during a crisis period,
including internal dissemination of information as well as
ensuring timely communication with external stakeholders.

Goldman Sachs 2013 Annual Report 71


Management’s Discussion and Analysis

Rating Agency Guidelines In addition to revisions to the risk-based capital ratios, GS


The credit rating agencies assign credit ratings to the Bank USA is now subject to a 4% minimum Tier 1 leverage
obligations of Group Inc., which directly issues or ratio requirement, and as an Advanced approach banking
guarantees substantially all of the firm’s senior unsecured organization, will be subject to a new minimum
obligations. GS&Co., GSI and GSIB have been assigned supplementary leverage ratio (as described above) of 3%
long- and short-term issuer ratings by certain credit rating effective January 1, 2018.
agencies. GS Bank USA has also been assigned long- and
Shortly after the approval of the Revised Capital
short-term issuer ratings, as well as ratings on its long-term
Framework, the Agencies issued a proposal that also
and short-term bank deposits. In addition, credit rating
requires that U.S. insured depository institution subsidiaries
agencies have assigned ratings to debt obligations of certain
of U.S. G-SIBs, such as GS Bank USA, meet a “well-
other subsidiaries of Group Inc.
capitalized” supplementary leverage ratio requirement of
The level and composition of our equity capital are among 6%. If these proposals are enacted as proposed, these
the many factors considered in determining our credit higher requirements would be effective beginning
ratings. Each agency has its own definition of eligible January 1, 2018. As of December 2013, GS Bank USA’s
capital and methodology for evaluating capital adequacy, estimated supplementary leverage ratio based on the
and assessments are generally based on a combination of Revised Capital Framework approximates this
factors rather than a single calculation. See “Liquidity Risk proposed minimum.
Management — Credit Ratings” for further information
In addition, the Basel Committee’s recently finalized
about credit ratings of Group Inc., GS Bank USA, GS&Co.,
revisions regarding the supplementary leverage ratio
GSI and GSIB.
discussed above may also be applicable to GS Bank USA.
Subsidiary Capital Requirements
See Note 20 to the consolidated financial statements for
Many of our subsidiaries, including GS Bank USA and our
further information about the Revised Capital Framework
broker-dealer subsidiaries, are subject to separate
as it relates to GS Bank USA and incremental capital
regulation and capital requirements of the jurisdictions in
requirements for domestic systemically important
which they operate.
banking institutions.
GS Bank USA. GS Bank USA is subject to minimum
For purposes of assessing the adequacy of its capital, GS
capital requirements that are calculated in a manner similar
Bank USA also performs an internal capital adequacy
to those applicable to bank holding companies and
assessment which is similar to that performed by Group
computes its risk-based capital ratios in accordance with
Inc. In addition, the rules adopted by the Federal Reserve
the regulatory capital requirements applicable to state
Board under the Dodd-Frank Act require GS Bank USA to
member banks, which, as of December 2013, were based on
conduct stress tests on an annual basis and publish a
Basel I, and also reflected the revised market risk regulatory
summary of certain results. GS Bank USA submitted its
capital requirements as implemented by the Federal Reserve
annual DFAST stress results to the Federal Reserve in
Board. The capital regulations also include requirements
January 2014 and expects to publish a summary of its
with respect to leverage. See Note 20 to the consolidated
results in March 2014. GS Bank USA’s capital levels and
financial statements for further information about GS Bank
prompt corrective action classification are subject to
USA’s regulatory capital ratios. GS Bank USA is also
qualitative judgments by its regulators about components
subject to the Revised Capital Framework, beginning
of capital, risk weightings and other factors.
January 1, 2014.

72 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

GSI. Our regulated U.K. broker-dealer, GSI, is one of the Our capital invested in non-U.S. subsidiaries is generally
firm’s principal non-U.S. regulated subsidiaries and is exposed to foreign exchange risk, substantially all of which
regulated by the PRA and the FCA. As of December 2013 is managed through a combination of derivatives and non-
and December 2012, GSI was subject to capital regulations, U.S. denominated debt.
which were based on the Basel Committee’s June 2006
Equity Capital Management
Framework (Basel II) as modified by the Basel Committee’s
We principally manage our capital through issuances and
February 2011 Revisions to the Basel II market risk
repurchases of our common stock. We may also, from time
framework and as implemented in the European Union
to time, issue or repurchase our preferred stock, junior
through the Capital Requirements Directives. As of
subordinated debt issued to trusts, and other subordinated
December 2013 and December 2012, GSI had a Tier 1
debt or other forms of capital as business conditions
capital ratio of 14.4% and 11.5%, respectively, and a Total
warrant and subject to approval of the Federal Reserve
capital ratio of 18.5% and 16.9%, respectively. The
Board. We manage our capital requirements principally by
minimum Tier 1 capital ratio under PRA rules was 4%, and
setting limits on balance sheet assets and/or limits on risk, in
the minimum Total capital ratio was 8%. The PRA has
each case both at the consolidated and business levels. We
significantly revised its capital regulations effective beginning
attribute capital usage to each of our businesses based upon
January 1, 2014; the revised regulations are largely based on
our regulatory capital requirements, as well as our internal
Basel III and, similar to the Revised Capital Framework, also
risk-based capital assessment. We manage the levels of our
introduce leverage ratio reporting requirements.
capital usage based upon the established balance sheet and
Other Subsidiaries. We expect that the capital risk limits.
requirements of several of our subsidiaries are likely to
See Notes 16 and 19 to the consolidated financial
increase in the future due to the various developments
statements for further information about our preferred
arising from the Basel Committee, the Dodd-Frank Act, and
stock, junior subordinated debt issued to trusts and other
other governmental entities and regulators. See Note 20 to
subordinated debt.
the consolidated financial statements for information about
the capital requirements of our other regulated subsidiaries Berkshire Hathaway Warrant. On October 1, 2013,
and the potential impact of regulatory reform. Berkshire Hathaway exercised in full a warrant to purchase
shares of the firm’s common stock. The warrant, as
Subsidiaries not subject to separate regulatory capital
amended in March 2013, required net share settlement, and
requirements may hold capital to satisfy local tax and legal
the firm delivered 13.1 million shares of common stock to
guidelines, rating agency requirements (for entities with
Berkshire Hathaway on October 4, 2013. The number of
assigned credit ratings) or internal policies, including
shares delivered represented the value of the difference
policies concerning the minimum amount of capital a
between the average closing price of the firm’s common
subsidiary should hold based on its underlying level of risk.
stock over the 10 trading days preceding October 1, 2013
In certain instances, Group Inc. may be limited in its ability
and the exercise price of $115.00 multiplied by the number
to access capital held at certain subsidiaries as a result of
of shares of common stock (43.5 million) covered by the
regulatory, tax or other constraints. As of December 2013
warrant. The impact to both the firm’s book value per
and December 2012, Group Inc.’s equity investment in
common share and tangible book value per common share
subsidiaries was $73.39 billion and $73.32 billion,
was a reduction of approximately 3%.
respectively, compared with its total shareholders’ equity of
$78.47 billion and $75.72 billion, respectively.
Guarantees of Subsidiaries. Group Inc. has guaranteed
the payment obligations of GS&Co., GS Bank USA, and
Goldman Sachs Execution & Clearing, L.P. (GSEC) subject
to certain exceptions. In November 2008, Group Inc.
contributed subsidiaries into GS Bank USA, and Group Inc.
agreed to guarantee certain losses, including credit-related
losses, relating to assets held by the contributed entities. In
connection with this guarantee, Group Inc. also agreed to
pledge to GS Bank USA certain collateral, including
interests in subsidiaries and other illiquid assets.

Goldman Sachs 2013 Annual Report 73


Management’s Discussion and Analysis

Share Repurchase Program. We seek to use our share Tangible common shareholders’ equity. Tangible
repurchase program to help maintain the appropriate level common shareholders’ equity equals total shareholders’
of common equity. The repurchase program is effected equity less preferred stock, goodwill and identifiable
primarily through regular open-market purchases, the intangible assets. We believe that tangible common
amounts and timing of which are determined primarily by shareholders’ equity is meaningful because it is a measure
our current and projected capital positions, but which may that we and investors use to assess capital adequacy.
also be influenced by general market conditions and the Tangible common shareholders’ equity is a non-GAAP
prevailing price and trading volumes of our common stock. measure and may not be comparable to similar non-GAAP
measures used by other companies.
On April 15, 2013, the Board of Directors of Group Inc.
(Board) authorized the repurchase of an additional The table below presents the reconciliation of total
75.0 million shares of common stock pursuant to the firm’s shareholders’ equity to tangible common
existing share repurchase program. As of December 2013, shareholders’ equity.
under the share repurchase program approved by the
Board, we can repurchase up to 57.2 million additional As of December
shares of common stock; however, any such repurchases in millions 2013 2012
are subject to the approval of the Federal Reserve Board. Total shareholders’ equity $78,467 $75,716
See “Market for Registrant’s Common Equity, Related Deduct: Preferred stock (7,200) (6,200)
Stockholder Matters and Issuer Purchases of Equity Common shareholders’ equity 71,267 69,516
Securities” in Part II, Item 5 of the 2013 Form 10-K and Deduct: Goodwill and identifiable
intangible assets (4,376) (5,099)
Note 19 to the consolidated financial statements for
Tangible common shareholders’ equity $66,891 $64,417
additional information on our repurchase program and see
above for information about the annual CCAR. Book value and tangible book value per common
Other Capital Metrics share. Book value and tangible book value per common
The table below presents information on our shareholders’ share are based on common shares outstanding, including
equity and book value per common share. restricted stock units granted to employees with no future
service requirements, of 467.4 million and 480.5 million as
As of December of December 2013 and December 2012, respectively. We
in millions, except per share amounts 2013 2012 believe that tangible book value per common share
Total shareholders’ equity $78,467 $75,716 (tangible common shareholders’ equity divided by common
Common shareholders’ equity 71,267 69,516 shares outstanding) is meaningful because it is a measure
Tangible common shareholders’ equity 66,891 64,417 that we and investors use to assess capital adequacy.
Book value per common share 152.48 144.67 Tangible book value per common share is a non-GAAP
Tangible book value per common share 143.11 134.06 measure and may not be comparable to similar non-GAAP
measures used by other companies.

74 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

Off-Balance-Sheet Arrangements and


Contractual Obligations
Off-Balance-Sheet Arrangements
We have various types of off-balance-sheet arrangements The table below presents where a discussion of our
that we enter into in the ordinary course of business. Our various off-balance-sheet arrangements may be found in
involvement in these arrangements can take many different the 2013 Form 10-K. In addition, see Note 3 to the
forms, including: consolidated financial statements for a discussion of our
consolidation policies.
‰ purchasing or retaining residual and other interests in
special purpose entities such as mortgage-backed and
other asset-backed securitization vehicles; Type of Off-Balance-Sheet
Arrangement Disclosure in Form 10-K
‰ holding senior and subordinated debt, interests in limited Variable interests and other See Note 11 to the consolidated
and general partnerships, and preferred and common obligations, including contingent financial statements.
stock in other nonconsolidated vehicles; obligations, arising from variable
interests in nonconsolidated VIEs
‰ entering into interest rate, foreign currency, equity, Leases, letters of credit, and See “Contractual Obligations”
commodity and credit derivatives, including total lending and other commitments below and Note 18 to the
consolidated financial statements.
return swaps;
Guarantees See “Contractual Obligations”
‰ entering into operating leases; and below and Note 18 to the
consolidated financial statements.
‰ providing guarantees, indemnifications, loan Derivatives See “Credit Risk Management —
commitments, letters of credit and representations Credit Exposures — OTC
Derivatives” below and Notes 4, 5, 7
and warranties.
and 18 to the consolidated financial
We enter into these arrangements for a variety of business statements.
purposes, including securitizations. The securitization
vehicles that purchase mortgages, corporate bonds, and
other types of financial assets are critical to the functioning
of several significant investor markets, including the
mortgage-backed and other asset-backed securities
markets, since they offer investors access to specific cash
flows and risks created through the securitization process.
We also enter into these arrangements to underwrite client
securitization transactions; provide secondary market
liquidity; make investments in performing and
nonperforming debt, equity, real estate and other assets;
provide investors with credit-linked and asset-repackaged
notes; and receive or provide letters of credit to satisfy
margin requirements and to facilitate the clearance and
settlement process.
Our financial interests in, and derivative transactions with,
such nonconsolidated entities are generally accounted for at
fair value, in the same manner as our other financial
instruments, except in cases where we apply the equity
method of accounting.

Goldman Sachs 2013 Annual Report 75


Management’s Discussion and Analysis

Contractual Obligations
We have certain contractual obligations which require us to contractual obligations such as purchase obligations,
make future cash payments. These contractual obligations minimum rental payments under noncancelable leases and
include our unsecured long-term borrowings, secured long- commitments and guarantees.
term financings, time deposits and contractual interest
The table below presents our contractual obligations,
payments, all of which are included in our consolidated
commitments and guarantees as of December 2013.
statements of financial condition. Our obligations to make
future cash payments also include certain off-balance-sheet

2019-
in millions 2014 2015-2016 2017-2018 Thereafter Total
Amounts related to on-balance-sheet obligations
Time deposits $ — $ 6,554 $ 4,626 $ 4,481 $ 15,661
Secured long-term financings 1 — 5,847 943 734 7,524
Unsecured long-term borrowings 2 — 45,706 43,639 71,620 160,965
Contractual interest payments 3 6,695 12,303 5,252 36,919 61,169
Subordinated liabilities issued by consolidated VIEs 74 — — 403 477
Amounts related to off-balance-sheet arrangements
Commitments to extend credit 15,069 24,214 43,356 4,988 87,627
Contingent and forward starting resale and securities borrowing agreements 34,410 — — — 34,410
Forward starting repurchase and secured lending agreements 8,256 — — — 8,256
Letters of credit 465 21 10 5 501
Investment commitments 4 1,359 5,387 20 350 7,116
Other commitments 3,734 102 54 65 3,955
Minimum rental payments 387 620 493 1,195 2,695
Derivative guarantees 517,634 180,543 39,367 57,736 795,280
Securities lending indemnifications 26,384 — — — 26,384
Other financial guarantees 1,361 620 1,140 1,046 4,167

1. The aggregate contractual principal amount of secured long-term financings for which the fair value option was elected exceeded the related fair value by
$154 million.
2. Includes $7.48 billion of adjustments to the carrying value of certain unsecured long-term borrowings resulting from the application of hedge accounting. In addition,
the aggregate contractual principal amount of unsecured long-term borrowings (principal and non-principal-protected) for which the fair value option was elected
exceeded the related fair value by $92 million.
3. Represents estimated future interest payments related to unsecured long-term borrowings, secured long-term financings and time deposits based on applicable
interest rates as of December 2013. Includes stated coupons, if any, on structured notes.
4. $5.66 billion of commitments to covered funds (as defined by the Volcker Rule) are included in the 2014 and 2015-2016 columns. We expect that substantially all of
these commitments will not be called.

In the table above:


‰ Obligations maturing within one year of our financial ‰ Amounts included in the table do not necessarily reflect
statement date or redeemable within one year of our the actual future cash flow requirements for these
financial statement date at the option of the holder are arrangements because commitments and guarantees
excluded and are treated as short-term obligations. represent notional amounts and may expire unused or be
reduced or cancelled at the counterparty’s request.
‰ Obligations that are repayable prior to maturity at our
option are reflected at their contractual maturity dates ‰ Due to the uncertainty of the timing and amounts that
and obligations that are redeemable prior to maturity at will ultimately be paid, our liability for unrecognized tax
the option of the holders are reflected at the dates such benefits has been excluded. See Note 24 to the
options become exercisable. consolidated financial statements for further information
about our unrecognized tax benefits.

76 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

See Notes 15 and 18 to the consolidated financial Risk Management and Risk Factors
statements for further information about our short-term
Risks are inherent in our business and include liquidity,
borrowings and commitments and guarantees, respectively.
market, credit, operational, legal, regulatory and
As of December 2013, our unsecured long-term borrowings reputational risks. For a further discussion of our risk
were $160.97 billion, with maturities extending to 2061, management processes, see “Overview and Structure of
and consisted principally of senior borrowings. See Note 16 Risk Management” below. Our risks include the risks
to the consolidated financial statements for further across our risk categories, regions or global businesses, as
information about our unsecured long-term borrowings. well as those which have uncertain outcomes and have the
potential to materially impact our financial results, our
As of December 2013, our future minimum rental
liquidity and our reputation. For a further discussion of our
payments net of minimum sublease rentals under
areas of risk, see “— Liquidity Risk Management,”
noncancelable leases were $2.70 billion. These lease
“— Market Risk Management,” “— Credit Risk
commitments, principally for office space, expire on
Management,” “— Operational Risk Management” and
various dates through 2069. Certain agreements are
“Certain Risk Factors That May Affect Our
subject to periodic escalation provisions for increases in
Businesses” below.
real estate taxes and other charges. See Note 18 to the
consolidated financial statements for further information
about our leases.
Our occupancy expenses include costs associated with
office space held in excess of our current requirements. This
excess space, the cost of which is charged to earnings as
incurred, is being held for potential growth or to replace
currently occupied space that we may exit in the future. We
regularly evaluate our current and future space capacity in
relation to current and projected staffing levels. For 2013,
total occupancy expenses for space held in excess of our
current requirements were not material. In addition, for
2013, we incurred exit costs of $19 million related to our
office space. We may incur exit costs in the future to the
extent we (i) reduce our space capacity or (ii) commit to, or
occupy, new properties in the locations in which we operate
and, consequently, dispose of existing space that had been
held for potential growth. These exit costs may be material
to our results of operations in a given period.

Goldman Sachs 2013 Annual Report 77


Management’s Discussion and Analysis

Overview and Structure of Risk


Management
Overview
We believe that effective risk management is of primary We maintain strong communication about risk and we have
importance to the success of the firm. Accordingly, we have a culture of collaboration in decision-making among the
comprehensive risk management processes through which revenue-producing units, independent control and support
we monitor, evaluate and manage the risks we assume in functions, committees and senior management. While we
conducting our activities. These include market, credit, believe that the first line of defense in managing risk rests
liquidity, operational, legal, regulatory and reputational with the managers in our revenue-producing units, we
risk exposures. Our risk management framework is built dedicate extensive resources to independent control and
around three core components: governance, processes support functions in order to ensure a strong oversight
and people. structure and an appropriate segregation of duties. We
regularly reinforce the firm’s strong culture of escalation
Governance. Risk management governance starts with
and accountability across all divisions and functions.
our Board, which plays an important role in reviewing and
approving risk management policies and practices, both Processes. We maintain various processes and procedures
directly and through its committees, including its Risk that are critical components of our risk management. First
Committee. The Board also receives regular briefings on and foremost is our daily discipline of marking
firmwide risks, including market risk, liquidity risk, credit substantially all of the firm’s inventory to current market
risk and operational risk from our independent control and levels. Goldman Sachs carries its inventory at fair value,
support functions, including the chief risk officer, and on with changes in valuation reflected immediately in our risk
matters impacting our reputation from the chair of our management systems and in net revenues. We do so because
Firmwide Client and Business Standards Committee. The we believe this discipline is one of the most effective tools
chief risk officer, as part of the review of the firmwide risk for assessing and managing risk and that it provides
portfolio, regularly advises the Risk Committee of the transparent and realistic insight into our
Board of relevant risk metrics and material exposures. financial exposures.
Next, at the most senior levels of the firm, our leaders are
We also apply a rigorous framework of limits to control
experienced risk managers, with a sophisticated and
risk across multiple transactions, products, businesses and
detailed understanding of the risks we take. Our senior
markets. This includes setting credit and market risk limits
managers lead and participate in risk-oriented committees,
at a variety of levels and monitoring these limits on a daily
as do the leaders of our independent control and support
basis. Limits are typically set at levels that will be
functions — including those in Compliance, Controllers,
periodically exceeded, rather than at levels which reflect
our Credit Risk Management department (Credit Risk
our maximum risk appetite. This fosters an ongoing
Management), Human Capital Management, Legal, our
dialogue on risk among revenue-producing units,
Market Risk Management department (Market Risk
independent control and support functions, committees and
Management), Operations, our Operational Risk
senior management, as well as rapid escalation of risk-
Management department (Operational Risk Management),
related matters. See “Market Risk Management” and
Tax, Technology and Treasury.
“Credit Risk Management” for further information on our
The firm’s governance structure provides the protocol and risk limits.
responsibility for decision-making on risk management
Active management of our positions is another important
issues and ensures implementation of those decisions. We
process. Proactive mitigation of our market and credit
make extensive use of risk-related committees that meet
exposures minimizes the risk that we will be required to
regularly and serve as an important means to facilitate and
take outsized actions during periods of stress.
foster ongoing discussions to identify, manage and
mitigate risks.

78 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

We also focus on the rigor and effectiveness of the firm’s Structure


risk systems. The goal of our risk management technology Ultimate oversight of risk is the responsibility of the firm’s
is to get the right information to the right people at the right Board. The Board oversees risk both directly and through
time, which requires systems that are comprehensive, its committees, including its Risk Committee. The Risk
reliable and timely. We devote significant time and Committee consists of all of our independent directors.
resources to our risk management technology to ensure that Within the firm, a series of committees with specific risk
it consistently provides us with complete, accurate and management mandates have oversight or decision-making
timely information. responsibilities for risk management activities. Committee
membership generally consists of senior managers from
People. Even the best technology serves only as a tool for
both our revenue-producing units and our independent
helping to make informed decisions in real time about the
control and support functions. We have established
risks we are taking. Ultimately, effective risk management
procedures for these committees to ensure that appropriate
requires our people to interpret our risk data on an ongoing
information barriers are in place. Our primary risk
and timely basis and adjust risk positions accordingly. In
committees, most of which also have additional sub-
both our revenue-producing units and our independent
committees or working groups, are described below. In
control and support functions, the experience of our
addition to these committees, we have other risk-oriented
professionals, and their understanding of the nuances and
committees which provide oversight for different
limitations of each risk measure, guide the firm in assessing
businesses, activities, products, regions and legal entities.
exposures and maintaining them within prudent levels.
All of our firmwide, regional and divisional committees
We reinforce a culture of effective risk management in our have responsibility for considering the impact of
training and development programs as well as the way we transactions and activities which they oversee on
evaluate performance, and recognize and reward our our reputation.
people. Our training and development programs, including
Membership of the firm’s risk committees is reviewed
certain sessions led by the most senior leaders of the firm,
regularly and updated to reflect changes in the
are focused on the importance of risk management, client
responsibilities of the committee members. Accordingly, the
relationships and reputational excellence. As part of our
length of time that members serve on the respective
annual performance review process, we assess reputational
committees varies as determined by the committee chairs
excellence including how an employee exercises good risk
and based on the responsibilities of the members within
management and reputational judgment, and adheres to
the firm.
our code of conduct and compliance policies. Our review
and reward processes are designed to communicate and In addition, independent control and support functions,
reinforce to our professionals the link between behavior which report to the chief financial officer, the general
and how people are recognized, the need to focus on our counsel and the chief administrative officer, are responsible
clients and our reputation, and the need to always act in for day-to-day oversight or monitoring of risk, as discussed
accordance with the highest standards of the firm. in greater detail in the following sections. Internal Audit,
which reports to the Audit Committee of the Board and
includes professionals with a broad range of audit and
industry experience, including risk management expertise,
is responsible for independently assessing and validating
key controls within the risk management framework.

Goldman Sachs 2013 Annual Report 79


Management’s Discussion and Analysis

The chart below presents an overview of our risk oversight of our Board, our key risk-related committees and
management governance structure, highlighting the the independence of our control and support functions.

Corporate Oversight
Board of Directors
Board Committees

Senior Management Oversight


Chief Executive Officer

President/Chief Operating Officer


Chief Financial Officer

Committee Oversight Chief Risk Officer Chief Administrative Officer

Management Committee

Firmwide Client and Business Firmwide


Standards Committee Risk Committee

Securities Division Risk Committee Investment Management Division


Firmwide New Activity Committee Risk Committee
Credit Policy Committee
Firmwide Suitability Committee Firmwide Operational Risk Committee
Firmwide Finance Committee

Firmwide Commitments Committee


Firmwide Capital Committee

Revenue-Producing Units Independent Control and Support Functions

Credit Risk Management Operational Risk Management


Business Managers
Market Risk Management
Business Risk Managers
Internal Audit Operations Technology

Controllers Tax Treasury


Human Capital Management

Compliance Legal

Management Committee. The Management Committee Firmwide Client and Business Standards Committee.
oversees the global activities of the firm, including all of the The Firmwide Client and Business Standards Committee
firm’s independent control and support functions. It assesses and makes determinations regarding business
provides this oversight directly and through authority standards and practices, reputational risk management,
delegated to committees it has established. This committee client relationships and client service, is chaired by the
is comprised of the most senior leaders of the firm, and is firm’s president and chief operating officer, and reports to
chaired by the firm’s chief executive officer. The the Management Committee. This committee also has
Management Committee has established various responsibility for overseeing recommendations of the
committees with delegated authority and the chairperson of Business Standards Committee. This committee
the Management Committee appoints the chairpersons of periodically updates and receives guidance from the Public
these committees. Most members of the Management Responsibilities Subcommittee of the Corporate
Committee are also members of other firmwide, divisional Governance, Nominating and Public Responsibilities
and regional committees. The following are the committees Committee of the Board. This committee has established
that are principally involved in firmwide risk management. the following two risk-related committees that report to it:

80 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

‰ Firmwide New Activity Committee. The Firmwide ‰ Securities Division Risk Committee. The Securities
New Activity Committee is responsible for reviewing new Division Risk Committee sets market risk limits, subject
activities and for establishing a process to identify and to overall firmwide risk limits, for the Securities Division
review previously approved activities that are significant based on a number of risk measures, including but not
and that have changed in complexity and/or structure or limited to VaR, stress tests, scenario analyses and balance
present different reputational and suitability concerns sheet levels. This committee is chaired by the chief risk
over time to consider whether these activities remain officer of our Securities Division.
appropriate. This committee is co-chaired by the firm’s
‰ Credit Policy Committee. The Credit Policy Committee
head of operations/chief operating officer for Europe,
establishes and reviews broad firmwide credit policies
Middle East and Africa and the chief administrative
and parameters that are implemented by Credit Risk
officer of our Investment Management Division, who are
Management. This committee is chaired by the firm’s
appointed by the Firmwide Client and Business Standards
chief credit officer.
Committee chairperson.
‰ Firmwide Operational Risk Committee. The Firmwide
‰ Firmwide Suitability Committee. The Firmwide
Operational Risk Committee provides oversight of the
Suitability Committee is responsible for setting standards
ongoing development and implementation of our
and policies for product, transaction and client suitability
operational risk policies, framework and methodologies,
and providing a forum for consistency across divisions,
and monitors the effectiveness of operational risk
regions and products on suitability assessments. This
management. This committee is co-chaired by a managing
committee also reviews suitability matters escalated from
director in Credit Risk Management and a managing
other firm committees. This committee is co-chaired by
director in Operational Risk Management.
the deputy head of our Global Compliance Division and
the co-head of our Investment Management Division, ‰ Firmwide Finance Committee. The Firmwide Finance
who are appointed by the Firmwide Client and Business Committee has oversight responsibility for liquidity risk,
Standards Committee chairperson. the size and composition of our balance sheet and capital
base, and credit ratings. This committee regularly reviews
Firmwide Risk Committee. The Firmwide Risk
our liquidity, balance sheet, funding position and
Committee is globally responsible for the ongoing
capitalization, approves related policies, and makes
monitoring and management of the firm’s financial risks.
recommendations as to any adjustments to be made in
Through both direct and delegated authority, the Firmwide
light of current events, risks, exposures and regulatory
Risk Committee approves firmwide, product, divisional
requirements. As a part of such oversight, among other
and business-level limits for both market and credit risks,
things, this committee reviews and approves balance
approves sovereign credit risk limits and reviews results of
sheet limits and the size of our GCE. This committee is co-
stress tests and scenario analyses. This committee is co-
chaired by the firm’s chief financial officer and the firm’s
chaired by the firm’s chief financial officer and a senior
global treasurer.
managing director from the firm’s executive office, and
reports to the Management Committee. The following four
committees report to the Firmwide Risk Committee. The
chairperson of the Securities Division Risk Committee is
appointed by the chairpersons of the Firmwide Risk
Committee; the chairpersons of the Credit Policy and
Firmwide Operational Risk Committees are appointed by
the firm’s chief risk officer; and the chairpersons of the
Firmwide Finance Committee are appointed by the
Firmwide Risk Committee.

Goldman Sachs 2013 Annual Report 81


Management’s Discussion and Analysis

The following committees report jointly to the Firmwide Conflicts Management


Risk Committee and the Firmwide Client and Business Conflicts of interest and the firm’s approach to dealing with
Standards Committee: them are fundamental to our client relationships, our
reputation and our long-term success. The term “conflict of
‰ Firmwide Commitments Committee. The Firmwide
interest” does not have a universally accepted meaning, and
Commitments Committee reviews the firm’s underwriting
conflicts can arise in many forms within a business or
and distribution activities with respect to equity and
between businesses. The responsibility for identifying
equity-related product offerings, and sets and maintains
potential conflicts, as well as complying with the firm’s
policies and procedures designed to ensure that legal,
policies and procedures, is shared by the entire firm.
reputational, regulatory and business standards are
maintained on a global basis. In addition to reviewing We have a multilayered approach to resolving conflicts and
specific transactions, this committee periodically conducts addressing reputational risk. The firm’s senior management
general strategic reviews of sectors and products and oversees policies related to conflicts resolution. The firm’s
establishes policies in connection with transaction senior management, the Business Selection and Conflicts
practices. This committee is co-chaired by the firm’s senior Resolution Group, the Legal Department and Compliance
strategy officer and the co-head of Global Mergers & Division, the Firmwide Client and Business Standards
Acquisitions, who are appointed by the Firmwide Client Committee and other internal committees all play roles in
and Business Standards Committee chairperson. the formulation of policies, standards and principles and
assist in making judgments regarding the appropriate
‰ Firmwide Capital Committee. The Firmwide Capital
resolution of particular conflicts. Resolving potential
Committee provides approval and oversight of debt-
conflicts necessarily depends on the facts and circumstances
related transactions, including principal commitments of
of a particular situation and the application of experienced
the firm’s capital. This committee aims to ensure that
and informed judgment.
business and reputational standards for underwritings
and capital commitments are maintained on a global At the transaction level, various people and groups have
basis. This committee is co-chaired by the firm’s global roles. As a general matter, the Business Selection and
treasurer and the head of credit finance for Europe, Conflicts Resolution Group reviews all financing and
Middle East and Africa who are appointed by the advisory assignments in Investment Banking and certain
Firmwide Risk Committee chairpersons. investing, lending and other activities of the firm. Various
transaction oversight committees, such as the Firmwide
Investment Management Division Risk Committee.
Capital, Commitments and Suitability Committees and
The Investment Management Division Risk Committee is
other committees across the firm, also review new
responsible for the ongoing monitoring and control of
underwritings, loans, investments and structured products.
global market, counterparty credit and liquidity risks
These committees work with internal and external lawyers
associated with the activities of our investment
and the Compliance Division to evaluate and address any
management businesses. The head of Investment
actual or potential conflicts.
Management Division risk management is the chair of this
committee. The Investment Management Division Risk We regularly assess our policies and procedures that
Committee reports to the firm’s chief risk officer. address conflicts of interest in an effort to conduct our
business in accordance with the highest ethical standards
and in compliance with all applicable laws, rules,
and regulations.

82 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

Liquidity Risk Management


Liquidity is of critical importance to financial institutions. As of December 2013 and December 2012, the fair value of
Most of the failures of financial institutions have occurred the securities and certain overnight cash deposits included
in large part due to insufficient liquidity. Accordingly, the in our GCE totaled $184.07 billion and $174.62 billion,
firm has in place a comprehensive and conservative set of respectively. Based on the results of our internal liquidity
liquidity and funding policies to address both firm-specific risk model, discussed below, as well as our consideration of
and broader industry or market liquidity events. Our other factors including, but not limited to, an assessment of
principal objective is to be able to fund the firm and to our potential intraday liquidity needs and a qualitative
enable our core businesses to continue to serve clients and assessment of the condition of the financial markets and the
generate revenues, even under adverse circumstances. firm, we believe our liquidity position as of both
December 2013 and December 2012 was appropriate.
We manage liquidity risk according to the following
principles: The table below presents the fair value of the securities and
certain overnight cash deposits that are included in
Excess Liquidity. We maintain substantial excess liquidity
our GCE.
to meet a broad range of potential cash outflows and
collateral needs in a stressed environment.
Average for the
Asset-Liability Management. We assess anticipated Year Ended December

holding periods for our assets and their expected liquidity in in millions 2013 2012

a stressed environment. We manage the maturities and U.S. dollar-denominated $136,824 $125,111
diversity of our funding across markets, products and Non-U.S. dollar-denominated 45,826 46,984
Total $182,650 $172,095
counterparties, and seek to maintain liabilities of
appropriate tenor relative to our asset base.
The U.S. dollar-denominated excess is composed of
Contingency Funding Plan. We maintain a contingency (i) unencumbered U.S. government and federal agency
funding plan to provide a framework for analyzing and obligations (including highly liquid U.S. federal agency
responding to a liquidity crisis situation or periods of mortgage-backed obligations), all of which are eligible as
market stress. This framework sets forth the plan of action collateral in Federal Reserve open market operations and
to fund normal business activity in emergency and stress (ii) certain overnight U.S. dollar cash deposits. The non-
situations. These principles are discussed in more U.S. dollar-denominated excess is composed of only
detail below. unencumbered German, French, Japanese and United
Kingdom government obligations and certain overnight
Excess Liquidity
cash deposits in highly liquid currencies. We strictly limit
Our most important liquidity policy is to pre-fund our
our excess liquidity to this narrowly defined list of securities
estimated potential cash and collateral needs during a
and cash because they are highly liquid, even in a difficult
liquidity crisis and hold this excess liquidity in the form of
funding environment. We do not include other potential
unencumbered, highly liquid securities and cash. We believe
sources of excess liquidity, such as less liquid
that the securities held in our global core excess would be
unencumbered securities or committed credit facilities, in
readily convertible to cash in a matter of days, through
our GCE.
liquidation, by entering into repurchase agreements or from
maturities of resale agreements, and that this cash would
allow us to meet immediate obligations without needing to
sell other assets or depend on additional funding from
credit-sensitive markets.

Goldman Sachs 2013 Annual Report 83


Management’s Discussion and Analysis

The table below presents the fair value of our GCE by We believe that our GCE provides us with a resilient source
asset class. of funds that would be available in advance of potential cash
and collateral outflows and gives us significant flexibility in
Average for the managing through a difficult funding environment.
Year Ended December
in millions 2013 2012
In order to determine the appropriate size of our GCE, we
Overnight cash deposits $ 61,265 $ 52,233 use an internal liquidity model, referred to as the Modeled
U.S. government obligations 76,019 72,379 Liquidity Outflow, which captures and quantifies the firm’s
U.S. federal agency obligations, liquidity risks. We also consider other factors including, but
including highly liquid not limited to, an assessment of our potential intraday
U.S. federal agency liquidity needs and a qualitative assessment of the condition
mortgage-backed obligations 2,551 2,313
of the financial markets and the firm.
German, French, Japanese
and United Kingdom We distribute our GCE across entities, asset types, and
government obligations 42,815 45,170
clearing agents to provide us with sufficient operating
Total $182,650 $172,095
liquidity to ensure timely settlement in all major markets,
Our GCE is held by Group Inc. and our major broker- even in a difficult funding environment.
dealer and bank subsidiaries, as presented in the We maintain our GCE to enable us to meet current and
table below. potential liquidity requirements of our parent company,
Group Inc., and its subsidiaries. The Modeled Liquidity
Average for the Outflow incorporates a consolidated requirement for the
Year Ended December
firm as well as a standalone requirement for each of our
in millions 2013 2012
major broker-dealer and bank subsidiaries. Liquidity held
Group Inc. $ 29,752 $ 37,405
directly in each of these major subsidiaries is intended for
Major broker-dealer subsidiaries 93,103 78,229
use only by that subsidiary to meet its liquidity
Major bank subsidiaries 59,795 56,461
Total $182,650 $172,095
requirements and is assumed not to be available to Group
Inc. unless (i) legally provided for and (ii) there are no
Our GCE reflects the following principles: additional regulatory, tax or other restrictions. In addition,
the Modeled Liquidity Outflow incorporates a broader
‰ The first days or weeks of a liquidity crisis are the most assessment of standalone liquidity requirements for other
critical to a company’s survival. subsidiaries and we hold a portion of our GCE directly at
‰ Focus must be maintained on all potential cash and Group Inc. to support such requirements. In addition to the
collateral outflows, not just disruptions to financing GCE, we maintain operating cash balances in several of our
flows. Our businesses are diverse, and our liquidity needs other operating entities, primarily for use in specific
are determined by many factors, including market currencies, entities, or jurisdictions where we do not have
movements, collateral requirements and client immediate access to parent company liquidity.
commitments, all of which can change dramatically in a In addition to our GCE, we have a significant amount of
difficult funding environment. other unencumbered cash and financial instruments,
‰ During a liquidity crisis, credit-sensitive funding, including other government obligations, high-grade money
including unsecured debt and some types of secured market securities, corporate obligations, marginable
financing agreements, may be unavailable, and the terms equities, loans and cash deposits not included in our GCE.
(e.g., interest rates, collateral provisions and tenor) or The fair value of these assets averaged $90.77 billion for
availability of other types of secured financing 2013 and $87.09 billion for 2012. We do not consider these
may change. assets liquid enough to be eligible for our GCE liquidity
pool and therefore conservatively do not assume we will
‰ As a result of our policy to pre-fund liquidity that we generate liquidity from these assets in our Modeled
estimate may be needed in a crisis, we hold more Liquidity Outflow.
unencumbered securities and have larger debt balances
than our businesses would otherwise require. We believe
that our liquidity is stronger with greater balances of
highly liquid unencumbered securities, even though it
increases our total assets and our funding costs.

84 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

Modeled Liquidity Outflow. Our Modeled Liquidity Unsecured Funding


Outflow is based on conducting multiple scenarios that ‰ Contractual: All upcoming maturities of unsecured long-
include combinations of market-wide and firm-specific term debt, commercial paper, promissory notes and other
stress. These scenarios are characterized by the following unsecured funding products. We assume that we will be
qualitative elements: unable to issue new unsecured debt or roll over any
maturing debt.
‰ Severely challenged market environments, including low
consumer and corporate confidence, financial and ‰ Contingent: Repurchases of our outstanding long-term
political instability, adverse changes in market values, debt, commercial paper and hybrid financial instruments
including potential declines in equity markets and in the ordinary course of business as a market maker.
widening of credit spreads.
Deposits
‰ A firm-specific crisis potentially triggered by material ‰ Contractual: All upcoming maturities of term deposits.
losses, reputational damage, litigation, executive We assume that we will be unable to raise new term
departure, and/or a ratings downgrade. deposits or rollover any maturing term deposits.
The following are the critical modeling parameters of the ‰ Contingent: Withdrawals of bank deposits that have no
Modeled Liquidity Outflow: contractual maturity. The withdrawal assumptions
reflect, among other factors, the type of deposit, whether
‰ Liquidity needs over a 30-day scenario.
the deposit is insured or uninsured, and the firm’s
‰ A two-notch downgrade of the firm’s long-term senior relationship with the depositor.
unsecured credit ratings.
Secured Funding
‰ A combination of contractual outflows, such as ‰ Contractual: A portion of upcoming contractual
upcoming maturities of unsecured debt, and contingent maturities of secured funding due to either the inability to
outflows (e.g., actions though not contractually required, refinance or the ability to refinance only at wider haircuts
we may deem necessary in a crisis). We assume that most (i.e., on terms which require us to post additional
contingent outflows will occur within the initial days and collateral). Our assumptions reflect, among other factors,
weeks of a crisis. the quality of the underlying collateral, counterparty roll
probabilities (our assessment of the counterparty’s
‰ No issuance of equity or unsecured debt.
likelihood of continuing to provide funding on a secured
‰ No support from government funding facilities. Although basis at the maturity of the trade) and
we have access to various central bank funding programs, counterparty concentration.
we do not assume reliance on them as a source of funding
‰ Contingent: Adverse changes in value of financial assets
in a liquidity crisis.
pledged as collateral for financing transactions, which
‰ We do not assume asset liquidation, other than the GCE. would necessitate additional collateral postings under
those transactions.
The Modeled Liquidity Outflow is calculated and reported
to senior management on a daily basis. We regularly refine OTC Derivatives
our model to reflect changes in market or economic ‰ Contingent: Collateral postings to counterparties due to
conditions and the firm’s business mix. adverse changes in the value of our OTC derivatives,
excluding those that are cleared and settled through
The potential contractual and contingent cash and
central counterparties (OTC-cleared).
collateral outflows covered in our Modeled Liquidity
Outflow include: ‰ Contingent: Other outflows of cash or collateral related
to OTC derivatives, excluding OTC-cleared, including
the impact of trade terminations, collateral substitutions,
collateral disputes, loss of rehypothecation rights,
collateral calls or termination payments required by a
two-notch downgrade in our credit ratings, and collateral
that has not been called by counterparties, but is available
to them.

Goldman Sachs 2013 Annual Report 85


Management’s Discussion and Analysis

Exchange-Traded and OTC-cleared Derivatives ‰ Raising secured and unsecured financing that has a long
‰ Contingent: Variation margin postings required due to tenor relative to the liquidity profile of our assets. This
adverse changes in the value of our outstanding reduces the risk that our liabilities will come due in
exchange-traded and OTC-cleared derivatives. advance of our ability to generate liquidity from the sale
of our assets. Because we maintain a highly liquid balance
‰ Contingent: An increase in initial margin and guaranty
sheet, the holding period of certain of our assets may be
fund requirements by derivative clearing houses.
materially shorter than their contractual maturity dates.
Customer Cash and Securities
Our goal is to ensure that the firm maintains sufficient
‰ Contingent: Liquidity outflows associated with our prime
liquidity to fund its assets and meet its contractual and
brokerage business, including withdrawals of customer
contingent obligations in normal times as well as during
credit balances, and a reduction in customer short
periods of market stress. Through our dynamic balance
positions, which serve as a funding source for
sheet management process (see “Balance Sheet and Funding
long positions.
Sources — Balance Sheet Management”), we use actual and
Unfunded Commitments projected asset balances to determine secured and
‰ Contingent: Draws on our unfunded commitments. Draw unsecured funding requirements. Funding plans are
assumptions reflect, among other things, the type of reviewed and approved by the Firmwide Finance
commitment and counterparty. Committee on a quarterly basis. In addition, senior
managers in our independent control and support functions
Other
regularly analyze, and the Firmwide Finance Committee
‰ Other upcoming large cash outflows, such as
reviews, our consolidated total capital position (unsecured
tax payments.
long-term borrowings plus total shareholders’ equity) so
Asset-Liability Management that we maintain a level of long-term funding that is
Our liquidity risk management policies are designed to sufficient to meet our long-term financing requirements. In
ensure we have a sufficient amount of financing, even when a liquidity crisis, we would first use our GCE in order to
funding markets experience persistent stress. We seek to avoid reliance on asset sales (other than our GCE).
maintain a long-dated and diversified funding profile, However, we recognize that orderly asset sales may be
taking into consideration the characteristics and liquidity prudent or necessary in a severe or persistent liquidity crisis.
profile of our assets.
Subsidiary Funding Policies. The majority of our
Our approach to asset-liability management includes: unsecured funding is raised by Group Inc. which lends the
necessary funds to its subsidiaries, some of which are
‰ Conservatively managing the overall characteristics of
regulated, to meet their asset financing, liquidity and capital
our funding book, with a focus on maintaining long-term,
requirements. In addition, Group Inc. provides its regulated
diversified sources of funding in excess of our current
subsidiaries with the necessary capital to meet their
requirements. See “Balance Sheet and Funding Sources —
regulatory requirements. The key benefit of this approach
Funding Sources” for additional details.
to subsidiary funding is greater flexibility to meet the
‰ Actively managing and monitoring our asset base, with funding requirements of various subsidiaries over time.
particular focus on the liquidity, holding period and our Funding is also raised at the subsidiary level through a
ability to fund assets on a secured basis. This enables us to variety of products, including secured funding, unsecured
determine the most appropriate funding products and borrowings and deposits.
tenors. See “Balance Sheet and Funding Sources —
Balance Sheet Management” for more detail on our
balance sheet management process and “— Funding
Sources — Secured Funding” for more detail on asset
classes that may be harder to fund on a secured basis.

86 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

Our intercompany funding policies assume that, unless The contingency funding plan identifies key groups of
legally provided for, a subsidiary’s funds or securities are individuals to foster effective coordination, control and
not freely available to its parent company or other distribution of information, all of which are critical in the
subsidiaries. In particular, many of our subsidiaries are management of a crisis or period of market stress. The
subject to laws that authorize regulatory bodies to block or contingency funding plan also details the responsibilities
reduce the flow of funds from those subsidiaries to Group of these groups and individuals, which include making
Inc. Regulatory action of that kind could impede access to and disseminating key decisions, coordinating all
funds that Group Inc. needs to make payments on its contingency activities throughout the duration of the crisis
obligations. Accordingly, we assume that the capital or period of market stress, implementing liquidity
provided to our regulated subsidiaries is not available to maintenance activities and managing internal and
Group Inc. or other subsidiaries and any other financing external communication.
provided to our regulated subsidiaries is not available until
Proposed Liquidity Framework
the maturity of such financing.
The Basel Committee on Banking Supervision’s
Group Inc. has provided substantial amounts of equity and international framework for liquidity risk measurement,
subordinated indebtedness, directly or indirectly, to its standards and monitoring calls for imposition of a liquidity
regulated subsidiaries. For example, as of December 2013, coverage ratio, designed to ensure that banks and bank
Group Inc. had $31.40 billion of equity and subordinated holding companies maintain an adequate level of
indebtedness invested in GS&Co., its principal U.S. unencumbered high-quality liquid assets based on expected
registered broker-dealer; $26.40 billion invested in GSI, a cash outflows under an acute liquidity stress scenario, and a
regulated U.K. broker-dealer; $2.26 billion invested in net stable funding ratio, designed to promote more
GSEC, a U.S. registered broker-dealer; $2.82 billion medium- and long-term funding of the assets and activities
invested in GSJCL, a regulated Japanese broker-dealer; of these entities over a one-year time horizon. Under the
$20.04 billion invested in GS Bank USA, a regulated New Basel Committee framework, the liquidity coverage ratio
York State-chartered bank; and $3.50 billion invested in would be introduced on January 1, 2015; however, there
GSIB, a regulated U.K. bank. Group Inc. also provided, would be a phase-in period whereby firms would have a
directly or indirectly, $75.77 billion of unsubordinated 60% minimum in 2015 which would be raised 10% per
loans and $9.93 billion of collateral to these entities, year until it reaches 100% in 2019. The net stable funding
substantially all of which was to GS&Co., GSI and GS ratio is not expected to be introduced as a requirement until
Bank USA, as of December 2013. In addition, as of January 1, 2018.
December 2013, Group Inc. had significant amounts of
In addition, the Office of the Comptroller of the Currency,
capital invested in and loans to its other
the Federal Reserve Board and the FDIC have issued a
regulated subsidiaries.
proposal on minimum liquidity standards that is generally
Contingency Funding Plan consistent with the Basel Committee’s framework as
The Goldman Sachs contingency funding plan sets out the described above, but, with certain modifications to the
plan of action we would use to fund business activity in high-quality liquid asset definition and expected cash
crisis situations and periods of market stress. The outflow assumptions, and accelerated transition provisions.
contingency funding plan outlines a list of potential risk In addition, under the proposed accelerated transition
factors, key reports and metrics that are reviewed on an timeline, the liquidity coverage ratio would be introduced
ongoing basis to assist in assessing the severity of, and on January 1, 2015; however, there would be an
managing through, a liquidity crisis and/or market accelerated U.S. phase-in period whereby firms would have
dislocation. The contingency funding plan also describes in an 80% minimum in 2015 which would be raised 10% per
detail the firm’s potential responses if our assessments year until it reaches 100% in 2017.
indicate that the firm has entered a liquidity crisis, which
The firm will continue to evaluate the impact to our risk
include funding our potential cash and collateral needs as
management framework going forward. While the
well as utilizing secondary sources of liquidity. Mitigants
principles behind the new frameworks proposed by the
and action items to address specific risks which may arise
Basel Committee and the Agencies are broadly consistent
are also described and assigned to individuals responsible
with our current liquidity management framework, it is
for execution.
possible that the implementation of these standards could
impact our liquidity and funding requirements
and practices.

Goldman Sachs 2013 Annual Report 87


Management’s Discussion and Analysis

Credit Ratings
We rely on the short-term and long-term debt capital During the fourth quarter of 2013, as part of a reassessment
markets to fund a significant portion of our day-to-day of its government support assumptions related to the eight
operations and the cost and availability of debt financing is largest U.S. bank holding companies, Moody’s Investors
influenced by our credit ratings. Credit ratings are also Service (Moody’s) lowered Group Inc.’s ratings on long-
important when we are competing in certain markets, such term debt (from A3 to Baa1) and subordinated debt (from
as OTC derivatives, and when we seek to engage in longer- Baa1 to Baa2). The table below presents the unsecured
term transactions. See “Certain Risk Factors That credit ratings and outlook of Group Inc.
May Affect Our Businesses” below and “Risk Factors” in
Part I, Item 1A of the 2013 Form 10-K for a discussion of
the risks associated with a reduction in our credit ratings.

As of December 2013
Short-Term Long-Term Subordinated Trust Preferred Ratings
Debt Debt Debt Preferred 1 Stock Outlook
DBRS, Inc. R-1 (middle) A (high) A A BBB 3 Stable
Fitch, Inc. F1 A2 A- BBB- BB+ 3 Stable
Moody’s P-2 Baa1 2 Baa2 Baa3 Ba2 3 Stable
Standard & Poor’s Ratings Services (S&P) A-2 A- 2 BBB+ BB+ BB+ 3 Negative
Rating and Investment Information, Inc. a-1 A+ A N/A N/A Negative

1. Trust preferred securities issued by Goldman Sachs Capital I.


2. Includes the senior guaranteed trust securities issued by Murray Street Investment Trust I and Vesey Street Investment Trust I.
3. Includes Group Inc.’s non-cumulative preferred stock and the APEX issued by Goldman Sachs Capital II and Goldman Sachs Capital III.

The table below presents the unsecured credit ratings of GS and long-term bank deposits and P-1 for short-term debt
Bank USA, GS&Co., GSI and GSIB. On February 21, 2014, and short-term bank deposits.
Moody’s assigned GSIB a rating of A2 for long-term debt

As of December 2013
Short-Term Long-Term Short-Term Long-Term
Debt Debt Bank Deposits Bank Deposits
Fitch, Inc.
GS Bank USA F1 A F1 A+
GS&Co. F1 A N/A N/A
GSI F1 A N/A N/A
GSIB F1 A N/A N/A
Moody’s
GS Bank USA P-1 A2 P-1 A2
GSI P-1 A2 N/A N/A
S&P
GS Bank USA A-1 A N/A N/A
GS&Co. A-1 A N/A N/A
GSI A-1 A N/A N/A
GSIB A-1 A N/A N/A

88 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

We believe our credit ratings are primarily based on the Cash Flows
credit rating agencies’ assessment of: As a global financial institution, our cash flows are complex
and bear little relation to our net earnings and net assets.
‰ our liquidity, market, credit and operational risk
Consequently, we believe that traditional cash flow analysis
management practices;
is less meaningful in evaluating our liquidity position than
‰ the level and variability of our earnings; the excess liquidity and asset-liability management policies
described above. Cash flow analysis may, however, be
‰ our capital base;
helpful in highlighting certain macro trends and strategic
‰ our franchise, reputation and management; initiatives in our businesses.
‰ our corporate governance; and Year Ended December 2013. Our cash and cash
equivalents decreased by $11.54 billion to $61.13 billion at
‰ the external operating environment, including the
the end of 2013. We generated $4.54 billion in net cash
assumed level of government support.
from operating activities. We used net cash of
Certain of the firm’s derivatives have been transacted under $16.08 billion for investing and financing activities,
bilateral agreements with counterparties who may require primarily to fund loans held for investment and repurchases
us to post collateral or terminate the transactions based on of common stock.
changes in our credit ratings. We assess the impact of these
Year Ended December 2012. Our cash and cash
bilateral agreements by determining the collateral or
equivalents increased by $16.66 billion to $72.67 billion at
termination payments that would occur assuming a
the end of 2012. We generated $9.14 billion in net cash
downgrade by all rating agencies. A downgrade by any one
from operating and investing activities. We generated
rating agency, depending on the agency’s relative ratings of
$7.52 billion in net cash from financing activities from an
the firm at the time of the downgrade, may have an impact
increase in bank deposits, partially offset by net repayments
which is comparable to the impact of a downgrade by all
of unsecured and secured long-term borrowings.
rating agencies. We allocate a portion of our GCE to ensure
we would be able to make the additional collateral or Year Ended December 2011. Our cash and cash
termination payments that may be required in the event of a equivalents increased by $16.22 billion to $56.01 billion at
two-notch reduction in our long-term credit ratings, as well the end of 2011. We generated $23.13 billion in net cash
as collateral that has not been called by counterparties, but from operating and investing activities. We used net cash of
is available to them. The table below presents the additional $6.91 billion for financing activities, primarily for
collateral or termination payments related to our net repurchases of our Series G Preferred Stock and common
derivative liabilities under bilateral agreements that could stock, partially offset by an increase in bank deposits.
have been called at the reporting date by counterparties in
the event of a one-notch and two-notch downgrade in our
credit ratings.

As of December
in millions 2013 2012
Additional collateral or termination
payments for a one-notch downgrade $ 911 $1,534
Additional collateral or termination
payments for a two-notch downgrade 2,989 2,500

Goldman Sachs 2013 Annual Report 89


Management’s Discussion and Analysis

Market Risk Management


Overview Market Risk Management, which is independent of the
Market risk is the risk of loss in the value of our inventory, revenue-producing units and reports to the firm’s chief risk
as well as certain other financial assets and financial officer, has primary responsibility for assessing, monitoring
liabilities, due to changes in market conditions. The firm and managing market risk at the firm. We monitor and
employs a variety of risk measures, each described in the control risks through strong firmwide oversight and
respective sections below, to monitor market risk. We hold independent control and support functions across the firm’s
inventory primarily for market making for our clients and global businesses.
for our investing and lending activities. Our inventory
Managers in revenue-producing units are accountable for
therefore changes based on client demands and our
managing risk within prescribed limits. These managers
investment opportunities. Our inventory is accounted for at
have in-depth knowledge of their positions, markets and
fair value and therefore fluctuates on a daily basis, with the
the instruments available to hedge their exposures.
related gains and losses included in “Market making,” and
“Other principal transactions.” Categories of market risk Managers in revenue-producing units and Market Risk
include the following: Management discuss market information, positions and
estimated risk and loss scenarios on an ongoing basis.
‰ Interest rate risk: results from exposures to changes in the
level, slope and curvature of yield curves, the volatilities Risk Measures
of interest rates, mortgage prepayment speeds and Market Risk Management produces risk measures and
credit spreads. monitors them against market risk limits set by our firm’s
risk committees. These measures reflect an extensive range
‰ Equity price risk: results from exposures to changes in
of scenarios and the results are aggregated at trading desk,
prices and volatilities of individual equities, baskets of
business and firmwide levels.
equities and equity indices.
We use a variety of risk measures to estimate the size of
‰ Currency rate risk: results from exposures to changes in
potential losses for both moderate and more extreme
spot prices, forward prices and volatilities of
market moves over both short-term and long-term time
currency rates.
horizons. Our primary risk measures are VaR, which is
‰ Commodity price risk: results from exposures to changes used for shorter-term periods, and stress tests. Our risk
in spot prices, forward prices and volatilities of reports detail key risks, drivers and changes for each desk
commodities, such as crude oil, petroleum products, and business, and are distributed daily to senior
natural gas, electricity, and precious and base metals. management of both our revenue-producing units and our
independent control and support functions.
Market Risk Management Process
We manage our market risk by diversifying exposures, Value-at-Risk
controlling position sizes and establishing economic hedges VaR is the potential loss in value due to adverse market
in related securities or derivatives. This includes: movements over a defined time horizon with a specified
confidence level. For positions included in VaR, see
‰ accurate and timely exposure information incorporating
“— Financial Statement Linkages to Market Risk
multiple risk metrics;
Measures.” We typically employ a one-day time horizon
‰ a dynamic limit setting framework; and with a 95% confidence level. We use a single VaR model
which captures risks including interest rates, equity prices,
‰ constant communication among revenue-producing
currency rates and commodity prices. As such, VaR
units, risk managers and senior management.
facilitates comparison across portfolios of different risk
characteristics. VaR also captures the diversification of
aggregated risk at the firmwide level.

90 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

We are aware of the inherent limitations to VaR and Stress Testing


therefore use a variety of risk measures in our market risk Stress testing is a method of determining the effect on the
management process. Inherent limitations to VaR include: firm of various hypothetical stress scenarios. We use stress
testing to examine risks of specific portfolios as well as the
‰ VaR does not estimate potential losses over longer time
potential impact of significant risk exposures across the
horizons where moves may be extreme.
firm. We use a variety of stress testing techniques to
‰ VaR does not take account of the relative liquidity of calculate the potential loss from a wide range of market
different risk positions. moves on the firm’s portfolios, including sensitivity
analysis, scenario analysis and firmwide stress tests. The
‰ Previous moves in market risk factors may not produce
results of our various stress tests are analyzed together for
accurate predictions of all future market moves.
risk management purposes.
When calculating VaR, we use historical simulations with
Sensitivity analysis is used to quantify the impact of a
full valuation of approximately 70,000 market factors.
market move in a single risk factor across all positions (e.g.,
VaR is calculated at a position level based on
equity prices or credit spreads) using a variety of defined
simultaneously shocking the relevant market risk factors
market shocks, ranging from those that could be expected
for that position. We sample from 5 years of historical data
over a one-day time horizon up to those that could take
to generate the scenarios for our VaR calculation. The
many months to occur. We also use sensitivity analysis to
historical data is weighted so that the relative importance of
quantify the impact of the default of a single corporate
the data reduces over time. This gives greater importance to
entity, which captures the risk of large or
more recent observations and reflects current asset
concentrated exposures.
volatilities, which improves the accuracy of our estimates of
potential loss. As a result, even if our positions included in Scenario analysis is used to quantify the impact of a
VaR were unchanged, our VaR would increase with specified event, including how the event impacts multiple
increasing market volatility and vice versa. risk factors simultaneously. For example, for sovereign
stress testing we calculate potential direct exposure
Given its reliance on historical data, VaR is most effective in
associated with our sovereign inventory as well as the
estimating risk exposures in markets in which there are no
corresponding debt, equity and currency exposures
sudden fundamental changes or shifts in market conditions.
associated with our non-sovereign inventory that may be
Our VaR measure does not include: impacted by the sovereign distress. When conducting
scenario analysis, we typically consider a number of
‰ positions that are best measured and monitored using
possible outcomes for each scenario, ranging from
sensitivity measures; and
moderate to severely adverse market impacts. In addition,
‰ the impact of changes in counterparty and our own credit these stress tests are constructed using both historical events
spreads on derivatives, as well as changes in our own and forward-looking hypothetical scenarios.
credit spreads on unsecured borrowings for which the fair
Firmwide stress testing combines market, credit,
value option was elected.
operational and liquidity risks into a single combined
scenario. Firmwide stress tests are primarily used to assess
capital adequacy as part of our capital planning and stress
testing process; however, we also ensure that firmwide
stress testing is integrated into our risk governance
framework. This includes selecting appropriate scenarios to
use for our capital planning and stress testing process. See
“Equity Capital — Capital Planning and Stress Testing
Process” above for further information.

Goldman Sachs 2013 Annual Report 91


Management’s Discussion and Analysis

Unlike VaR measures, which have an implied probability Our market risk limits are monitored daily by Market Risk
because they are calculated at a specified confidence level, Management, which is responsible for identifying and
there is generally no implied probability that our stress test escalating, on a timely basis, instances where limits have
scenarios will occur. Instead, stress tests are used to model been exceeded. The business-level limits that are set by the
both moderate and more extreme moves in underlying Securities Division Risk Committee are subject to the same
market factors. When estimating potential loss, we scrutiny and limit escalation policy as the firmwide limits.
generally assume that our positions cannot be reduced or
When a risk limit has been exceeded (e.g., due to changes in
hedged (although experience demonstrates that we are
market conditions, such as increased volatilities or changes
generally able to do so).
in correlations), it is reported to the appropriate risk
Stress test scenarios are conducted on a regular basis as part committee and a discussion takes place with the relevant
of the firm’s routine risk management process and on an ad desk managers, after which either the risk position is
hoc basis in response to market events or concerns. Stress reduced or the risk limit is temporarily or
testing is an important part of the firm’s risk management permanently increased.
process because it allows us to quantify our exposure to tail
Model Review and Validation
risks, highlight potential loss concentrations, undertake
Our VaR and stress testing models are subject to review and
risk/reward analysis, and assess and mitigate our
validation by our independent model validation group at
risk positions.
least annually. This review includes:
Limits
‰ a critical evaluation of the model, its theoretical
We use risk limits at various levels in the firm (including
soundness and adequacy for intended use;
firmwide, product and business) to govern risk appetite by
controlling the size of our exposures to market risk. Limits ‰ verification of the testing strategy utilized by the model
are set based on VaR and on a range of stress tests relevant developers to ensure that the model functions as
to the firm’s exposures. Limits are reviewed frequently and intended; and
amended on a permanent or temporary basis to reflect
‰ verification of the suitability of the calculation techniques
changing market conditions, business conditions or
incorporated in the model.
tolerance for risk.
Our VaR and stress testing models are regularly reviewed
The Firmwide Risk Committee sets market risk limits at
and enhanced in order to incorporate changes in the
firmwide and product levels and our Securities Division
composition of positions included in the firm’s market risk
Risk Committee sets sub-limits for market-making and
measures, as well as variations in market conditions. Prior
investing activities at a business level. The purpose of the
to implementing significant changes to our assumptions
firmwide limits is to assist senior management in
and/or models, we perform model validation and test runs.
controlling the firm’s overall risk profile. Sub-limits set the
Significant changes to our VaR and stress testing models are
desired maximum amount of exposure that may be
reviewed with the firm’s chief risk officer and chief financial
managed by any particular business on a day-to-day basis
officer, and approved by the Firmwide Risk Committee.
without additional levels of senior management approval,
effectively leaving day-to-day trading decisions to We evaluate the accuracy of our VaR model through daily
individual desk managers and traders. Accordingly, sub- backtesting (i.e., comparing daily trading net revenues to
limits are a management tool designed to ensure the VaR measure calculated as of the prior business day) at
appropriate escalation rather than to establish maximum the firmwide level and for each of our businesses and major
risk tolerance. Sub-limits also distribute risk among various regulated subsidiaries.
businesses in a manner that is consistent with their level of
activity and client demand, taking into account the relative
performance of each area.

92 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

Systems Our average daily VaR decreased to $80 million in 2013


We have made a significant investment in technology to from $86 million in 2012, primarily reflecting a decrease in
monitor market risk including: the interest rates category principally due to lower levels of
volatility and decreased exposures. This decrease was
‰ an independent calculation of VaR and stress measures;
partially offset by an increase in the equity prices category
‰ risk measures calculated at individual position levels; principally due to increased exposures.
‰ attribution of risk measures to individual risk factors of Our average daily VaR decreased to $86 million in 2012
each position; from $113 million in 2011, reflecting a decrease in the
interest rates category due to lower levels of volatility,
‰ the ability to report many different views of the risk
decreases in the commodity prices and currency rates
measures (e.g., by desk, business, product type or legal
categories due to reduced exposures and lower levels of
entity); and
volatility, and a decrease in the equity prices category due to
‰ the ability to produce ad hoc analyses in a timely manner. reduced exposures. These decreases were partially offset by a
decrease in the diversification benefit across risk categories.
Metrics
We analyze VaR at the firmwide level and a variety of more Year-End VaR and High and Low VaR
detailed levels, including by risk category, business, and
region. The tables below present, by risk category, average Year Ended
in millions As of December December 2013
daily VaR and period-end VaR, as well as the high and low
Risk Categories 2013 2012 High Low
VaR for the period. Diversification effect in the tables
Interest rates $ 59 $ 64 $ 77 $54
below represents the difference between total VaR and the
Equity prices 35 22 90 1 20
sum of the VaRs for the four risk categories. This effect
Currency rates 16 9 37 9
arises because the four market risk categories are not Commodity prices 20 18 25 13
perfectly correlated. Diversification effect (45) (42)
Average Daily VaR Total $ 85 $ 71 $127 $64

1. Reflects the impact of temporarily increased exposures as a result of equity


in millions Year Ended December underwriting transactions.
Risk Categories 2013 2012 2011
Our daily VaR increased to $85 million as of
Interest rates $ 63 $ 78 $ 94
December 2013 from $71 million as of December 2012,
Equity prices 32 26 33
Currency rates 17 14 20
primarily reflecting increases in the equity prices and
Commodity prices 19 22 32 currency rates categories, principally due to increased
Diversification effect (51) (54) (66) exposures. These increases were partially offset by a
Total $ 80 $ 86 $113 decrease in the interest rates category primarily due to
decreased exposures.
During 2013 and 2012, the firmwide VaR risk limit was
not exceeded and in each year it was reduced on one
occasion due to lower levels of volatility.

Goldman Sachs 2013 Annual Report 93


Management’s Discussion and Analysis

The chart below reflects the VaR over the last four quarters.

Daily VaR
$ in millions
160

140

120
Daily Trading VaR ($)

100

80

60

40

20

0
First Quarter Second Quarter Third Quarter Fourth Quarter
2013 2013 2013 2013

Daily trading net revenues are compared with VaR revenues are adversely affected, we generally have more loss
calculated as of the end of the prior business day. Trading days, resulting in more VaR exceptions. In addition, VaR
losses incurred on a single day did not exceed our 95% one- backtesting is performed against total daily market-making
day VaR during 2013 or 2012 (i.e., a VaR exception). revenues, including bid/offer net revenues, which are more
likely than not to be positive by their nature.
During periods in which the firm has significantly more
positive net revenue days than net revenue loss days, we The chart below presents the frequency distribution of our
expect to have fewer VaR exceptions because, under daily trading net revenues for substantially all positions
normal conditions, our business model generally produces included in VaR for 2013.
positive net revenues. In periods in which our franchise

Daily Trading Net Revenues


$ in millions
100

80
Number of Days

65
60
50
42
40 34 34
23
20

0 1 1 2
0
<(100) (100)-(75) (75)-(50) (50)-(25) (25)-0 0-25 25-50 50-75 75-100 >100
Daily Trading Net Revenues ($)

94 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

Sensitivity Measures
Certain portfolios and individual positions are not included Credit Spread Sensitivity on Derivatives and
in VaR because VaR is not the most appropriate risk Borrowings. VaR excludes the impact of changes in
measure. Other sensitivity measures we use to analyze counterparty and our own credit spreads on derivatives as
market risk are described below. well as changes in our own credit spreads on unsecured
borrowings for which the fair value option was elected. The
10% Sensitivity Measures. The table below presents
estimated sensitivity to a one basis point increase in credit
market risk for inventory positions that are not included in
spreads (counterparty and our own) on derivatives was a
VaR. The market risk of these positions is determined by
gain of $4 million and $3 million (including hedges) as of
estimating the potential reduction in net revenues of a 10%
December 2013 and December 2012, respectively. In
decline in the underlying asset value. Equity positions
addition, the estimated sensitivity to a one basis point
below relate to private and restricted public equity
increase in our own credit spreads on unsecured
securities, including interests in funds that invest in
borrowings for which the fair value option was elected was
corporate equities and real estate and interests in hedge
a gain of $8 million and $7 million (including hedges) as of
funds, which are included in “Financial instruments owned,
December 2013 and December 2012, respectively.
at fair value.” Debt positions include interests in funds that
However, the actual net impact of a change in our own
invest in corporate mezzanine and senior debt instruments,
credit spreads is also affected by the liquidity, duration and
loans backed by commercial and residential real estate,
convexity (as the sensitivity is not linear to changes in
corporate bank loans and other corporate debt, including
yields) of those unsecured borrowings for which the fair
acquired portfolios of distressed loans. These debt positions
value option was elected, as well as the relative
are included in “Financial instruments owned, at fair
performance of any hedges undertaken.
value.” See Note 6 to the consolidated financial statements
for further information about cash instruments. These Interest Rate Sensitivity. As of December 2013 and
measures do not reflect diversification benefits across asset December 2012, the firm had $14.90 billion and
categories or across other market risk measures. $6.50 billion, respectively, of loans held for investment
which were accounted for at amortized cost and included in
Asset Categories 10% Sensitivity “Receivables from customers and counterparties,”
Amount as of December substantially all of which had floating interest rates. As of
in millions 2013 2012 December 2013 and December 2012, the estimated
Equity 1 $2,256 $2,471 sensitivity to a 100 basis point increase in interest rates on
Debt 1,522 1,676 such loans was $136 million and $62 million, respectively,
Total $3,778 $4,147 of additional interest income over a 12-month period,
which does not take into account the potential impact of an
1. December 2012 includes $208 million related to our investment in the
ordinary shares of ICBC, which was sold in the first half of 2013.
increase in costs to fund such loans. See Note 8 to the
consolidated financial statements for further information
about loans held for investment.

Goldman Sachs 2013 Annual Report 95


Management’s Discussion and Analysis

Financial Statement Linkages to Market Risk Other Market Risk Considerations


Measures In addition, as of December 2013 and December 2012, we
The firm employs a variety of risk measures, each described had commitments and held loans for which we have
in the respective sections above, to monitor market risk obtained credit loss protection from Sumitomo Mitsui
across the consolidated statements of financial condition Financial Group, Inc. See Note 18 to the consolidated
and consolidated statements of earnings. The related gains financial statements for further information about such
and losses on these positions are included in “Market lending commitments.
making,” “Other principal transactions,” “Interest
Additionally, we make investments accounted for under the
income” and “Interest expense.” The table below presents
equity method and we also make direct investments in real
certain categories in our consolidated statement of financial
estate, both of which are included in “Other assets” in the
condition and the market risk measures used to assess those
consolidated statements of financial condition. Direct
assets and liabilities. Certain categories on the consolidated
investments in real estate are accounted for at cost less
statement of financial condition are incorporated in more
accumulated depreciation. See Note 12 to the consolidated
than one risk measure.
financial statements for information on “Other assets.”

Categories on the
Consolidated Statement of
Financial Condition Included
in Market Risk Measure Market Risk Measure
Securities segregated for ‰ VaR
regulatory and other purposes,
at fair value
Collateralized agreements ‰ VaR
‰ Securities purchased under
agreements to resell, at
fair value
‰ Securities borrowed, at
fair value
Receivables from customers and
counterparties
‰ Certain secured loans, at ‰ VaR
fair value
‰ Loans held for investment,
at amortized cost ‰ Interest Rate Sensitivity

Financial instruments owned, ‰ VaR


at fair value ‰ 10% Sensitivity Measures
‰ Credit Spread
Sensitivity — Derivatives
Collateralized financings ‰ VaR
‰ Securities sold under
agreements to repurchase,
at fair value
‰ Securities loaned, at
fair value
‰ Other secured financings,
at fair value
Financial instruments sold, but ‰ VaR
not yet purchased, at fair value ‰ Credit Spread
Sensitivity — Derivatives
Unsecured short-term ‰ VaR
borrowings and unsecured ‰ Credit Spread
long-term borrowings, Sensitivity — Borrowings
at fair value

96 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

Credit Risk Management


Overview Credit Risk Management Process
Credit risk represents the potential for loss due to the Effective management of credit risk requires accurate and
default or deterioration in credit quality of a counterparty timely information, a high level of communication and
(e.g., an OTC derivatives counterparty or a borrower) or an knowledge of customers, countries, industries and
issuer of securities or other instruments we hold. Our products. Our process for managing credit risk includes:
exposure to credit risk comes mostly from client
‰ approving transactions and setting and communicating
transactions in OTC derivatives and loans and lending
credit exposure limits;
commitments. Credit risk also comes from cash placed with
banks, securities financing transactions (i.e., resale and ‰ monitoring compliance with established credit
repurchase agreements and securities borrowing and exposure limits;
lending activities) and receivables from brokers, dealers,
‰ assessing the likelihood that a counterparty will default
clearing organizations, customers and counterparties.
on its payment obligations;
Credit Risk Management, which is independent of the
‰ measuring the firm’s current and potential credit
revenue-producing units and reports to the firm’s chief risk
exposure and losses resulting from counterparty default;
officer, has primary responsibility for assessing, monitoring
and managing credit risk at the firm. The Credit Policy ‰ reporting of credit exposures to senior management, the
Committee and the Firmwide Risk Committee establish and Board and regulators;
review credit policies and parameters. In addition, we hold
‰ use of credit risk mitigants, including collateral and
other positions that give rise to credit risk (e.g., bonds held
hedging; and
in our inventory and secondary bank loans). These credit
risks are captured as a component of market risk measures, ‰ communication and collaboration with other
which are monitored and managed by Market Risk independent control and support functions such as
Management, consistent with other inventory positions. operations, legal and compliance.
The firm also enters into derivatives to manage market risk
As part of the risk assessment process, Credit Risk
exposures. Such derivatives also give rise to credit risk
Management performs credit reviews which include initial
which is monitored and managed by Credit
and ongoing analyses of our counterparties. A credit review
Risk Management.
is an independent judgment about the capacity and
Policies authorized by the Firmwide Risk Committee and willingness of a counterparty to meet its financial
the Credit Policy Committee prescribe the level of formal obligations. For substantially all of our credit exposures,
approval required for the firm to assume credit exposure to the core of our process is an annual counterparty review. A
a counterparty across all product areas, taking into account counterparty review is a written analysis of a counterparty’s
any applicable netting provisions, collateral or other credit business profile and financial strength resulting in an
risk mitigants. internal credit rating which represents the probability of
default on financial obligations to the firm. The
determination of internal credit ratings incorporates
assumptions with respect to the counterparty’s future
business performance, the nature and outlook for the
counterparty’s industry, and the economic environment.
Senior personnel within Credit Risk Management, with
expertise in specific industries, inspect and approve credit
reviews and internal credit ratings.
Our global credit risk management systems capture credit
exposure to individual counterparties and on an aggregate
basis to counterparties and their subsidiaries (economic
groups). These systems also provide management with
comprehensive information on our aggregate credit risk by
product, internal credit rating, industry, country
and region.

Goldman Sachs 2013 Annual Report 97


Management’s Discussion and Analysis

Risk Measures and Limits Risk Mitigants


We measure our credit risk based on the potential loss in an To reduce our credit exposures on derivatives and securities
event of non-payment by a counterparty. For derivatives financing transactions, we may enter into netting
and securities financing transactions, the primary measure agreements with counterparties that permit us to offset
is potential exposure, which is our estimate of the future receivables and payables with such counterparties. We may
exposure that could arise over the life of a transaction based also reduce credit risk with counterparties by entering into
on market movements within a specified confidence level. agreements that enable us to obtain collateral from them on
Potential exposure takes into account netting and collateral an upfront or contingent basis and/or to terminate
arrangements. For loans and lending commitments, the transactions if the counterparty’s credit rating falls below a
primary measure is a function of the notional amount of the specified level. We monitor the fair value of the collateral
position. We also monitor credit risk in terms of current on a daily basis to ensure that our credit exposures are
exposure, which is the amount presently owed to the firm appropriately collateralized. We seek to minimize
after taking into account applicable netting and collateral. exposures where there is a significant positive correlation
between the creditworthiness of our counterparties and the
We use credit limits at various levels (counterparty,
market value of collateral we receive.
economic group, industry, country) to control the size of
our credit exposures. Limits for counterparties and For loans and lending commitments, depending on the
economic groups are reviewed regularly and revised to credit quality of the borrower and other characteristics of
reflect changing appetites for a given counterparty or group the transaction, we employ a variety of potential risk
of counterparties. Limits for industries and countries are mitigants. Risk mitigants include: collateral provisions,
based on the firm’s risk tolerance and are designed to allow guarantees, covenants, structural seniority of the bank loan
for regular monitoring, review, escalation and management claims and, for certain lending commitments, provisions in
of credit risk concentrations. the legal documentation that allow the firm to adjust loan
amounts, pricing, structure and other terms as market
Stress Tests/Scenario Analysis
conditions change. The type and structure of risk mitigants
We use regular stress tests to calculate the credit exposures,
employed can significantly influence the degree of credit
including potential concentrations that would result from
risk involved in a loan.
applying shocks to counterparty credit ratings or credit risk
factors (e.g., currency rates, interest rates, equity prices). When we do not have sufficient visibility into a
These shocks include a wide range of moderate and more counterparty’s financial strength or when we believe a
extreme market movements. Some of our stress tests counterparty requires support from its parent company, we
include shocks to multiple risk factors, consistent with the may obtain third-party guarantees of the counterparty’s
occurrence of a severe market or economic event. In the obligations. We may also mitigate our credit risk using
case of sovereign default, we estimate the direct impact of credit derivatives or participation agreements.
the default on our sovereign credit exposures, changes to
Credit Exposures
our credit exposures arising from potential market moves in
As of December 2013, our credit exposures decreased as
response to the default, and the impact of credit market
compared with December 2012, primarily reflecting
deterioration on corporate borrowers and counterparties
decreases in OTC derivatives, cash and securities financing
that may result from the sovereign default. Unlike potential
exposures, partially offset by an increase in loans and
exposure, which is calculated within a specified confidence
lending commitments. The percentage of our credit
level, with a stress test there is generally no assumed
exposure arising from non-investment-grade counterparties
probability of these events occurring.
(based on our internally determined public rating agency
We run stress tests on a regular basis as part of our routine equivalents) increased from December 2012, primarily
risk management processes and conduct tailored stress tests reflecting an increase in loans and lending commitments.
on an ad hoc basis in response to market developments. During 2013, counterparty defaults primarily occurred
Stress tests are regularly conducted jointly with the firm’s within OTC derivatives and loans and lending
market and liquidity risk functions. commitments. The number of counterparty defaults during
2013 remained low and was less than 0.5% of all
counterparties. Counterparty defaults were higher in 2013
(there were approximately 10 additional defaults compared
with 2012), primarily related to OTC derivatives.
Estimated losses associated with these defaults were higher
compared with the prior year and were not material to
the firm.

98 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

The firm’s credit exposures are described further below. as described in Note 7 to the consolidated financial
statements. CVA is a function of the present value of
Cash and Cash Equivalents. Cash and cash equivalents
expected exposure, the probability of counterparty default
include both interest-bearing and non-interest-bearing
and the assumed recovery upon default.
deposits. To mitigate the risk of credit loss, we place
substantially all of our deposits with highly-rated banks The tables below present the distribution of our exposure to
and central banks. OTC derivatives by tenor, based on expected duration for
mortgage-related credit derivatives and generally on
OTC Derivatives. The firm’s credit exposure on OTC
remaining contractual maturity for other derivatives, both
derivatives arises primarily from our market-making
before and after the effect of collateral and netting
activities. The firm, as a market maker, enters into
agreements. Receivable and payable balances for the same
derivative transactions to provide liquidity to clients and to
counterparty across tenor categories are netted under
facilitate the transfer and hedging of their risks. The firm
enforceable netting agreements, and cash collateral received
also enters into derivatives to manage market risk
is netted under enforceable credit support agreements.
exposures. We manage our credit exposure on OTC
Receivable and payable balances with the same
derivatives using the credit risk process, measures, limits
counterparty in the same tenor category are netted within
and risk mitigants described above.
such tenor category. Net credit exposure in the tables below
Derivatives are reported on a net-by-counterparty basis represents OTC derivative assets, all of which are included
(i.e., the net payable or receivable for derivative assets and in “Financial instruments owned, at fair value,” less cash
liabilities for a given counterparty) when a legal right of collateral and the fair value of securities collateral,
setoff exists under an enforceable netting agreement. primarily U.S. government and federal agency obligations
Derivatives are accounted for at fair value, net of cash and non-U.S. government and agency obligations, received
collateral received or posted under enforceable credit under credit support agreements, which management
support agreements. We generally enter into OTC considers when determining credit risk, but such collateral
derivatives transactions under bilateral collateral is not eligible for netting under U.S. GAAP. The categories
arrangements with daily exchange of collateral. shown reflect our internally determined public rating
agency equivalents.
As credit risk is an essential component of fair value, the
firm includes a credit valuation adjustment (CVA) in the
fair value of derivatives to reflect counterparty credit risk,

As of December 2013
OTC
in millions 0 - 12 1-5 5 Years Derivative Net Credit
Credit Rating Equivalent Months Years or Greater Total Netting Assets Exposure
AAA/Aaa $ 473 $ 1,470 $ 2,450 $ 4,393 $ (2,087) $ 2,306 $ 2,159
AA/Aa2 3,463 7,642 29,926 41,031 (27,918) 13,113 8,596
A/A2 12,693 25,666 29,701 68,060 (48,803) 19,257 11,188
BBB/Baa2 4,377 10,112 24,013 38,502 (29,213) 9,289 5,952
BB/Ba2 or lower 2,972 6,188 4,271 13,431 (5,357) 8,074 6,381
Unrated 1,289 45 238 1,572 (9) 1,563 1,144
Total $25,267 $51,123 $ 90,599 $166,989 $(113,387) $53,602 $35,420

As of December 2012
OTC
in millions 0 - 12 1-5 5 Years Derivative Net Credit
Credit Rating Equivalent Months Years or Greater Total Netting Assets Exposure
AAA/Aaa $ 494 $ 1,934 $ 2,778 $ 5,206 $ (1,476) $ 3,730 $ 3,443
AA/Aa2 4,631 7,483 20,357 32,471 (16,026) 16,445 10,467
A/A2 13,422 26,550 42,797 82,769 (57,868) 24,901 16,326
BBB/Baa2 7,032 12,173 27,676 46,881 (32,962) 13,919 4,577
BB/Ba2 or lower 2,489 5,762 7,676 15,927 (9,116) 6,811 4,544
Unrated 326 927 358 1,611 (13) 1,598 1,259
Total $28,394 $54,829 $101,642 $184,865 $(117,461) $67,404 $40,616

Goldman Sachs 2013 Annual Report 99


Management’s Discussion and Analysis

Lending and Financing Activities. We manage the firm’s ‰ Other Credit Exposures. The firm is exposed to credit
lending and financing activities using the credit risk process, risk from its receivables from brokers, dealers and
measures, limits and risk mitigants described above. Other clearing organizations and customers and counterparties.
lending positions, including secondary trading positions, Receivables from brokers, dealers and clearing
are risk-managed as a component of market risk. organizations are primarily comprised of initial cash
margin placed with clearing organizations and receivables
‰ Lending Activities. The firm’s lending activities include
related to sales of securities which have traded, but not
lending to investment-grade and non-investment-grade
yet settled. These receivables generally have minimal
corporate borrowers. Loans and lending commitments
credit risk due to the low probability of clearing
associated with these activities are principally used for
organization default and the short-term nature of
operating liquidity and general corporate purposes or in
receivables related to securities settlements. Receivables
connection with contingent acquisitions. The firm’s
from customers and counterparties are generally
lending activities also include extending loans to
comprised of collateralized receivables related to
borrowers that are secured by commercial and other real
customer securities transactions and generally have
estate. See the tables below for further information about
minimal credit risk due to both the value of the collateral
our credit exposures associated with these
received and the short-term nature of these receivables.
lending activities.
Our net credit exposure related to these activities was
‰ Securities Financing Transactions. The firm enters approximately $18 billion as of both December 2013 and
into securities financing transactions in order to, among December 2012, and was primarily comprised of initial
other things, facilitate client activities, invest excess cash, margin (both cash and securities) placed with
acquire securities to cover short positions and finance clearing organizations.
certain firm activities. The firm bears credit risk related to
In addition, the firm extends other loans and lending
resale agreements and securities borrowed only to the
commitments to its private wealth clients that are
extent that cash advanced or the value of securities
generally longer-term in nature and are primarily secured
pledged or delivered to the counterparty exceeds the value
by residential real estate or other assets. The gross
of the collateral received. The firm also has credit
exposure related to such loans and lending commitments
exposure on repurchase agreements and securities loaned
was approximately $11 billion and $7 billion as of
to the extent that the value of securities pledged or
December 2013 and December 2012, respectively. The
delivered to the counterparty for these transactions
fair value of the collateral received against such loans and
exceeds the amount of cash or collateral received.
lending commitments exceeded the gross exposure as of
Securities collateral obtained for securities financing
both December 2013 and December 2012.
transactions primarily includes U.S. government and
federal agency obligations and non-U.S. government and Credit Exposure by Industry, Region and Credit
agency obligations. We manage our credit risk on Quality
securities financing transactions using the credit risk The tables below present the firm’s credit exposures related
process, measures, limits and risk mitigants described to cash, OTC derivatives, and loans and lending
above. We had approximately $29 billion and $37 billion commitments (excluding Securities Financing Transactions
as of December 2013 and December 2012, respectively, and Other Credit Exposures above) broken down by
of credit exposure related to securities financing industry, region and credit quality.
transactions reflecting both netting agreements and
collateral that management considers when determining
credit risk.

100 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

Credit Exposure by Industry

Loans and Lending


Cash OTC Derivatives Commitments 1
As of December As of December As of December
in millions 2013 2012 2013 2012 2013 2012
Asset Managers & Funds $ 91 $ — $10,812 $10,552 $ 2,075 $ 1,673
Banks, Brokers & Other Financial Institutions 9,742 10,507 11,448 21,310 11,824 6,192
Consumer Products, Non-Durables & Retail — — 3,448 1,516 16,477 13,304
Government & Central Banks 51,294 62,162 13,446 14,729 1,897 1,782
Healthcare & Education — — 2,157 3,764 12,283 7,717
Insurance — — 2,771 4,214 3,085 3,199
Natural Resources & Utilities — — 4,781 4,383 17,970 16,360
Real Estate 6 — 388 381 8,550 3,796
Technology, Media, Telecommunications & Services — — 2,124 2,016 16,740 17,674
Transportation — — 673 1,207 6,729 6,557
Other — — 1,554 3,332 7,695 4,650
Total $61,133 $72,669 $53,602 $67,404 $105,325 $82,904

Credit Exposure by Region

Loans and Lending


Cash OTC Derivatives Commitments 1
As of December As of December As of December
in millions 2013 2012 2013 2012 2013 2012
Americas $54,470 $65,193 $21,423 $32,968 $ 77,710 $59,792
Europe, Middle East and Africa 2,143 1,683 25,983 26,739 25,222 21,104
Asia 4,520 5,793 6,196 7,697 2,393 2,008
Total $61,133 $72,669 $53,602 $67,404 $105,325 $82,904

Credit Exposure by Credit Quality

Loans and Lending


Cash OTC Derivatives Commitments 1
As of December As of December As of December
in millions
Credit Rating Equivalent 2013 2012 2013 2012 2013 2012
AAA/Aaa $50,519 $59,825 $ 2,306 $ 3,730 $ 3,079 $ 2,179
AA/Aa2 2,748 6,356 13,113 16,445 7,001 7,220
A/A2 6,821 5,068 19,257 24,901 23,250 21,901
BBB/Baa2 527 326 9,289 13,919 30,496 26,313
BB/Ba2 or lower 518 1,094 8,074 6,811 41,114 25,291
Unrated — — 1,563 1,598 385 —
Total $61,133 $72,669 $53,602 $67,404 $105,325 $82,904

1. Includes approximately $23 billion and $12 billion of loans as of December 2013 and December 2012, respectively, and approximately $82 billion and $71 billion of
lending commitments as of December 2013 and December 2012, respectively. Excludes certain loans and related lending commitments that are risk-managed as
part of market risk using VaR and sensitivity measures.

Goldman Sachs 2013 Annual Report 101


Management’s Discussion and Analysis

Selected Country Exposures


There have been continuing concerns about European Market exposure represents the potential for loss in value
sovereign debt risk and its impact on the European banking of our inventory due to changes in market prices. There is
system and a number of European member states have no overlap between the credit and market exposures in the
experienced significant credit deterioration. The most tables below.
pronounced market concerns relate to Greece, Ireland,
The country of risk is determined by the location of the
Italy, Portugal and Spain. The tables below present our
counterparty, issuer or underlier’s assets, where they
credit exposure (both gross and net of hedges) to all
generate revenue, the country in which they are
sovereigns, financial institutions and corporate
headquartered, and/or the government whose policies affect
counterparties or borrowers in these countries. Credit
their ability to repay their obligations.
exposure represents the potential for loss due to the default
or deterioration in credit quality of a counterparty or
borrower. In addition, the tables include the market
exposure of our long and short inventory for which the
issuer or underlier is located in these countries.

As of December 2013
Credit Exposure Market Exposure
Total Net
Funded Unfunded Total Equities Total
OTC Gross Credit Credit Credit and Credit Market
in millions Loans Derivatives Other Funded Hedges Exposure Exposure Exposure Debt Other Derivatives Exposure
Greece
Sovereign $ — $ 233 $ — $ 233 $ (72) $ 161 $ — $ 161 $ 12 $ — $ (2) $ 10
Non-Sovereign — 6 — 6 — 6 — 6 10 3 3 16
Total Greece — 239 — 239 (72) 167 — 167 22 3 1 26
Ireland
Sovereign — 7 125 132 — 132 — 132 (48) — (162) (210)
Non-Sovereign 373 356 127 856 (5) 851 41 892 291 91 108 490
Total Ireland 373 363 252 988 (5) 983 41 1,024 243 91 (54) 280
Italy
Sovereign — 1,704 2 1,706 (1,691) 15 — 15 371 — 62 433
Non-Sovereign 10 527 195 732 (31) 701 660 1,361 361 (13) (794) (446)
Total Italy 10 2,231 197 2,438 (1,722) 716 660 1,376 732 (13) (732) (13)
Portugal
Sovereign — — 103 103 — 103 — 103 (27) — (73) (100)
Non-Sovereign — 16 20 36 — 36 — 36 126 — (112) 14
Total Portugal — 16 123 139 — 139 — 139 99 — (185) (86)
Spain
Sovereign — 52 — 52 — 52 — 52 930 — 223 1,153
Non-Sovereign 1,025 230 65 1,320 (93) 1,227 855 2,082 1,490 158 (1,144) 504
Total Spain 1,025 282 65 1,372 (93) 1,279 855 2,134 2,420 158 (921) 1,657
Total $1,408 1 $3,131 2 $637 $5,176 $(1,892) 3 $3,284 $1,556 $4,840 $3,516 $239 $(1,891) 3 $1,864

1. Principally consists of loans collateralized by cash, securities and real estate.


2. Includes the benefit of $4.4 billion of cash and U.S. Treasury securities collateral and excludes non-U.S. government and agency obligations and corporate securities
collateral of $254 million.
3. Includes written and purchased credit derivative notionals reduced by the fair values of such credit derivatives.

102 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

As of December 2012
Credit Exposure Market Exposure
Total Net
Funded Unfunded Total Equities Total
OTC Gross Credit Credit Credit and Credit Market
in millions Loans Derivatives Other Funded Hedges Exposure Exposure Exposure Debt Other Derivatives Exposure
Greece
Sovereign $ — $ — $ — $ — $ — $ — $ — $ — $ 30 $ — $ — $ 30
Non-Sovereign — 5 1 6 — 6 — 6 65 15 (5) 75
Total Greece — 5 1 6 — 6 — 6 95 15 (5) 105
Ireland
Sovereign — 1 103 104 — 104 — 104 8 — (150) (142)
Non-Sovereign — 126 36 162 — 162 — 162 801 74 155 1,030
Total Ireland — 127 139 266 — 266 — 266 809 74 5 888
Italy
Sovereign — 1,756 1 1,757 (1,714) 43 — 43 (415) — (603) (1,018)
Non-Sovereign 43 560 129 732 (33) 699 587 1,286 434 65 (996) (497)
Total Italy 43 2,316 130 2,489 (1,747) 742 587 1,329 19 65 (1,599) (1,515)
Portugal
Sovereign — 141 61 202 — 202 — 202 155 — (226) (71)
Non-Sovereign — 44 2 46 — 46 — 46 168 (6) (133) 29
Total Portugal — 185 63 248 — 248 — 248 323 (6) (359) (42)
Spain
Sovereign — 75 — 75 — 75 — 75 986 — (268) 718
Non-Sovereign 1,048 259 23 1,330 (95) 1,235 733 1,968 1,268 83 (186) 1,165
Total Spain 1,048 334 23 1,405 (95) 1,310 733 2,043 2,254 83 (454) 1,883
Total $1,091 1 $2,967 2 $356 $4,414 $(1,842) 3 $2,572 $1,320 $3,892 $3,500 $231 $(2,412) 3 $ 1,319

1. Principally consists of loans for which the fair value of collateral exceeds the carrying value of such loans.
2. Includes the benefit of $6.6 billion of cash and U.S. Treasury securities collateral and excludes non-U.S. government and agency obligations and corporate securities
collateral of $357 million.
3. Includes written and purchased credit derivative notionals reduced by the fair values of such credit derivatives.

We economically hedge our exposure to written credit default swaps were $22.3 billion and $15.8 billion,
derivatives by entering into offsetting purchased credit respectively, as of December 2013, and $26.0 billion and
derivatives with identical underlyings. Where possible, we $15.3 billion, respectively, as of December 2012. These
endeavor to match the tenor and credit default terms of notionals are not representative of our exposure because
such hedges to that of our written credit derivatives. they exclude available netting under legally enforceable
Substantially all purchased credit derivatives included netting agreements on other derivatives outside of these
above are bought from investment-grade counterparties countries and collateral received or posted under credit
domiciled outside of these countries and are collateralized support agreements.
with cash, U.S. Treasury securities or German government
In credit exposure above, ‘Other’ principally consists of
agency obligations. The gross purchased and written credit
deposits, secured lending transactions and other secured
derivative notionals across the above countries for single-
receivables, net of applicable collateral. As of
name and index credit default swaps (included in ‘Hedges’
December 2013 and December 2012, $11.9 billion and
and ‘Credit Derivatives’ in the tables above) were
$4.8 billion, respectively, of secured lending transactions
$154.6 billion and $148.2 billion, respectively, as of
and other secured receivables were fully collateralized.
December 2013, and $179.4 billion and $168.6 billion,
respectively, as of December 2012. Including netting under For information about the nature of or payout under
legally enforceable netting agreements, within each and trigger events related to written and purchased credit
across all of the countries above, the purchased and written protection contracts see Note 7 to the consolidated
credit derivative notionals for single-name and index credit financial statements.

Goldman Sachs 2013 Annual Report 103


Management’s Discussion and Analysis

To supplement our regular stress tests, we conduct tailored Euro area exit scenarios included analysis of the impacts on
stress tests on an ad hoc basis in response to specific market exposure that might result from the redenomination of
events that we deem significant. For example, in response to assets in the exiting country or countries. We also tested our
the Euro area debt crisis, we conducted stress tests intended operational and risk management readiness and capability
to estimate the direct and indirect impact that might result to respond to a redenomination event. Constructing stress
from a variety of possible events involving certain European tests for these scenarios requires many assumptions about
member states, including sovereign defaults and the exit of how exposures might be directly impacted and how
one or more countries from the Euro area. In the stress tests, resulting secondary market moves would indirectly impact
described in “Market Risk Management — Stress Testing” such exposures. Given the multiple parameters involved in
and “Credit Risk Management — Stress Tests/Scenario such scenarios, losses from such events are inherently
Analysis,” we estimated the direct impact of the event on difficult to quantify and may materially differ from
our credit and market exposures resulting from shocks to our estimates.
risk factors including, but not limited to, currency rates,
See “Liquidity Risk Management — Modeled Liquidity
interest rates, and equity prices. The parameters of these
Outflow,” “Market Risk Management — Stress Testing”
shocks varied based on the scenario reflected in each stress
and “Credit Risk Management — Stress Tests/Scenario
test. We also estimated the indirect impact on our
Analysis” for further discussion.
exposures arising from potential market moves in response
to the event, such as the impact of credit market
deterioration on corporate borrowers and counterparties
along with the shocks to the risk factors described above.
We reviewed estimated losses produced by the stress tests in
order to understand their magnitude, highlight potential
loss concentrations, and assess and mitigate our exposures
where necessary.

104 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

Operational Risk Management


Overview Operational Risk Management Process
Operational risk is the risk of loss resulting from Managing operational risk requires timely and accurate
inadequate or failed internal processes, people and systems information as well as a strong control culture. We seek to
or from external events. Our exposure to operational risk manage our operational risk through:
arises from routine processing errors as well as
‰ the training, supervision and development of our people;
extraordinary incidents, such as major systems failures.
Potential types of loss events related to internal and external ‰ the active participation of senior management in
operational risk include: identifying and mitigating key operational risks across
the firm;
‰ clients, products and business practices;
‰ independent control and support functions that monitor
‰ execution, delivery and process management;
operational risk on a daily basis, and implementation of
‰ business disruption and system failures; extensive policies and procedures, and controls designed
to prevent the occurrence of operational risk events;
‰ employment practices and workplace safety;
‰ proactive communication between our revenue-
‰ damage to physical assets;
producing units and our independent control and support
‰ internal fraud; and functions; and
‰ external fraud. ‰ a network of systems throughout the firm to facilitate the
collection of data used to analyze and assess our
We maintain a comprehensive control framework designed
operational risk exposure.
to provide a well-controlled environment to minimize
operational risks. The Firmwide Operational Risk We combine top-down and bottom-up approaches to
Committee, along with the support of regional or entity- manage and measure operational risk. From a top-down
specific working groups or committees, provides oversight perspective, the firm’s senior management assesses
of the ongoing development and implementation of our firmwide and business level operational risk profiles. From
operational risk policies and framework. Operational Risk a bottom-up perspective, revenue-producing units and
Management is a risk management function independent of independent control and support functions are responsible
our revenue-producing units, reports to the firm’s chief risk for risk management on a day-to-day basis, including
officer, and is responsible for developing and implementing identifying, mitigating, and escalating operational risks to
policies, methodologies and a formalized framework for senior management.
operational risk management with the goal of minimizing
Our operational risk framework is in part designed to
our exposure to operational risk.
comply with the operational risk measurement rules under
Basel II and has evolved based on the changing needs of our
businesses and regulatory guidance. Our framework
comprises the following practices:
‰ risk identification and reporting;
‰ risk measurement; and
‰ risk monitoring.
Internal Audit performs an independent review of our
operational risk framework, including our key controls,
processes and applications, on an annual basis to assess the
effectiveness of our framework.

Goldman Sachs 2013 Annual Report 105


Management’s Discussion and Analysis

Risk Identification and Reporting The results from these scenario analyses are used to
The core of our operational risk management framework is monitor changes in operational risk and to determine
risk identification and reporting. We have a comprehensive business lines that may have heightened exposure to
data collection process, including firmwide policies and operational risk. These analyses ultimately are used in the
procedures, for operational risk events. determination of the appropriate level of operational risk
capital to hold.
We have established policies that require managers in our
revenue-producing units and our independent control and Risk Monitoring
support functions to escalate operational risk events. When We evaluate changes in the operational risk profile of our
operational risk events are identified, our policies require businesses, including changes in business mix or
that the events be documented and analyzed to determine jurisdictions in which we operate, by monitoring the factors
whether changes are required in our systems and/or noted above at a firmwide level. We have both detective
processes to further mitigate the risk of future events. and preventive internal controls, which are designed to
reduce the frequency and severity of operational risk losses
In addition, our firmwide systems capture internal
and the probability of operational risk events. We monitor
operational risk event data, key metrics such as transaction
the results of assessments and independent internal audits
volumes, and statistical information such as performance
of these internal controls.
trends. We use an internally-developed operational risk
management application to aggregate and organize this
information. Managers from both revenue-producing units
and independent control and support functions analyze the Certain Risk Factors That May Affect Our
information to evaluate operational risk exposures and Businesses
identify businesses, activities or products with heightened We face a variety of risks that are substantial and inherent
levels of operational risk. We also provide periodic in our businesses, including market, liquidity, credit,
operational risk reports to senior management, risk operational, legal, regulatory and reputational risks. For a
committees and the Board. discussion of how management seeks to manage some of
Risk Measurement these risks, see “Overview and Structure of Risk
We measure our operational risk exposure over a twelve- Management.” A summary of the more important factors
month time horizon using both statistical modeling and that could affect our businesses follows. For a further
scenario analyses, which involve qualitative assessments of discussion of these and other important factors that could
the potential frequency and extent of potential operational affect our businesses, financial condition, results of
risk losses, for each of our businesses. Operational risk operations, cash flows and liquidity, see “Risk Factors” in
measurement incorporates qualitative and quantitative Part I, Item 1A of the 2013 Form 10-K.
assessments of factors including: ‰ Our businesses have been and may continue to be
‰ internal and external operational risk event data; adversely affected by conditions in the global financial
markets and economic conditions generally.
‰ assessments of our internal controls;
‰ Our businesses have been and may be adversely affected
‰ evaluations of the complexity of our business activities; by declining asset values. This is particularly true for
‰ the degree of and potential for automation in those businesses in which we have net “long” positions,
our processes; receive fees based on the value of assets managed, or
receive or post collateral.
‰ new product information;
‰ Our businesses have been and may be adversely affected
‰ the legal and regulatory environment; by disruptions in the credit markets, including reduced
‰ changes in the markets for our products and services, access to credit and higher costs of obtaining credit.
including the diversity and sophistication of our ‰ Our market-making activities have been and may be
customers and counterparties; and affected by changes in the levels of market volatility.
‰ the liquidity of the capital markets and the reliability of ‰ Our investment banking, client execution and investment
the infrastructure that supports the capital markets. management businesses have been adversely affected and
may continue to be adversely affected by market
uncertainty or lack of confidence among investors and
CEOs due to general declines in economic activity and
other unfavorable economic, geopolitical or
market conditions.

106 Goldman Sachs 2013 Annual Report


Management’s Discussion and Analysis

‰ Our investment management business may be affected by ‰ Our businesses may be adversely affected if we are unable
the poor investment performance of our to hire and retain qualified employees.
investment products.
‰ Our businesses and those of our clients are subject to
‰ We may incur losses as a result of ineffective risk extensive and pervasive regulation around the world.
management processes and strategies.
‰ We may be adversely affected by increased governmental
‰ Our liquidity, profitability and businesses may be and regulatory scrutiny or negative publicity.
adversely affected by an inability to access the debt capital
‰ A failure in our operational systems or infrastructure, or
markets or to sell assets or by a reduction in our credit
those of third parties, could impair our liquidity, disrupt
ratings or by an increase in our credit spreads.
our businesses, result in the disclosure of confidential
‰ Conflicts of interest are increasing and a failure to information, damage our reputation and cause losses.
appropriately identify and address conflicts of interest
‰ Substantial legal liability or significant regulatory action
could adversely affect our businesses.
against us could have material adverse financial effects or
‰ Group Inc. is a holding company and is dependent for cause us significant reputational harm, which in turn
liquidity on payments from its subsidiaries, many of could seriously harm our business prospects.
which are subject to restrictions.
‰ The growth of electronic trading and the introduction of
‰ Our businesses, profitability and liquidity may be new trading technology may adversely affect our business
adversely affected by deterioration in the credit quality of, and may increase competition.
or defaults by, third parties who owe us money, securities
‰ Our commodities activities, particularly our physical
or other assets or whose securities or obligations we hold.
commodities activities, subject us to extensive regulation,
‰ Concentration of risk increases the potential for potential catastrophic events and environmental,
significant losses in our market-making, underwriting, reputational and other risks that may expose us to
investing and lending activities. significant liabilities and costs.
‰ The financial services industry is both highly competitive ‰ In conducting our businesses around the world, we are
and interrelated. subject to political, economic, legal, operational and
other risks that are inherent in operating in
‰ We face enhanced risks as new business initiatives lead us
many countries.
to transact with a broader array of clients and
counterparties and expose us to new asset classes and ‰ We may incur losses as a result of unforeseen or
new markets. catastrophic events, including the emergence of a
pandemic, terrorist attacks, extreme weather events or
‰ Derivative transactions and delayed settlements may
other natural disasters.
expose us to unexpected risk and potential losses.

Goldman Sachs 2013 Annual Report 107


Management’s Report on Internal Control over Financial Reporting

Management of The Goldman Sachs Group, Inc., together Our internal control over financial reporting includes
with its consolidated subsidiaries (the firm), is responsible policies and procedures that pertain to the maintenance of
for establishing and maintaining adequate internal control records that, in reasonable detail, accurately and fairly
over financial reporting. The firm’s internal control over reflect transactions and dispositions of assets; provide
financial reporting is a process designed under the reasonable assurance that transactions are recorded as
supervision of the firm’s principal executive and principal necessary to permit preparation of financial statements in
financial officers to provide reasonable assurance regarding accordance with U.S. generally accepted accounting
the reliability of financial reporting and the preparation of principles, and that receipts and expenditures are being
the firm’s financial statements for external reporting made only in accordance with authorizations of
purposes in accordance with U.S. generally accepted management and the directors of the firm; and provide
accounting principles. reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of
As of December 31, 2013, management conducted an
the firm’s assets that could have a material effect on our
assessment of the firm’s internal control over financial
financial statements.
reporting based on the framework established in Internal
Control — Integrated Framework (1992) issued by the The firm’s internal control over financial reporting as
Committee of Sponsoring Organizations of the Treadway of December 31, 2013 has been audited by
Commission (COSO). Based on this assessment, PricewaterhouseCoopers LLP, an independent registered
management has determined that the firm’s internal control public accounting firm, as stated in their report appearing
over financial reporting as of December 31, 2013 on page 109, which expresses an unqualified opinion on the
was effective. effectiveness of the firm’s internal control over financial
reporting as of December 31, 2013.

108 Goldman Sachs 2013 Annual Report


Report of Independent Registered Public Accounting Firm

To the Board of Directors and the Shareholders of


The Goldman Sachs Group, Inc.:

In our opinion, the accompanying consolidated statements A company’s internal control over financial reporting is a
of financial condition and the related consolidated process designed to provide reasonable assurance regarding
statements of earnings, comprehensive income, changes in the reliability of financial reporting and the preparation of
shareholders’ equity and cash flows present fairly, in all financial statements for external purposes in accordance
material respects, the financial position of The Goldman with generally accepted accounting principles. A company’s
Sachs Group, Inc. and its subsidiaries (the Company) at internal control over financial reporting includes those
December 31, 2013 and 2012, and the results of its policies and procedures that (i) pertain to the maintenance
operations and its cash flows for each of the three years in of records that, in reasonable detail, accurately and fairly
the period ended December 31, 2013, in conformity with reflect the transactions and dispositions of the assets of the
accounting principles generally accepted in the United company; (ii) provide reasonable assurance that
States of America. Also in our opinion, the Company transactions are recorded as necessary to permit
maintained, in all material respects, effective internal preparation of financial statements in accordance with
control over financial reporting as of December 31, 2013, generally accepted accounting principles, and that receipts
based on criteria established in Internal Control — and expenditures of the company are being made only in
Integrated Framework (1992) issued by the Committee of accordance with authorizations of management and
Sponsoring Organizations of the Treadway Commission directors of the company; and (iii) provide reasonable
(COSO). The Company’s management is responsible for assurance regarding prevention or timely detection of
these financial statements, for maintaining effective internal unauthorized acquisition, use, or disposition of the
control over financial reporting and for its assessment of the company’s assets that could have a material effect on the
effectiveness of internal control over financial reporting, financial statements.
included in Management’s Report on Internal Control over
Because of its inherent limitations, internal control over
Financial Reporting appearing on page 108. Our
financial reporting may not prevent or detect
responsibility is to express opinions on these financial
misstatements. Also, projections of any evaluation of
statements and on the Company’s internal control over
effectiveness to future periods are subject to the risk that
financial reporting based on our audits. We conducted our
controls may become inadequate because of changes in
audits in accordance with the standards of the Public
conditions, or that the degree of compliance with the
Company Accounting Oversight Board (United States).
policies or procedures may deteriorate.
Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and
whether effective internal control over financial reporting
was maintained in all material respects. Our audits of the
PricewaterhouseCoopers LLP
financial statements included examining, on a test basis,
New York, New York
evidence supporting the amounts and disclosures in the
February 27, 2014
financial statements, assessing the accounting principles
used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our
audit of internal control over financial reporting included
obtaining an understanding of internal control over
financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such
other procedures as we considered necessary in the
circumstances. We believe that our audits provide a
reasonable basis for our opinions.

Goldman Sachs 2013 Annual Report 109


Consolidated Statements of Earnings

Year Ended December


in millions, except per share amounts 2013 2012 2011
Revenues
Investment banking $ 6,004 $ 4,941 $ 4,361
Investment management 5,194 4,968 4,691
Commissions and fees 3,255 3,161 3,773
Market making 9,368 11,348 9,287
Other principal transactions 6,993 5,865 1,507
Total non-interest revenues 30,814 30,283 23,619

Interest income 10,060 11,381 13,174


Interest expense 6,668 7,501 7,982
Net interest income 3,392 3,880 5,192
Net revenues, including net interest income 34,206 34,163 28,811

Operating expenses
Compensation and benefits 12,613 12,944 12,223

Brokerage, clearing, exchange and distribution fees 2,341 2,208 2,463


Market development 541 509 640
Communications and technology 776 782 828
Depreciation and amortization 1,322 1,738 1,865
Occupancy 839 875 1,030
Professional fees 930 867 992
Insurance reserves 176 598 529
Other expenses 2,931 2,435 2,072
Total non-compensation expenses 9,856 10,012 10,419
Total operating expenses 22,469 22,956 22,642

Pre-tax earnings 11,737 11,207 6,169


Provision for taxes 3,697 3,732 1,727
Net earnings 8,040 7,475 4,442
Preferred stock dividends 314 183 1,932
Net earnings applicable to common shareholders $ 7,726 $ 7,292 $ 2,510

Earnings per common share


Basic $ 16.34 $ 14.63 $ 4.71
Diluted 15.46 14.13 4.51

Average common shares outstanding


Basic 471.3 496.2 524.6
Diluted 499.6 516.1 556.9

The accompanying notes are an integral part of these consolidated financial statements.

110 Goldman Sachs 2013 Annual Report


Consolidated Statements of Comprehensive Income

Year Ended December


in millions 2013 2012 2011
Net earnings $8,040 $7,475 $4,442
Other comprehensive income/(loss) adjustments, net of tax:
Currency translation (50) (89) (55)
Pension and postretirement liabilities 38 168 (145)
Available-for-sale securities (327) 244 (30)
Cash flow hedges 8 — —
Other comprehensive income/(loss) (331) 323 (230)
Comprehensive income $7,709 $7,798 $4,212

The accompanying notes are an integral part of these consolidated financial statements.

Goldman Sachs 2013 Annual Report 111


Consolidated Statements of Financial Condition

As of December
in millions, except share and per share amounts 2013 2012
Assets
Cash and cash equivalents $ 61,133 $ 72,669
Cash and securities segregated for regulatory and other purposes (includes $31,937 and $30,484 at fair value as of
December 2013 and December 2012, respectively) 49,671 49,671
Collateralized agreements:
Securities purchased under agreements to resell and federal funds sold (includes $161,297 and $141,331 at fair value as
of December 2013 and December 2012, respectively) 161,732 141,334
Securities borrowed (includes $60,384 and $38,395 at fair value as of December 2013 and December 2012, respectively) 164,566 136,893
Receivables from brokers, dealers and clearing organizations 23,840 18,480
Receivables from customers and counterparties (includes $7,416 and $7,866 at fair value as of December 2013 and
December 2012, respectively) 88,935 72,874
Financial instruments owned, at fair value (includes $62,348 and $67,177 pledged as collateral as of December 2013 and
December 2012, respectively) 339,121 407,011
Other assets (includes $18 and $13,426 at fair value as of December 2013 and December 2012, respectively) 22,509 39,623
Total assets $911,507 $938,555
Liabilities and shareholders’ equity
Deposits (includes $7,255 and $5,100 at fair value as of December 2013 and December 2012, respectively) $ 70,807 $ 70,124
Collateralized financings:
Securities sold under agreements to repurchase, at fair value 164,782 171,807
Securities loaned (includes $973 and $1,558 at fair value as of December 2013 and December 2012, respectively) 18,745 13,765
Other secured financings (includes $23,591 and $30,337 at fair value as of December 2013 and
December 2012, respectively) 24,814 32,010
Payables to brokers, dealers and clearing organizations 5,349 5,283
Payables to customers and counterparties 199,416 189,202
Financial instruments sold, but not yet purchased, at fair value 127,426 126,644
Unsecured short-term borrowings, including the current portion of unsecured long-term borrowings (includes $19,067 and
$17,595 at fair value as of December 2013 and December 2012, respectively) 44,692 44,304
Unsecured long-term borrowings (includes $11,691 and $12,593 at fair value as of December 2013 and
December 2012, respectively) 160,965 167,305
Other liabilities and accrued expenses (includes $388 and $12,043 at fair value as of December 2013 and
December 2012, respectively) 16,044 42,395
Total liabilities 833,040 862,839
Commitments, contingencies and guarantees
Shareholders’ equity
Preferred stock, par value $0.01 per share; aggregate liquidation preference of $7,200 and $6,200 as of December 2013
and December 2012, respectively 7,200 6,200
Common stock, par value $0.01 per share; 4,000,000,000 shares authorized, 837,219,068 and 816,807,400 shares issued
as of December 2013 and December 2012, respectively, and 446,359,012 and 465,148,387 shares outstanding as of
December 2013 and December 2012, respectively 8 8
Restricted stock units and employee stock options 3,839 3,298
Nonvoting common stock, par value $0.01 per share; 200,000,000 shares authorized, no shares issued and outstanding — —
Additional paid-in capital 48,998 48,030
Retained earnings 71,961 65,223
Accumulated other comprehensive loss (524) (193)
Stock held in treasury, at cost, par value $0.01 per share; 390,860,058 and 351,659,015 shares as of December 2013 and
December 2012, respectively (53,015) (46,850)
Total shareholders’ equity 78,467 75,716
Total liabilities and shareholders’ equity $911,507 $938,555

The accompanying notes are an integral part of these consolidated financial statements.

112 Goldman Sachs 2013 Annual Report


Consolidated Statements of Changes in Shareholders’ Equity

Year Ended December


in millions 2013 2012 2011
Preferred stock
Balance, beginning of year $ 6,200 $ 3,100 $ 6,957
Issued 1,000 3,100 —
Repurchased — — (3,857)
Balance, end of year 7,200 6,200 3,100
Common stock
Balance, beginning of year 8 8 8
Issued — — —
Balance, end of year 8 8 8
Restricted stock units and employee stock options
Balance, beginning of year 3,298 5,681 7,706
Issuance and amortization of restricted stock units and employee stock options 2,017 1,368 2,863
Delivery of common stock underlying restricted stock units (1,378) (3,659) (4,791)
Forfeiture of restricted stock units and employee stock options (79) (90) (93)
Exercise of employee stock options (19) (2) (4)
Balance, end of year 3,839 3,298 5,681
Additional paid-in capital
Balance, beginning of year 48,030 45,553 42,103
Issuance of common stock — — 103
Delivery of common stock underlying share-based awards 1,483 3,939 5,160
Cancellation of restricted stock units in satisfaction of withholding tax requirements (599) (1,437) (1,911)
Preferred stock issuance costs (9) (13) —
Excess net tax benefit/(provision) related to share-based awards 94 (11) 138
Cash settlement of share-based compensation (1) (1) (40)
Balance, end of year 48,998 48,030 45,553
Retained earnings
Balance, beginning of year 65,223 58,834 57,163
Net earnings 8,040 7,475 4,442
Dividends and dividend equivalents declared on common stock and restricted stock units (988) (903) (769)
Dividends declared on preferred stock (314) (183) (2,002)
Balance, end of year 71,961 65,223 58,834
Accumulated other comprehensive loss
Balance, beginning of year (193) (516) (286)
Other comprehensive income/(loss) (331) 323 (230)
Balance, end of year (524) (193) (516)
Stock held in treasury, at cost
Balance, beginning of year (46,850) (42,281) (36,295)
Repurchased (6,175) (4,637) (6,036)
Reissued 40 77 65
Other (30) (9) (15)
Balance, end of year (53,015) (46,850) (42,281)
Total shareholders’ equity $ 78,467 $ 75,716 $ 70,379

The accompanying notes are an integral part of these consolidated financial statements.

Goldman Sachs 2013 Annual Report 113


Consolidated Statements of Cash Flows

Year Ended December


in millions 2013 2012 2011
Cash flows from operating activities
Net earnings $ 8,040 $ 7,475 $ 4,442
Adjustments to reconcile net earnings to net cash provided by/(used for) operating activities
Depreciation and amortization 1,322 1,738 1,869
Deferred income taxes 29 (356) 726
Share-based compensation 2,015 1,319 2,849
Gain on sale of hedge fund administration business — (494) —
Gain on sale of European insurance business (211) — —
Changes in operating assets and liabilities
Cash and securities segregated for regulatory and other purposes (143) 10,817 (10,532)
Net receivables from brokers, dealers and clearing organizations (5,313) (2,838) (3,780)
Net payables to customers and counterparties 1,631 (17,661) 13,883
Securities borrowed, net of securities loaned (22,698) 23,031 8,940
Securities sold under agreements to repurchase, net of securities purchased under agreements to resell
and federal funds sold (28,971) 53,527 122
Financial instruments owned, at fair value 51,079 (48,783) 5,085
Financial instruments sold, but not yet purchased, at fair value 933 (18,867) 4,243
Other, net (3,170) 3,971 (5,346)
Net cash provided by operating activities 4,543 12,879 22,501
Cash flows from investing activities
Purchase of property, leasehold improvements and equipment (706) (961) (1,184)
Proceeds from sales of property, leasehold improvements and equipment 62 49 78
Business acquisitions, net of cash acquired (2,274) (593) (431)
Proceeds from sales of investments 2,503 1,195 2,645
Purchase of available-for-sale securities (738) (5,220) (2,752)
Proceeds from sales of available-for-sale securities 817 4,537 3,129
Loans held for investment, net (8,392) (2,741) (856)
Net cash provided by/(used for) investing activities (8,728) (3,734) 629
Cash flows from financing activities
Unsecured short-term borrowings, net 1,336 (1,952) (3,780)
Other secured financings (short-term), net (7,272) 1,540 (1,195)
Proceeds from issuance of other secured financings (long-term) 6,604 4,687 9,809
Repayment of other secured financings (long-term), including the current portion (3,630) (11,576) (8,878)
Proceeds from issuance of unsecured long-term borrowings 30,851 27,734 29,169
Repayment of unsecured long-term borrowings, including the current portion (30,473) (36,435) (29,187)
Derivative contracts with a financing element, net 874 1,696 1,602
Deposits, net 683 24,015 7,540
Preferred stock repurchased — — (3,857)
Common stock repurchased (6,175) (4,640) (6,048)
Dividends and dividend equivalents paid on common stock, preferred stock and restricted stock units (1,302) (1,086) (2,771)
Proceeds from issuance of preferred stock, net of issuance costs 991 3,087 —
Proceeds from issuance of common stock, including stock option exercises 65 317 368
Excess tax benefit related to share-based compensation 98 130 358
Cash settlement of share-based compensation (1) (1) (40)
Net cash provided by/(used for) financing activities (7,351) 7,516 (6,910)
Net increase/(decrease) in cash and cash equivalents (11,536) 16,661 16,220
Cash and cash equivalents, beginning of year 72,669 56,008 39,788
Cash and cash equivalents, end of year $ 61,133 $ 72,669 $ 56,008
SUPPLEMENTAL DISCLOSURES:
Cash payments for interest, net of capitalized interest, were $5.69 billion, $9.25 billion and $8.05 billion for 2013, 2012 and 2011, respectively.
Cash payments for income taxes, net of refunds, were $4.07 billion, $1.88 billion and $1.78 billion for 2013, 2012 and 2011, respectively.
Non-cash activities:
During 2012, the firm assumed $77 million of debt in connection with business acquisitions. During 2011, the firm assumed $2.09 billion of debt and issued
$103 million of common stock in connection with the acquisition of Goldman Sachs Australia Pty Ltd (GS Australia), formerly Goldman Sachs & Partners Australia
Group Holdings Pty Ltd.

The accompanying notes are an integral part of these consolidated financial statements.

114 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Note 1.
Description of Business
The Goldman Sachs Group, Inc. (Group Inc.), a Delaware Investing & Lending
corporation, together with its consolidated subsidiaries The firm invests in and originates loans to provide
(collectively, the firm), is a leading global investment financing to clients. These investments and loans are
banking, securities and investment management firm that typically longer-term in nature. The firm makes
provides a wide range of financial services to a substantial investments, some of which are consolidated, directly and
and diversified client base that includes corporations, indirectly through funds that the firm manages, in debt
financial institutions, governments and high-net-worth securities and loans, public and private equity securities,
individuals. Founded in 1869, the firm is headquartered in and real estate entities.
New York and maintains offices in all major financial
Investment Management
centers around the world.
The firm provides investment management services and
The firm reports its activities in the following four offers investment products (primarily through separately
business segments: managed accounts and commingled vehicles, such as
mutual funds and private investment funds) across all
Investment Banking
major asset classes to a diverse set of institutional and
The firm provides a broad range of investment banking
individual clients. The firm also offers wealth advisory
services to a diverse group of corporations, financial
services, including portfolio management and financial
institutions, investment funds and governments. Services
counseling, and brokerage and other transaction services to
include strategic advisory assignments with respect to
high-net-worth individuals and families.
mergers and acquisitions, divestitures, corporate defense
activities, risk management, restructurings and spin-offs,
and debt and equity underwriting of public offerings and Note 2.
private placements, including domestic and cross-border Basis of Presentation
transactions, as well as derivative transactions directly
related to these activities. These consolidated financial statements are prepared in
accordance with accounting principles generally accepted in
Institutional Client Services the United States (U.S. GAAP) and include the accounts of
The firm facilitates client transactions and makes markets Group Inc. and all other entities in which the firm has a
in fixed income, equity, currency and commodity products, controlling financial interest. Intercompany transactions
primarily with institutional clients such as corporations, and balances have been eliminated.
financial institutions, investment funds and governments.
The firm also makes markets in and clears client All references to 2013, 2012 and 2011 refer to the firm’s
transactions on major stock, options and futures exchanges years ended, or the dates, as the context requires,
worldwide and provides financing, securities lending and December 31, 2013, December 31, 2012 and
other prime brokerage services to institutional clients. December 31, 2011, respectively. 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 2013 Annual Report 115


Notes to Consolidated Financial Statements

Note 3.
Significant Accounting Policies
The firm’s significant accounting policies include when and Consolidation
how to measure the fair value of assets and liabilities, The firm consolidates entities in which the firm has a
accounting for goodwill and identifiable intangible assets, controlling financial interest. The firm determines whether
and when to consolidate an entity. See Notes 5 through 8 it has a controlling financial interest in an entity by first
for policies on fair value measurements, Note 13 for evaluating whether the entity is a voting interest entity or a
policies on goodwill and identifiable intangible assets, and variable interest entity (VIE).
below and Note 11 for policies on consolidation
Voting Interest Entities. Voting interest entities are
accounting. All other significant accounting policies are
entities in which (i) the total equity investment at risk is
either discussed below or included in the
sufficient to enable the entity to finance its activities
following footnotes:
independently and (ii) the equity holders have the power to
Financial Instruments Owned, at Fair Value and direct the activities of the entity that most significantly
Financial Instruments Sold, But Not Yet Purchased, at impact its economic performance, the obligation to absorb
Fair Value Note 4 the losses of the entity and the right to receive the residual
Fair Value Measurements Note 5 returns of the entity. The usual condition for a controlling
financial interest in a voting interest entity is ownership of a
Cash Instruments Note 6 majority voting interest. If the firm has a majority voting
Derivatives and Hedging Activities Note 7 interest in a voting interest entity, the entity is consolidated.
Fair Value Option Note 8 Variable Interest Entities. A VIE is an entity that lacks
Collateralized Agreements and Financings Note 9
one or more of the characteristics of a voting interest entity.
The firm has a controlling financial interest in a VIE when
Securitization Activities Note 10 the firm has one or more variable interests that provide it
Variable Interest Entities Note 11 with (i) the power to direct the activities of the VIE that
most significantly impact the VIE’s economic performance
Other Assets Note 12
and (ii) the obligation to absorb losses of the VIE or the
Goodwill and Identifiable Intangible Assets Note 13 right to receive benefits from the VIE that could potentially
Deposits Note 14 be significant to the VIE. See Note 11 for further
information about VIEs.
Short-Term Borrowings Note 15
Equity-Method Investments. When the firm does not
Long-Term Borrowings Note 16
have a controlling financial interest in an entity but can
Other Liabilities and Accrued Expenses Note 17 exert significant influence over the entity’s operating and
Commitments, Contingencies and Guarantees Note 18
financial policies, the investment is accounted for either
(i) under the equity method of accounting or (ii) at fair value
Shareholders’ Equity Note 19 by electing the fair value option available under U.S. GAAP.
Regulation and Capital Adequacy Note 20 Significant influence generally exists when the firm owns
20% to 50% of the entity’s common stock or in-substance
Earnings Per Common Share Note 21
common stock.
Transactions with Affiliated Funds Note 22
In general, the firm accounts for investments acquired after
Interest Income and Interest Expense Note 23 the fair value option became available, at fair value. In
Income Taxes Note 24 certain cases, the firm applies the equity method of
accounting to new investments that are strategic in nature
Business Segments Note 25
or closely related to the firm’s principal business activities,
Credit Concentrations Note 26 when the firm has a significant degree of involvement in the
Legal Proceedings Note 27
cash flows or operations of the investee or when cost-
benefit considerations are less significant. See Note 12 for
Employee Benefit Plans Note 28 further information about equity-method investments.
Employee Incentive Plans Note 29

Parent Company Note 30

116 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Investment Funds. The firm has formed numerous Investment Banking. Fees from financial advisory
investment funds with third-party investors. These funds assignments and underwriting revenues are recognized in
are typically organized as limited partnerships or limited earnings when the services related to the underlying
liability companies for which the firm acts as general transaction are completed under the terms of the
partner or manager. Generally, the firm does not hold a assignment. Expenses associated with such transactions are
majority of the economic interests in these funds. These deferred until the related revenue is recognized or the
funds are usually voting interest entities and generally are assignment is otherwise concluded. Expenses associated
not consolidated because third-party investors typically with financial advisory assignments are recorded as non-
have rights to terminate the funds or to remove the firm as compensation expenses, net of client reimbursements.
general partner or manager. Investments in these funds are Underwriting revenues are presented net of
included in “Financial instruments owned, at fair value.” related expenses.
See Notes 6, 18 and 22 for further information about
Investment Management. The firm earns management
investments in funds.
fees and incentive fees for investment management services.
Use of Estimates Management fees for mutual funds are calculated as a
Preparation of these consolidated financial statements percentage of daily net asset value and are received
requires management to make certain estimates and monthly. Management fees for hedge funds and separately
assumptions, the most important of which relate to fair managed accounts are calculated as a percentage of month-
value measurements, accounting for goodwill and end net asset value and are generally received quarterly.
identifiable intangible assets and the provisions for losses Management fees for private equity funds are calculated as
that may arise from litigation, regulatory proceedings and a percentage of monthly invested capital or commitments
tax audits. These estimates and assumptions are based on and are received quarterly, semi-annually or annually,
the best available information but actual results could be depending on the fund. All management fees are recognized
materially different. over the period that the related service is provided.
Incentive fees are calculated as a percentage of a fund’s or
Revenue Recognition
separately managed account’s return, or excess return
Financial Assets and Financial Liabilities at Fair Value.
above a specified benchmark or other performance target.
Financial instruments owned, at fair value and Financial
Incentive fees are generally based on investment
instruments sold, but not yet purchased, at fair value are
performance over a 12-month period or over the life of a
recorded at fair value either under the fair value option or in
fund. Fees that are based on performance over a 12-month
accordance with other U.S. GAAP. In addition, the firm has
period are subject to adjustment prior to the end of the
elected to account for certain of its other financial assets
measurement period. For fees that are based on investment
and financial liabilities at fair value by electing the fair value
performance over the life of the fund, future investment
option. The fair value of a financial instrument is the
underperformance may require fees previously distributed
amount that would be received to sell an asset or paid to
to the firm to be returned to the fund. Incentive fees are
transfer a liability in an orderly transaction between market
recognized only when all material contingencies have been
participants at the measurement date. Financial assets are
resolved. Management and incentive fee revenues are
marked to bid prices and financial liabilities are marked to
included in “Investment management” revenues.
offer prices. Fair value measurements do not include
transaction costs. Fair value gains or losses are generally The firm makes payments to brokers and advisors related
included in “Market making” for positions in Institutional to the placement of the firm’s investment funds. These
Client Services and “Other principal transactions” for payments are computed based on either a percentage of the
positions in Investing & Lending. See Notes 5 through 8 for management fee or the investment fund’s net asset value.
further information about fair value measurements. 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 2013 Annual Report 117


Notes to Consolidated Financial Statements

Commissions and Fees. The firm earns “Commissions Receivables from and Payables to Brokers, Dealers
and fees” from executing and clearing client transactions on and Clearing Organizations
stock, options and futures markets. Commissions and fees Receivables from and payables to brokers, dealers and
are recognized on the day the trade is executed. clearing organizations are accounted for at cost plus
accrued interest, which generally approximates fair value.
Transfers of Assets
While these receivables and payables are carried at amounts
Transfers of assets are accounted for as sales when the firm
that approximate fair value, they are not accounted for at
has relinquished control over the assets transferred. For
fair value under the fair value option or at fair value in
transfers of assets accounted for as sales, any related gains
accordance with other U.S. GAAP and therefore are not
or losses are recognized in net revenues. Assets or liabilities
included in the firm’s fair value hierarchy in Notes 6, 7 and
that arise from the firm’s continuing involvement with
8. Had these receivables and payables been included in the
transferred assets are measured at fair value. For transfers
firm’s fair value hierarchy, substantially all would have
of assets that are not accounted for as sales, the assets
been classified in level 2 as of December 2013.
remain in “Financial instruments owned, at fair value” and
the transfer is accounted for as a collateralized financing, Payables to Customers and Counterparties
with the related interest expense recognized over the life of Payables to customers and counterparties primarily consist
the transaction. See Note 9 for further information about of customer credit balances related to the firm’s prime
transfers of assets accounted for as collateralized financings brokerage activities. Payables to customers and
and Note 10 for further information about transfers of counterparties are accounted for at cost plus accrued
assets accounted for as sales. interest, which generally approximates fair value. While
these payables are carried at amounts that approximate fair
Cash and Cash Equivalents
value, they are not accounted for at fair value under the fair
The firm defines cash equivalents as highly liquid overnight
value option or at fair value in accordance with other U.S.
deposits held in the ordinary course of business. As of
GAAP and therefore are not included in the firm’s fair value
December 2013 and December 2012, “Cash and cash
hierarchy in Notes 6, 7 and 8. Had these payables been
equivalents” included $4.14 billion and $6.75 billion,
included in the firm’s fair value hierarchy, substantially all
respectively, of cash and due from banks, and
would have been classified in level 2 as of December 2013.
$56.99 billion and $65.92 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, collateral posted in connection
with certain derivative transactions, and loans held for
investment. Certain of the firm’s 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.
Receivables from customers and counterparties not
accounted for at fair value, including loans held for
investment, are accounted for at amortized cost net of
estimated uncollectible amounts. Interest on receivables
from customers and counterparties is recognized over the
life of the transaction and included in “Interest income.”
See Note 8 for further information about receivables from
customers and counterparties.

118 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Offsetting Assets and Liabilities Insurance Activities


To reduce credit exposures on derivatives and securities The firm sold a majority stake in each of its Americas
financing transactions, the firm may enter into master reinsurance business (April 2013) and its European
netting agreements or similar arrangements (collectively, insurance business (December 2013). As a result, the firm
netting agreements) with counterparties that permit it to no longer consolidates these businesses. The remaining
offset receivables and payables with such counterparties. A investments of approximately 20% in the Americas
netting agreement is a contract with a counterparty that reinsurance business and approximately 36% in the
permits net settlement of multiple transactions with that European insurance business are accounted for at fair value
counterparty, including upon the exercise of termination under the fair value option and are included in “Financial
rights by a non-defaulting party. Upon exercise of such instruments owned, at fair value” as of December 2013.
termination rights, all transactions governed by the netting Results from these remaining investments are included in
agreement are terminated and a net settlement amount is the Investing & Lending segment.
calculated. In addition, the firm receives and posts cash and
Prior to the sales, certain of the firm’s insurance contracts
securities collateral with respect to its derivatives and
were accounted for at fair value under the fair value option,
securities financing transactions, subject to the terms of the
with changes in fair value included in “Market making”
related credit support agreements or similar arrangements
revenues. See Note 8 for further information about the fair
(collectively, credit support agreements). An enforceable
values of these insurance contracts. Revenues from variable
credit support agreement grants the non-defaulting party
annuity and life insurance and reinsurance contracts not
exercising termination rights the right to liquidate the
accounted for at fair value generally consisted of fees
collateral and apply the proceeds to any amounts owed. In
assessed on contract holder account balances for mortality
order to assess enforceability of the firm’s right of setoff
charges, policy administration fees and surrender charges.
under netting and credit support agreements, the firm
These revenues were recognized in earnings over the period
evaluates various factors including applicable bankruptcy
that services were provided and were included in “Market
laws, local statutes and regulatory provisions in the
making” revenues. Changes in reserves, including interest
jurisdiction of the parties to the agreement.
credited to policyholder account balances, were recognized
Derivatives are reported on a net-by-counterparty basis in “Insurance reserves.” Premiums earned for underwriting
(i.e., the net payable or receivable for derivative assets and property catastrophe reinsurance were recognized in
liabilities for a given counterparty) in the consolidated earnings over the coverage period, net of premiums ceded
statements of financial condition when a legal right of setoff for the cost of reinsurance, and were included in “Market
exists under an enforceable netting agreement. Resale and making” revenues. Expenses for liabilities related to
repurchase agreements and securities borrowed and loaned property catastrophe reinsurance claims, including
transactions with the same term and currency are presented estimates of losses that have been incurred but not reported,
on a net-by-counterparty basis in the consolidated were included in “Insurance reserves.”
statements of financial condition when such transactions
meet certain settlement criteria and are subject to
netting agreements.
In the 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
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 9 for further
information about collateral received and pledged,
including rights to deliver or repledge collateral. See
Notes 7 and 9 for further information about offsetting.

Goldman Sachs 2013 Annual Report 119


Notes to Consolidated Financial Statements

Foreign Currency Translation Investment Companies (ASC 946). In June 2013, the
Assets and liabilities denominated in non-U.S. currencies FASB issued ASU No. 2013-08, “Financial Services —
are translated at rates of exchange prevailing on the date of Investment Companies (Topic 946) — Amendments to the
the consolidated statements of financial condition and Scope, Measurement, and Disclosure Requirements.” ASU
revenues and expenses are translated at average rates of No. 2013-08 clarifies the approach to be used for
exchange for the period. Foreign currency remeasurement determining whether an entity is an investment company
gains or losses on transactions in nonfunctional currencies and provides new measurement and disclosure
are recognized in earnings. Gains or losses on translation of requirements. ASU No. 2013-08 is effective for interim and
the financial statements of a non-U.S. operation, when the annual reporting periods in fiscal years that begin after
functional currency is other than the U.S. dollar, are December 15, 2013. Earlier application is prohibited.
included, net of hedges and taxes, in the consolidated Adoption of ASU No. 2013-08 did not affect the firm’s
statements of comprehensive income. financial condition, results of operations, or cash flows.
Recent Accounting Developments Inclusion of the Fed Funds Effective Swap Rate (or
Derecognition of in Substance Real Estate (ASC 360). Overnight Index Swap Rate) as a Benchmark Interest
In December 2011, the FASB issued ASU No. 2011-10, Rate for Hedge Accounting Purposes (ASC 815). In
“Property, Plant, and Equipment (Topic 360) — July 2013, the FASB issued ASU No. 2013-10, “Derivatives
Derecognition of in Substance Real Estate — a Scope and Hedging (Topic 815) — Inclusion of the Fed Funds
Clarification.” ASU No. 2011-10 clarifies that in order to Effective Swap Rate (or Overnight Index Swap Rate) as a
deconsolidate a subsidiary (that is in substance real estate Benchmark Interest Rate for Hedge Accounting Purposes.”
due to a default on the subsidiary’s nonrecourse debt), the ASU No. 2013-10 permits the use of the Fed Funds
parent must no longer control the subsidiary and also must Effective Swap Rate (OIS) as a U.S. benchmark interest rate
satisfy the sale criteria in ASC 360-20, “Property, Plant, for hedge accounting purposes. The ASU also removes the
and Equipment — Real Estate Sales.” The ASU was restriction on using different benchmark rates for similar
effective for fiscal years beginning on or after hedges. ASU No. 2013-10 was effective for qualifying new
June 15, 2012. The firm applied the provisions of the ASU or redesignated hedging relationships entered into on or
to such events occurring on or after January 1, 2013. after July 17, 2013 and adoption did not materially affect
Adoption of ASU No. 2011-10 did not materially affect the the firm’s financial condition, results of operations, or
firm’s financial condition, results of operations or cash flows.
cash flows.
Disclosures about Offsetting Assets and Liabilities
(ASC 210). In December 2011, the FASB issued ASU
No. 2011-11, “Balance Sheet (Topic 210) — Disclosures
about Offsetting Assets and Liabilities.” ASU No. 2011-11,
as amended by ASU 2013-01, “Balance Sheet (Topic 210):
Clarifying the Scope of Disclosures about Offsetting Assets
and Liabilities,” requires disclosure of the effect or potential
effect of offsetting arrangements on the firm’s financial
position as well as enhanced disclosure of the rights of
setoff associated with the firm’s recognized derivative
instruments, resale and repurchase agreements, and
securities borrowing and lending transactions. ASU
No. 2011-11 was effective for periods beginning on or after
January 1, 2013. Since these amended principles require
only additional disclosures concerning offsetting and
related arrangements, adoption did not affect the firm’s
financial condition, results of operations or cash flows. See
Notes 7 and 9 for further information about the firm’s
offsetting and related arrangements.

120 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

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 below presents the firm’s financial instruments owned, at
instruments sold, but not yet purchased, at fair value are fair value, including those pledged as collateral, and
accounted for at fair value either under the fair value option financial instruments sold, but not yet purchased, at
or in accordance with other U.S. GAAP. See Note 8 for fair value.
further information about the fair value option. The table

As of December 2013 As of December 2012


Financial Financial
Instruments Instruments
Financial Sold, But Financial Sold, But
Instruments Not Yet Instruments Not Yet
in millions Owned Purchased Owned Purchased
Commercial paper, certificates of deposit, time deposits and other
money market instruments $ 8,608 $ — $ 6,057 $ —
U.S. government and federal agency obligations 71,072 20,920 93,241 15,905
Non-U.S. government and agency obligations 40,944 26,999 62,250 32,361
Mortgage and other asset-backed loans and securities:
Loans and securities backed by commercial real estate 6,596 1 9,805 —
Loans and securities backed by residential real estate 9,025 2 8,216 4
Bank loans and bridge loans 17,400 925 2 22,407 1,779 2
Corporate debt securities 17,412 5,253 20,981 5,761
State and municipal obligations 1,476 51 2,477 1
Other debt obligations 3,129 4 2,251 —
Equities and convertible debentures 101,024 22,583 96,454 20,406
Commodities 1 4,556 966 11,696 —
Derivatives 57,879 49,722 71,176 50,427
Total $339,121 $127,426 $407,011 $126,644

1. As of December 2012, includes $4.29 billion of commodities that have been transferred to third parties, which were accounted for as collateralized financings rather
than sales. No such transactions related to commodities included in “Financial instruments owned, at fair value” were outstanding as of December 2013.
2. Primarily relates to the fair value of unfunded lending commitments for which the fair value option was elected.

Goldman Sachs 2013 Annual Report 121


Notes to Consolidated Financial Statements

Gains and Losses from Market Making and Other


Principal Transactions
The table below presents “Market making” revenues by The gains/(losses) in the table are not representative of the
major product type, as well as “Other principal manner in which the firm manages its business activities
transactions” revenues. These gains/(losses) are primarily because many of the firm’s market-making and client
related to the firm’s financial instruments owned, at fair facilitation strategies utilize financial instruments across
value and financial instruments sold, but not yet purchased, various product types. Accordingly, gains or losses in one
at fair value, including both derivative and non-derivative product type frequently offset gains or losses in other
financial instruments. These gains/(losses) exclude related product types. For example, most of the firm’s longer-term
interest income and interest expense. See Note 23 for derivatives are sensitive to changes in interest rates and may
further information about interest income and be economically hedged with interest rate swaps. Similarly,
interest expense. a significant portion of the firm’s cash instruments and
derivatives has exposure to foreign currencies and may be
economically hedged with foreign currency contracts.

Product Type Year Ended December


in millions 2013 2012 2011
Interest rates $ 930 $ 4,445 $ 1,580
Credit 1,845 4,263 3,454
Currencies 2,446 (1,001) 958
Equities 2,655 2,482 2,014
Commodities 902 492 1,573
Other 590 2 667 3 (292)
Market making 9,368 11,348 9,287
Other principal transactions 1 6,993 5,865 1,507
Total $16,361 $17,213 $10,794

1. Other principal transactions are included in the firm’s 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. The “Other” category in Note 25 relates to the firm’s
consolidated investment entities, and primarily includes commodities-related net revenues.
2. Includes a gain of $211 million on the sale of a majority stake in the firm’s European insurance business.
3. Includes a gain of $494 million on the sale of the firm’s hedge fund administration business.

122 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Note 5.
Fair Value Measurements
The fair value of a financial instrument is the amount that The fair value hierarchy is as follows:
would be received to sell an asset or paid to transfer a
Level 1. Inputs are unadjusted quoted prices in active
liability in an orderly transaction between market
markets to which the firm had access at the measurement
participants at the measurement date. Financial assets are
date for identical, unrestricted assets or liabilities.
marked to bid prices and financial liabilities are marked to
offer prices. Fair value measurements do not include Level 2. Inputs to valuation techniques are observable,
transaction costs. The firm measures certain financial assets either directly or indirectly.
and financial liabilities as a portfolio (i.e., based on its net
Level 3. One or more inputs to valuation techniques are
exposure to market and/or credit risks).
significant and unobservable.
The best evidence of fair value is a quoted price in an active
The fair values for substantially all of the firm’s financial
market. If quoted prices in active markets are not available,
assets and financial liabilities are based on observable prices
fair value is determined by reference to prices for similar
and inputs and are classified in levels 1 and 2 of the fair
instruments, quoted prices or recent transactions in less
value hierarchy. Certain level 2 and level 3 financial assets
active markets, or internally developed models that
and financial liabilities may require appropriate valuation
primarily use market-based or independently sourced
adjustments that a market participant would require to
parameters as inputs including, but not limited to, interest
arrive at fair value for factors such as counterparty and the
rates, volatilities, equity or debt prices, foreign exchange
firm’s credit quality, funding risk, transfer restrictions,
rates, commodity prices, credit spreads and funding spreads
liquidity and bid/offer spreads. Valuation adjustments are
(i.e., the spread, or difference, between the interest rate at
generally based on market evidence.
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
instrument’s level in the fair value hierarchy is based on the
lowest level of input that is significant to its fair
value measurement.

Goldman Sachs 2013 Annual Report 123


Notes to Consolidated Financial Statements

See Notes 6 and 7 for further information about fair value The table below presents financial assets and financial
measurements of cash instruments and derivatives, liabilities accounted for at fair value under the fair value
respectively, included in “Financial instruments owned, at option or in accordance with other U.S. GAAP. In the table
fair value” and “Financial instruments sold, but not yet below, cash collateral and counterparty netting represents
purchased, at fair value,” and Note 8 for further the impact on derivatives of netting across levels of the fair
information about fair value measurements of other value hierarchy. Netting among positions classified in the
financial assets and financial liabilities accounted for at fair same level is included in that level.
value under the fair value option.

As of December
$ in millions 2013 2012
Total level 1 financial assets $156,030 $ 190,737
Total level 2 financial assets 499,480 502,293
Total level 3 financial assets 40,013 47,095
Cash collateral and counterparty netting (95,350) (101,612)
Total financial assets at fair value $600,173 $ 638,513
Total assets 1 $911,507 $ 938,555
Total level 3 financial assets as a percentage of Total assets 4.4% 5.0%
Total level 3 financial assets as a percentage of Total financial assets at fair value 6.7% 7.4%
Total level 1 financial liabilities $ 68,412 $ 65,994
Total level 2 financial liabilities 300,583 318,764
Total level 3 financial liabilities 12,046 25,679
Cash collateral and counterparty netting (25,868) (32,760)
Total financial liabilities at fair value $355,173 $ 377,677
Total level 3 financial liabilities as a percentage of Total financial liabilities at fair value 3.4% 6.8%

1. Includes approximately $890 billion and $915 billion as of December 2013 and December 2012, respectively, that is carried at fair value or at amounts that generally
approximate fair value.

Level 3 financial assets as of December 2013 decreased Level 3 financial liabilities as of December 2013 decreased
compared with December 2012, primarily reflecting a compared with December 2012, primarily reflecting a
decrease in derivative assets, bank loans and bridge loans, decrease in other liabilities and accrued expenses,
and loans and securities backed by commercial real estate. principally due to the sale of a majority stake in the firm’s
The decrease in derivative assets primarily reflected a European insurance business in December 2013.
decline in credit derivative assets, principally due to
See Notes 6, 7 and 8 for further information about level 3
settlements and unrealized losses. The decrease in bank
cash instruments, derivatives and other financial assets and
loans and bridge loans, and loans and securities backed by
financial liabilities accounted for at fair value under the fair
commercial real estate primarily reflected settlements and
value option, respectively, including information about
sales, partially offset by purchases and transfers into level 3.
significant unrealized gains and losses, and transfers in and
out of level 3.

124 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Note 6.
Cash Instruments
Cash instruments include U.S. government and federal Valuations of level 2 cash instruments can be verified to
agency obligations, non-U.S. government and agency quoted prices, recent trading activity for identical or similar
obligations, bank loans and bridge loans, corporate debt instruments, broker or dealer quotations or alternative
securities, equities and convertible debentures, and other pricing sources with reasonable levels of price transparency.
non-derivative financial instruments owned and financial Consideration is given to the nature of the quotations (e.g.,
instruments sold, but not yet purchased. See below for the indicative or firm) and the relationship of recent market
types of cash instruments included in each level of the fair activity to the prices provided from alternative
value hierarchy and the valuation techniques and pricing sources.
significant inputs used to determine their fair values. See
Valuation adjustments are typically made to level 2 cash
Note 5 for an overview of the firm’s fair value
instruments (i) if the cash instrument is subject to transfer
measurement policies.
restrictions and/or (ii) for other premiums and liquidity
Level 1 Cash Instruments discounts that a market participant would require to arrive
Level 1 cash instruments include U.S. government at fair value. Valuation adjustments are generally based on
obligations and most non-U.S. government obligations, market evidence.
actively traded listed equities, certain government agency
Level 3 Cash Instruments
obligations and money market instruments. These
Level 3 cash instruments have one or more significant
instruments are valued using quoted prices for identical
valuation inputs that are not observable. Absent evidence to
unrestricted instruments in active markets.
the contrary, level 3 cash instruments are initially valued at
The firm defines active markets for equity instruments transaction price, which is considered to be the best initial
based on the average daily trading volume both in absolute estimate of fair value. Subsequently, the firm uses other
terms and relative to the market capitalization for the methodologies to determine fair value, which vary based on
instrument. The firm defines active markets for debt the type of instrument. Valuation inputs and assumptions
instruments based on both the average daily trading volume are changed when corroborated by substantive observable
and the number of days with trading activity. evidence, including values realized on sales of
financial assets.
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.

Goldman Sachs 2013 Annual Report 125


Notes to Consolidated Financial Statements

Valuation Techniques and Significant Inputs


The table below presents the valuation techniques and the significant inputs are generally used to determine the fair
nature of significant inputs. These valuation techniques and values of each type of level 3 cash instrument.

Level 3 Cash Instruments Valuation Techniques and Significant Inputs


Loans and securities backed by commercial Valuation techniques vary by instrument, but are generally based on discounted cash flow techniques.
real estate Significant inputs are generally determined based on relative value analyses and include:
‰ Collateralized by a single commercial real ‰ Transaction prices in both the underlying collateral and instruments with the same or similar underlying collateral
estate property or a portfolio of properties and the basis, or price difference, to such prices
‰ May include tranches of varying levels ‰ Market yields implied by transactions of similar or related assets and/or current levels and changes in market
of subordination 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 Valuation techniques vary by instrument, but are generally based on discounted cash flow techniques.
real estate Significant inputs are generally determined based on relative value analyses, which incorporate comparisons to
‰ Collateralized by portfolios of residential instruments with similar collateral and risk profiles, including relevant indices such as the ABX (an index that tracks the
real estate performance of subprime residential mortgage bonds). Significant inputs include:
‰ Transaction prices in both the underlying collateral and instruments with the same or similar underlying collateral
‰ May include tranches of varying levels
of subordination ‰ 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 Valuation techniques vary by instrument, but are generally based on discounted cash flow techniques.
Corporate debt securities 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
State and municipal obligations instruments for the same issuer for which observable prices or broker quotations are available. Significant inputs
Other debt obligations 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 Recent third-party completed or pending transactions (e.g., merger proposals, tender offers, debt restructurings) are
private equity investments and investments in considered to be the best evidence for any change in fair value. When these are not available, the following valuation
real estate entities) 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

126 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Significant Unobservable Inputs


The tables below present the ranges of significant calculating the fair value of any one cash instrument. For
unobservable inputs used to value the firm’s level 3 cash example, the highest multiple presented in the tables below
instruments. These ranges represent the significant for private equity investments is appropriate for valuing a
unobservable inputs that were used in the valuation of each specific private equity investment but may not be
type of cash instrument. Weighted averages in the tables appropriate for valuing any other private equity
below are calculated by weighting each input by the relative investment. Accordingly, the ranges of inputs presented
fair value of the respective financial instruments. The below do not represent uncertainty in, or possible ranges of,
ranges and weighted averages of these inputs are not fair value measurements of the firm’s level 3
representative of the appropriate inputs to use when cash instruments.

Level 3 Assets Range of Significant Unobservable


as of December 2013 Valuation Techniques and Inputs (Weighted Average)
Level 3 Cash Instruments (in millions) Significant Unobservable Inputs as of December 2013

Loans and securities backed by commercial $2,692 Discounted cash flows:


real estate
‰ Yield 2.7% to 29.1% (10.1%)
‰ Collateralized by a single commercial real estate
‰ Recovery rate 26.2% to 88.1% (74.4%)
property or a portfolio of properties
‰ Duration (years) 0.6 to 5.7 (2.0)
‰ May include tranches of varying levels
of subordination ‰ Basis (9) points to 20 points (5 points)

Loans and securities backed by residential real estate $1,961 Discounted cash flows:
‰ Collateralized by portfolios of residential real estate ‰ Yield 2.6% to 25.8% (10.1%)
‰ May include tranches of varying levels ‰ Cumulative loss rate 9.8% to 56.6% (24.9%)
of subordination ‰ Duration (years) 1.4 to 16.7 (3.6)

Bank loans and bridge loans $9,324 Discounted cash flows:


‰ Yield 1.0% to 39.6% (9.3%)
‰ Recovery rate 40.0% to 85.0% (54.9%)
‰ Duration (years) 0.5 to 5.3 (2.1)

Non-U.S. government and agency obligations $3,977 Discounted cash flows:


Corporate debt securities ‰ Yield 1.5% to 40.2% (8.9%)
State and municipal obligations ‰ Recovery rate 0.0% to 70.0% (61.9%)
Other debt obligations ‰ Duration (years) 0.6 to 16.1 (4.2)

Equities and convertible debentures (including $14,685 1 Comparable multiples:


private equity investments and investments in real
estate entities) ‰ Multiples 0.6x to 18.8x (6.9x)
Discounted cash flows:
‰ Discount rate/yield 6.0% to 29.1% (14.6%)
‰ Long-term growth rate/ 1.0% to 19.0% (8.1%)
compound annual growth rate
‰ Capitalization rate 4.6% to 11.3% (7.1%)

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 2013 Annual Report 127


Notes to Consolidated Financial Statements

Level 3 Assets Range of Significant Unobservable


as of December 2012 Valuation Techniques and Inputs (Weighted Average)
Level 3 Cash Instruments (in millions) Significant Unobservable Inputs as of December 2012

Loans and securities backed by commercial real $3,389 Discounted cash flows:
estate
‰ Yield 4.0% to 43.3% (9.8%)
‰ Collateralized by a single commercial real estate
‰ Recovery rate 37.0% to 96.2% (81.7%)
property or a portfolio of properties
‰ Duration (years) 0.1 to 7.0 (2.6)
‰ May include tranches of varying levels of
subordination ‰ Basis (13) points to 18 points (2 points)

Loans and securities backed by residential real estate $1,619 Discounted cash flows:
‰ Collateralized by portfolios of residential real ‰ Yield 3.1% to 17.0% (9.7%)
estate
‰ Cumulative loss rate 0.0% to 61.6% (31.6%)
‰ May include tranches of varying levels of ‰ Duration (years) 1.3 to 5.9 (3.7)
subordination

Bank loans and bridge loans $11,235 Discounted cash flows:


‰ Yield 0.3% to 34.5% (8.3%)
‰ Recovery rate 16.5% to 85.0% (56.0%)
‰ Duration (years) 0.2 to 4.4 (1.9)

Non-U.S. government and agency obligations $4,651 Discounted cash flows:


Corporate debt securities ‰ Yield 0.6% to 33.7% (8.6%)
State and municipal obligations ‰ Recovery rate 0.0% to 70.0% (53.4%)
Other debt obligations ‰ Duration (years) 0.5 to 15.5 (4.0)

Equities and convertible debentures (including $14,855 1 Comparable multiples:


private equity investments and investments in real
estate entities) ‰ Multiples 0.7x to 21.0x (7.2x)
Discounted cash flows:
‰ Discount rate/yield 10.0% to 25.0% (14.3%)
‰ Long-term growth rate/ 0.7% to 25.0% (9.3%)
compound annual growth rate
‰ Capitalization rate 3.9% to 11.4% (7.3%)

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, growth rate would result in a higher fair value
duration or cumulative loss rate used in the valuation of the measurement. Due to the distinctive nature of each of the
firm’s level 3 cash instruments would result in a lower fair firm’s level 3 cash instruments, the interrelationship of
value measurement, while increases in recovery rate, basis, inputs is not necessarily uniform within each product type.
multiples, long-term growth rate or compound annual

128 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Fair Value of Cash Instruments by Level


The tables below present, by level within the fair value “Financial instruments owned, at fair value” and
hierarchy, cash instrument assets and liabilities, at fair “Financial instruments sold, but not yet purchased, at fair
value. Cash instrument assets and liabilities are included in value,” respectively.

Cash Instrument Assets at Fair Value as of December 2013


in millions Level 1 Level 2 Level 3 Total
Commercial paper, certificates of deposit, time deposits and other money
market instruments $ 216 $ 8,392 $ — $ 8,608
U.S. government and federal agency obligations 29,582 41,490 — 71,072
Non-U.S. government and agency obligations 29,451 11,453 40 40,944
Mortgage and other asset-backed loans and securities 1:
Loans and securities backed by commercial real estate — 3,904 2,692 6,596
Loans and securities backed by residential real estate — 7,064 1,961 9,025
Bank loans and bridge loans — 8,076 9,324 17,400
Corporate debt securities 2 240 14,299 2,873 17,412
State and municipal obligations — 1,219 257 1,476
Other debt obligations 2 — 2,322 807 3,129
Equities and convertible debentures 76,945 9,394 14,685 3 101,024
Commodities — 4,556 — 4,556
Total $136,434 $112,169 $32,639 $281,242

Cash Instrument Liabilities at Fair Value as of December 2013


in millions Level 1 Level 2 Level 3 Total
U.S. government and federal agency obligations $ 20,871 $ 49 $ — $ 20,920
Non-U.S. government and agency obligations 25,325 1,674 — 26,999
Mortgage and other asset-backed loans and securities:
Loans and securities backed by commercial real estate — — 1 1
Loans and securities backed by residential real estate — 2 — 2
Bank loans and bridge loans — 641 284 925
Corporate debt securities 10 5,241 2 5,253
State and municipal obligations — 50 1 51
Other debt obligations — 3 1 4
Equities and convertible debentures 22,107 468 8 22,583
Commodities — 966 — 966
Total $ 68,313 $ 9,094 $ 297 $ 77,704

1. Includes $295 million and $411 million of collateralized debt obligations (CDOs) backed by real estate in level 2 and level 3, respectively.
2. Includes $451 million and $1.62 billion of CDOs and collateralized loan obligations (CLOs) backed by corporate obligations in level 2 and level 3, respectively.
3. Includes $12.82 billion of private equity investments, $1.37 billion of investments in real estate entities and $491 million of convertible debentures.

Goldman Sachs 2013 Annual Report 129


Notes to Consolidated Financial Statements

Cash Instrument Assets at Fair Value as of December 2012


in millions Level 1 Level 2 Level 3 Total
Commercial paper, certificates of deposit, time deposits and other money
market instruments $ 2,155 $ 3,902 $ — $ 6,057
U.S. government and federal agency obligations 42,856 50,385 — 93,241
Non-U.S. government and agency obligations 46,715 15,509 26 62,250
Mortgage and other asset-backed loans and securities 1:
Loans and securities backed by commercial real estate — 6,416 3,389 9,805
Loans and securities backed by residential real estate — 6,597 1,619 8,216
Bank loans and bridge loans — 11,172 11,235 22,407
Corporate debt securities 2 111 18,049 2,821 20,981
State and municipal obligations — 1,858 619 2,477
Other debt obligations 2 — 1,066 1,185 2,251
Equities and convertible debentures 72,875 8,724 14,855 3 96,454
Commodities — 11,696 — 11,696
Total $164,712 $135,374 $35,749 $335,835

Cash Instrument Liabilities at Fair Value as of December 2012


in millions Level 1 Level 2 Level 3 Total
U.S. government and federal agency obligations $ 15,475 $ 430 $ — $ 15,905
Non-U.S. government and agency obligations 31,011 1,350 — 32,361
Mortgage and other asset-backed loans and securities:
Loans and securities backed by residential real estate — 4 — 4
Bank loans and bridge loans — 1,143 636 1,779
Corporate debt securities 28 5,731 2 5,761
State and municipal obligations — 1 — 1
Equities and convertible debentures 19,416 986 4 20,406
Total $ 65,930 $ 9,645 $ 642 $ 76,217

1. Includes $489 million and $446 million of CDOs backed by real estate in level 2 and level 3, respectively.
2. Includes $284 million and $1.76 billion of CDOs and CLOs backed by corporate obligations in level 2 and level 3, respectively.
3. Includes $12.67 billion of private equity investments, $1.58 billion of investments in real estate entities and $600 million of convertible debentures.

Transfers Between Levels of the Fair Value Hierarchy


Transfers between levels of the fair value hierarchy are During 2012, transfers into level 2 from level 1 of cash
reported at the beginning of the reporting period in which instruments were $1.85 billion, including transfers of non-
they occur. During 2013, transfers into level 2 from level 1 U.S. government obligations of $1.05 billion, reflecting the
of cash instruments were $1 million, reflecting transfers of level of market activity in these instruments, and transfers
public equity securities due to decreased market activity in of equity securities of $806 million, primarily reflecting the
these instruments. Transfers into level 1 from level 2 of cash impact of transfer restrictions. Transfers into level 1 from
instruments were $79 million, reflecting transfers of public level 2 of cash instruments were $302 million, including
equity securities, primarily due to increased market activity transfers of non-U.S. government obligations of
in these instruments. $180 million, reflecting the level of market activity in these
instruments, and transfers of equity securities of
$102 million, where the firm was able to obtain quoted
prices for certain actively traded instruments.

130 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Level 3 Rollforward
If a cash instrument asset or liability was transferred to instruments and/or level 1, level 2 or level 3 derivatives. As
level 3 during a reporting period, its entire gain or loss for a result, gains or losses included in the level 3 rollforward
the period is included in level 3. below do not necessarily represent the overall impact on the
firm’s results of operations, liquidity or capital resources.
Level 3 cash instruments are frequently economically
hedged with level 1 and level 2 cash instruments and/or The tables below present changes in fair value for all cash
level 1, level 2 or level 3 derivatives. Accordingly, gains or instrument assets and liabilities categorized as level 3 as of
losses that are reported in level 3 can be partially offset by the end of the year. Purchases in the tables below include
gains or losses attributable to level 1 or level 2 cash both originations and secondary market purchases.

Level 3 Cash Instrument Assets at Fair Value for the Year Ended December 2013
Net unrealized
gains/(losses)
Net relating to
Balance, realized instruments Transfers Transfers Balance,
beginning gains/ still held at into out of end of
in millions of year (losses) year-end Purchases Sales Settlements level 3 level 3 year
Non-U.S. government and
agency obligations $ 26 $ 7 $ 5 $ 12 $ (20) $ — $ 10 $ — $ 40
Mortgage and other asset-backed
loans and securities:
Loans and securities backed by
commercial real estate 3,389 206 224 733 (894) (1,055) 262 (173) 2,692
Loans and securities backed by
residential real estate 1,619 143 150 660 (467) (269) 209 (84) 1,961
Bank loans and bridge loans 11,235 529 444 3,725 (2,390) (4,778) 942 (383) 9,324
Corporate debt securities 2,821 407 398 1,140 (1,584) (576) 404 (137) 2,873
State and municipal obligations 619 6 (2) 134 (492) (2) 6 (12) 257
Other debt obligations 1,185 47 38 648 (445) (161) 14 (519) 807
Equities and convertible debentures 14,855 189 1,709 1,866 (862) (1,610) 882 (2,344) 14,685
Total $35,749 $1,534 1 $2,966 1 $8,918 $(7,154) $(8,451) $2,729 $(3,652) $32,639

Level 3 Cash Instrument Liabilities at Fair Value for the Year Ended December 2013
Net unrealized
(gains)/losses
Net relating to
Balance, realized instruments Transfers Transfers Balance,
beginning (gains)/ still held at into out of end of
in millions of year losses year-end Purchases Sales Settlements level 3 level 3 year
Total $ 642 $ (1) $ (64) $ (432) $ 269 $ 8 $ 35 $ (160) $ 297

1. The aggregate amounts include gains of approximately $1.09 billion, $2.69 billion and $723 million reported in “Market making,” “Other principal transactions” and
“Interest income,” respectively.

The net unrealized gain on level 3 cash instruments of Transfers into level 3 during 2013 primarily reflected
$3.03 billion (reflecting $2.97 billion on cash instrument transfers of certain bank loans and bridge loans and private
assets and $64 million on cash instrument liabilities) for equity investments from level 2, principally due to a lack of
2013 primarily consisted of gains on private equity market transactions in these instruments.
investments, principally driven by strong corporate
Transfers out of level 3 during 2013 primarily reflected
performance, bank loans and bridge loans, primarily due to
transfers of certain private equity investments to level 2,
tighter credit spreads and favorable company-specific
principally due to increased transparency of market prices
events, and corporate debt securities, primarily due to
as a result of market transactions in these instruments.
tighter credit spreads.

Goldman Sachs 2013 Annual Report 131


Notes to Consolidated Financial Statements

Level 3 Cash Instrument Assets at Fair Value for the Year Ended December 2012
Net unrealized
gains/(losses)
Net relating to
Balance, realized instruments Transfers Transfers Balance,
beginning gains/ still held at into out of end of
in millions of year (losses) year-end Purchases Sales Settlements level 3 level 3 year
Non-U.S. government and
agency obligations $ 148 $ 2 $ (52) $ 16 $ (40) $ (45) $ 1 $ (4) $ 26
Mortgage and other asset-backed
loans and securities:
Loans and securities backed by
commercial real estate 3,346 238 232 1,613 (910) (1,389) 337 (78) 3,389
Loans and securities backed by
residential real estate 1,709 146 276 703 (844) (380) 65 (56) 1,619
Bank loans and bridge loans 11,285 592 322 4,595 (2,794) (2,738) 1,178 (1,205) 11,235
Corporate debt securities 2,480 331 266 1,143 (961) (438) 197 (197) 2,821
State and municipal obligations 599 26 2 96 (90) (22) 8 — 619
Other debt obligations 1,451 64 (25) 759 (355) (125) 39 (623) 1 1,185
Equities and convertible debentures 13,667 292 992 3,071 (702) (1,278) 965 (2,152) 14,855
Total $34,685 $1,691 2 $2,013 2 $11,996 $(6,696) $(6,415) $2,790 $(4,315) $35,749

Level 3 Cash Instrument Liabilities at Fair Value for the Year Ended December 2012
Net unrealized
(gains)/losses
Net relating to
Balance, realized instruments Transfers Transfers Balance,
beginning (gains)/ still held at into out of end of
in millions of year losses year-end Purchases Sales Settlements level 3 level 3 year
Total $ 905 $ (19) $ (54) $ (530) $ 366 $ 45 $ 63 $ (134) $ 642

1. Primarily reflects transfers related to the firm’s reinsurance business of level 3 “Other debt obligations” within cash instruments at fair value to level 3 “Other
assets,” within other financial assets at fair value, as this business was classified as held for sale as of December 2012. See Note 8 for further information.
2. The aggregate amounts include gains of approximately $617 million, $2.13 billion and $962 million reported in “Market making,” “Other principal transactions” and
“Interest income,” respectively.

The net unrealized gain on level 3 cash instruments of loans, and private equity investments, principally due to a
$2.07 billion (reflecting $2.01 billion of gains on cash lack of market transactions in these instruments.
instrument assets and $54 million of gains on cash
Transfers out of level 3 during 2012 primarily reflected
instrument liabilities) for 2012 primarily consisted of gains
transfers to level 2 of certain private equity investments and
on private equity investments, mortgage and other asset-
bank loans and bridge loans. Transfers of private equity
backed loans and securities, bank loans and bridge loans,
investments to level 2 were principally due to improved
and corporate debt securities. Unrealized gains for 2012
transparency of market prices as a result of market
primarily reflected the impact of an increase in global equity
transactions in these instruments. Transfers of bank loans
prices and tighter credit spreads.
and bridge loans to level 2 were principally due to market
Transfers into level 3 during 2012 primarily reflected transactions in these instruments and unobservable inputs
transfers from level 2 of certain bank loans and bridge no longer being significant to the valuation of certain loans.

132 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Investments in Funds That Calculate Net Asset


Value Per Share
Cash instruments at fair value include investments in funds Many of the funds described above are “covered funds” as
that are valued based on the net asset value per share defined by the Volcker Rule of the U.S. Dodd-Frank Wall
(NAV) of the investment fund. The firm uses NAV as its Street Reform and Consumer Protection Act (Dodd-Frank
measure of fair value for fund investments when (i) the fund Act) which has a conformance period that ends in July 2015
investment does not have a readily determinable fair value subject to possible extensions through 2017.
and (ii) the NAV of the investment fund is calculated in a
The firm continues to manage its existing funds, taking into
manner consistent with the measurement principles of
account the transition periods under the Volcker Rule. The
investment company accounting, including measurement of
firm is currently redeeming certain of its interests in hedge
the underlying investments at fair value.
funds to comply with the Volcker Rule. Since March 2012,
The firm’s investments in funds that calculate NAV the firm has redeemed approximately $2.21 billion of these
primarily consist of investments in firm-sponsored private interests in hedge funds, including approximately
equity, credit, real estate and hedge funds where the firm $1.15 billion during 2013 and $1.06 billion during 2012.
co-invests with third-party investors.
For certain of the firm’s covered funds, in order to be
Private equity funds primarily invest in a broad range of compliant with the Volcker Rule by the prescribed
industries worldwide in a variety of situations, including compliance date, to the extent that the underlying
leveraged buyouts, recapitalizations, growth investments investments of the particular funds are not sold, the firm
and distressed investments. Credit funds generally invest in may be required to sell its investments in such funds. If that
loans and other fixed income instruments and are focused occurs, the firm could receive a value for its investments
on providing private high-yield capital for mid- to large- that is less than the then carrying value, as there could be a
sized leveraged and management buyout transactions, limited secondary market for these investments and the firm
recapitalizations, financings, refinancings, acquisitions and may be unable to sell them in orderly transactions.
restructurings for private equity firms, private family
The tables below present the fair value of the firm’s
companies and corporate issuers. Real estate funds invest
investments in, and unfunded commitments to, funds that
globally, primarily in real estate companies, loan portfolios,
calculate NAV.
debt recapitalizations and property. The private equity,
credit and real estate funds are primarily closed-end funds
As of December 2013
in which the firm’s investments are not eligible for
Fair Value of Unfunded
redemption. Distributions will be received from these funds in millions Investments Commitments
as the underlying assets are liquidated. Private equity funds $ 7,446 $2,575
The firm also invests in hedge funds, primarily multi- Credit funds 3,624 2,515
Hedge funds 1,394 —
disciplinary hedge funds that employ a fundamental
Real estate funds 1,908 471
bottom-up investment approach across various asset classes
Total $14,372 $5,561
and strategies including long/short equity, credit,
convertibles, risk arbitrage, special situations and capital
structure arbitrage. These investments in hedge funds are As of December 2012

generally redeemable on a quarterly basis with 91 days’ Fair Value of Unfunded


in millions Investments Commitments
notice, subject to a maximum redemption level of 25% of
Private equity funds $ 7,680 $2,778
the firm’s initial investments at any quarter-end; however,
Credit funds 3,927 2,843
these investments also include interests where the Hedge funds 2,167 —
underlying assets are illiquid in nature, and proceeds from Real estate funds 2,006 870
redemptions will not be distributed until the underlying Total $15,780 $6,491
assets are liquidated.

Goldman Sachs 2013 Annual Report 133


Notes to Consolidated Financial Statements

Note 7.
Derivatives and Hedging Activities
Derivative Activities
Derivatives are instruments that derive their value from The firm enters into various types of derivatives, including:
underlying asset prices, indices, reference rates and other
‰ Futures and Forwards. Contracts that commit
inputs, or a combination of these factors. Derivatives may
counterparties to purchase or sell financial instruments,
be traded on an exchange (exchange-traded) or they may be
commodities or currencies in the future.
privately negotiated contracts, which are usually referred to
as over-the-counter (OTC) derivatives. Certain of the firm’s ‰ Swaps. Contracts that require counterparties to
OTC derivatives are cleared and settled through central exchange cash flows such as currency or interest payment
clearing counterparties (OTC-cleared), while others are streams. The amounts exchanged are based on the
bilateral contracts between two counterparties specific terms of the contract with reference to specified
(bilateral OTC). rates, financial instruments, commodities, currencies
or indices.
Market-Making. As a market maker, the firm enters into
derivative transactions to provide liquidity to clients and to ‰ Options. Contracts in which the option purchaser has
facilitate the transfer and hedging of their risks. In this the right, but not the obligation, to purchase from or sell
capacity, the firm typically acts as principal and is to the option writer financial instruments, commodities
consequently required to commit capital to provide or currencies within a defined time period for a
execution. As a market maker, it is essential to maintain an specified price.
inventory of financial instruments sufficient to meet
Derivatives are reported on a net-by-counterparty basis
expected client and market demands.
(i.e., the net payable or receivable for derivative assets and
Risk Management. The firm also enters into derivatives to liabilities for a given counterparty) when a legal right of
actively manage risk exposures that arise from its market- setoff exists under an enforceable netting agreement
making and investing and lending activities in derivative (counterparty netting). Derivatives are accounted for at fair
and cash instruments. The firm’s holdings and exposures value, net of cash collateral received or posted under
are hedged, in many cases, on either a portfolio or risk- enforceable credit support agreements (collateral netting).
specific basis, as opposed to an instrument-by-instrument Derivative assets and liabilities are included in “Financial
basis. The offsetting impact of this economic hedging is instruments owned, at fair value” and “Financial
reflected in the same business segment as the related instruments sold, but not yet purchased, at fair value,”
revenues. In addition, the firm may enter into derivatives respectively. Substantially all gains and losses on derivatives
designated as hedges under U.S. GAAP. These derivatives not designated as hedges under ASC 815 are included in
are used to manage interest rate exposure in certain fixed- “Market making” and “Other principal transactions.”
rate unsecured long-term and short-term borrowings, and
The table below presents the fair value of derivatives on a
deposits, to manage foreign currency exposure on the net
net-by-counterparty basis.
investment in certain non-U.S. operations, and to manage
the exposure to the variability in cash flows associated with
As of December 2013
the forecasted sales of certain energy commodities by one of
Derivative Derivative
the firm’s consolidated investments. in millions Assets Liabilities
Exchange-traded $ 4,277 $ 6,366
OTC 53,602 43,356
Total $57,879 $49,722

As of December 2012
Derivative Derivative
in millions Assets Liabilities
Exchange-traded $ 3,772 $ 2,937
OTC 67,404 47,490
Total $71,176 $50,427

134 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

The table below presents the fair value and the notional agreements that do not meet the criteria for netting under
amount of derivative contracts by major product type on a U.S. GAAP. Where the firm has received or posted collateral
gross basis. Gross fair values exclude the effects of both under credit support agreements, but has not yet determined
counterparty netting and collateral, and therefore are not such agreements are enforceable, the related collateral has
representative of the firm’s exposure. The table below also not been netted in the table below. Notional amounts, which
presents the amounts of counterparty netting and cash represent the sum of gross long and short derivative
collateral that have been offset in the consolidated statements contracts, provide an indication of the volume of the firm’s
of financial condition, as well as cash and securities collateral derivative activity and do not represent anticipated losses.
posted and received under enforceable credit support
As of December 2013 As of December 2012
Derivative Derivative Notional Derivative Derivative Notional
in millions Assets Liabilities Amount Assets Liabilities Amount
Derivatives not accounted for as hedges
Interest rates $ 641,186 $ 587,110 $44,110,483 $ 584,584 $ 545,605 $34,891,763
Exchange-traded 157 271 2,366,448 47 26 2,502,867
OTC-cleared 1 266,230 252,596 24,888,301 8,847 11,011 14,678,349
Bilateral OTC 374,799 334,243 16,855,734 575,690 534,568 17,710,547
Credit 60,751 56,340 2,946,376 85,816 74,927 3,615,757
OTC-cleared 3,943 4,482 348,848 3,359 2,638 304,100
Bilateral OTC 56,808 51,858 2,597,528 82,457 72,289 3,311,657
Currencies 70,757 63,659 4,311,971 72,128 60,808 3,833,114
Exchange-traded 98 122 23,908 31 82 12,341
OTC-cleared 88 97 11,319 14 14 5,487
Bilateral OTC 70,571 63,440 4,276,744 72,083 60,712 3,815,286
Commodities 18,007 18,228 701,101 23,320 24,350 774,115
Exchange-traded 4,323 3,661 346,057 5,360 5,040 344,823
OTC-cleared 11 12 135 26 23 327
Bilateral OTC 13,673 14,555 354,909 17,934 19,287 428,965
Equities 56,719 55,472 1,406,499 49,483 43,681 1,202,181
Exchange-traded 10,544 13,157 534,840 9,409 8,864 441,494
Bilateral OTC 46,175 42,315 871,659 40,074 34,817 760,687
Subtotal 847,420 780,809 53,476,430 815,331 749,371 44,316,930
Derivatives accounted for as hedges
Interest rates 11,403 429 132,879 23,772 66 128,302
OTC-cleared 1 1,327 27 10,637 — — —
Bilateral OTC 10,076 402 122,242 23,772 66 128,302
Currencies 74 56 9,296 21 86 8,452
OTC-cleared 1 10 869 — — 3
Bilateral OTC 73 46 8,427 21 86 8,449
Commodities 36 — 335 — — —
Exchange-traded — — 23 — — —
Bilateral OTC 36 — 312 — — —
Subtotal 11,513 485 142,510 23,793 152 136,754
Gross fair value/notional amount of derivatives $ 858,933 2 $ 781,294 2 $53,618,940 $ 839,124 2 $ 749,523 2 $44,453,684
Amounts that have been offset in the consolidated statements of
financial condition
Counterparty netting (707,411) (707,411) (668,460) (668,460)
Exchange-traded (10,845) (10,845) (11,075) (11,075)
OTC-cleared 1 (254,756) (254,756) (11,507) (11,507)
Bilateral OTC (441,810) (441,810) (645,878) (645,878)
Cash collateral (93,643) (24,161) (99,488) (30,636)
OTC-cleared 1 (16,353) (2,515) (468) (2,160)
Bilateral OTC (77,290) (21,646) (99,020) (28,476)
Fair value included in financial instruments owned/financial
instruments sold, but not yet purchased $ 57,879 $ 49,722 $ 71,176 $ 50,427
Amounts that have not been offset in the consolidated statements of
financial condition
Cash collateral received/posted (636) (2,806) (812) (2,994)
Securities collateral received/posted (13,225) (10,521) (17,225) (14,262)
Total $ 44,018 $ 36,395 $ 53,139 $ 33,171

1. Pursuant to the rule changes at a clearing organization, effective December 31, 2013, transactions with this clearing organization are no longer considered settled
each day. This change resulted in an increase of gross interest rate derivative assets and liabilities of $251.76 billion and $235.07 billion, respectively, as of
December 2013, and a corresponding increase in counterparty netting and cash collateral with no impact to the consolidated statements of financial condition. The
impact of reflecting transactions with this clearing organization as settled as of December 2012 resulted in a reduction of gross interest rate derivative assets and
liabilities of $315.40 billion and $298.69 billion, respectively.
2. Includes derivative assets and derivative liabilities of $23.18 billion and $23.46 billion, respectively, as of December 2013, and derivative assets and derivative
liabilities of $24.62 billion and $25.73 billion, respectively, as of December 2012, 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 2013 Annual Report 135


Notes to Consolidated Financial Statements

Valuation Techniques for Derivatives Commodity. Commodity derivatives include transactions


The firm’s level 2 and level 3 derivatives are valued using referenced to energy (e.g., oil and natural gas), metals (e.g.,
derivative pricing models (e.g., discounted cash flow precious and base) and soft commodities (e.g., agricultural).
models, correlation models, and models that incorporate Price transparency varies based on the underlying
option pricing methodologies, such as Monte Carlo commodity, delivery location, tenor and product quality
simulations). Price transparency of derivatives can generally (e.g., diesel fuel compared to unleaded gasoline). In general,
be characterized by product type. price transparency for commodity derivatives is greater for
contracts with shorter tenors and contracts that are more
Interest Rate. In general, the prices and other inputs used
closely aligned with major and/or benchmark
to value interest rate derivatives are transparent, even for
commodity indices.
long-dated contracts. Interest rate swaps and options
denominated in the currencies of leading industrialized Equity. Price transparency for equity derivatives varies by
nations are characterized by high trading volumes and tight market and underlier. Options on indices and the common
bid/offer spreads. Interest rate derivatives that reference stock of corporates included in major equity indices exhibit
indices, such as an inflation index, or the shape of the yield the most price transparency. Equity derivatives generally
curve (e.g., 10-year swap rate vs. 2-year swap rate) are have observable market prices, except for contracts with
more complex, but the prices and other inputs are long tenors or reference prices that differ significantly from
generally observable. current market prices. More complex equity derivatives,
such as those sensitive to the correlation between two or
Credit. Price transparency for credit default swaps,
more individual stocks, generally have less
including both single names and baskets of credits, varies
price transparency.
by market and underlying reference entity or obligation.
Credit default swaps that reference indices, large corporates Liquidity is essential to observability of all product types. If
and major sovereigns generally exhibit the most price transaction volumes decline, previously transparent prices
transparency. For credit default swaps with other and other inputs may become unobservable. Conversely,
underliers, price transparency varies based on credit rating, even highly structured products may at times have trading
the cost of borrowing the underlying reference obligations, volumes large enough to provide observability of prices and
and the availability of the underlying reference obligations other inputs. See Note 5 for an overview of the firm’s fair
for delivery upon the default of the issuer. Credit default value measurement policies.
swaps that reference loans, asset-backed securities and
Level 1 Derivatives
emerging market debt instruments tend to have less price
Level 1 derivatives include short-term contracts for future
transparency than those that reference corporate bonds. In
delivery of securities when the underlying security is a
addition, more complex credit derivatives, such as those
level 1 instrument, and exchange-traded derivatives if they
sensitive to the correlation between two or more underlying
are actively traded and are valued at their quoted
reference obligations, generally have less
market price.
price transparency.
Level 2 Derivatives
Currency. Prices for currency derivatives based on the
Level 2 derivatives include OTC derivatives for which all
exchange rates of leading industrialized nations, including
significant valuation inputs are corroborated by market
those with longer tenors, are generally transparent. The
evidence and exchange-traded derivatives that are not
primary difference between the price transparency of
actively traded and/or that are valued using models that
developed and emerging market currency derivatives is that
calibrate to market-clearing levels of OTC derivatives. In
emerging markets tend to be observable for contracts with
evaluating the significance of a valuation input, the firm
shorter tenors.
considers, among other factors, a portfolio’s net risk
exposure to that input.

136 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

The selection of a particular model to value a derivative ‰ For level 3 equity derivatives, significant unobservable
depends on the contractual terms of and specific risks inputs generally include equity volatility inputs for
inherent in the instrument, as well as the availability of options that are very long-dated and/or have strike prices
pricing information in the market. For derivatives that that differ significantly from current market prices. In
trade in liquid markets, model selection does not involve addition, the valuation of certain structured trades
significant management judgment because outputs of requires the use of level 3 correlation inputs, such as the
models can be calibrated to market-clearing levels. correlation of the price performance of two or more
individual stocks or the correlation of the price
Valuation models require a variety of inputs, such as
performance for a basket of stocks to another asset class
contractual terms, market prices, yield curves, discount
such as commodities.
rates (including those derived from interest rates on
collateral received and posted as specified in credit support ‰ For level 3 commodity derivatives, significant
agreements for collateralized derivatives), credit curves, unobservable inputs include volatilities for options with
measures of volatility, prepayment rates, loss severity rates strike prices that differ significantly from current market
and correlations of such inputs. Significant inputs to the prices and prices or spreads for certain products for which
valuations of level 2 derivatives can be verified to market the product quality or physical location of the commodity
transactions, broker or dealer quotations or other is not aligned with benchmark indices.
alternative pricing sources with reasonable levels of price
Subsequent to the initial valuation of a level 3 derivative,
transparency. Consideration is given to the nature of the
the firm updates the level 1 and level 2 inputs to reflect
quotations (e.g., indicative or firm) and the relationship of
observable market changes and any resulting gains and
recent market activity to the prices provided from
losses are recorded in level 3. Level 3 inputs are changed
alternative pricing sources.
when corroborated by evidence such as similar market
Level 3 Derivatives transactions, third-party pricing services and/or broker or
Level 3 derivatives are valued using models which utilize dealer quotations or other empirical market data. In
observable level 1 and/or level 2 inputs, as well as circumstances where the firm cannot verify the model value
unobservable level 3 inputs. by reference to market transactions, it is possible that a
different valuation model could produce a materially
‰ For the majority of the firm’s interest rate and currency
different estimate of fair value. See below for further
derivatives classified within level 3, significant
information about significant unobservable inputs used in
unobservable inputs include correlations of certain
the valuation of level 3 derivatives.
currencies and interest rates (e.g., the correlation between
Euro inflation and Euro interest rates) and specific Valuation Adjustments
interest rate volatilities. Valuation adjustments are integral to determining the fair
value of derivative portfolios and are used to adjust the
‰ For level 3 credit derivatives, significant unobservable
mid-market valuations produced by derivative pricing
inputs include illiquid credit spreads and upfront credit
models to the appropriate exit price valuation. These
points, which are unique to specific reference obligations
adjustments incorporate bid/offer spreads, the cost of
and reference entities, recovery rates and certain
liquidity, credit valuation adjustments and funding
correlations required to value credit and mortgage
valuation adjustments, which account for the credit and
derivatives (e.g., the likelihood of default of the
funding risk inherent in the uncollateralized portion of
underlying reference obligation relative to one another).
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 2013 Annual Report 137


Notes to Consolidated Financial Statements

Significant Unobservable Inputs


The tables below present the ranges of significant medians of these inputs are not representative of the
unobservable inputs used to value the firm’s level 3 appropriate inputs to use when calculating the fair value of
derivatives as well as the averages and medians of these any one derivative. For example, the highest correlation
inputs. The ranges represent the significant unobservable presented in the tables below for interest rate derivatives is
inputs that were used in the valuation of each type of appropriate for valuing a specific interest rate derivative but
derivative. Averages represent the arithmetic average of the may not be appropriate for valuing any other interest rate
inputs and are not weighted by the relative fair value or derivative. Accordingly, the ranges of inputs presented
notional of the respective financial instruments. An average below do not represent uncertainty in, or possible ranges of,
greater than the median indicates that the majority of fair value measurements of the firm’s level 3 derivatives.
inputs are below the average. The ranges, averages and

Net Level 3
Assets/(Liabilities)
Level 3 Derivative as of December 2013 Valuation Techniques and Range of Significant Unobservable Inputs
Product Type (in millions) Significant Unobservable Inputs (Average / Median) as of December 2013
Interest rates $(86) Option pricing models:

Correlation 2 22% to 84% (58% / 60%)

Volatility 36 basis points per annum (bpa) to


165 bpa (107 bpa / 112 bpa)

Credit $4,176 1 Option pricing models, correlation models and


discounted cash flows models:

Correlation 2 5% to 93% (61% / 61%)

Credit spreads 1 basis points (bps) to 1,395 bps (153 bps / 116 bps) 3

Upfront credit points 0 points to 100 points (46 points / 43 points)

Recovery rates 20% to 85% (50% / 40%)

Currencies $(200) Option pricing models:

Correlation 2 65% to 79% (72% / 72%)

Commodities $60 1 Option pricing models and discounted cash


flows models:

Volatility 15% to 52% (23% / 21%)

Spread per million British Thermal units


(MMBTU) of natural gas $(1.74) to $5.62 ($(0.11) / $(0.04))

Spread per Metric Tonne (MT) of coal $(17.00) to $0.50 ($(6.54) / $(5.00))

Equities $(959) Option pricing models:

Correlation 2 23% to 99% (58% / 59%)

Volatility 6% to 63% (20% / 20%)

1. 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.
2. The range of unobservable inputs for correlation across derivative product types (i.e., cross-asset correlation) was (42)% to 78% (Average: 25% / Median: 30%) as of
December 2013.
3. The difference between the average and the median for the credit spreads input indicates that the majority of the inputs fall in the lower end of the range.

138 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Net Level 3
Assets/(Liabilities) Range of Significant Unobservable
Level 3 Derivative as of December 2012 Valuation Techniques and Inputs (Average / Median) as of
Product Type (in millions) Significant Unobservable Inputs December 2012
Interest rates $(355) Option pricing models:

Correlation 2 22% to 97% (67% / 68%)

Volatility 37 bpa to 59 bpa (48 bpa / 47 bpa)

Credit $6,228 1 Option pricing models, correlation models and


discounted cash flows models:

Correlation 2 5% to 95% (50% / 50%)

Credit spreads 9 bps to 2,341 bps


(225 bps / 140 bps) 3

Recovery rates 15% to 85% (54% / 53%)

Currencies $35 Option pricing models:

Correlation 2 65% to 87% (76% / 79%)

Commodities $(304) 1 Option pricing models and discounted cash


flows models:

Volatility 13% to 53% (30% / 29%)

Spread per MMBTU of natural gas $(0.61) to $6.07 ($0.02 / $0.00)

Price per megawatt hour of power $17.30 to $57.39 ($33.17 / $32.80)

Price per barrel of oil $86.64 to $98.43 ($92.76 / $93.62)

Equities $(1,248) Option pricing models:

Correlation 2 48% to 98% (68% / 67%)

Volatility 15% to 73% (31% / 30%)

1. 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.
2. The range of unobservable inputs for correlation across derivative product types (i.e., cross-asset correlation) was (51)% to 66% (Average: 30% / Median: 35%) as of
December 2012.
3. The difference between the average and the median for the credit spreads input indicates that the majority of the inputs fall in the lower end of the range.

Goldman Sachs 2013 Annual Report 139


Notes to Consolidated Financial Statements

Range of Significant Unobservable Inputs Sensitivity of Fair Value Measurement to Changes


The following provides further information about the in Significant Unobservable Inputs
ranges of significant unobservable inputs used to value the The following provides a description of the directional
firm’s level 3 derivative instruments. sensitivity of the firm’s level 3 fair value measurements to
changes in significant unobservable inputs, in isolation.
‰ Correlation: Ranges for correlation cover a variety of
Due to the distinctive nature of each of the firm’s level 3
underliers both within one market (e.g., equity index and
derivatives, the interrelationship of inputs is not necessarily
equity single stock names) and across markets (e.g.,
uniform within each product type.
correlation of a commodity price and a foreign exchange
rate), as well as across regions. Generally, cross-asset ‰ Correlation: In general, for contracts where the holder
correlation inputs are used to value more complex benefits from the convergence of the underlying asset or
instruments and are lower than correlation inputs on index prices (e.g., interest rates, credit spreads, foreign
assets within the same derivative product type. exchange rates, inflation rates and equity prices), an
increase in correlation results in a higher fair
‰ Volatility: Ranges for volatility cover numerous
value measurement.
underliers across a variety of markets, maturities and
strike prices. For example, volatility of equity indices is ‰ Volatility: In general, for purchased options an increase in
generally lower than volatility of single stocks. volatility results in a higher fair value measurement.
‰ Credit spreads, upfront credit points and recovery rates: ‰ Credit spreads, upfront credit points and recovery rates:
The ranges for credit spreads, upfront credit points and In general, the fair value of purchased credit protection
recovery rates cover a variety of underliers (index and increases as credit spreads or upfront credit points
single names), regions, sectors, maturities and credit increase or recovery rates decrease. Credit spreads,
qualities (high-yield and investment-grade). The broad upfront credit points and recovery rates are strongly
range of this population gives rise to the width of the related to distinctive risk factors of the underlying
ranges of significant unobservable inputs. reference obligations, which include reference entity-
specific factors such as leverage, volatility and industry,
‰ Commodity prices and spreads: The ranges for
market-based risk factors, such as borrowing costs or
commodity prices and spreads cover variability in
liquidity of the underlying reference obligation, and
products, maturities and locations, as well as peak and
macroeconomic conditions.
off-peak prices.
‰ 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.

140 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Fair Value of Derivatives by Level


The tables below present the fair value of derivatives on a Counterparty netting is reflected in each level to the extent
gross basis by level and major product type as well as the that receivable and payable balances are netted within the
impact of netting. The gross fair values exclude the effects same level. Where the netting of receivable and payable
of both counterparty netting and collateral netting, and balances is across levels, the counterparty netting is
therefore are not representative of the firm’s exposure. reflected in “Cross-level netting.” Cash collateral netting is
reflected in “Cash collateral.”

Derivative Assets at Fair Value as of December 2013


Cross-Level
in millions Level 1 Level 2 Level 3 Netting Total
Interest rates $91 $ 652,104 $ 394 $ — $ 652,589
Credit — 52,834 7,917 — 60,751
Currencies — 70,481 350 — 70,831
Commodities — 17,517 526 — 18,043
Equities 3 55,826 890 — 56,719
Gross fair value of derivative assets 94 848,762 10,077 — 858,933
Counterparty netting — (702,703) (3,001) (1,707) (707,411)
Subtotal $94 $ 146,059 $ 7,076 $(1,707) $ 151,522
Cash collateral (93,643)
Fair value included in financial instruments owned $ 57,879

Derivative Liabilities at Fair Value as of December 2013


Cross-Level
in millions Level 1 Level 2 Level 3 Netting Total
Interest rates $93 $ 586,966 $ 480 $ — $ 587,539
Credit — 52,599 3,741 — 56,340
Currencies — 63,165 550 — 63,715
Commodities — 17,762 466 — 18,228
Equities 6 53,617 1,849 — 55,472
Gross fair value of derivative liabilities 99 774,109 7,086 — 781,294
Counterparty netting — (702,703) (3,001) (1,707) (707,411)
Subtotal $99 $ 71,406 $ 4,085 $(1,707) $ 73,883
Cash collateral (24,161)
Fair value included in financial instruments sold,
but not yet purchased $ 49,722

Goldman Sachs 2013 Annual Report 141


Notes to Consolidated Financial Statements

Derivative Assets at Fair Value as of December 2012


Cross-Level
in millions Level 1 Level 2 Level 3 Netting Total
Interest rates $13 $ 608,151 $ 192 $ — $ 608,356
Credit — 74,907 10,909 — 85,816
Currencies — 71,157 992 — 72,149
Commodities — 22,697 623 — 23,320
Equities 43 48,698 742 — 49,483
Gross fair value of derivative assets 56 825,610 13,458 — 839,124
Counterparty netting — (662,798) (3,538) (2,124) (668,460)
Subtotal $56 $ 162,812 $ 9,920 $(2,124) $ 170,664
Cash collateral (99,488)
Fair value included in financial instruments owned $ 71,176

Derivative Liabilities at Fair Value as of December 2012


Cross-Level
in millions Level 1 Level 2 Level 3 Netting Total
Interest rates $14 $ 545,110 $ 547 $ — $ 545,671
Credit — 70,246 4,681 — 74,927
Currencies — 59,937 957 — 60,894
Commodities — 23,423 927 — 24,350
Equities 50 41,641 1,990 — 43,681
Gross fair value of derivative liabilities 64 740,357 9,102 — 749,523
Counterparty netting — (662,798) (3,538) (2,124) (668,460)
Subtotal $64 $ 77,559 $ 5,564 $(2,124) $ 81,063
Cash collateral (30,636)
Fair value included in financial instruments sold,
but not yet purchased $ 50,427

142 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Level 3 Rollforward
If a derivative was transferred to level 3 during a reporting ‰ If there is one significant level 3 input, the entire gain or
period, its entire gain or loss for the period is included in loss from adjusting only observable inputs (i.e., level 1
level 3. Transfers between levels are reported at the and level 2 inputs) is classified as level 3.
beginning of the reporting period in which they occur. In
‰ Gains or losses that have been reported in level 3 resulting
the tables below, negative amounts for transfers into level 3
from changes in level 1 or level 2 inputs are frequently
and positive amounts for transfers out of level 3 represent
offset by gains or losses attributable to level 1 or level 2
net transfers of derivative liabilities.
derivatives and/or level 1, level 2 and level 3 cash
Gains and losses on level 3 derivatives should be considered instruments. As a result, gains/(losses) included in the
in the context of the following: level 3 rollforward below do not necessarily represent the
overall impact on the firm’s results of operations,
‰ A derivative with level 1 and/or level 2 inputs is classified
liquidity or capital resources.
in level 3 in its entirety if it has at least one significant
level 3 input. The tables below present changes in fair value for all
derivatives categorized as level 3 as of the end of the year.

Level 3 Derivative Assets and Liabilities at Fair Value for the Year Ended December 2013
Net unrealized
Asset/ gains/(losses) Asset/
(liability) Net relating to (liability)
balance, realized instruments Transfers Transfers balance,
beginning gains/ still held at into out of end of
in millions of year (losses) year-end Purchases Sales Settlements level 3 level 3 year
Interest rates — net $ (355) $ (78) $ 168 $ 1 $ (8) $ 196 $ (9) $ (1) $ (86)
Credit — net 6,228 (1) (977) 201 (315) (1,508) 695 (147) 4,176
Currencies — net 35 (93) (419) 22 (6) 169 139 (47) (200)
Commodities — net (304) (6) 58 21 (48) 281 50 8 60
Equities — net (1,248) (67) (202) 77 (472) 1,020 (15) (52) (959)
Total derivatives — net $ 4,356 $(245) 1 $(1,372) 1 $322 $(849) $ 158 $860 $(239) $2,991

1. The aggregate amounts include losses of approximately $1.29 billion and $324 million reported in “Market making” and “Other principal transactions,” respectively.

The net unrealized loss on level 3 derivatives of Transfers out of level 3 derivatives during 2013 primarily
$1.37 billion for 2013 principally resulted from changes in reflected transfers of certain credit derivatives to level 2,
level 2 inputs and was primarily attributable to losses on principally due to unobservable credit spread and
certain credit derivatives, principally due to the impact of correlation inputs no longer being significant to the
tighter credit spreads, and losses on certain currency valuation of these derivatives and unobservable inputs not
derivatives, primarily due to changes in foreign being significant to the net risk of certain portfolios.
exchange rates.
Transfers into level 3 derivatives during 2013 primarily
reflected transfers of credit derivative assets from level 2,
principally due to reduced transparency of upfront credit
points and correlation inputs used to value
these derivatives.

Goldman Sachs 2013 Annual Report 143


Notes to Consolidated Financial Statements

Level 3 Derivative Assets and Liabilities at Fair Value for the Year Ended December 2012
Net unrealized
Asset/ gains/(losses) Asset/
(liability) Net relating to (liability)
balance, realized instruments Transfers Transfers balance,
beginning gains/ still held at into out of end of
in millions of year (losses) year-end Purchases Sales Settlements level 3 level 3 year
Interest rates — net $ (371) $ (60) $ 19 $ 7 $ (28) $ 71 $ 68 $ (61) $ (355)
Credit — net 6,300 246 (701) 138 (270) (1,597) 2,503 (391) 6,228
Currencies — net 842 (17) (502) 17 (5) (144) 65 (221) 35
Commodities — net (605) (11) 228 63 (410) 307 (41) 165 (304)
Equities — net (432) (80) (276) 123 (724) 267 (50) (76) (1,248)
Total derivatives — net $5,734 $ 78 1 $(1,232) 1 $348 $(1,437) $(1,096) $2,545 $(584) $ 4,356

1. The aggregate amounts include losses of approximately $903 million and $251 million reported in “Market making” and “Other principal transactions,” respectively.

The net unrealized loss on level 3 derivatives of Impact of Credit Spreads on Derivatives
$1.23 billion for 2012 principally resulted from changes in On an ongoing basis, the firm realizes gains or losses
level 2 inputs and was primarily attributable to the impact relating to changes in credit risk through the unwind of
of tighter credit spreads, changes in foreign exchange rates derivative contracts and changes in credit mitigants.
and increases in global equity prices on certain derivatives,
The net gain/(loss), including hedges, attributable to the
partially offset by the impact of a decline in volatility on
impact of changes in credit exposure and credit spreads
certain commodity derivatives.
(counterparty and the firm’s) on derivatives was
Transfers into level 3 derivatives during 2012 primarily $(66) million for 2013, $(735) million for 2012 and
reflected transfers from level 2 of certain credit derivative $573 million for 2011.
assets, principally due to unobservable inputs becoming
Bifurcated Embedded Derivatives
significant to the valuation of these derivatives, and
The table below presents the fair value and the notional
transfers from level 2 of other credit derivative assets,
amount of derivatives that have been bifurcated from their
principally due to reduced transparency of correlation
related borrowings. These derivatives, which are recorded
inputs used to value these derivatives.
at fair value, primarily consist of interest rate, equity and
Transfers out of level 3 derivatives during 2012 primarily commodity products and are included in “Unsecured short-
reflected transfers to level 2 of certain credit derivative term borrowings” and “Unsecured long-term borrowings”
assets, principally due to unobservable inputs no longer with the related borrowings. See Note 8 for
being significant to the valuation of these derivatives, further information.
transfers to level 2 of certain currency derivative assets,
principally due to unobservable correlation inputs no As of December
longer being significant to the valuation of these derivatives, in millions 2013 2012
and transfers to level 2 of certain commodity derivative Fair value of assets $ 285 $ 320
liabilities, principally due to increased transparency of Fair value of liabilities 373 398
volatility inputs used to value these derivatives. Net liability $ 88 $ 78
Notional amount $7,580 $10,567

144 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

OTC Derivatives
The tables below present the fair values of OTC derivative ‰ Counterparty netting across product types within a tenor
assets and liabilities by tenor and by product type. Tenor is category is reflected in “Netting across product
based on expected duration for mortgage-related credit types;” and
derivatives and generally on remaining contractual
‰ Counterparty netting across tenor categories is reflected
maturity for other derivatives. Counterparty netting is
in “Cross maturity netting.”
reflected in the tables below as follows:
‰ Counterparty netting within the same product type and
tenor category is included within such product type and
tenor category;

in millions OTC Derivatives as of December 2013


Assets 0 - 12 1-5 5 Years or
Product Type Months Years Greater Total
Interest rates $ 7,235 $26,029 $75,731 $108,995
Credit 1,233 8,410 5,787 15,430
Currencies 9,499 8,478 7,361 25,338
Commodities 2,843 4,040 143 7,026
Equities 7,016 9,229 4,972 21,217
Netting across product types (2,559) (5,063) (3,395) (11,017)
Subtotal $25,267 $51,123 $90,599 $166,989
Cross maturity netting (19,744)
Cash collateral 1 (93,643)
Total $ 53,602

Liabilities 0 - 12 1-5 5 Years or


Product Type Months Years Greater Total
Interest rates $ 5,019 $16,910 $21,903 $ 43,832
Credit 2,339 6,778 1,901 11,018
Currencies 8,843 5,042 4,313 18,198
Commodities 3,062 2,424 2,387 7,873
Equities 6,325 6,964 4,068 17,357
Netting across product types (2,559) (5,063) (3,395) (11,017)
Subtotal $23,029 $33,055 $31,177 $ 87,261
Cross maturity netting (19,744)
Cash collateral 1 (24,161)
Total $ 43,356

1. Represents the netting of cash collateral received and posted on a counterparty basis under enforceable credit support agreements.

Goldman Sachs 2013 Annual Report 145


Notes to Consolidated Financial Statements

in millions OTC Derivatives as of December 2012


Assets 0 - 12 1-5 5 Years or
Product Type Months Years Greater Total
Interest rates $10,318 $28,445 $ 80,449 $119,212
Credit 2,190 12,244 7,970 22,404
Currencies 11,100 8,379 11,044 30,523
Commodities 3,840 3,862 304 8,006
Equities 3,757 7,730 6,957 18,444
Netting across product types (2,811) (5,831) (5,082) (13,724)
Subtotal $28,394 $54,829 $101,642 $184,865
Cross maturity netting (17,973)
Cash collateral 1 (99,488)
Total $ 67,404

Liabilities 0 - 12 1-5 5 Years or


Product Type Months Years Greater Total
Interest rates $ 6,266 $17,860 $ 32,422 $ 56,548
Credit 809 7,537 3,168 11,514
Currencies 8,586 4,849 5,782 19,217
Commodities 3,970 3,119 2,267 9,356
Equities 3,775 5,476 3,937 13,188
Netting across product types (2,811) (5,831) (5,082) (13,724)
Subtotal $20,595 $33,010 $ 42,494 $ 96,099
Cross maturity netting (17,973)
Cash collateral 1 (30,636)
Total $ 47,490

1. Represents the netting of cash collateral received and posted on a counterparty basis under enforceable credit support agreements.

146 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Derivatives with Credit-Related Contingent Features Credit Default Swaps. Single-name credit default swaps
Certain of the firm’s derivatives have been transacted under protect the buyer against the loss of principal on one or
bilateral agreements with counterparties who may require more bonds, loans or mortgages (reference obligations) in
the firm to post collateral or terminate the transactions the event the issuer (reference entity) of the reference
based on changes in the firm’s credit ratings. The firm obligations suffers a credit event. The buyer of protection
assesses the impact of these bilateral agreements by pays an initial or periodic premium to the seller and receives
determining the collateral or termination payments that protection for the period of the contract. If there is no credit
would occur assuming a downgrade by all rating agencies. event, as defined in the contract, the seller of protection
A downgrade by any one rating agency, depending on the makes no payments to the buyer of protection. However, if
agency’s relative ratings of the firm at the time of the a credit event occurs, the seller of protection is required to
downgrade, may have an impact which is comparable to make a payment to the buyer of protection, which is
the impact of a downgrade by all rating agencies. The table calculated in accordance with the terms of the contract.
below presents the aggregate fair value of net derivative
Credit Indices, Baskets and Tranches. Credit derivatives
liabilities under such agreements (excluding application of
may reference a basket of single-name credit default swaps
collateral posted to reduce these liabilities), the related
or a broad-based index. If a credit event occurs in one of the
aggregate fair value of the assets posted as collateral, and
underlying reference obligations, the protection seller pays
the additional collateral or termination payments that
the protection buyer. The payment is typically a pro-rata
could have been called at the reporting date by
portion of the transaction’s total notional amount based on
counterparties in the event of a one-notch and two-notch
the underlying defaulted reference obligation. In certain
downgrade in the firm’s credit ratings.
transactions, the credit risk of a basket or index is separated
into various portions (tranches), each having different levels
As of December
of subordination. The most junior tranches cover initial
in millions 2013 2012
defaults and once losses exceed the notional amount of
Net derivative liabilities under
these junior tranches, any excess loss is covered by the next
bilateral agreements $22,176 $27,885
Collateral posted 18,178 24,296
most senior tranche in the capital structure.
Additional collateral or termination payments Total Return Swaps. A total return swap transfers the
for a one-notch downgrade 911 1,534
risks relating to economic performance of a reference
Additional collateral or termination payments
for a two-notch downgrade 2,989 2,500 obligation from the protection buyer to the protection
seller. Typically, the protection buyer receives from the
Credit Derivatives protection seller a floating rate of interest and protection
The firm enters into a broad array of credit derivatives in against any reduction in fair value of the reference
locations around the world to facilitate client transactions obligation, and in return the protection seller receives the
and to manage the credit risk associated with market- cash flows associated with the reference obligation, plus
making and investing and lending activities. Credit any increase in the fair value of the reference obligation.
derivatives are actively managed based on the firm’s net
Credit Options. In a credit option, the option writer
risk position.
assumes the obligation to purchase or sell a reference
Credit derivatives are individually negotiated contracts and obligation at a specified price or credit spread. The option
can have various settlement and payment conventions. purchaser buys the right, but does not assume the
Credit events include failure to pay, bankruptcy, obligation, to sell the reference obligation to, or purchase it
acceleration of indebtedness, restructuring, repudiation and from, the option writer. The payments on credit options
dissolution of the reference entity. depend either on a particular credit spread or the price of
the reference obligation.

Goldman Sachs 2013 Annual Report 147


Notes to Consolidated Financial Statements

The firm economically hedges its exposure to written credit The table below presents certain information about credit
derivatives primarily by entering into offsetting purchased derivatives. In the table below:
credit derivatives with identical underlyings. Substantially
‰ fair values exclude the effects of both netting of receivable
all of the firm’s purchased credit derivative transactions are
balances with payable balances under enforceable netting
with financial institutions and are subject to stringent
agreements, and netting of cash received or posted under
collateral thresholds. In addition, upon the occurrence of a
enforceable credit support agreements, and therefore are
specified trigger event, the firm may take possession of the
not representative of the firm’s credit exposure;
reference obligations underlying a particular written credit
derivative, and consequently may, upon liquidation of the ‰ tenor is based on expected duration for mortgage-related
reference obligations, recover amounts on the underlying credit derivatives and on remaining contractual maturity
reference obligations in the event of default. for other credit derivatives; and
As of December 2013, written and purchased credit ‰ the credit spread on the underlying, together with the
derivatives had total gross notional amounts of tenor of the contract, are indicators of
$1.43 trillion and $1.52 trillion, respectively, for total net payment/performance risk. The firm is less likely to pay
notional purchased protection of $81.55 billion. As of or otherwise be required to perform where the credit
December 2012, written and purchased credit derivatives spread and the tenor are lower.
had total gross notional amounts of $1.76 trillion and
$1.86 trillion, respectively, for total net notional purchased
protection of $98.33 billion.

Maximum Payout/Notional
Maximum Payout/Notional Amount Amount of Purchased Fair Value of
of Written Credit Derivatives by Tenor Credit Derivatives Written Credit Derivatives
Offsetting Other
Purchased Purchased Net
0 - 12 1-5 5 Years Credit Credit Asset/
$ in millions Months Years or Greater Total Derivatives 1 Derivatives 2 Asset Liability (Liability)
As of December 2013
Credit spread on underlying
(basis points)
0 - 250 $286,029 $ 950,126 $ 79,241 $1,315,396 $1,208,334 $183,665 $32,508 $ 4,396 $ 28,112
251 - 500 7,148 42,570 10,086 59,804 44,642 16,884 2,837 1,147 1,690
501 - 1,000 3,968 18,637 1,854 24,459 22,748 2,992 101 1,762 (1,661)
Greater than 1,000 5,600 27,911 1,226 34,737 30,510 6,169 514 12,436 (11,922)
Total $302,745 $1,039,244 $ 92,407 $1,434,396 $1,306,234 $209,710 $35,960 $19,741 $ 16,219

As of December 2012
Credit spread on underlying
(basis points)
0 - 250 $360,289 $ 989,941 $103,481 $1,453,711 $1,343,561 $201,459 $28,817 $ 8,249 $ 20,568
251 - 500 13,876 126,659 35,086 175,621 157,371 19,063 4,284 7,848 (3,564)
501 - 1,000 9,209 52,012 5,619 66,840 60,456 8,799 769 4,499 (3,730)
Greater than 1,000 11,453 49,721 3,622 64,796 57,774 10,812 568 21,970 (21,402)
Total $394,827 $1,218,333 $147,808 $1,760,968 $1,619,162 $240,133 $34,438 $42,566 $ (8,128)

1. Offsetting purchased credit derivatives represent the notional amount of purchased credit derivatives that economically hedge written credit derivatives with
identical underlyings.
2. This purchased protection represents the notional amount of all other purchased credit derivatives not included in “Offsetting Purchased Credit Derivatives.”

148 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Hedge Accounting
The firm applies hedge accounting for (i) certain interest For qualifying fair value hedges, gains or losses on
rate swaps used to manage the interest rate exposure of derivatives are included in “Interest expense.” The change
certain fixed-rate unsecured long-term and short-term in fair value of the hedged item attributable to the risk being
borrowings and certain fixed-rate certificates of deposit, hedged is reported as an adjustment to its carrying value
(ii) certain foreign currency forward contracts and foreign and is subsequently amortized into interest expense over its
currency-denominated debt used to manage foreign remaining life. Gains or losses resulting from hedge
currency exposures on the firm’s net investment in certain ineffectiveness are included in “Interest expense.” When a
non-U.S. operations and (iii) certain commodities-related derivative is no longer designated as a hedge, any remaining
swap and forward contracts used to manage the exposure difference between the carrying value and par value of the
to the variability in cash flows associated with the hedged item is amortized to interest expense over the
forecasted sales of certain energy commodities by one of the remaining life of the hedged item using the effective interest
firm’s consolidated investments. method. See Note 23 for further information about interest
income and interest expense.
To qualify for hedge accounting, the derivative hedge must
be highly effective at reducing the risk from the exposure The table below presents the gains/(losses) from interest
being hedged. Additionally, the firm must formally rate derivatives accounted for as hedges, the related hedged
document the hedging relationship at inception and test the borrowings and bank deposits, and the hedge
hedging relationship at least on a quarterly basis to ensure ineffectiveness on these derivatives, which primarily
the derivative hedge continues to be highly effective over the consists of amortization of prepaid credit spreads resulting
life of the hedging relationship. from the passage of time.
Fair Value Hedges
Year Ended December
The firm designates certain interest rate swaps as fair value
in millions 2013 2012 2011
hedges. These interest rate swaps hedge changes in fair
Interest rate hedges $(8,683) $(2,383) $ 4,679
value attributable to the designated benchmark interest rate
Hedged borrowings and bank deposits 6,999 665 (6,300)
(e.g., London Interbank Offered Rate (LIBOR) or OIS),
Hedge ineffectiveness $(1,684) $(1,718) $(1,621)
effectively converting a substantial portion of fixed-rate
obligations into floating-rate obligations.
The firm applies a statistical method that utilizes regression
analysis when assessing the effectiveness of its fair value
hedging relationships in achieving offsetting changes in the
fair values of the hedging instrument and the risk being
hedged (i.e., interest rate risk). An interest rate swap is
considered highly effective in offsetting changes in fair value
attributable to changes in the hedged risk when the
regression analysis results in a coefficient of determination
of 80% or greater and a slope between 80% and 125%.

Goldman Sachs 2013 Annual Report 149


Notes to Consolidated Financial Statements

Net Investment Hedges Cash Flow Hedges


The firm seeks to reduce the impact of fluctuations in Beginning in the third quarter of 2013, the firm designated
foreign exchange rates on its net investment in certain non- certain commodities-related swap and forward contracts as
U.S. operations through the use of foreign currency forward cash flow hedges. These swap and forward contracts hedge
contracts and foreign currency-denominated debt. For the firm’s exposure to the variability in cash flows
foreign currency forward contracts designated as hedges, associated with the forecasted sales of certain energy
the effectiveness of the hedge is assessed based on the commodities by one of the firm’s consolidated investments.
overall changes in the fair value of the forward contracts
The firm applies a statistical method that utilizes regression
(i.e., based on changes in forward rates). For foreign
analysis when assessing hedge effectiveness. A cash flow
currency-denominated debt designated as a hedge, the
hedge is considered highly effective in offsetting changes in
effectiveness of the hedge is assessed based on changes in
forecasted cash flows attributable to the hedged risk when
spot rates.
the regression analysis results in a coefficient of
For qualifying net investment hedges, the gains or losses on determination of 80% or greater and a slope between 80%
the hedging instruments, to the extent effective, are and 125%.
included in “Currency translation” within the consolidated
For qualifying cash flow hedges, the gains or losses on
statements of comprehensive income.
derivatives, to the extent effective, are included in “Cash
flow hedges” within the consolidated statements of
The table below presents the gains/(losses) from net
comprehensive income. Gains or losses resulting from
investment hedging.
hedge ineffectiveness are included in “Other principal
transactions” in the consolidated statements of earnings.
Year Ended December
in millions 2013 2012 2011 The effective portion of the gains, before taxes, recognized on
Currency hedges $150 $(233) $ 160 these cash flow hedges was $14 million for 2013. The
Foreign currency-denominated debt hedges 470 347 (147) gain/(loss) related to hedge ineffectiveness was not material
for 2013. There were no gains/(losses) excluded from the
The gain/(loss) related to ineffectiveness was not material assessment of hedge effectiveness or reclassified to earnings
for 2013, 2012 or 2011. The loss reclassified to earnings from accumulated other comprehensive income during 2013.
from accumulated other comprehensive income was not
material for 2013 or 2012, and was $186 million for 2011. The amounts recorded in “Cash flow hedges” will be
reclassified to “Other principal transactions” in the same
As of December 2013 and December 2012, the firm had periods as the corresponding gain or loss on the sale of the
designated $1.97 billion and $2.77 billion, respectively, of hedged energy commodities, which is also recorded in
foreign currency-denominated debt, included in “Other principal transactions.” The firm expects to
“Unsecured long-term borrowings” and “Unsecured short- reclassify $5 million of gains, net of taxes, related to cash
term borrowings,” as hedges of net investments in non- flow hedges from “Cash flow hedges” to earnings within
U.S. subsidiaries. the next twelve months. The length of time over which the
firm is hedging its exposure to the variability in future cash
flows for forecasted transactions is approximately
two years.

150 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Note 8.
Fair Value Option
Other Financial Assets and Financial Liabilities at
Fair Value
In addition to all cash and derivative instruments included Other financial assets and financial liabilities accounted for
in “Financial instruments owned, at fair value” and at fair value under the fair value option include:
“Financial instruments sold, but not yet purchased, at fair
‰ repurchase agreements and substantially all
value,” the firm accounts for certain of its other financial
resale agreements;
assets and financial liabilities at fair value primarily under
the fair value option. ‰ securities borrowed and loaned within Fixed Income,
Currency and Commodities Client Execution;
The primary reasons for electing the fair value option
are to: ‰ substantially all other secured financings, including
transfers of assets accounted for as financings rather
‰ reflect economic events in earnings on a timely basis;
than sales;
‰ mitigate volatility in earnings from using different
‰ certain unsecured short-term borrowings, consisting of all
measurement attributes (e.g., transfers of financial
promissory notes and commercial paper and certain
instruments owned accounted for as financings are
hybrid financial instruments;
recorded at fair value whereas the related secured
financing would be recorded on an accrual basis absent ‰ certain unsecured long-term borrowings, including
electing the fair value option); and certain prepaid commodity transactions and certain
hybrid financial instruments;
‰ address simplification and cost-benefit considerations
(e.g., accounting for hybrid financial instruments at fair ‰ certain insurance contract assets and liabilities and
value in their entirety versus bifurcation of embedded certain guarantees;
derivatives and hedge accounting for debt hosts).
‰ certain receivables from customers and counterparties,
Hybrid financial instruments are instruments that contain including transfers of assets accounted for as secured
bifurcatable embedded derivatives and do not require loans rather than purchases and certain margin loans;
settlement by physical delivery of non-financial assets (e.g.,
‰ certain time deposits issued by the firm’s bank
physical commodities). If the firm elects to bifurcate the
subsidiaries (deposits with no stated maturity are not
embedded derivative from the associated debt, the
eligible for a fair value option election), including
derivative is accounted for at fair value and the host
structured certificates of deposit, which are hybrid
contract is accounted for at amortized cost, adjusted for the
financial instruments; and
effective portion of any fair value hedges. If the firm does
not elect to bifurcate, the entire hybrid financial instrument ‰ certain subordinated liabilities issued by consolidated VIEs.
is accounted for at fair value under the fair value option.
These financial assets and financial liabilities at fair value
are generally valued based on discounted cash flow
techniques, which incorporate inputs with reasonable levels
of price transparency, and are generally classified as level 2
because the inputs are observable. Valuation adjustments
may be made for liquidity and for counterparty and the
firm’s credit quality.

Goldman Sachs 2013 Annual Report 151


Notes to Consolidated Financial Statements

See below for information about the significant inputs used Other Secured Financings. The significant inputs to the
to value other financial assets and financial liabilities at fair valuation of other secured financings at fair value are the
value, including the ranges of significant unobservable amount and timing of expected future cash flows, interest
inputs used to value the level 3 instruments within these rates, funding spreads, the fair value of the collateral
categories. These ranges represent the significant delivered by the firm (which is determined using the
unobservable inputs that were used in the valuation of each amount and timing of expected future cash flows, market
type of other financial assets and financial liabilities at fair prices, market yields and recovery assumptions) and the
value. The ranges and weighted averages of these inputs are frequency of additional collateral calls. The ranges of
not representative of the appropriate inputs to use when significant unobservable inputs used to value level 3 other
calculating the fair value of any one instrument. For secured financings are as follows:
example, the highest yield presented below for resale and
As of December 2013:
repurchase agreements is appropriate for valuing a specific
agreement in that category but may not be appropriate for ‰ Funding spreads: 40 bps to 250 bps (weighted average:
valuing any other agreements in that category. Accordingly, 162 bps)
the ranges of inputs presented below do not represent
‰ Yield: 0.9% to 14.3% (weighted average: 5.0%)
uncertainty in, or possible ranges of, fair value
measurements of the firm’s level 3 other financial assets and ‰ Duration: 0.8 to 16.1 years (weighted average: 3.7 years)
financial liabilities.
As of December 2012:
Resale and Repurchase Agreements and Securities
‰ Yield: 0.3% to 20.0% (weighted average: 4.2%)
Borrowed and Loaned. The significant inputs to the
valuation of resale and repurchase agreements and ‰ Duration: 0.3 to 10.8 years (weighted average: 2.4 years)
securities borrowed and loaned are funding spreads, the
Generally, increases in funding spreads, yield or duration,
amount and timing of expected future cash flows and
in isolation, would result in a lower fair value
interest rates. The ranges of significant unobservable inputs
measurement. Due to the distinctive nature of each of the
used to value level 3 resale and repurchase agreements are
firm’s level 3 other secured financings, the interrelationship
as follows:
of inputs is not necessarily uniform across such financings.
As of December 2013:
See Note 9 for further information about
‰ Yield: 1.3% to 3.9% (weighted average: 1.4%) collateralized financings.
‰ Duration: 0.2 to 2.7 years (weighted average: 2.5 years)
As of December 2012:
‰ Yield: 1.7% to 5.4% (weighted average: 1.9%)
‰ Duration: 0.4 to 4.5 years (weighted average: 4.1 years)
Generally, increases in yield or duration, in isolation, would
result in a lower fair value measurement. Due to the
distinctive nature of each of the firm’s level 3 resale and
repurchase agreements, the interrelationship of inputs is not
necessarily uniform across such agreements.
See Note 9 for further information about
collateralized agreements.

152 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Unsecured Short-term and Long-term Borrowings. Insurance Contracts. During 2013, the firm sold a
The significant inputs to the valuation of unsecured short- majority stake in both its Americas reinsurance business
term and long-term borrowings at fair value are the amount (April 2013) and its European insurance business
and timing of expected future cash flows, interest rates, the (December 2013). See Note 3 for further information about
credit spreads of the firm, as well as commodity prices in these sales. Prior to selling these businesses, the firm had
the case of prepaid commodity transactions. The inputs elected the fair value option on certain insurance contracts.
used to value the embedded derivative component of hybrid These contracts could be settled only in cash and qualified
financial instruments are consistent with the inputs used to for the fair value option because they were recognized
value the firm’s other derivative instruments. See Note 7 for financial instruments. These contracts were valued using
further information about derivatives. See Notes 15 and 16 market transactions and other market evidence where
for further information about unsecured short-term and possible, including market-based inputs to models,
long-term borrowings, respectively. calibration to market-clearing transactions or other
alternative pricing sources with reasonable levels of price
Certain of the firm’s unsecured short-term and long-term
transparency. Significant inputs were interest rates,
instruments are included in level 3, substantially all of
inflation rates, volatilities, funding spreads, yield and
which are hybrid financial instruments. As the significant
duration, which incorporated policy lapse and projected
unobservable inputs used to value hybrid financial
mortality assumptions. When unobservable inputs to a
instruments primarily relate to the embedded derivative
valuation model were significant to the fair value
component of these borrowings, these inputs are
measurement of an instrument, the instrument was
incorporated in the firm’s derivative disclosures related to
classified in level 3. As of December 2012, assets and
unobservable inputs in Note 7.
liabilities related to the European insurance business were
included in “Receivables from customers and
counterparties” and “Other liabilities and accrued
expenses,” respectively, and assets and liabilities related to
the Americas reinsurance business, which was classified as
held for sale as of December 2012, were included in “Other
assets” and “Other liabilities and accrued expenses,”
respectively. The ranges of significant unobservable inputs
used to value level 3 insurance contracts as of
December 2012 were as follows:
‰ Funding spreads: 39 bps to 61 bps (weighted average:
49 bps)
‰ Yield: 4.4% to 15.1% (weighted average: 6.2%)
‰ Duration: 5.3 to 8.8 years (weighted average: 7.6 years)
Generally, increases in funding spreads, yield or duration, in
isolation, would result in a lower fair value measurement.
Due to the distinctive nature of each of the firm’s level 3
insurance contracts, the interrelationship of inputs was not
necessarily uniform across such contracts.

Goldman Sachs 2013 Annual Report 153


Notes to Consolidated Financial Statements

Receivables from Customers and Counterparties. Receivables from customers and counterparties not
Receivables from customers and counterparties at fair accounted for at fair value also includes loans held for
value, excluding insurance contracts, are primarily investment, which are primarily comprised of collateralized
comprised of transfers of assets accounted for as secured loans to private wealth management clients and corporate
loans rather than purchases. The significant inputs to the loans. As of December 2013 and December 2012, the
valuation of such receivables are commodity prices, interest carrying value of such loans was $14.90 billion and
rates, the amount and timing of expected future cash flows $6.50 billion, respectively, which generally approximated
and funding spreads. As of December 2012, level 3 secured fair value. As of December 2013, had these loans been
loans were primarily related to the firm’s European carried at fair value and included in the fair value hierarchy,
insurance business, in which a majority stake was sold in $6.16 billion and $8.75 billion would have been classified
December 2013. See Note 3 for further information about in level 2 and level 3, respectively. As of December 2012,
this sale. The ranges of significant unobservable inputs used had these loans been carried at fair value and included in
to value the level 3 secured loans are as follows: the fair value hierarchy, $2.41 billion and $4.06 billion
would have been classified in level 2 and
As of December 2013:
level 3, respectively.
‰ Funding spreads: 40 bps to 477 bps (weighted average:
Deposits. The significant inputs to the valuation of time
142 bps)
deposits are interest rates and the amount and timing of
As of December 2012: future cash flows. The inputs used to value the embedded
derivative component of hybrid financial instruments are
‰ Funding spreads: 85 bps to 99 bps (weighted average:
consistent with the inputs used to value the firm’s other
99 bps)
derivative instruments. See Note 7 for further information
Generally, an increase in funding spreads would result in a about derivatives. See Note 14 for further information
lower fair value measurement. about deposits.
Receivables from customers and counterparties not The firm’s deposits that are included in level 3 are hybrid
accounted for at fair value are accounted for at amortized financial instruments. As the significant unobservable
cost net of estimated uncollectible amounts, which inputs used to value hybrid financial instruments primarily
generally approximates fair value. Such receivables are relate to the embedded derivative component of these
primarily comprised of customer margin loans and deposits, these inputs are incorporated in the firm’s
collateral posted in connection with certain derivative derivative disclosures related to unobservable inputs in
transactions. While these items are carried at amounts that Note 7.
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 firm’s fair value hierarchy in Notes 6, 7 and
8. Had these items been included in the firm’s fair value
hierarchy, substantially all would have been classified in
level 2 as of December 2013.

154 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Fair Value of Other Financial Assets and Financial


Liabilities by Level
The tables below present, by level within the fair value accounted for at fair value primarily under the fair
hierarchy, other financial assets and financial liabilities value option.

Other Financial Assets at Fair Value as of December 2013


in millions Level 1 Level 2 Level 3 Total
Securities segregated for regulatory and other purposes 1 $19,502 $ 12,435 $ — $ 31,937
Securities purchased under agreements to resell — 161,234 63 161,297
Securities borrowed — 60,384 — 60,384
Receivables from customers and counterparties — 7,181 235 7,416
Other assets — 18 — 18
Total $19,502 $241,252 $ 298 $261,052

Other Financial Liabilities at Fair Value as of December 2013


in millions Level 1 Level 2 Level 3 Total
Deposits $ — $ 6,870 $ 385 $ 7,255
Securities sold under agreements to repurchase — 163,772 1,010 164,782
Securities loaned — 973 — 973
Other secured financings — 22,572 1,019 23,591
Unsecured short-term borrowings — 15,680 3,387 19,067
Unsecured long-term borrowings — 9,854 1,837 11,691
Other liabilities and accrued expenses — 362 26 388
Total $ — $220,083 $7,664 $227,747

1. Includes securities segregated for regulatory and other purposes accounted for at fair value under the fair value option, which consists of securities borrowed and
resale agreements. The table above includes $19.50 billion of level 1 securities segregated for regulatory and other purposes accounted for at fair value under other
U.S. GAAP, consisting of U.S. Treasury securities and money market instruments.

Goldman Sachs 2013 Annual Report 155


Notes to Consolidated Financial Statements

Other Financial Assets at Fair Value as of December 2012


in millions Level 1 Level 2 Level 3 Total
Securities segregated for regulatory and other purposes 1 $21,549 $ 8,935 $ — $ 30,484
Securities purchased under agreements to resell — 141,053 278 141,331
Securities borrowed — 38,395 — 38,395
Receivables from customers and counterparties — 7,225 641 7,866
Other assets 2 4,420 8,499 507 3 13,426
Total $25,969 $204,107 $ 1,426 $231,502

Other Financial Liabilities at Fair Value as of December 2012


in millions Level 1 Level 2 Level 3 Total
Deposits $ — $ 4,741 $ 359 $ 5,100
Securities sold under agreements to repurchase — 169,880 1,927 171,807
Securities loaned — 1,558 — 1,558
Other secured financings — 28,925 1,412 30,337
Unsecured short-term borrowings — 15,011 2,584 17,595
Unsecured long-term borrowings — 10,676 1,917 12,593
Other liabilities and accrued expenses — 769 11,274 4 12,043
Total $ — $231,560 $19,473 $251,033

1. Includes securities segregated for regulatory and other purposes accounted for at fair value under the fair value option, which consists of securities borrowed and
resale agreements. The table above includes $21.55 billion of level 1 securities segregated for regulatory and other purposes accounted for at fair value under other
U.S. GAAP, consisting of U.S. Treasury securities and money market instruments.
2. Consists of assets classified as held for sale related to the firm’s Americas reinsurance business, primarily consisting of securities accounted for as available-for-sale
and insurance separate account assets which are accounted for at fair value under other U.S. GAAP.
3. Consists of insurance contracts and derivatives classified as held for sale related to the firm’s Americas reinsurance business. See “Insurance Contracts” above and
Note 7 for further information about valuation techniques and inputs related to insurance contracts and derivatives, respectively.
4. Includes $692 million of liabilities classified as held for sale related to the firm’s Americas reinsurance business accounted for at fair value under the fair value option.

Transfers Between Levels of the Fair Value Hierarchy The tables below present changes in fair value for other
Transfers between levels of the fair value hierarchy are financial assets and financial liabilities accounted for at fair
reported at the beginning of the reporting period in which value categorized as level 3 as of the end of the year. Level 3
they occur. There were no transfers of other financial assets other financial assets and liabilities are frequently
and financial liabilities between level 1 and level 2 during economically hedged with cash instruments and derivatives.
2013 or 2012. The tables below present information about Accordingly, gains or losses that are reported in level 3 can
transfers between level 2 and level 3. be partially offset by gains or losses attributable to level 1, 2
or 3 cash instruments or derivatives. As a result, gains or
Level 3 Rollforward
losses included in the level 3 rollforward below do not
If a financial asset or financial liability was transferred to
necessarily represent the overall impact on the firm’s results
level 3 during a reporting year, its entire gain or loss for the
of operations, liquidity or capital resources.
year is included in level 3.

156 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Level 3 Other Financial Assets at Fair Value for the Year Ended December 2013
Net unrealized
gains/(losses)
Net relating to
Balance, realized instruments Transfers Transfers Balance,
beginning gains/ still held at into out of end of
in millions of year (losses) year-end Purchases Sales Issuances Settlements level 3 level 3 year
Securities purchased under
agreements to resell $ 278 $ 4 $ — $— $ — $ — $ (16) $ — $ (203) $ 63
Receivables from customers
and counterparties 641 1 14 54 (474) — (1) — — 235
Other assets 507 — — — (507) — — — — —
Total $ 1,426 $ 51 $ 14 1 $54 $ (981) $ — $ (17) $ — $ (203) $ 298

1. The aggregate amounts include gains of approximately $14 million, $1 million and $4 million reported in “Market making,” “Other principal transactions” and
“Interest income,” respectively.

Level 3 Other Financial Liabilities at Fair Value for the Year Ended December 2013
Net unrealized
(gains)/losses
Net relating to
Balance, realized instruments Transfers Transfers Balance,
beginning (gains)/ still held at into out of end of
in millions of year losses year-end Purchases Sales Issuances Settlements level 3 level 3 year
Deposits $ 359 $ — $ (6) $— $ — $ 109 $ (6) $ — $ (71) $ 385
Securities sold under
agreements to repurchase,
at fair value 1,927 — — — — — (917) — — 1,010
Other secured financings 1,412 10 2 — — 708 (894) 126 (345) 1,019
Unsecured short-term
borrowings 2,584 1 239 — — 1,624 (1,502) 714 (273) 3,387
Unsecured long-term
borrowings 1,917 22 43 (3) — 470 (558) 671 (725) 1,837
Other liabilities and
accrued expenses 11,274 (29) (2) — (10,288) — (426) — (503) 26
Total $19,473 $ 41 $276 1 $ (3) $(10,288) $2,911 $(4,303) $1,511 $(1,917) $7,664

1. The aggregate amounts include losses of approximately $184 million, $88 million and $8 million reported in “Market making,” “Other principal transactions” and
“Interest expense,” respectively.

The net unrealized loss on level 3 other financial liabilities Transfers into level 3 of other financial liabilities during
of $276 million for 2013 primarily reflected losses on 2013 primarily reflected transfers of certain hybrid
certain hybrid financial instruments included in unsecured financial instruments included in unsecured short-term and
short-term borrowings, principally due to an increase in long-term borrowings from level 2, principally due to
global equity prices. decreased transparency of certain correlation and volatility
inputs used to value these instruments.
Sales of other liabilities and accrued expenses during 2013
primarily reflected the sale of a majority stake in the firm’s Transfers out of level 3 of other financial liabilities during
European insurance business. 2013 primarily reflected transfers of certain hybrid
financial instruments included in unsecured short-term and
Transfers out of level 3 of other financial assets during 2013
long-term borrowings to level 2, principally due to
primarily reflected transfers of certain resale agreements to
increased transparency of certain correlation and volatility
level 2, principally due to increased price transparency as a
inputs used to value these instruments, and transfers of
result of market transactions in similar instruments.
subordinated liabilities included in other liabilities and
accrued expenses to level 2, principally due to increased
price transparency as a result of market transactions in the
related underlying investments.

Goldman Sachs 2013 Annual Report 157


Notes to Consolidated Financial Statements

Level 3 Other Financial Assets at Fair Value for the Year Ended December 2012
Net unrealized
gains/(losses)
Net relating to
Balance, realized instruments Transfers Transfers Balance,
beginning gains/ still held at into out of end of
in millions of year (losses) year-end Purchases Sales Issuances Settlements level 3 level 3 year
Securities purchased under
agreements to resell $ 557 $ 7 $ — $ 116 $— $ — $ (402) $ — $ — $ 278
Receivables from customers
and counterparties 795 — 37 199 — — (17) — (373) 641
Other assets — — 82 — — — (23) 448 — 507
Total $ 1,352 $ 71 $ 119 1 $ 315 $— $ — $ (442) $448 $ (373) $ 1,426

1. The aggregate amounts include gains/(losses) of approximately $119 million, $(3) million and $10 million reported in “Market making,” “Other principal transactions”
and “Interest Income,” respectively.

Level 3 Other Financial Liabilities at Fair Value for the Year Ended December 2012
Net unrealized
(gains)/losses
Net relating to
Balance, realized instruments Transfers Transfers Balance,
beginning (gains)/ still held at into out of end of
in millions of year losses year-end Purchases Sales Issuances Settlements level 3 level 3 year
Deposits $ 13 $ — $ 5 $ — $— $ 326 $ (1) $ 16 $ — $ 359
Securities sold under
agreements to repurchase,
at fair value 2,181 — — — — — (254) — — 1,927
Other secured financings 1,752 12 (51) — — 854 (1,155) — — 1,412
Unsecured short-term
borrowings 3,294 (13) 204 (13) — 762 (1,206) 240 (684) 2,584
Unsecured long-term
borrowings 2,191 31 286 — — 329 (344) 225 (801) 1,917
Other liabilities and accrued
expenses 8,996 78 941 1,617 — — (360) 2 — 11,274
Total $18,427 $108 1 $1,385 1 $1,604 $— $2,271 $(3,320) $483 $(1,485) $19,473

1. The aggregate amounts include losses of approximately $1.37 billion, $113 million and $15 million reported in “Market making,” “Other principal transactions” and
“Interest expense,” respectively.

The net unrealized loss on level 3 other financial liabilities Transfers into level 3 of other financial liabilities during
of $1.39 billion for 2012 primarily reflected the impact of 2012 primarily reflected transfers from level 2 of certain
tighter funding spreads and changes in foreign exchange hybrid financial instruments, principally due to decreased
rates on certain insurance liabilities, and an increase in transparency of certain correlation and volatility inputs
global equity prices and tighter credit spreads on certain used to value these instruments.
hybrid financial instruments.
Transfers out of level 3 of other financial liabilities during
Transfers into level 3 of other financial assets during 2012 2012 primarily reflected transfers to level 2 of certain
reflected transfers of level 3 assets classified as held for sale hybrid financial instruments, principally due to increased
related to the firm’s reinsurance business, which were transparency of certain correlation and volatility inputs
previously included in level 3 “Financial instruments used to value these instruments, and unobservable inputs
owned, at fair value.” no longer being significant to the valuation of
other instruments.
Transfers out of level 3 of other financial assets during 2012
reflected transfers to level 2 of certain insurance receivables
primarily due to increased transparency of the mortality
inputs used to value these receivables.

158 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Gains and Losses on Financial Assets and Financial Excluding the gains and losses on the instruments
Liabilities Accounted for at Fair Value Under the accounted for under the fair value option described above,
Fair Value Option “Market making” and “Other principal transactions”
The table below presents the gains and losses recognized as primarily represent gains and losses on “Financial
a result of the firm electing to apply the fair value option to instruments owned, at fair value” and “Financial
certain financial assets and financial liabilities. These gains instruments sold, but not yet purchased, at fair value.”
and losses are included in “Market making” and “Other
Loans and Lending Commitments
principal transactions.” The table below also includes gains
The table below presents the difference between the
and losses on the embedded derivative component of hybrid
aggregate fair value and the aggregate contractual principal
financial instruments included in unsecured short-term
amount for loans and long-term receivables for which the
borrowings, unsecured long-term borrowings and deposits.
fair value option was elected.
These gains and losses would have been recognized under
other U.S. GAAP even if the firm had not elected to account
As of December
for the entire hybrid financial instrument at fair value.
in millions 2013 2012
The amounts in the table exclude contractual interest, Performing loans and long-term receivables
which is included in “Interest income” and “Interest Aggregate contractual principal in excess of the
expense,” for all instruments other than hybrid financial related fair value $ 3,106 $ 2,742
Loans on nonaccrual status and/or more than
instruments. See Note 23 for further information about
90 days past due 1
interest income and interest expense. Aggregate contractual principal in excess of the
related fair value 18,715 22,610
Gains/(Losses) on Financial Aggregate contractual principal in excess of the
Assets and Financial Liabilities related fair value (excluding loans carried at zero
at Fair Value fair value and considered uncollectible) 11,041 13,298
Under the Fair Value Option
Aggregate fair value of loans on nonaccrual status
Year Ended December and/or more than 90 days past due 2,781 1,832
in millions 2013 2012 2011
1. The aggregate contractual principal amount of these loans exceeds the related
Receivables from customers and fair value primarily because the firm regularly purchases loans, such as
counterparties 1 $ 25 $ 190 $ 97 distressed loans, at values significantly below contractual principal amounts.
Other secured financings (412) (190) (63)
Unsecured short-term borrowings 2 (151) (973) 2,149 As of December 2013 and December 2012, the fair value of
Unsecured long-term borrowings 3 683 (1,523) 2,336 unfunded lending commitments for which the fair value
Other liabilities and accrued expenses 4 (167) (1,486) (911) option was elected was a liability of $1.22 billion and
Other 5 (56) (81) 90 $1.99 billion, respectively, and the related total contractual
Total $ (78) $(4,063) $3,698 amount of these lending commitments was $51.54 billion
1. Primarily consists of gains/(losses) on certain insurance contracts and certain
and $59.29 billion, respectively. See Note 18 for further
transfers accounted for as receivables rather than purchases. information about lending commitments.
2. Includes gains/(losses) on the embedded derivative component of hybrid
financial instruments of $(46) million for 2013, $(814) million for 2012 and
$2.01 billion for 2011.
3. Includes gains/(losses) on the embedded derivative component of hybrid
financial instruments of $902 million for 2013, $(887) million for 2012 and
$1.80 billion for 2011.
4. Primarily consists of gains/(losses) on certain insurance contracts and
subordinated liabilities issued by consolidated VIEs.
5. Primarily consists of gains/(losses) on deposits, resale and repurchase
agreements, securities borrowed and loaned and other assets.

Goldman Sachs 2013 Annual Report 159


Notes to Consolidated Financial Statements

Long-Term Debt Instruments Note 9.


The aggregate contractual principal amount of long-term Collateralized Agreements and Financings
other secured financings for which the fair value option was
elected exceeded the related fair value by $154 million and Collateralized agreements are securities purchased under
$115 million as of December 2013 and December 2012, agreements to resell (resale agreements) and securities
respectively. The aggregate contractual principal amount of borrowed. Collateralized financings are securities sold
unsecured long-term borrowings for which the fair value under agreements to repurchase (repurchase agreements),
option was elected exceeded the related fair value by securities loaned and other secured financings. The firm
$92 million as of December 2013, whereas the fair value enters into these transactions in order to, among other
exceeded the related aggregate contractual principal things, facilitate client activities, invest excess cash, acquire
amount by $379 million as of December 2012. The securities to cover short positions and finance certain
amounts above include both principal and non-principal- firm activities.
protected long-term borrowings. Collateralized agreements and financings are presented on a
Impact of Credit Spreads on Loans and Lending net-by-counterparty basis when a legal right of setoff exists.
Commitments Interest on collateralized agreements and collateralized
The estimated net gain/(loss) attributable to changes in financings is recognized over the life of the transaction and
instrument-specific credit spreads on loans and lending included in “Interest income” and “Interest expense,”
commitments for which the fair value option was elected respectively. See Note 23 for further information about
was $2.69 billion for 2013, $3.07 billion for 2012 and interest income and interest expense.
$(805) million for 2011. Changes in the fair value of loans The table below presents the carrying value of resale and
and lending commitments are primarily attributable to repurchase agreements and securities borrowed and
changes in instrument-specific credit spreads. Substantially loaned transactions.
all of the firm’s performing loans and lending commitments
are floating-rate. As of December
Impact of Credit Spreads on Borrowings in millions 2013 2012
The table below presents the net gains/(losses) attributable Securities purchased under agreements
to the impact of changes in the firm’s own credit spreads on to resell 1 $161,732 $141,334
borrowings for which the fair value option was elected. The Securities borrowed 2 164,566 136,893
Securities sold under agreements
firm calculates the fair value of borrowings by discounting to repurchase 1 164,782 171,807
future cash flows at a rate which incorporates the firm’s Securities loaned 2 18,745 13,765
credit spreads.
1. Substantially all resale agreements and all repurchase agreements are carried
at fair value under the fair value option. See Note 8 for further information
Year Ended December about the valuation techniques and significant inputs used to determine
in millions 2013 2012 2011 fair value.

Net gains/(losses) including hedges $(296) $(714) $596 2. As of December 2013 and December 2012, $60.38 billion and $38.40 billion
of securities borrowed and $973 million and $1.56 billion of securities loaned
Net gains/(losses) excluding hedges (317) (800) 714
were at fair value, respectively.

160 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Resale and Repurchase Agreements Securities Borrowed and Loaned Transactions


A resale agreement is a transaction in which the firm In a securities borrowed transaction, the firm borrows
purchases financial instruments from a seller, typically in securities from a counterparty in exchange for cash or
exchange for cash, and simultaneously enters into an securities. When the firm returns the securities, the
agreement to resell the same or substantially the same counterparty returns the cash or securities. Interest is
financial instruments to the seller at a stated price plus generally paid periodically over the life of the transaction.
accrued interest at a future date.
In a securities loaned transaction, the firm lends securities
A repurchase agreement is a transaction in which the firm to a counterparty typically in exchange for cash or
sells financial instruments to a buyer, typically in exchange securities. When the counterparty returns the securities, the
for cash, and simultaneously enters into an agreement to firm returns the cash or securities posted as collateral.
repurchase the same or substantially the same financial Interest is generally paid periodically over the life of
instruments from the buyer at a stated price plus accrued the transaction.
interest at a future date.
The firm receives securities borrowed, makes delivery of
The financial instruments purchased or sold in resale securities loaned, monitors the market value of these
and repurchase agreements typically include U.S. securities on a daily basis, and delivers or obtains additional
government and federal agency, and investment-grade collateral due to changes in the market value of the
sovereign obligations. securities, as appropriate. For securities borrowed
transactions, the firm typically requires collateral with a fair
The firm receives financial instruments purchased under
value approximately equal to the carrying value of the
resale agreements, makes delivery of financial instruments
securities borrowed transaction.
sold under repurchase agreements, monitors the market
value of these financial instruments on a daily basis, and Securities borrowed and loaned within Fixed Income,
delivers or obtains additional collateral due to changes in Currency and Commodities Client Execution are recorded
the market value of the financial instruments, as at fair value under the fair value option. See Note 8 for
appropriate. For resale agreements, the firm typically further information about securities borrowed and loaned
requires delivery of collateral with a fair value accounted for at fair value.
approximately equal to the carrying value of the relevant
Securities borrowed and loaned within Securities Services
assets in the consolidated statements of financial condition.
are recorded based on the amount of cash collateral
Even though repurchase and resale agreements involve the advanced or received plus accrued interest. As these
legal transfer of ownership of financial instruments, they arrangements generally can be terminated on demand, they
are accounted for as financing arrangements because they exhibit little, if any, sensitivity to changes in interest rates.
require the financial instruments to be repurchased or Therefore, the carrying value of such arrangements
resold at the maturity of the agreement. However, “repos to approximates fair value. While these arrangements are
maturity” are accounted for as sales. A repo to maturity is a carried at amounts that approximate fair value, they are not
transaction in which the firm transfers a security under an accounted for at fair value under the fair value option or at
agreement to repurchase the security where the maturity fair value in accordance with other U.S. GAAP and
date of the repurchase agreement matches the maturity date therefore are not included in the firm’s fair value hierarchy
of the underlying security. Therefore, the firm effectively no in Notes 6, 7 and 8. Had these arrangements been included
longer has a repurchase obligation and has relinquished in the firm’s fair value hierarchy, they would have been
control over the underlying security and, accordingly, classified in level 2 as of December 2013 and
accounts for the transaction as a sale. The firm had no repos December 2012.
to maturity outstanding as of December 2013 or
December 2012.

Goldman Sachs 2013 Annual Report 161


Notes to Consolidated Financial Statements

Offsetting Arrangements
The tables below present the gross and net resale and statements of financial condition including counterparty
repurchase agreements and securities borrowed and loaned netting that does not meet the criteria for netting under U.S.
transactions, and the related amount of netting with the GAAP and the fair value of cash or securities collateral
same counterparty under enforceable netting agreements received or posted subject to enforceable credit support
(i.e., counterparty netting) included in the consolidated agreements. Where the firm has received or posted
statements of financial condition. Substantially all of the collateral under credit support agreements, but has not yet
gross carrying values of these arrangements are subject to determined such agreements are enforceable, the related
enforceable netting agreements. The tables below also collateral has not been netted in the table below.
present the amounts not offset in the consolidated

As of December 2013
Assets Liabilities
Securities
purchased Securities
under sold under
agreements Securities agreements to Securities
in millions to resell borrowed repurchase loaned
Amounts included in the consolidated
statements of financial condition
Gross carrying value $ 190,536 $ 172,283 $ 183,913 $ 23,700
Counterparty netting (19,131) (4,955) (19,131) (4,955)
Total 171,405 1 167,328 1 164,782 18,745
Amounts that have not been offset in the
consolidated statements of financial condition
Counterparty netting (10,725) (2,224) (10,725) (2,224)
Collateral (152,914) (147,223) (141,300) (16,278)
Total $ 7,766 $ 17,881 $ 12,757 $ 243

As of December 2012
Assets Liabilities
Securities
purchased Securities
under sold under
agreements Securities agreements to Securities
in millions to resell borrowed repurchase loaned
Amounts included in the consolidated
statements of financial condition
Gross carrying value $ 175,656 $ 151,162 $ 201,688 $ 23,509
Counterparty netting (29,766) (9,744) (29,766) (9,744)
Total 145,890 1,2 141,418 1 171,922 2 13,765
Amounts that have not been offset in the
consolidated statements of financial condition
Counterparty netting (27,512) (2,583) (27,512) (2,583)
Collateral (104,344) (117,552) (106,638) (10,990)
Total $ 14,034 $ 21,283 $ 37,772 $ 192

1. As of December 2013 and December 2012, the firm had $9.67 billion and $4.41 billion, respectively, of securities received under resale agreements and $2.77 billion
and $4.53 billion, respectively, of securities borrowed transactions that were segregated to satisfy certain regulatory requirements. These securities are included in
“Cash and securities segregated for regulatory and other purposes.”
2. As of December 2012, the firm classified $148 million of resale agreements and $115 million of repurchase agreements related to the firm’s Americas reinsurance
business as held for sale. See Note 3 for further information about this sale.

162 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Other Secured Financings


In addition to repurchase agreements and securities lending ‰ long-term secured financings that are redeemable prior to
transactions, the firm funds certain assets through the use of maturity at the option of the holders are reflected at the
other secured financings and pledges financial instruments dates such options become exercisable; and
and other assets as collateral in these transactions. These
‰ weighted average interest rates exclude secured financings
other secured financings consist of:
at fair value and include the effect of hedging activities. See
‰ liabilities of consolidated VIEs; Note 7 for further information about hedging activities.
‰ transfers of assets accounted for as financings rather than
As of December 2013
sales (primarily collateralized central bank financings,
U.S. Non-U.S.
pledged commodities, bank loans and mortgage whole $ in millions Dollar Dollar Total
loans); and Other secured financings (short-term):
At fair value $ 9,374 $ 7,828 $17,202
‰ other structured financing arrangements.
At amortized cost 88 — 88
Other secured financings include arrangements that are Weighted average interest rates 2.86% —%
nonrecourse. As of December 2013 and December 2012, Other secured financings (long-term):
At fair value 3,711 2,678 6,389
nonrecourse other secured financings were $1.54 billion
At amortized cost 372 763 1,135
and $1.76 billion, respectively.
Weighted average interest rates 3.78% 1.53%
The firm has elected to apply the fair value option to Total 1 $13,545 $11,269 $24,814
substantially all other secured financings because the use of Amount of other secured financings
collateralized by:
fair value eliminates non-economic volatility in earnings
Financial instruments 2 $13,366 $10,880 $24,246
that would arise from using different measurement Other assets 179 389 568
attributes. See Note 8 for further information about other
secured financings that are accounted for at fair value.
As of December 2012
Other secured financings that are not recorded at fair value U.S. Non-U.S.
are recorded based on the amount of cash received plus $ in millions Dollar Dollar Total
accrued interest, which generally approximates fair value. Other secured financings (short-term):
While these financings are carried at amounts that At fair value $16,504 $ 6,181 $22,685
At amortized cost 34 326 360
approximate fair value, they are not accounted for at fair
Weighted average interest rates 6.18% 0.10%
value under the fair value option or at fair value in
Other secured financings (long-term):
accordance with other U.S. GAAP and therefore are not At fair value 6,134 1,518 7,652
included in the firm’s fair value hierarchy in Notes 6, 7 and At amortized cost 577 736 1,313
8. Had these financings been included in the firm’s fair Weighted average interest rates 3.38% 2.55%
value hierarchy, they would have primarily been classified Total 1 $23,249 $ 8,761 $32,010
in level 2 and level 3 as of December 2013 and Amount of other secured financings
December 2012, respectively. collateralized by:
Financial instruments 2 $22,323 $ 8,442 $30,765
The table below presents information about other secured Other assets 926 319 1,245
financings. In the table below:
1. Includes $1.54 billion and $8.68 billion related to transfers of financial assets
‰ short-term secured financings include financings accounted for as financings rather than sales as of December 2013 and
December 2012, respectively. Such financings were collateralized by
maturing within one year of the financial statement date financial assets included in “Financial instruments owned, at fair value” of
and financings that are redeemable within one year of the $1.58 billion and $8.92 billion as of December 2013 and
December 2012, respectively.
financial statement date at the option of the holder;
2. Includes $14.75 billion and $17.24 billion of other secured financings
‰ long-term secured financings that are repayable prior to collateralized by financial instruments owned, at fair value as of
December 2013 and December 2012, respectively, and includes $9.50 billion
maturity at the option of the firm are reflected at their
and $13.53 billion of other secured financings collateralized by financial
contractual maturity dates; instruments received as collateral and repledged as of December 2013 and
December 2012, respectively.

Goldman Sachs 2013 Annual Report 163


Notes to Consolidated Financial Statements

The table below presents other secured financings The firm also pledges certain financial instruments owned,
by maturity. at fair value in connection with repurchase agreements,
securities lending agreements and other secured financings,
As of and other assets (primarily real estate and cash) in
in millions December 2013 connection with other secured financings to counterparties
Other secured financings (short-term) $17,290 who may or may not have the right to deliver or
Other secured financings (long-term):
2015 3,896
repledge them.
2016 1,951 The table below presents financial instruments at fair value
2017 162 received as collateral that were available to be delivered or
2018 781
repledged and were delivered or repledged by the firm.
2019-thereafter 734
Total other secured financings (long-term) 7,524
Total other secured financings $24,814 As of December
in millions 2013 2012
Collateral Received and Pledged Collateral available to be delivered or repledged $608,390 $540,949
The firm receives cash and securities (e.g., U.S. government Collateral that was delivered or repledged 450,127 397,652
and federal agency, other sovereign and corporate
obligations, as well as equities and convertible debentures) The table below presents information about assets pledged.
as collateral, primarily in connection with resale
agreements, securities borrowed, derivative transactions As of December

and customer margin loans. The firm obtains cash and in millions 2013 2012

securities as collateral on an upfront or contingent basis for Financial instruments owned, at fair value
pledged to counterparties that:
derivative instruments and collateralized agreements to
Had the right to deliver or repledge $ 62,348 $ 67,177
reduce its credit exposure to individual counterparties. Did not have the right to deliver or repledge 84,799 120,980
In many cases, the firm is permitted to deliver or repledge Other assets pledged to counterparties that:
Did not have the right to deliver or repledge 769 2,031
financial instruments received as collateral when entering
into repurchase agreements and securities lending
agreements, primarily in connection with secured client
financing activities. The firm is also permitted to deliver or
repledge these financial instruments in connection with
other secured financings, collateralizing derivative
transactions and meeting firm or customer
settlement requirements.

164 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Note 10.
Securitization Activities
The firm securitizes residential and commercial mortgages, The firm generally receives cash in exchange for the
corporate bonds, loans and other types of financial assets transferred assets but may also have continuing
by selling these assets to securitization vehicles (e.g., trusts, involvement with transferred assets, including ownership of
corporate entities and limited liability companies) or beneficial interests in securitized financial assets, primarily
through a resecuritization. The firm acts as underwriter of in the form of senior or subordinated securities. The firm
the beneficial interests that are sold to investors. The firm’s may also purchase senior or subordinated securities issued
residential mortgage securitizations are substantially all in by securitization vehicles (which are typically VIEs) in
connection with government agency securitizations. connection with secondary market-making activities.
Beneficial interests issued by securitization entities are debt The primary risks included in beneficial interests and other
or equity securities that give the investors rights to receive interests from the firm’s continuing involvement with
all or portions of specified cash inflows to a securitization securitization vehicles are the performance of the
vehicle and include senior and subordinated interests in underlying collateral, the position of the firm’s investment
principal, interest and/or other cash inflows. The proceeds in the capital structure of the securitization vehicle and the
from the sale of beneficial interests are used to pay the market yield for the security. These interests are accounted
transferor for the financial assets sold to the securitization for at fair value and are included in “Financial instruments
vehicle or to purchase securities which serve as collateral. owned, at fair value” and are generally classified in level 2
of the fair value hierarchy. See Notes 5 through 8 for
The firm accounts for a securitization as a sale when it has
further information about fair value measurements.
relinquished control over the transferred assets. Prior to
securitization, the firm accounts for assets pending transfer The table below presents the amount of financial assets
at fair value and therefore does not typically recognize securitized and the cash flows received on retained interests
significant gains or losses upon the transfer of assets. Net in securitization entities in which the firm had
revenues from underwriting activities are recognized in continuing involvement.
connection with the sales of the underlying beneficial
Year Ended December
interests to investors.
in millions 2013 2012 2011
For transfers of assets that are not accounted for as sales, Residential mortgages $29,772 $33,755 $40,131
the assets remain in “Financial instruments owned, at fair Commercial mortgages 6,086 300 —
value” and the transfer is accounted for as a collateralized Other financial assets — — 269
financing, with the related interest expense recognized over Total $35,858 $34,055 $40,400
the life of the transaction. See Notes 9 and 23 for further Cash flows on retained interests $ 249 $ 389 $ 569
information about collateralized financings and interest
expense, respectively.

Goldman Sachs 2013 Annual Report 165


Notes to Consolidated Financial Statements

The tables below present the firm’s continuing involvement In addition, the outstanding principal and fair value of
in nonconsolidated securitization entities to which the firm retained interests in the tables above relate to the following
sold assets, as well as the total outstanding principal types of securitizations and vintage as described:
amount of transferred assets in which the firm has
‰ the outstanding principal amount and fair value of
continuing involvement. In these tables:
retained interests for U.S. government agency-issued
‰ the outstanding principal amount is presented for the collateralized mortgage obligations as of December 2013
purpose of providing information about the size of the primarily relate to securitizations during 2013 and 2012,
securitization entities in which the firm has continuing and as of December 2012 primarily relate to
involvement and is not representative of the firm’s risk securitizations during 2012 and 2011;
of loss;
‰ the outstanding principal amount and fair value of
‰ for retained or purchased interests, the firm’s risk of loss retained interests for other residential mortgage-backed
is limited to the fair value of these interests; and obligations as of both December 2013 and
December 2012 primarily relate to prime and Alt-A
‰ purchased interests represent senior and subordinated
securitizations during 2007 and 2006;
interests, purchased in connection with secondary
market-making activities, in securitization entities in ‰ the outstanding principal amount and fair value of
which the firm also holds retained interests. retained interests for other commercial mortgage-backed
obligations as of December 2013 primarily relate to
As of December 2013 securitizations during 2013. As of December 2012, the
Outstanding Fair Value of Fair Value of outstanding principal amount primarily relates to
Principal Retained Purchased securitizations during 2012 and 2007 and the fair value of
in millions Amount Interests Interests
retained interests primarily relates to securitizations
U.S. government agency-
issued collateralized during 2012; and
mortgage obligations $61,543 $3,455 $ —
‰ the outstanding principal amount and fair value of
Other residential
mortgage-backed 2,072 46 — retained interests for CDOs, CLOs and other as of
Other commercial December 2013 primarily relate to CDO and CLO
mortgage-backed 7,087 140 153 securitizations during 2007 and as of December 2012
CDOs, CLOs and other 6,861 86 8 primarily relate to securitizations during 2007 and 2006.
Total 1 $77,563 $3,727 $161

As of December 2012
Outstanding Fair Value of Fair Value of
Principal Retained Purchased
in millions Amount Interests Interests
U.S. government agency-
issued collateralized
mortgage obligations $57,685 $4,654 $ —
Other residential
mortgage-backed 3,656 106 —
Other commercial
mortgage-backed 1,253 1 56
CDOs, CLOs and other 8,866 51 331
Total 1 $71,460 $4,812 $387

1. Outstanding principal amount includes $418 million and $835 million as of


December 2013 and December 2012, respectively, related to securitization
entities in which the firm’s only continuing involvement is retained servicing
which is not a variable interest.

166 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

As of December 2013
In addition to the interests in the table above, the firm had
other continuing involvement in the form of derivative Type of Retained Interests

transactions and guarantees with certain nonconsolidated $ in millions Mortgage-Backed Other 1

VIEs. The carrying value of these derivatives and Fair value of retained interests $3,641 $ 86
guarantees was a net asset of $26 million and $45 million as Weighted average life (years) 8.3 1.9
of December 2013 and December 2012, respectively. The Constant prepayment rate 7.5% N.M.
notional amounts of these derivatives and guarantees are Impact of 10% adverse change $ (36) N.M.
included in maximum exposure to loss in the Impact of 20% adverse change (64) N.M.
nonconsolidated VIE tables in Note 11. Discount rate 3.9% N.M.
The tables below do not give effect to the offsetting benefit Impact of 10% adverse change $ (85) N.M.
Impact of 20% adverse change (164) N.M.
of other financial instruments that are held to mitigate risks
inherent in these retained interests. Changes in fair value
based on an adverse variation in assumptions generally As of December 2012
cannot be extrapolated because the relationship of the Type of Retained Interests
change in assumptions to the change in fair value is not $ in millions Mortgage-Backed Other 1
usually linear. In addition, the impact of a change in a Fair value of retained interests $4,761 $ 51
particular assumption in the below tables are calculated Weighted average life (years) 8.2 2.0
independently of changes in any other assumption. In Constant prepayment rate 10.9% N.M.
practice, simultaneous changes in assumptions might Impact of 10% adverse change $ (57) N.M.
magnify or counteract the sensitivities disclosed below. Impact of 20% adverse change (110) N.M.

The tables below present the weighted average key Discount rate 4.6% N.M.
economic assumptions used in measuring the fair value of Impact of 10% adverse change $ (96) N.M.
retained interests and the sensitivity of this fair value to Impact of 20% adverse change (180) N.M.
immediate adverse changes of 10% and 20% in those 1. Due to the nature and current fair value of certain of these retained interests,
assumptions. In the tables below, the constant prepayment the weighted average assumptions for constant prepayment and discount
rate is included only for positions for which it is a key rates and the related sensitivity to adverse changes are not meaningful as of
December 2013 and December 2012. The firm’s maximum exposure to
assumption in the determination of fair value. The discount adverse changes in the value of these interests is the carrying value of
rate for retained interests that relate to U.S. government $86 million and $51 million as of December 2013 and
agency-issued collateralized mortgage obligations does not December 2012, respectively.

include any credit loss. Expected credit loss assumptions are


reflected in the discount rate for the remainder of
retained interests.

Goldman Sachs 2013 Annual Report 167


Notes to Consolidated Financial Statements

Note 11.
Variable Interest Entities
VIEs generally finance the purchase of assets by issuing debt Real Estate, Credit-Related and Other Investing VIEs.
and equity securities that are either collateralized by or The firm purchases equity and debt securities issued by and
indexed to the assets held by the VIE. The debt and equity makes loans to VIEs that hold real estate, performing and
securities issued by a VIE may include tranches of varying nonperforming debt, distressed loans and equity securities.
levels of subordination. The firm’s involvement with VIEs The firm typically does not sell assets to, or enter into
includes securitization of financial assets, as described in derivatives with, these VIEs.
Note 10, and investments in and loans to other types of
Other Asset-Backed VIEs. The firm structures VIEs that
VIEs, as described below. See Note 10 for additional
issue notes to clients, and purchases and sells beneficial
information about securitization activities, including the
interests issued by other asset-backed VIEs in connection
definition of beneficial interests. See Note 3 for the firm’s
with market-making activities. In addition, the firm may
consolidation policies, including the definition of a VIE.
enter into derivatives with certain other asset-backed VIEs,
The firm is principally involved with VIEs through the primarily total return swaps on the collateral assets held by
following business activities: these VIEs under which the firm pays the VIE the return due
to the note holders and receives the return on the collateral
Mortgage-Backed VIEs and Corporate CDO and CLO
assets owned by the VIE. The firm generally can be
VIEs. The firm sells residential and commercial mortgage
removed as the total return swap counterparty. The firm
loans and securities to mortgage-backed VIEs and
generally enters into derivatives with other counterparties
corporate bonds and loans to corporate CDO and CLO
to mitigate its risk from derivatives with these VIEs. The
VIEs and may retain beneficial interests in the assets sold to
firm typically does not sell assets to the other asset-backed
these VIEs. The firm purchases and sells beneficial interests
VIEs it structures.
issued by mortgage-backed and corporate CDO and CLO
VIEs in connection with market-making activities. In Power-Related VIEs. The firm purchases debt and equity
addition, the firm may enter into derivatives with certain of securities issued by, and may provide commitments to, VIEs
these VIEs, primarily interest rate swaps, which are that hold power-related assets. The firm typically does not
typically not variable interests. The firm generally enters sell assets to, or enter into derivatives with, these VIEs.
into derivatives with other counterparties to mitigate its
Investment Fund VIEs. The firm makes equity
risk from derivatives with these VIEs.
investments in, and is entitled to receive fees from, certain
Certain mortgage-backed and corporate CDO and CLO of the investment fund VIEs it manages. The firm typically
VIEs, usually referred to as synthetic CDOs or credit-linked does not sell assets to, or enter into derivatives with,
note VIEs, synthetically create the exposure for the these VIEs.
beneficial interests they issue by entering into credit
Principal-Protected Note VIEs. The firm structures VIEs
derivatives, rather than purchasing the underlying assets.
that issue principal-protected notes to clients. These VIEs
These credit derivatives may reference a single asset, an
own portfolios of assets, principally with exposure to hedge
index, or a portfolio/basket of assets or indices. See Note 7
funds. Substantially all of the principal protection on the
for further information about credit derivatives. These VIEs
notes issued by these VIEs is provided by the asset portfolio
use the funds from the sale of beneficial interests and the
rebalancing that is required under the terms of the notes.
premiums received from credit derivative counterparties to
The firm enters into total return swaps with these VIEs
purchase securities which serve to collateralize the
under which the firm pays the VIE the return due to the
beneficial interest holders and/or the credit derivative
principal-protected note holders and receives the return on
counterparty. These VIEs may enter into other derivatives,
the assets owned by the VIE. The firm may enter into
primarily interest rate swaps, which are typically not
derivatives with other counterparties to mitigate the risk it
variable interests. The firm may be a counterparty to
has from the derivatives it enters into with these VIEs. The
derivatives with these VIEs and generally enters into
firm also obtains funding through these VIEs.
derivatives with other counterparties to mitigate its risk.

168 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

VIE Consolidation Analysis Nonconsolidated VIEs


A variable interest in a VIE is an investment (e.g., debt or The firm’s exposure to the obligations of VIEs is generally
equity securities) or other interest (e.g., derivatives or loans limited to its interests in these entities. In certain instances,
and lending commitments) in a VIE that will absorb the firm provides guarantees, including derivative
portions of the VIE’s expected losses and/or receive guarantees, to VIEs or holders of variable interests in VIEs.
portions of the VIE’s expected residual returns.
The tables below present information about
The firm’s variable interests in VIEs include senior and nonconsolidated VIEs in which the firm holds variable
subordinated debt in residential and commercial mortgage- interests. Nonconsolidated VIEs are aggregated based on
backed and other asset-backed securitization entities, principal business activity. The nature of the firm’s variable
CDOs and CLOs; loans and lending commitments; limited interests can take different forms, as described in the rows
and general partnership interests; preferred and common under maximum exposure to loss. In the tables below:
equity; derivatives that may include foreign currency,
‰ The maximum exposure to loss excludes the benefit of
equity and/or credit risk; guarantees; and certain of the fees
offsetting financial instruments that are held to mitigate
the firm receives from investment funds. Certain interest
the risks associated with these variable interests.
rate, foreign currency and credit derivatives the firm enters
into with VIEs are not variable interests because they create ‰ For retained and purchased interests, and loans and
rather than absorb risk. investments, the maximum exposure to loss is the
carrying value of these interests.
The enterprise with a controlling financial interest in a VIE
is known as the primary beneficiary and consolidates the ‰ For commitments and guarantees, and derivatives, the
VIE. The firm determines whether it is the primary maximum exposure to loss is the notional amount, which
beneficiary of a VIE by performing an analysis that does not represent anticipated losses and also has not
principally considers: been reduced by unrealized losses already recorded. As a
result, the maximum exposure to loss exceeds liabilities
‰ which variable interest holder has the power to direct the
recorded for commitments and guarantees, and
activities of the VIE that most significantly impact the
derivatives provided to VIEs.
VIE’s economic performance;
The carrying values of the firm’s variable interests in
‰ which variable interest holder has the obligation to
nonconsolidated VIEs are included in the consolidated
absorb losses or the right to receive benefits from the VIE
statement of financial condition as follows:
that could potentially be significant to the VIE;
‰ Substantially all assets held by the firm related to
‰ the VIE’s purpose and design, including the risks the VIE
mortgage-backed, corporate CDO and CLO, other asset-
was designed to create and pass through to its variable
backed, and investment fund VIEs are included in
interest holders;
“Financial instruments owned, at fair value.”
‰ the VIE’s capital structure; Substantially all liabilities held by the firm related to
corporate CDO and CLO and other asset-backed VIEs
‰ the terms between the VIE and its variable interest holders
are included in “Financial instruments sold, but not yet
and other parties involved with the VIE; and
purchased, at fair value.”
‰ related-party relationships.
‰ Assets held by the firm related to real estate, credit-related
The firm reassesses its initial evaluation of whether an and other investing VIEs are primarily included in
entity is a VIE when certain reconsideration events occur. “Financial instruments owned, at fair value” and
The firm reassesses its determination of whether it is the “Receivables from customers and counterparties,” and
primary beneficiary of a VIE on an ongoing basis based on liabilities are substantially all included in “Financial
current facts and circumstances. Instruments sold, but not yet purchased, at fair value.”
‰ Assets held by the firm related to power-related VIEs are
primarily included in “Financial instruments owned, at
fair value” and “Other assets.”

Goldman Sachs 2013 Annual Report 169


Notes to Consolidated Financial Statements

Nonconsolidated VIEs
As of December 2013
Real estate,
Corporate credit-related Other
Mortgage- CDOs and and other asset- Power- Investment
in millions backed CLOs investing backed related funds Total
Assets in VIE $86,562 2 $19,761 $8,599 $4,401 $593 $2,332 $122,248
Carrying Value of the Firm’s Variable Interests
Assets 5,269 1,063 2,756 284 116 49 9,537
Liabilities — 3 2 40 — — 45
Maximum Exposure to Loss in Nonconsolidated VIEs
Retained interests 3,641 80 — 6 — — 3,727
Purchased interests 1,627 659 — 142 — — 2,428
Commitments and guarantees 1 — — 485 — 278 3 766
Derivatives 1 586 4,809 — 2,115 — — 7,510
Loans and investments — — 2,756 — 116 49 2,921
Total $ 5,854 2 $ 5,548 $3,241 $2,263 $394 $ 52 $ 17,352

Nonconsolidated VIEs
As of December 2012
Real estate,
Corporate credit-related Other
Mortgage- CDOs and and other asset- Power- Investment
in millions backed CLOs investing backed related funds Total
Assets in VIE $79,171 2 $23,842 $9,244 $3,510 $147 $1,898 $117,812
Carrying Value of the Firm’s Variable Interests
Assets 6,269 1,193 1,801 220 32 4 9,519
Liabilities — 12 — 30 — — 42
Maximum Exposure to Loss in Nonconsolidated VIEs
Retained interests 4,761 51 — — — — 4,812
Purchased interests 1,162 659 — 204 — — 2,025
Commitments and guarantees 1 — 1 438 — — 1 440
Derivatives 1 1,574 6,761 — 952 — — 9,287
Loans and investments 39 — 1,801 — 32 4 1,876
Total $ 7,536 2 $ 7,472 $2,239 $1,156 $ 32 $ 5 $ 18,440

1. The aggregate amounts include $2.01 billion and $3.25 billion as of December 2013 and December 2012, respectively, related to guarantees and derivative
transactions with VIEs to which the firm transferred assets.
2. Assets in VIE and maximum exposure to loss include $4.55 billion and $900 million, respectively, as of December 2013, and $3.57 billion and $1.72 billion,
respectively, as of December 2012, related to CDOs backed by mortgage obligations.

170 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Consolidated VIEs
The tables below present the carrying amount and Substantially all the assets in consolidated VIEs can only be
classification of assets and liabilities in consolidated VIEs, used to settle obligations of the VIE.
excluding the benefit of offsetting financial instruments that
The tables below exclude VIEs in which the firm holds a
are held to mitigate the risks associated with the firm’s
majority voting interest if (i) the VIE meets the definition of
variable interests. Consolidated VIEs are aggregated based
a business and (ii) the VIE’s assets can be used for purposes
on principal business activity and their assets and liabilities
other than the settlement of its obligations.
are presented net of intercompany eliminations. The
majority of the assets in principal-protected notes VIEs are The liabilities of real estate, credit-related and other
intercompany and are eliminated in consolidation. investing VIEs and CDOs, mortgage-backed and other
asset-backed VIEs do not have recourse to the general credit
of the firm.

Consolidated VIEs
As of December 2013
CDOs,
Real estate, mortgage-
credit-related backed and Principal-
and other other asset- protected
in millions investing backed notes Total
Assets
Cash and cash equivalents $ 183 $ — $ — $ 183
Cash and securities segregated for regulatory and other purposes 84 — 63 147
Receivables from customers and counterparties 50 — — 50
Financial instruments owned, at fair value 1,309 310 155 1,774
Other assets 921 — — 921
Total $2,547 $310 $ 218 $3,075
Liabilities
Other secured financings $ 417 $198 $ 404 $1,019
Unsecured short-term borrowings, including the current portion of unsecured
long-term borrowings — — 1,258 1,258
Unsecured long-term borrowings 57 — 193 250
Other liabilities and accrued expenses 556 — — 556
Total $1,030 $198 $1,855 $3,083

Consolidated VIEs
As of December 2012
CDOs,
Real estate, mortgage-
credit-related backed and Principal-
and other other asset- protected
in millions investing backed notes Total
Assets
Cash and cash equivalents $ 236 $107 $ — $ 343
Cash and securities segregated for regulatory and other purposes 134 — 92 226
Receivables from brokers, dealers and clearing organizations 5 — — 5
Financial instruments owned, at fair value 2,958 763 124 3,845
Other assets 1,080 — — 1,080
Total $4,413 $870 $ 216 $5,499
Liabilities
Other secured financings $ 594 $699 $ 301 $1,594
Financial instruments sold, but not yet purchased, at fair value — 107 — 107
Unsecured short-term borrowings, including the current portion of unsecured
long-term borrowings — — 1,584 1,584
Unsecured long-term borrowings 4 — 334 338
Other liabilities and accrued expenses 1,478 — — 1,478
Total $2,076 $806 $2,219 $5,101

Goldman Sachs 2013 Annual Report 171


Notes to Consolidated Financial Statements

Note 12.
Other Assets
Other assets are generally less liquid, non-financial assets. Substantially all property and equipment are depreciated on
The table below presents other assets by type. a straight-line basis over the useful life of the asset.
Leasehold improvements are amortized on a straight-line
As of December basis over the useful life of the improvement or the term of
in millions 2013 2012 the lease, whichever is shorter. Certain costs of software
Property, leasehold improvements and equipment $ 9,196 $ 8,217 developed or obtained for internal use are capitalized and
Goodwill and identifiable intangible assets 4,376 5,099 amortized on a straight-line basis over the useful life of
Income tax-related assets 1 5,241 5,620 the software.
Equity-method investments 2 417 453
Miscellaneous receivables and other 3,279 20,234 Impairments
Total $22,509 $39,623 The firm tests property, leasehold improvements and
equipment, identifiable intangible assets and other assets
1. See Note 24 for further information about income taxes.
for impairment whenever events or changes in
2. Excludes investments accounted for at fair value under the fair value option circumstances suggest that an asset’s or asset group’s
where the firm would otherwise apply the equity method of accounting of
$6.07 billion and $5.54 billion as of December 2013 and December 2012, carrying value may not be fully recoverable. To the extent
respectively, which are included in “Financial instruments owned, at fair the carrying value of an asset exceeds the projected
value.” The firm has generally elected the fair value option for such undiscounted cash flows expected to result from the use
investments acquired after the fair value option became available.
and eventual disposal of the asset or asset group, the firm
Assets Held for Sale determines the asset is impaired and records an impairment
In the fourth quarter of 2012, the firm classified its loss equal to the difference between the estimated fair value
Americas reinsurance business within its Institutional and the carrying value of the asset or asset group. In
Client Services segment as held for sale. As of addition, the firm will recognize an impairment loss prior to
December 2012, assets related to this business were the sale of an asset if the carrying value of the asset exceeds
$16.92 billion. In the table above, $16.77 billion of such its estimated fair value.
assets were included in “Miscellaneous receivables and
Primarily as a result of a decline in the market conditions in
other” (primarily available-for-sale securities and separate
which certain of the firm’s consolidated investments
account assets) and $149 million were included in
operate, during 2013 and 2012, the firm determined certain
“Goodwill and identifiable intangible assets.” Liabilities
assets were impaired and recorded impairment losses of
related to this business of $14.62 billion as of
$216 million ($160 million related to property, leasehold
December 2012 were included in “Other liabilities and
improvements and equipment and $56 million related to
accrued expenses.”
identifiable intangible assets) for 2013 and $404 million
The firm completed the sale of a majority stake in its ($253 million related to property, leasehold improvements
Americas reinsurance business in April 2013. See Note 3 for and equipment and $151 million related to identifiable
further information. intangible and other assets) for 2012.
Property, Leasehold Improvements and Equipment These impairment losses, substantially all of which were
Property, leasehold improvements and equipment in the included in “Depreciation and amortization” within the
table above is presented net of accumulated depreciation firm’s Investing & Lending segment, represented the excess
and amortization of $9.04 billion and $9.05 billion as of of the carrying values of these assets over their estimated
December 2013 and December 2012, respectively. fair values, which are primarily level 3 measurements, using
Property, leasehold improvements and equipment included a combination of discounted cash flow analyses and relative
$6.02 billion and $6.20 billion as of December 2013 and value analyses, including the estimated cash flows expected
December 2012, respectively, related to property, leasehold to result from the use and eventual disposition of
improvements and equipment that the firm uses in these assets.
connection with its operations. The remainder is held by
investment entities, including VIEs, consolidated by
the firm.

172 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Note 13.
Goodwill and Identifiable Intangible Assets
The tables below present the carrying values of goodwill Goodwill is assessed annually in the fourth quarter for
and identifiable intangible assets, which are included in impairment or more frequently if events occur or
“Other assets.” circumstances change that indicate impairment may exist.
First, qualitative factors are assessed to determine whether
Goodwill it is more likely than not that the fair value of a reporting
As of December unit is less than its carrying amount. If results of the
in millions 2013 2012 qualitative assessment are not conclusive, a quantitative test
Investment Banking: would be performed.
Financial Advisory $ 98 $ 98
The quantitative goodwill impairment test consists of
Underwriting 183 183
Institutional Client Services:
two steps.
Fixed Income, Currency and
‰ The first step compares the estimated fair value of each
Commodities Client Execution 269 269
Equities Client Execution 2,404 2,402
reporting unit with its estimated net book value
Securities Services 105 105 (including goodwill and identifiable intangible assets). If
Investing & Lending 60 59 the reporting unit’s fair value exceeds its estimated net
Investment Management 586 586 book value, goodwill is not impaired.
Total $3,705 $3,702
‰ If the estimated fair value of a reporting unit is less than
its estimated net book value, the second step of the
Identifiable goodwill impairment test is performed to measure the
Intangible Assets
amount of impairment loss, if any. An impairment loss is
As of December
equal to the excess of the carrying amount of goodwill
in millions 2013 2012
over its fair value.
Investment Banking:
Financial Advisory $ — $ 1 The firm performed a quantitative goodwill impairment
Institutional Client Services: test during the fourth quarter of 2012 (2012 quantitative
Fixed Income, Currency and goodwill test) and determined that goodwill was
Commodities Client Execution 1 35 421
Equities Client Execution 2 348 565
not impaired.
Investing & Lending 180 281 When performing the quantitative test in 2012, the firm
Investment Management 108 129 estimated the fair value of each reporting unit and
Total $ 671 $1,397
compared it to the respective reporting unit’s net book
1. The decrease from December 2012 to December 2013 is related to the sale value (estimated carrying value). The reporting units were
of the firm’s television broadcast royalties in the first quarter of 2013. valued using relative value and residual income valuation
2. The decrease from December 2012 to December 2013 is primarily related to techniques because the firm believes market participants
the sale of a majority stake in the firm’s Americas reinsurance business in
would use these techniques to value the firm’s reporting
April 2013. See Note 3 for further information about this sale.
units. The net book value of each reporting unit reflected an
Goodwill allocation of total shareholders’ equity and represented the
Goodwill is the cost of acquired companies in excess of the estimated amount of shareholders’ equity required to
fair value of net assets, including identifiable intangible support the activities of the reporting unit under guidelines
assets, at the acquisition date. issued by the Basel Committee on Banking Supervision
(Basel Committee) in December 2010. In performing its
2012 quantitative goodwill test, the firm determined that
goodwill was not impaired, and the estimated fair value of
the firm’s reporting units, in which substantially all of the
firm’s goodwill is held, significantly exceeded their
estimated carrying values.

Goldman Sachs 2013 Annual Report 173


Notes to Consolidated Financial Statements

During the fourth quarter of 2013, the firm assessed ‰ Overall financial performance. During 2013, the firm’s
goodwill for impairment. Multiple factors were assessed net earnings, pre-tax margin, diluted earnings per share,
with respect to each of the firm’s reporting units to return on average common shareholders’ equity and book
determine whether it was more likely than not that the fair value per common share increased as compared
value of any of the reporting units was less than its carrying with 2012.
amount. The qualitative assessment considered changes
‰ Entity-specific events. There were no entity-specific
since the 2012 quantitative goodwill test.
events since the 2012 quantitative goodwill test was
In accordance with ASC 350, the firm considered the performed that would have had a significant negative
following factors in the 2013 qualitative assessment impact on the valuation of the firm’s reporting units.
performed in the fourth quarter when evaluating whether it
‰ Events affecting reporting units. There were no events
was more likely than not that the fair value of a reporting
since the 2012 quantitative goodwill test was performed
unit was less than its carrying amount:
that would have had a significant negative impact on the
‰ Macroeconomic conditions. Since the 2012 valuation of the firm’s reporting units.
quantitative goodwill test was performed, the firm’s
‰ Sustained changes in stock price. Since the 2012
general operating environment improved as credit
quantitative goodwill test was performed, the firm’s stock
spreads tightened, global equity prices increased
price has increased significantly. In addition, the stock
significantly, levels of volatility were generally lower and
price exceeded book value per common share throughout
industry-wide equity underwriting activity improved.
most of 2013.
‰ Industry and market considerations. Since the 2012
The firm also considered other factors in its qualitative
quantitative goodwill test was performed, industry-wide
assessment, including changes in the book value of
metrics have trended positively and many industry
reporting units, the estimated excess of the fair values as
participants, including the firm, experienced increases in
compared with the carrying values for the reporting units in
stock price, price-to-book multiples and price-to-earnings
the 2012 quantitative goodwill test, projected earnings and
multiples. In addition, clarity was obtained on a number
the cost of equity. The firm considered all of the above
of regulations. It is early in the process of determining the
factors in the aggregate as part of its qualitative assessment.
impact of these regulations, the rules are highly complex
and their full impact will not be known until market As a result of the 2013 qualitative assessment, the firm
practices are fully developed. However, the firm does not determined that it was more likely than not that the fair
expect compliance to have a significant negative impact value of each of the reporting units exceeded its respective
on reporting unit results. carrying amount. Therefore, the firm determined that
goodwill was not impaired and that a quantitative goodwill
‰ Cost factors. Although certain expenses increased, there
impairment test was not required.
were no significant negative changes to the firm’s overall
cost structure since the 2012 quantitative goodwill test
was performed.

174 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Identifiable Intangible Assets


The table below presents the gross carrying amount, identifiable intangible assets and their weighted average
accumulated amortization and net carrying amount of remaining lives.

As of December
Weighted Average
Remaining Lives
$ in millions 2013 (years) 2012

Customer lists Gross carrying amount $ 1,102 $ 1,099


Accumulated amortization (706) (643)
Net carrying amount 396 7 456

Commodities-related intangibles 1 Gross carrying amount 510 513


Accumulated amortization (341) (226)
Net carrying amount 169 8 287

Television broadcast royalties 2 Gross carrying amount — 560


Accumulated amortization — (186)
Net carrying amount — N/A 2 374

Insurance-related intangibles 3 Gross carrying amount — 380


Accumulated amortization — (231)
Net carrying amount — N/A 3 149

Other 4 Gross carrying amount 906 950


Accumulated amortization (800) (819)
Net carrying amount 106 11 131

Total Gross carrying amount 2,518 3,502


Accumulated amortization (1,847) (2,105)
Net carrying amount $ 671 8 $ 1,397

1. Primarily includes commodities-related customer contracts and relationships, permits and access rights.
2. These assets were sold in the first quarter of 2013 and total proceeds received approximated carrying value.
3. These assets were related to the firm’s Americas reinsurance business, in which a majority stake was sold in April 2013. See Note 3 for further information about
this sale.
4. Primarily includes the firm’s exchange-traded fund lead market maker rights.

Year Ended December


Substantially all of the firm’s identifiable intangible assets
are considered to have finite lives and are amortized over in millions 2013 2012 2011

their estimated lives or based on economic usage for certain Amortization expense $205 $338 $389
commodities-related intangibles. Substantially all of the
amortization expense for identifiable intangible assets is As of
included in “Depreciation and amortization.” in millions December 2013
Estimated future amortization expense:
The tables below present amortization expense for 2014 $127
identifiable intangible assets for 2013, 2012 and 2011, and 2015 95
the estimated future amortization expense through 2018 2016 92
for identifiable intangible assets as of December 2013. 2017 90
2018 80

See Note 12 for information about impairment testing and


impairments of the firm’s identifiable intangible assets.

Goldman Sachs 2013 Annual Report 175


Notes to Consolidated Financial Statements

Note 14.
Deposits
The table below presents deposits held in U.S. and non-U.S. As of December 2013 and December 2012, savings and
offices, substantially all of which were interest-bearing. demand deposits, which represent deposits with no stated
Substantially all U.S. deposits were held at Goldman Sachs maturity, were $46.02 billion and $46.51 billion,
Bank USA (GS Bank USA) as of December 2013 and respectively, which were recorded based on the amount of
December 2012. Substantially all non-U.S. deposits were cash received plus accrued interest, which approximates
held at Goldman Sachs International Bank (GSIB) as of fair value. In addition, the firm designates certain
December 2013 and held at Goldman Sachs Bank (Europe) derivatives as fair value hedges on substantially all of its
plc (GS Bank Europe) and GSIB as of December 2012. On time deposits for which it has not elected the fair value
January 18, 2013, GS Bank Europe surrendered its banking option. Accordingly, $17.53 billion and $18.52 billion as of
license to the Central Bank of Ireland after transferring its December 2013 and December 2012, respectively, of time
deposits to GSIB and subsequently changed its name to deposits were effectively converted from fixed-rate
Goldman Sachs Ireland Finance plc. obligations to floating-rate obligations and were recorded
at amounts that generally approximate fair value. While
As of December these savings and demand deposits and time deposits are
in millions 2013 2012 carried at amounts that approximate fair value, they are not
U.S. offices $61,016 $62,377 accounted for at fair value under the fair value option or at
Non-U.S. offices 9,791 7,747 fair value in accordance with other U.S. GAAP and
Total $70,807 1 $70,124 1 therefore are not included in the firm’s fair value hierarchy
in Notes 6, 7 and 8. Had these deposits been included in the
The table below presents maturities of time deposits held firm’s fair value hierarchy, they would have been classified
in U.S. and non-U.S. offices. in level 2.

As of December 2013
in millions U.S. Non-U.S. Total
2014 $ 4,047 $5,080 $ 9,127
2015 4,269 — 4,269
2016 2,285 — 2,285
2017 2,796 — 2,796
2018 1,830 — 1,830
2019 - thereafter 4,481 — 4,481
Total $19,708 2 $5,080 3 $24,788 1

1. Includes $7.26 billion and $5.10 billion as of December 2013 and


December 2012, respectively, of time deposits accounted for at fair value
under the fair value option. See Note 8 for further information about deposits
accounted for at fair value.
2. Includes $42 million greater than $100,000, of which $31 million matures
within three months, $4 million matures within three to six months,
$4 million matures within six to twelve months, and $3 million matures after
twelve months.
3. Substantially all were greater than $100,000.

176 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Note 15. Note 16.


Short-Term Borrowings Long-Term Borrowings
Short-term borrowings were comprised of the following: Long-term borrowings were comprised of the following:

As of December As of December
in millions 2013 2012 in millions 2013 2012
Other secured financings (short-term) $17,290 $23,045 Other secured financings (long-term) $ 7,524 $ 8,965
Unsecured short-term borrowings 44,692 44,304 Unsecured long-term borrowings 160,965 167,305
Total $61,982 $67,349 Total $168,489 $176,270

See Note 9 for further information about other See Note 9 for further information about other secured
secured financings. financings. The table below presents unsecured long-term
borrowings extending through 2061 and consisting
Unsecured short-term borrowings include the portion of
principally of senior borrowings.
unsecured long-term borrowings maturing within one year
of the financial statement date and unsecured long-term
As of December 2013
borrowings that are redeemable within one year of the
U.S. Non-U.S.
financial statement date at the option of the holder. in millions Dollar Dollar Total

The firm accounts for promissory notes, commercial paper Fixed-rate obligations 1
Group Inc. $ 83,537 $34,362 $117,899
and certain hybrid financial instruments at fair value under
Subsidiaries 1,978 989 2,967
the fair value option. See Note 8 for further information
Floating-rate obligations 2
about unsecured short-term borrowings that are accounted Group Inc. 19,446 16,168 35,614
for at fair value. The carrying value of unsecured short-term Subsidiaries 3,144 1,341 4,485
borrowings that are not recorded at fair value generally Total $108,105 $52,860 $160,965
approximates fair value due to the short-term nature of the
obligations. While these unsecured short-term borrowings
As of December 2012
are carried at amounts that approximate fair value, they are
U.S. Non-U.S.
not accounted for at fair value under the fair value option in millions Dollar Dollar Total
or at fair value in accordance with other U.S. GAAP and Fixed-rate obligations 1
therefore are not included in the firm’s fair value hierarchy Group Inc. $ 86,170 $36,207 $122,377
in Notes 6, 7 and 8. Had these borrowings been included in Subsidiaries 2,391 662 3,053
the firm’s fair value hierarchy, substantially all would have Floating-rate obligations 2
Group Inc. 17,075 19,227 36,302
been classified in level 2 as of December 2013 and
Subsidiaries 3,719 1,854 5,573
December 2012. Total $109,355 $57,950 $167,305
The table below presents unsecured short-term borrowings.
1. Interest rates on U.S. dollar-denominated debt ranged from 1.35% to
10.04% (with a weighted average rate of 5.19%) and 0.20% to 10.04% (with
As of December a weighted average rate of 5.48%) as of December 2013 and
December 2012, respectively. Interest rates on non-U.S. dollar-denominated
$ in millions 2013 2012 debt ranged from 0.33% to 13.00% (with a weighted average rate of 4.29%)
Current portion of unsecured and 0.10% to 14.85% (with a weighted average rate of 4.66%) as of
long-term borrowings 1 $25,312 $25,344 December 2013 and December 2012, respectively.
Hybrid financial instruments 13,391 12,295 2. Floating interest rates generally are based on LIBOR or OIS. Equity-linked
Promissory notes 292 260 and indexed instruments are included in floating-rate obligations.
Commercial paper 1,011 884
Other short-term borrowings 4,686 5,521
Total $44,692 $44,304

Weighted average interest rate 2 1.65% 1.57%

1. Includes $24.20 billion and $24.65 billion as of December 2013 and


December 2012, respectively, issued by Group Inc.
2. The weighted average interest rates for these borrowings include the effect
of hedging activities and exclude financial instruments accounted for at fair
value under the fair value option. See Note 7 for further information about
hedging activities.

Goldman Sachs 2013 Annual Report 177


Notes to Consolidated Financial Statements

The table below presents unsecured long-term borrowings own credit spreads would be an increase of approximately
by maturity date and reflects the following: 3% and 1% in the carrying value of total unsecured long-
term borrowings as of December 2013 and December 2012,
‰ unsecured long-term borrowings maturing within one
respectively. As these borrowings are not accounted for at
year of the financial statement date and unsecured long-
fair value under the fair value option or at fair value in
term borrowings that are redeemable within one year of
accordance with other U.S. GAAP, their fair value is not
the financial statement date at the option of the holders
included in the firm’s fair value hierarchy in Notes 6, 7 and 8.
are excluded from the table as they are included as
Had these borrowings been included in the firm’s fair value
unsecured short-term borrowings;
hierarchy, substantially all would have been classified in
‰ unsecured long-term borrowings that are repayable prior level 2 as of December 2013 and December 2012.
to maturity at the option of the firm are reflected at their
The table below presents unsecured long-term borrowings,
contractual maturity dates; and
after giving effect to hedging activities that converted a
‰ unsecured long-term borrowings that are redeemable substantial portion of fixed-rate obligations to floating-
prior to maturity at the option of the holders are reflected rate obligations.
at the dates such options become exercisable.
As of December 2013
As of December 2013 in millions Group Inc. Subsidiaries Total
in millions Group Inc. Subsidiaries Total Fixed-rate obligations
2015 $ 23,170 $ 682 $ 23,852 At fair value $ — $ 471 $ 471
2016 21,634 220 21,854 At amortized cost 1 31,741 1,959 33,700
2017 20,044 489 20,533 Floating-rate obligations
2018 21,843 1,263 23,106 At fair value 8,671 2,549 11,220
2019 - thereafter 66,822 4,798 71,620 At amortized cost 1 113,101 2,473 115,574
Total 1 $153,513 $7,452 $160,965 Total $153,513 $7,452 $160,965

1. Includes $7.48 billion of adjustments to the carrying value of certain


unsecured long-term borrowings resulting from the application of hedge As of December 2012
accounting by year of maturity as follows: $301 million in 2015, $775 million in millions Group Inc. Subsidiaries Total
in 2016, $999 million in 2017, $970 million in 2018 and $4.43 billion in 2019
and thereafter.
Fixed-rate obligations
At fair value $ 28 $ 94 $ 122
The firm designates certain derivatives as fair value hedges to At amortized cost 1 22,500 2,047 24,547
effectively convert a substantial portion of its fixed-rate Floating-rate obligations
At fair value 8,166 4,305 12,471
unsecured long-term borrowings which are not accounted
At amortized cost 1 127,985 2,180 130,165
for at fair value into floating-rate obligations. Accordingly,
Total $158,679 $8,626 $167,305
excluding the cumulative impact of changes in the firm’s
credit spreads, the carrying value of unsecured long-term 1. The weighted average interest rates on the aggregate amounts were 2.73%
borrowings approximated fair value as of December 2013 (5.23% related to fixed-rate obligations and 2.04% related to floating-rate
obligations) and 2.47% (5.26% related to fixed-rate obligations and 1.98%
and December 2012. See Note 7 for further information related to floating-rate obligations) as of December 2013 and
about hedging activities. For unsecured long-term December 2012, respectively. These rates exclude financial instruments
accounted for at fair value under the fair value option.
borrowings for which the firm did not elect the fair value
option, the cumulative impact due to changes in the firm’s

178 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Subordinated Borrowings
Unsecured long-term borrowings include subordinated debt The 2012 Trusts purchased the junior subordinated debt
and junior subordinated debt. Junior subordinated debt is from Goldman Sachs Capital II and Goldman Sachs
junior in right of payment to other subordinated Capital III (APEX Trusts). The APEX Trusts used the
borrowings, which are junior to senior borrowings. As of proceeds from such sales to purchase shares of Group Inc.’s
both December 2013 and December 2012, subordinated Perpetual Non-Cumulative Preferred Stock, Series E
debt had maturities ranging from 2015 to 2038. The table (Series E Preferred Stock) and Perpetual Non-Cumulative
below presents subordinated borrowings. Preferred Stock, Series F (Series F Preferred Stock). See
Note 19 for more information about the Series E and
As of December 2013 Series F Preferred Stock.
Par Carrying
$ in millions Amount Amount Rate 1
The 2012 Trusts are required to pay distributions on their
Subordinated debt 2 $14,508 $16,982 4.16% senior guaranteed trust securities in the same amounts and
Junior subordinated debt 2,835 3,760 4.79% on the same dates that they are scheduled to receive interest
Total subordinated borrowings $17,343 $20,742 4.26% on the junior subordinated debt they hold, and are required
to redeem their respective senior guaranteed trust securities
upon the maturity or earlier redemption of the junior
As of December 2012
subordinated debt they hold.
Par Carrying
$ in millions Amount Amount Rate 1 The firm has the right to defer payments on the junior
Subordinated debt 2 $14,409 $17,358 4.24% subordinated debt, subject to limitations. During any such
Junior subordinated debt 2,835 4,228 3.16%
deferral period, the firm will not be permitted to, among
Total subordinated borrowings $17,244 $21,586 4.06%
other things, pay dividends on or make certain repurchases
1. Weighted average interest rates after giving effect to fair value hedges used of its common or preferred stock. However, as Group Inc.
to convert these fixed-rate obligations into floating-rate obligations. See fully and unconditionally guarantees the payment of the
Note 7 for further information about hedging activities. See below for
information about interest rates on junior subordinated debt.
distribution and redemption amounts when due on a senior
2. Par amount and carrying amount of subordinated debt issued by Group Inc.
basis on the senior guaranteed trust securities issued by the
was $13.94 billion and $16.41 billion, respectively, as of December 2013, and 2012 Trusts, if the 2012 Trusts are unable to make
$13.85 billion and $16.80 billion, respectively, as of December 2012. scheduled distributions to the holders of the senior
Junior Subordinated Debt guaranteed trust securities, under the guarantee, Group Inc.
Junior Subordinated Debt Held by 2012 Trusts. In would be obligated to make those payments. As such, the
2012, the Vesey Street Investment Trust I and the Murray $2.25 billion of junior subordinated debt held by the 2012
Street Investment Trust I (together, the 2012 Trusts) issued Trusts for the benefit of investors is not classified as junior
an aggregate of $2.25 billion of senior guaranteed trust subordinated debt.
securities to third parties. The proceeds of that offering The APEX Trusts and the 2012 Trusts are Delaware
were used to fund purchases of $1.75 billion of junior statutory trusts sponsored by the firm and wholly-owned
subordinated debt securities issued by Group Inc. that pay finance subsidiaries of the firm for regulatory and legal
interest semi-annually at a fixed annual rate of 4.647% and purposes but are not consolidated for accounting purposes.
mature on March 9, 2017, and $500 million of junior
subordinated debt securities issued by Group Inc. that pay The firm has covenanted in favor of the holders of Group
interest semi-annually at a fixed annual rate of 4.404% and Inc.’s 6.345% Junior Subordinated Debentures due
mature on September 1, 2016. February 15, 2034, that, subject to certain exceptions, the
firm will not redeem or purchase the capital securities
issued by the APEX Trusts or shares of Group Inc.’s
Series E or Series F Preferred Stock prior to specified dates
in 2022 for a price that exceeds a maximum amount
determined by reference to the net cash proceeds that the
firm has received from the sale of qualifying securities.

Goldman Sachs 2013 Annual Report 179


Notes to Consolidated Financial Statements

Junior Subordinated Debt Issued in Connection with Note 17.


Trust Preferred Securities. Group Inc. issued Other Liabilities and Accrued Expenses
$2.84 billion of junior subordinated debentures in 2004 to
Goldman Sachs Capital I (Trust), a Delaware statutory The table below presents other liabilities and accrued
trust. The Trust issued $2.75 billion of guaranteed expenses by type.
preferred beneficial interests to third parties and
$85 million of common beneficial interests to Group Inc. As of December
and used the proceeds from the issuances to purchase the in millions 2013 2012
junior subordinated debentures from Group Inc. The Trust Compensation and benefits $ 7,874 $ 8,292
is a wholly-owned finance subsidiary of the firm for Insurance-related liabilities 1 — 10,274
regulatory and legal purposes but is not consolidated for Noncontrolling interests 2 326 508
Income tax-related liabilities 3 1,974 2,724
accounting purposes.
Employee interests in consolidated funds 210 246
The firm pays interest semi-annually on the debentures at Subordinated liabilities issued by
an annual rate of 6.345% and the debentures mature on consolidated VIEs 477 1,360
Accrued expenses and other 5,183 18,9914
February 15, 2034. The coupon rate and the payment dates
Total $16,044 $42,395
applicable to the beneficial interests are the same as the
interest rate and payment dates for the debentures. The firm 1. Represents liabilities for future benefits and unpaid claims carried at fair
has the right, from time to time, to defer payment of interest value under the fair value option related to the firm’s European insurance
business, in which a majority stake was sold in December 2013. See Note 3
on the debentures, and therefore cause payment on the for further information.
Trust’s preferred beneficial interests to be deferred, in each 2. Primarily relates to consolidated investment funds.
case up to ten consecutive semi-annual periods. During any
3. See Note 24 for further information about income taxes.
such deferral period, the firm will not be permitted to,
4. Includes $14.62 billion of liabilities classified as held for sale as of
among other things, pay dividends on or make certain December 2012 related to the firm’s Americas reinsurance business, in
repurchases of its common stock. The Trust is not which a majority stake was sold in April 2013. See Note 12 for
permitted to pay any distributions on the common further information.

beneficial interests held by Group Inc. unless all dividends


payable on the preferred beneficial interests have been paid
in full.

180 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Note 18.
Commitments, Contingencies and Guarantees
Commitments
The table below presents the firm’s commitments.

Commitment Amount by Period Total Commitments


of Expiration as of December 2013 as of December
2015- 2017- 2019-
in millions 2014 2016 2018 Thereafter 2013 2012
Commitments to extend credit
Commercial lending:
Investment-grade $ 9,735 $16,903 $32,960 $ 901 $ 60,499 $ 53,736
Non-investment-grade 4,339 6,590 10,396 4,087 25,412 21,102
Warehouse financing 995 721 — — 1,716 784
Total commitments to extend credit 15,069 24,214 43,356 4,988 87,627 75,622
Contingent and forward starting resale and securities
borrowing agreements 34,410 — — — 34,410 47,599
Forward starting repurchase and secured lending agreements 8,256 — — — 8,256 6,144
Letters of credit 1 465 21 10 5 501 789
Investment commitments 1,359 5,387 20 350 7,116 7,339
Other 3,734 102 54 65 3,955 4,624
Total commitments $63,293 $29,724 $43,440 $5,408 $141,865 $142,117

1. Consists of commitments under letters of credit issued by various banks which the firm provides to counterparties in lieu of securities or cash to satisfy various
collateral and margin deposit requirements.

Commitments to Extend Credit


The firm’s commitments to extend credit are agreements to respectively, as of December 2012. As these lending
lend with fixed termination dates and depend on the commitments are not accounted for at fair value under the
satisfaction of all contractual conditions to borrowing. fair value option or at fair value in accordance with other
These commitments are presented net of amounts U.S. GAAP, their fair value is not included in the firm’s fair
syndicated to third parties. The total commitment amount value hierarchy in Notes 6, 7 and 8. Had these
does not necessarily reflect actual future cash flows because commitments been included in the firm’s fair value
the firm may syndicate all or substantial additional portions hierarchy, they would have primarily been classified in
of these commitments. In addition, commitments can level 3 as of December 2013 and December 2012.
expire unused or be reduced or cancelled at the
Commercial Lending. The firm’s commercial lending
counterparty’s request.
commitments are extended to investment-grade and non-
The firm generally accounts for commitments to extend investment-grade corporate borrowers. Commitments to
credit at fair value. Losses, if any, are generally recorded, investment-grade corporate borrowers are principally used
net of any fees in “Other principal transactions.” for operating liquidity and general corporate purposes. The
firm also extends lending commitments in connection with
As of December 2013 and December 2012, approximately
contingent acquisition financing and other types of
$35.66 billion and $16.09 billion, respectively, of the firm’s
corporate lending as well as commercial real estate
lending commitments were held for investment and were
financing. Commitments that are extended for contingent
accounted for on an accrual basis. The carrying value and
acquisition financing are often intended to be short-term in
the estimated fair value of such lending commitments were
nature, as borrowers often seek to replace them with other
liabilities of $132 million and $1.02 billion, respectively, as
funding sources.
of December 2013, and $63 million and $523 million,

Goldman Sachs 2013 Annual Report 181


Notes to Consolidated Financial Statements

Sumitomo Mitsui Financial Group, Inc. (SMFG) provides Leases


the firm with credit loss protection on certain approved The firm has contractual obligations under long-term
loan commitments (primarily investment-grade commercial noncancelable lease agreements, principally for office
lending commitments). The notional amount of such loan space, expiring on various dates through 2069. Certain
commitments was $29.24 billion and $32.41 billion as of agreements are subject to periodic escalation provisions for
December 2013 and December 2012, respectively. The increases in real estate taxes and other charges. The table
credit loss protection on loan commitments provided by below presents future minimum rental payments, net of
SMFG is generally limited to 95% of the first loss the firm minimum sublease rentals.
realizes on such commitments, up to a maximum of
approximately $950 million. In addition, subject to the As of
satisfaction of certain conditions, upon the firm’s request, in millions December 2013

SMFG will provide protection for 70% of additional losses 2014 $ 387
2015 340
on such commitments, up to a maximum of $1.13 billion,
2016 280
of which $870 million and $300 million of protection had
2017 271
been provided as of December 2013 and December 2012, 2018 222
respectively. The firm also uses other financial instruments 2019 - thereafter 1,195
to mitigate credit risks related to certain commitments not Total $2,695
covered by SMFG. These instruments primarily include
credit default swaps that reference the same or similar Rent charged to operating expense was $324 million for
underlying instrument or entity, or credit default swaps that 2013, $374 million for 2012 and $475 million for 2011.
reference a market index.
Operating leases include office space held in excess of
Warehouse Financing. The firm provides financing to current requirements. Rent expense relating to space held
clients who warehouse financial assets. These arrangements for growth is included in “Occupancy.” The firm records a
are secured by the warehoused assets, primarily consisting liability, based on the fair value of the remaining lease
of corporate loans and commercial mortgage loans. rentals reduced by any potential or existing sublease
rentals, for leases where the firm has ceased using the space
Contingent and Forward Starting Resale and
and management has concluded that the firm will not
Securities Borrowing Agreements/Forward Starting
derive any future economic benefits. Costs to terminate a
Repurchase and Secured Lending Agreements
lease before the end of its term are recognized and measured
The firm enters into resale and securities borrowing
at fair value on termination.
agreements and repurchase and secured lending agreements
that settle at a future date, generally within three business Contingencies
days. The firm also enters into commitments to provide Legal Proceedings. See Note 27 for information about legal
contingent financing to its clients and counterparties proceedings, including certain mortgage-related matters.
through resale agreements. The firm’s funding of these
Certain Mortgage-Related Contingencies. There are
commitments depends on the satisfaction of all contractual
multiple areas of focus by regulators, governmental
conditions to the resale agreement and these commitments
agencies and others within the mortgage market that may
can expire unused.
impact originators, issuers, servicers and investors. There
Investment Commitments remains significant uncertainty surrounding the nature and
The firm’s investment commitments consist of extent of any potential exposure for participants in
commitments to invest in private equity, real estate and this market.
other assets directly and through funds that the firm raises
and manages. These commitments include $659 million
and $872 million as of December 2013 and
December 2012, respectively, related to real estate private
investments and $6.46 billion and $6.47 billion as of
December 2013 and December 2012, respectively, related
to corporate and other private investments. Of these
amounts, $5.48 billion and $6.21 billion as of
December 2013 and December 2012, respectively, relate to
commitments to invest in funds managed by the firm. If
these commitments are called, they would be funded at
market value on the date of investment.

182 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

‰ Representations and Warranties. The firm has not The firm has received repurchase claims for residential
been a significant originator of residential mortgage mortgage loans based on alleged breaches of
loans. The firm did purchase loans originated by others representations from government-sponsored enterprises,
and generally received loan-level representations of the other third parties, trusts and other mortgage
type described below from the originators. During the securitization vehicles, which have not been significant.
period 2005 through 2008, the firm sold approximately During the years ended December 2013 and
$10 billion of loans to government-sponsored enterprises December 2012, the firm repurchased loans with an
and approximately $11 billion of loans to other third unpaid principal balance of less than $10 million. The
parties. In addition, the firm transferred loans to trusts loss related to the repurchase of these loans was not
and other mortgage securitization vehicles. As of material for 2013 or 2012. The firm has received a
December 2013 and December 2012, the outstanding communication from counsel purporting to represent
balance of the loans transferred to trusts and other certain institutional investors in portions of Goldman
mortgage securitization vehicles during the period 2005 Sachs-issued securitizations between 2003 and 2007,
through 2008 was approximately $29 billion and such securitizations having a total original notional face
$35 billion, respectively. These amounts reflect paydowns amount of approximately $150 billion, offering to enter
and cumulative losses of approximately $96 billion into a “settlement dialogue” with respect to alleged
($22 billion of which are cumulative losses) as of breaches of representations made by Goldman Sachs in
December 2013 and approximately $90 billion connection with such offerings.
($20 billion of which are cumulative losses) as of
Ultimately, the firm’s exposure to claims for repurchase
December 2012. A small number of these Goldman
of residential mortgage loans based on alleged breaches of
Sachs-issued securitizations with an outstanding principal
representations will depend on a number of factors
balance of $463 million and total paydowns and
including the following: (i) the extent to which these
cumulative losses of $1.60 billion ($534 million of which
claims are actually made within the statute of limitations
are cumulative losses) as of December 2013, and an
taking into consideration the agreements to toll the
outstanding principal balance of $540 million and total
statute of limitations the firm has entered into with
paydowns and cumulative losses of $1.52 billion
trustees representing trusts; (ii) the extent to which there
($508 million of which are cumulative losses) as of
are underlying breaches of representations that give rise
December 2012, were structured with credit protection
to valid claims for repurchase; (iii) in the case of loans
obtained from monoline insurers. In connection with
originated by others, the extent to which the firm could be
both sales of loans and securitizations, the firm provided
held liable and, if it is, the firm’s ability to pursue and
loan level representations of the type described below
collect on any claims against the parties who made
and/or assigned the loan level representations from the
representations to the firm; (iv) macroeconomic factors,
party from whom the firm purchased the loans.
including developments in the residential real estate
The loan level representations made in connection with market; and (v) legal and regulatory developments. See
the sale or securitization of mortgage loans varied among Note 27 for more information about the agreements the
transactions but were generally detailed representations firm has entered into to toll the statute of limitations.
applicable to each loan in the portfolio and addressed
Based upon the large number of defaults in residential
matters relating to the property, the borrower and the
mortgages, including those sold or securitized by the firm,
note. These representations generally included, but were
there is a potential for increasing claims for repurchases.
not limited to, the following: (i) certain attributes of the
However, the firm is not in a position to make a
borrower’s financial status; (ii) loan-to-value ratios,
meaningful estimate of that exposure at this time.
owner occupancy status and certain other characteristics
of the property; (iii) the lien position; (iv) the fact that the
loan was originated in compliance with law; and
(v) completeness of the loan documentation.

Goldman Sachs 2013 Annual Report 183


Notes to Consolidated Financial Statements

‰ Foreclosure and Other Mortgage Loan Servicing Under the Litton sale agreement the firm also retained
Practices and Procedures. The firm had received a liabilities associated with claims related to Litton’s failure
number of requests for information from regulators and to maintain lender-placed mortgage insurance,
other agencies, including state attorneys general and obligations to repurchase certain loans from government-
banking regulators, as part of an industry-wide focus on sponsored enterprises, subpoenas from one of Litton’s
the practices of lenders and servicers in connection with regulators, and fines or civil penalties imposed by the
foreclosure proceedings and other aspects of mortgage Federal Reserve or the New York State Department of
loan servicing practices and procedures. The requests Financial Services in connection with certain compliance
sought information about the foreclosure and servicing matters. Management is unable to develop an estimate of
protocols and activities of Litton, a residential mortgage the maximum potential amount of future payments under
servicing subsidiary sold by the firm to Ocwen Financial these indemnities because the firm has received no claims
Corporation (Ocwen) in the third quarter of 2011. The under these indemnities other than an immaterial amount
firm is cooperating with the requests and these inquiries with respect to government-sponsored enterprises.
may result in the imposition of fines or other However, management does not believe, based on
regulatory action. currently available information, that any payments under
these indemnities will have a material adverse effect on
In connection with the sale of Litton, the firm provided
the firm’s financial condition.
customary representations and warranties, and
indemnities for breaches of these representations and On September 1, 2011, Group Inc. and GS Bank USA
warranties, to Ocwen. These indemnities are subject to entered into a Consent Order (the Order) with the Federal
various limitations, and are capped at approximately Reserve Board relating to the servicing of residential
$50 million. The firm has not yet received any claims mortgage loans. The terms of the Order were
under these indemnities. The firm also agreed to provide substantially similar and, in many respects, identical to
specific indemnities to Ocwen related to claims made by the orders entered into with the Federal Reserve Board by
third parties with respect to servicing activities during the other large U.S. financial institutions. The Order set forth
period that Litton was owned by the firm and which are various allegations of improper conduct in servicing by
in excess of the related reserves accrued for such matters Litton, requires that Group Inc. and GS Bank USA cease
by Litton at the time of the sale. These indemnities are and desist such conduct, and required that Group Inc. and
capped at approximately $125 million. The firm has GS Bank USA, and their boards of directors, take various
recorded a reserve for the portion of these potential losses affirmative steps. The Order required (i) Group Inc. and
that it believes is probable and can be reasonably GS Bank USA to engage a third-party consultant to
estimated. As of December 2013, claims under these conduct a review of certain foreclosure actions or
indemnities, and payments made in connection with these proceedings that occurred or were pending between
claims, were not material to the firm. January 1, 2009 and December 31, 2010; (ii) the
adoption of policies and procedures related to
The firm further agreed to provide indemnities to Ocwen
management of third parties used to outsource residential
not subject to a cap, which primarily relate to potential
mortgage servicing, loss mitigation or foreclosure; (iii) a
liabilities constituting fines or civil monetary penalties
“validation report” from an independent third-party
which could be imposed in settlements with certain terms
consultant regarding compliance with the Order for the
with U.S. states’ attorneys general or in consent orders
first year; and (iv) submission of quarterly progress
with certain terms with the Federal Reserve, the Office of
reports as to compliance with the Order by the boards of
Thrift Supervision, the Office of the Comptroller of the
directors (or committees thereof) of Group Inc. and
Currency, the FDIC or the New York State Department
GS Bank USA.
of Financial Services, in each case relating to Litton’s
foreclosure and servicing practices while it was owned by
the firm. The firm has entered into a settlement with the
Board of Governors of the Federal Reserve System
(Federal Reserve Board) relating to foreclosure and
servicing matters as described below.

184 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

In February 2013, Group Inc. and GS Bank USA entered The firm, in its capacity as an agency lender, indemnifies
into a settlement with the Federal Reserve Board relating most of its securities lending customers against losses
to the servicing of residential mortgage loans and incurred in the event that borrowers do not return securities
foreclosure processing. This settlement amends the Order and the collateral held is insufficient to cover the market
which is described above, provides for the termination of value of the securities borrowed.
the independent foreclosure review under the Order and
In the ordinary course of business, the firm provides other
calls for Group Inc. and GS Bank USA collectively to:
financial guarantees of the obligations of third parties (e.g.,
(i) make cash payments into a settlement fund for
standby letters of credit and other guarantees to enable
distribution to eligible borrowers; and (ii) provide other
clients to complete transactions and fund-related
assistance for foreclosure prevention and loss mitigation
guarantees). These guarantees represent obligations to
through January 2015. The other provisions of the Order
make payments to beneficiaries if the guaranteed party fails
will remain in effect.
to fulfill its obligation under a contractual arrangement
Guarantees with that beneficiary.
The firm enters into various derivatives that meet the
The table below presents certain information about
definition of a guarantee under U.S. GAAP, including
derivatives that meet the definition of a guarantee and
written equity and commodity put options, written
certain other guarantees. The maximum payout in the table
currency contracts and interest rate caps, floors and
below is based on the notional amount of the contract and
swaptions. Disclosures about derivatives are not required if
therefore does not represent anticipated losses. See Note 7
they may be cash settled and the firm has no basis to
for further information about credit derivatives that meet
conclude it is probable that the counterparties held the
the definition of a guarantee which are not included below.
underlying instruments at inception of the contract. The
firm has concluded that these conditions have been met for Because derivatives are accounted for at fair value, the
certain large, internationally active commercial and carrying value is considered the best indication of payment/
investment bank counterparties, central clearing performance risk for individual contracts. However, the
counterparties and certain other counterparties. carrying values below exclude the effect of a legal right of
Accordingly, the firm has not included such contracts in the setoff that may exist under an enforceable netting
table below. agreement and the effect of netting of collateral posted
under enforceable credit support agreements.

As of December 2013
Maximum Payout/Notional Amount by Period of Expiration
Carrying
Value of 2015- 2017- 2019-
in millions Net Liability 2014 2016 2018 Thereafter Total
Derivatives 1 $7,634 $517,634 $180,543 $39,367 $57,736 $795,280
Securities lending indemnifications 2 — 26,384 — — — 26,384
Other financial guarantees 3 213 1,361 620 1,140 1,046 4,167

1. These derivatives are risk managed together with derivatives that do not meet the definition of a guarantee, and therefore these amounts do not reflect the firm’s
overall risk related to its derivative activities. As of December 2012, the carrying value of the net liability and the notional amount related to derivative guarantees
were $8.58 billion and $663.15 billion, respectively.
2. Collateral held by the lenders in connection with securities lending indemnifications was $27.14 billion as of December 2013. Because the contractual nature of
these arrangements requires the firm to obtain collateral with a market value that exceeds the value of the securities lent to the borrower, there is minimal
performance risk associated with these guarantees. As of December 2012, the maximum payout and collateral held related to securities lending indemnifications
were $27.12 billion and $27.89 billion, respectively.
3. Other financial guarantees excludes certain commitments to issue standby letters of credit that are included in “Commitments to extend credit.” See table in
“Commitments” above for a summary of the firm’s commitments. As of December 2012, the carrying value of the net liability and the maximum payout related to
other financial guarantees were $152 million and $3.48 billion, respectively.

Goldman Sachs 2013 Annual Report 185


Notes to Consolidated Financial Statements

Guarantees of Securities Issued by Trusts. The firm has In connection with its prime brokerage and clearing
established trusts, including Goldman Sachs Capital I, the businesses, the firm agrees to clear and settle on behalf of its
APEX Trusts, the 2012 Trusts, and other entities for the clients the transactions entered into by them with other
limited purpose of issuing securities to third parties, lending brokerage firms. The firm’s obligations in respect of such
the proceeds to the firm and entering into contractual transactions are secured by the assets in the client’s account
arrangements with the firm and third parties related to this as well as any proceeds received from the transactions
purpose. The firm does not consolidate these entities. See cleared and settled by the firm on behalf of the client. In
Note 16 for further information about the transactions connection with joint venture investments, the firm may
involving Goldman Sachs Capital I, the APEX Trusts, and issue loan guarantees under which it may be liable in the
the 2012 Trusts. event of fraud, misappropriation, environmental liabilities
and certain other matters involving the borrower.
The firm effectively provides for the full and unconditional
guarantee of the securities issued by these entities. Timely The firm is unable to develop an estimate of the maximum
payment by the firm of amounts due to these entities under payout under these guarantees and indemnifications.
the guarantee, borrowing, preferred stock and related However, management believes that it is unlikely the firm
contractual arrangements will be sufficient to cover will have to make any material payments under these
payments due on the securities issued by these entities. arrangements, and no material liabilities related to these
guarantees and indemnifications have been recognized in
Management believes that it is unlikely that any
the consolidated statements of financial condition as of
circumstances will occur, such as nonperformance on the
December 2013 and December 2012.
part of paying agents or other service providers, that would
make it necessary for the firm to make payments related to Other Representations, Warranties and Indemnifications.
these entities other than those required under the terms of The firm provides representations and warranties to
the guarantee, borrowing, preferred stock and related counterparties in connection with a variety of commercial
contractual arrangements and in connection with certain transactions and occasionally indemnifies them against
expenses incurred by these entities. potential losses caused by the breach of those representations
and warranties. The firm may also provide indemnifications
Indemnities and Guarantees of Service Providers. In
protecting against changes in or adverse application of certain
the ordinary course of business, the firm indemnifies and
U.S. tax laws in connection with ordinary-course transactions
guarantees certain service providers, such as clearing and
such as securities issuances, borrowings or derivatives.
custody agents, trustees and administrators, against
specified potential losses in connection with their acting as In addition, the firm may provide indemnifications to some
an agent of, or providing services to, the firm or counterparties to protect them in the event additional taxes
its affiliates. are owed or payments are withheld, due either to a change
in or an adverse application of certain non-U.S. tax laws.
The firm may also be liable to some clients for losses caused
by acts or omissions of third-party service providers, These indemnifications generally are standard contractual
including sub-custodians and third-party brokers. In terms and are entered into in the ordinary course of
addition, the firm is a member of payment, clearing and business. Generally, there are no stated or notional
settlement networks as well as securities exchanges around amounts included in these indemnifications, and the
the world that may require the firm to meet the obligations contingencies triggering the obligation to indemnify are not
of such networks and exchanges in the event of expected to occur. The firm is unable to develop an estimate
member defaults. of the maximum payout under these guarantees and
indemnifications. However, management believes that it is
unlikely the firm will have to make any material payments
under these arrangements, and no material liabilities related
to these arrangements have been recognized in the
consolidated statements of financial condition as of
December 2013 or December 2012.

186 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Guarantees of Subsidiaries. Group Inc. fully and The firm’s share repurchase program is intended to help
unconditionally guarantees the securities issued by GS maintain the appropriate level of common equity. The
Finance Corp., a wholly-owned finance subsidiary of repurchase program is effected primarily through regular
the firm. open-market purchases, the amounts and timing of which
are determined primarily by the firm’s current and
Group Inc. has guaranteed the payment obligations of
projected capital positions (i.e., comparisons of the firm’s
Goldman, Sachs & Co. (GS&Co.), GS Bank USA and
desired level and composition of capital to its actual level
Goldman Sachs Execution & Clearing, L.P. (GSEC),
and composition of capital), but which may also be
subject to certain exceptions.
influenced by general market conditions and the prevailing
In November 2008, the firm contributed subsidiaries into price and trading volumes of the firm’s common stock. Any
GS Bank USA, and Group Inc. agreed to guarantee the repurchase of the firm’s common stock requires approval
reimbursement of certain losses, including credit-related by the Federal Reserve Board.
losses, relating to assets held by the contributed entities. In
During 2013, 2012 and 2011, the firm repurchased
connection with this guarantee, Group Inc. also agreed to
39.3 million, 42.0 million and 47.0 million shares of its
pledge to GS Bank USA certain collateral, including
common stock at an average cost per share of $157.11,
interests in subsidiaries and other illiquid assets.
$110.31 and $128.33, for a total cost of $6.17 billion,
In addition, Group Inc. guarantees many of the obligations $4.64 billion and $6.04 billion, respectively, under the
of its other consolidated subsidiaries on a transaction-by- share repurchase program. In addition, pursuant to the
transaction basis, as negotiated with counterparties. Group terms of certain share-based compensation plans,
Inc. is unable to develop an estimate of the maximum employees may remit shares to the firm or the firm may
payout under its subsidiary guarantees; however, because cancel restricted stock units (RSUs) to satisfy minimum
these guaranteed obligations are also obligations of statutory employee tax withholding requirements. Under
consolidated subsidiaries, Group Inc.’s liabilities as these plans, during 2013, 2012 and 2011, employees
guarantor are not separately disclosed. remitted 161,211 shares, 33,477 shares and 75,517 shares
with a total value of $25 million, $3 million and
$12 million, and the firm cancelled 4.0 million, 12.7 million
Note 19.
and 12.0 million of RSUs with a total value of $599 million,
Shareholders’ Equity $1.44 billion and $1.91 billion, respectively.
Common Equity On October 1, 2013, Berkshire Hathaway Inc. and certain
Dividends declared per common share were $2.05 in 2013, of its subsidiaries (collectively, Berkshire Hathaway)
$1.77 in 2012 and $1.40 in 2011. On January 15, 2014, exercised in full a warrant to purchase shares of the firm’s
Group Inc. declared a dividend of $0.55 per common share common stock. The warrant, as amended in March 2013,
to be paid on March 28, 2014 to common shareholders of required net share settlement, and the firm delivered
record on February 28, 2014. 13.1 million shares of common stock to Berkshire
Hathaway on October 4, 2013. The number of shares
delivered represented the value of the difference between
the average closing price of the firm’s common stock over
the 10 trading days preceding October 1, 2013 and the
exercise price of $115.00 multiplied by the number of
shares of common stock (43.5 million) covered by
the warrant.

Goldman Sachs 2013 Annual Report 187


Notes to Consolidated Financial Statements

Preferred Equity
The table below presents perpetual preferred stock issued and outstanding as of December 2013.

Redemption
Shares Shares Shares Value
Series Authorized Issued Outstanding Dividend Rate (in millions)
A 50,000 30,000 29,999 3 month LIBOR + 0.75%, $ 750
with floor of 3.75% per annum
B 50,000 32,000 32,000 6.20% per annum 800
C 25,000 8,000 8,000 3 month LIBOR + 0.75%, 200
with floor of 4.00% per annum
D 60,000 54,000 53,999 3 month LIBOR + 0.67%, 1,350
with floor of 4.00% per annum
E 17,500 17,500 17,500 3 month LIBOR + 0.77%, 1,750
with floor of 4.00% per annum
F 5,000 5,000 5,000 3 month LIBOR + 0.77%, 500
with floor of 4.00% per annum
I 34,500 34,000 34,000 5.95% per annum 850
J 46,000 40,000 40,000 5.50% per annum to, 1,000
but excluding, May 10, 2023;
3 month LIBOR + 3.64%
per annum thereafter
Total 288,000 220,500 220,498 $7,200

Each share of non-cumulative Series A Preferred Stock, On April 25, 2013, Group Inc. issued 40,000 shares of
Series B Preferred Stock, Series C Preferred Stock and perpetual 5.50% Fixed-to-Floating Rate Non-Cumulative
Series D Preferred Stock issued and outstanding has a par Preferred Stock, Series J, par value $0.01 per share (Series J
value of $0.01, has a liquidation preference of $25,000, is Preferred Stock), out of a total of 46,000 shares of Series J
represented by 1,000 depositary shares and is redeemable at Preferred Stock authorized for issuance. Each share of
the firm’s option at a redemption price equal to $25,000 Series J Preferred Stock issued and outstanding has a
plus declared and unpaid dividends. liquidation preference of $25,000, is represented by 1,000
depositary shares and is redeemable at the firm’s option
Each share of non-cumulative Series E and Series F
beginning May 10, 2023 at a redemption price equal to
Preferred Stock issued and outstanding has a par value of
$25,000 plus accrued and unpaid dividends.
$0.01, has a liquidation preference of $100,000 and is
redeemable at the option of the firm at any time, subject to Any redemption of preferred stock by the firm requires the
certain covenant restrictions governing the firm’s ability to approval of the Federal Reserve Board. All series of
redeem or purchase the preferred stock without issuing preferred stock are pari passu and have a preference over
common stock or other instruments with equity-like the firm’s common stock on liquidation. Dividends on each
characteristics, at a redemption price equal to $100,000 series of preferred stock, if declared, are payable quarterly
plus declared and unpaid dividends. See Note 16 for further in arrears. The firm’s ability to declare or pay dividends on,
information about the replacement capital covenants or purchase, redeem or otherwise acquire, its common
applicable to the Series E and Series F Preferred Stock. stock is subject to certain restrictions in the event that the
firm fails to pay or set aside full dividends on the preferred
Each share of non-cumulative Series I Preferred Stock
stock for the latest completed dividend period.
issued and outstanding has a par value of $0.01, has a
liquidation preference of $25,000, is represented by 1,000
depositary shares and is redeemable at the firm’s option
beginning November 10, 2017 at a redemption price equal
to $25,000 plus accrued and unpaid dividends.

188 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

The tables below present preferred dividends declared on Accumulated Other Comprehensive Income/(Loss)
preferred stock. The tables below present accumulated other comprehensive
income/(loss), net of tax by type.
Year Ended December
2013 As of December 2013
per share in millions Other
comprehensive
Series A $ 947.92 $ 28 Balance, income/(loss) Balance,
Series B 1,550.00 50 beginning adjustments, end of
Series C 1,011.11 8 in millions of year net of tax year

Series D 1,011.11 54 Currency translation $(314) $ (50) $(364)


Series E 4,044.44 71 Pension and
Series F 4,044.44 20 postretirement liabilities (206) 38 (168)
Series I 1,553.63 53 Available-for-sale securities 327 (327) —
Series J 744.79 30 Cash flow hedges — 8 8
Total $314 Accumulated
comprehensive income/
(loss), net of tax $(193) $(331) $(524)
Year Ended December
2012
As of December 2012
per share in millions
Other
Series A $ 960.94 $ 29 comprehensive
Series B 1,550.00 50 Balance, income/(loss) Balance,
beginning adjustments, end of
Series C 1,025.01 8 in millions of year net of tax year
Series D 1,025.01 55 Currency translation $(225) $ (89) $(314)
Series E 2,055.56 36 Pension and
Series F 1,000.00 5 postretirement liabilities (374) 168 (206)
Total $183 Available-for-sale securities 83 244 327 1
Accumulated
comprehensive income/
Year Ended December
(loss), net of tax $(516) $ 323 $(193)
2011
per share in millions 1. As of December 2012, substantially all consisted of net unrealized gains on
securities held by the firm’s Americas reinsurance business, in which a
Series A $ 950.51 $ 28 majority stake was sold in April 2013. See Note 12 for further information
Series B 1,550.00 50 about this sale.
Series C 1,013.90 8
Series D 1,013.90 55
Series G 1 2,500.00 125
Total $266

1. Excludes preferred dividends related to the redemption of the firm’s Series G


Preferred Stock.

Goldman Sachs 2013 Annual Report 189


Notes to Consolidated Financial Statements

Note 20.
Regulation and Capital Adequacy
The Federal Reserve Board is the primary regulator of Group Inc.
Group Inc., a bank holding company under the Bank As of December 2013, Federal Reserve Board regulations
Holding Company Act of 1956 (BHC Act) and a financial required bank holding companies to maintain a minimum
holding company under amendments to the BHC Act Tier 1 capital ratio of 4% and a minimum Total capital
effected by the U.S. Gramm-Leach-Bliley Act of 1999. As a ratio of 8%. The required minimum Tier 1 capital ratio and
bank holding company, the firm is subject to consolidated Total capital ratio in order to meet the quantitative
risk-based regulatory capital requirements. These requirements for being a “well-capitalized” bank holding
requirements are computed in accordance with the Federal company under the Federal Reserve Board guidelines are
Reserve Board’s risk-based capital regulations which, as of 6% and 10%, respectively. Bank holding companies may
December 2013, were based on the Basel I Capital Accord be expected to maintain ratios well above the minimum
of the Basel Committee and also reflected the Federal levels, depending on their particular condition, risk profile
Reserve Board’s revised market risk regulatory capital and growth plans. As of December 2013, the minimum
requirements which became effective on January 1, 2013. Tier 1 leverage ratio was 3% for bank holding companies
These capital requirements are expressed as capital ratios that had received the highest supervisory rating under
that compare measures of capital to risk-weighted assets Federal Reserve Board guidelines or that had implemented
(RWAs). The capital regulations also include requirements the Federal Reserve Board’s risk-based capital measure for
with respect to leverage. The firm’s capital levels are also market risk. Beginning January 1, 2014, all bank holding
subject to qualitative judgments by its regulators about companies became subject to a minimum Tier 1 leverage
components of capital, risk weightings and other factors. ratio of 4%.
Beginning January 1, 2014, the Federal Reserve Board
Tier 1 leverage ratio is defined as Tier 1 capital divided by
implemented revised consolidated regulatory capital and
average adjusted total assets (which includes adjustments
leverage requirements discussed below.
for goodwill and identifiable intangible assets, and the
The firm’s U.S. bank depository institution subsidiary, GS carrying value of certain equity investments in
Bank USA, is subject to similar capital and leverage nonconsolidated entities that are subject to deduction from
regulations. Under the Federal Reserve Board’s capital Tier 1 capital).
adequacy requirements and the regulatory framework for
RWAs under the Federal Reserve Board’s risk-based capital
prompt corrective action, the firm and GS Bank USA must
requirements are calculated based on measures of credit
meet specific capital requirements. The firm’s and GS Bank
risk and market risk. Credit risk requirements for on-
USA’s capital levels, as well as GS Bank USA’s prompt
balance-sheet assets are generally based on the balance
corrective action classification, are also subject to
sheet value. For off-balance-sheet exposures, including
qualitative judgments by the regulators about components
OTC derivatives, commitments and guarantees, a credit
of capital, risk weightings and other factors.
equivalent amount is calculated based on the notional
Many of the firm’s subsidiaries, including GS&Co. and the amount of each trade and, to the extent applicable, positive
firm’s other broker-dealer subsidiaries, are subject to net exposure. All such assets and exposures are then
separate regulation and capital requirements as assigned a risk weight depending on, among other things,
described below. whether the counterparty is a sovereign, bank or a
qualifying securities firm or other entity (or if collateral is
held, depending on the nature of the collateral).
As of December 2012, RWAs for market risk were
determined by reference to the firm’s Value-at-Risk (VaR)
model, supplemented by the standardized measurement
method used to determine RWAs for specific risk for
certain positions. Under the Federal Reserve Board’s revised
market risk regulatory capital requirements, which became
effective on January 1, 2013, RWAs for market risk are
determined using VaR, stressed VaR, incremental risk,
comprehensive risk and a standardized measurement
method for specific risk.

190 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

The table below presents information regarding Group Certain aspects of the revised requirements phase in over
Inc.’s regulatory capital ratios and Tier 1 leverage ratio time. These include increases in the minimum capital ratio
under Basel I, as implemented by the Federal Reserve requirements and the introduction of new capital buffers
Board. The information as of December 2013 reflects the and certain deductions from regulatory capital (such as
revised market risk regulatory capital requirements. These investments in nonconsolidated financial institutions). In
changes resulted in increased regulatory capital addition, junior subordinated debt issued to trusts is being
requirements for market risk. The information as of phased out of regulatory capital.
December 2012 is prior to the implementation of these
The minimum CET1 ratio is 4.0% as of January 1, 2014
revised market risk regulatory capital requirements.
and will increase to 4.5% on January 1, 2015. The
minimum Tier 1 capital ratio increased from 4.0% to 5.5%
As of December
on January 1, 2014 and will increase to 6.0% beginning
$ in millions 2013 2012
January 1, 2015. The minimum Total capital ratio remains
Tier 1 capital $ 72,471 $ 66,977
unchanged at 8.0%. These minimum ratios will be
Tier 2 capital $ 13,632 $ 13,429
supplemented by a new capital conservation buffer that
Total capital $ 86,103 $ 80,406
Risk-weighted assets $433,226 $399,928
phases in, beginning January 1, 2016, in increments of
Tier 1 capital ratio 16.7% 16.7% 0.625% per year until it reaches 2.5% on January 1, 2019.
Total capital ratio 19.9% 20.1% The Revised Capital Framework also introduces a new
Tier 1 leverage ratio 8.1% 7.3% counter-cyclical capital buffer, to be imposed in the event
that national supervisors deem it necessary in order to
Revised Capital Framework counteract excessive credit growth.
The U.S. federal bank regulatory agencies (Agencies) have
approved revised risk-based capital and leverage ratio Risk-Weighted Assets. In February 2014, the Federal
regulations establishing a new comprehensive capital Reserve Board informed us that we have completed a
framework for U.S. banking organizations (Revised Capital satisfactory “parallel run,” as required of Advanced
Framework). These regulations are largely based on the approach banking organizations under the Revised
Basel Committee’s December 2010 final capital framework Capital Framework, and therefore changes to RWAs will
for strengthening international capital standards (Basel III) take effect beginning with the second quarter of 2014.
and also implement certain provisions of the Accordingly, the calculation of RWAs in future quarters
Dodd-Frank Act. will be based on the following methodologies:

Under the Revised Capital Framework, Group Inc. is an ‰ During the first quarter of 2014 — the Basel I risk-based
“Advanced approach” banking organization. Below are the capital framework adjusted for certain items related to
aspects of the rules that are most relevant to the firm, as an existing capital deductions and the phase-in of new
Advanced approach banking organization. capital deductions (Basel I Adjusted);

Definition of Capital and Capital Ratios. The Revised ‰ During the remaining quarters of 2014 — the higher of
Capital Framework introduced changes to the definition of RWAs computed under the Basel III Advanced approach
regulatory capital, which, subject to transitional provisions, or the Basel I Adjusted calculation; and
became effective across the firm’s regulatory capital and ‰ Beginning in the first quarter of 2015 — the higher of
leverage ratios on January 1, 2014. These changes include RWAs computed under the Basel III Advanced or
the introduction of a new capital measure called Common Standardized approach.
Equity Tier 1 (CET1), and the related regulatory capital
ratio of CET1 to RWAs (CET1 ratio). In addition, the
definition of Tier 1 capital has been narrowed to include
only CET1 and instruments such as perpetual non-
cumulative preferred stock, which meet certain criteria.

Goldman Sachs 2013 Annual Report 191


Notes to Consolidated Financial Statements

The primary difference between the Standardized approach Global Systemically Important Banking Institutions
and the Basel III Advanced approach is that the (G-SIBs)
Standardized approach utilizes prescribed risk-weightings The Basel Committee has updated its methodology for
and does not contemplate the use of internal models to assessing the global systemic importance of banking
compute exposure for credit risk on derivatives and institutions and determining the range of additional CET1
securities financing transactions, whereas the Basel III that should be maintained by those deemed to be G-SIBs.
Advanced approach permits the use of such models, subject The required amount of additional CET1 for these
to supervisory approval. In addition, RWAs under the institutions will initially range from 1% to 2.5% and could
Standardized approach depend largely on the type of be higher in the future for a banking institution that
counterparty (e.g., whether the counterparty is a sovereign, increases its systemic footprint (e.g., by increasing total
bank, broker-dealer or other entity), rather than on assets). In November 2013, the Financial Stability Board
assessments of each counterparty’s creditworthiness. (established at the direction of the leaders of the Group of
Furthermore, the Standardized approach does not include a 20) indicated that the firm, based on its 2012 financial data,
capital requirement for operational risk. RWAs for market would be required to hold an additional 1.5% of CET1 as a
risk under both the Standardized and Basel III Advanced G-SIB. The final determination of the amount of additional
approaches are based on the Federal Reserve Board’s CET1 that the firm will be required to hold will initially be
revised market risk regulatory capital requirements based on the firm’s 2013 financial data and the manner and
described above. timing of the U.S. banking regulators’ implementation of
the Basel Committee’s methodology. The Basel Committee
Regulatory Leverage Ratios. The Revised Capital
indicated that G-SIBs will be required to meet the capital
Framework increased the minimum Tier 1 leverage ratio
surcharges on a phased-in basis beginning in 2016
applicable to the firm from 3% to 4% effective
through 2019.
January 1, 2014.
Bank Subsidiaries
In addition, the Revised Capital Framework will introduce
GS Bank USA, an FDIC-insured, New York State-chartered
a new Tier 1 supplementary leverage ratio (supplementary
bank and a member of the Federal Reserve System, is
leverage ratio) for Advanced approach banking
supervised and regulated by the Federal Reserve Board, the
organizations, which compares Tier 1 capital (as defined
FDIC, the New York State Department of Financial
under the Revised Capital Framework) to a measure of
Services and the Consumer Financial Protection Bureau,
leverage exposure (defined as the sum of the firm’s assets
and is subject to minimum capital requirements (described
less certain CET1 deductions plus certain off-balance-sheet
below) that are calculated in a manner similar to those
exposures). Effective January 1, 2018, the minimum
applicable to bank holding companies. For purposes of
supplementary leverage ratio requirement will be 3%;
assessing the adequacy of its capital, GS Bank USA
however, disclosure will be required beginning in the first
computes its risk-based capital ratios in accordance with
quarter of 2015. While a definition of the leverage exposure
the regulatory capital requirements applicable to state
measure was set out in the Revised Capital Framework, this
member banks, which, as of December 2013, were based on
measure and/or the minimum requirement applicable may
Basel I and also reflected the revised market risk regulatory
be amended by the regulatory authorities prior to the
capital requirements as implemented by the Federal Reserve
January 2018 effective date.
Board. Beginning January 1, 2014, the Federal Reserve
Board implemented the Revised Capital Framework
discussed above.

192 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Under the regulatory framework for prompt corrective Bank USA became subject to a new minimum CET1 ratio
action applicable to GS Bank USA, in order to meet the requirement of 4%, increasing to 4.5% in 2015. In
quantitative requirements for being a “well-capitalized” addition, the Revised Capital Framework changes the
depository institution, GS Bank USA is required to standards for “well-capitalized” status under prompt
maintain a Tier 1 capital ratio of at least 6%, a Total capital corrective action regulations beginning January 1, 2015 by,
ratio of at least 10% and a Tier 1 leverage ratio of at least among other things, introducing a CET1 ratio requirement
5%. GS Bank USA agreed with the Federal Reserve Board of 6.5% and increasing the Tier 1 capital ratio requirement
to maintain minimum capital ratios in excess of these “well- from 6% to 8%. In addition, commencing January 1, 2018,
capitalized” levels. Accordingly, for a period of time, GS Advanced approach banking organizations must have a
Bank USA is expected to maintain a Tier 1 capital ratio of at supplementary leverage ratio of 3% or greater.
least 8%, a Total capital ratio of at least 11% and a Tier 1
The Basel Committee published its final guidelines for
leverage ratio of at least 6%. As noted in the table below,
calculating incremental capital requirements for domestic
GS Bank USA was in compliance with these minimum
systemically important banking institutions (D-SIBs). These
capital requirements as of December 2013 and
guidelines are complementary to the framework outlined
December 2012.
above for G-SIBs. The impact of these guidelines on the
The table below presents information regarding GS Bank regulatory capital requirements of GS Bank USA will
USA’s regulatory capital ratios under Basel I, as depend on how they are implemented by the banking
implemented by the Federal Reserve Board. The regulators in the United States.
information as of December 2013 reflects the revised
The deposits of GS Bank USA are insured by the FDIC to
market risk regulatory capital requirements, which became
the extent provided by law. The Federal Reserve Board
effective on January 1, 2013. These changes resulted in
requires depository institutions to maintain cash reserves
increased regulatory capital requirements for market risk.
with a Federal Reserve Bank. The amount deposited by the
The information as of December 2012 is prior to the
firm’s depository institution held at the Federal Reserve
implementation of these revised market risk regulatory
Bank was approximately $50.39 billion and $58.67 billion
capital requirements.
as of December 2013 and December 2012, respectively,
which exceeded required reserve amounts by $50.29 billion
As of December
and $58.59 billion as of December 2013 and
$ in millions 2013 2012
December 2012, respectively.
Tier 1 capital $ 20,086 $ 20,704
Tier 2 capital $ 116 $ 39 Transactions between GS Bank USA and its subsidiaries
Total capital $ 20,202 $ 20,743 and Group Inc. and its subsidiaries and affiliates (other
Risk-weighted assets $134,935 $109,669 than, generally, subsidiaries of GS Bank USA) are regulated
Tier 1 capital ratio 14.9% 18.9% by the Federal Reserve Board. These regulations generally
Total capital ratio 15.0% 18.9% limit the types and amounts of transactions (including
Tier 1 leverage ratio 16.9% 17.6%
credit extensions from GS Bank USA) that may take place
The Revised Capital Framework described above is also and generally require those transactions to be on market
applicable to GS Bank USA, which is an Advanced terms or better to GS Bank USA.
approach banking organization under this framework. GS The firm’s principal non-U.S. bank subsidiary, GSIB, is a
Bank USA has also been informed by the Federal Reserve wholly-owned credit institution, regulated by the
Board that it has completed a satisfactory parallel run, as Prudential Regulation Authority (PRA) and the Financial
required of Advanced approach banking organizations Conduct Authority (FCA) and is subject to minimum
under the Revised Capital Framework, and therefore capital requirements. As of December 2013 and
changes to its calculations of RWAs will take effect December 2012, GSIB was in compliance with all
beginning with the second quarter of 2014. Under the regulatory capital requirements.
Revised Capital Framework, as of January 1, 2014, GS

Goldman Sachs 2013 Annual Report 193


Notes to Consolidated Financial Statements

Broker-Dealer Subsidiaries Other Non-U.S. Regulated Subsidiaries


The firm’s U.S. regulated broker-dealer subsidiaries include The firm’s principal non-U.S. regulated subsidiaries
GS&Co. and GSEC. GS&Co. and GSEC are registered U.S. include Goldman Sachs International (GSI) and
broker-dealers and futures commission merchants, and are Goldman Sachs Japan Co., Ltd. (GSJCL). GSI, the firm’s
subject to regulatory capital requirements, including those regulated U.K. broker-dealer, is regulated by the PRA
imposed by the SEC, the U.S. Commodity Futures Trading and the FCA. GSJCL, the firm’s Japanese broker-dealer,
Commission (CFTC), the Chicago Mercantile Exchange, is regulated by Japan’s Financial Services Agency. These
the Financial Industry Regulatory Authority, Inc. (FINRA) and certain other non-U.S. subsidiaries of the firm are
and the National Futures Association. Rule 15c3-1 of the also subject to capital adequacy requirements
SEC and Rule 1.17 of the CFTC specify uniform minimum promulgated by authorities of the countries in which
net capital requirements, as defined, for their registrants, they operate. As of December 2013 and December 2012,
and also effectively require that a significant part of the these subsidiaries were in compliance with their local
registrants’ assets be kept in relatively liquid form. GS&Co. capital adequacy requirements.
and GSEC have elected to compute their minimum capital
The Basel Committee’s guidelines for calculating
requirements in accordance with the “Alternative Net
incremental capital requirements for D-SIBs may also
Capital Requirement” as permitted by Rule 15c3-1.
impact certain of the firm’s non-U.S. regulated subsidiaries,
As of December 2013 and December 2012, GS&Co. had including GSI. However, the impact of these guidelines will
regulatory net capital, as defined by Rule 15c3-1, of depend on how they are implemented in local jurisdictions.
$15.81 billion and $14.12 billion, respectively, which
Restrictions on Payments
exceeded the amount required by $13.76 billion and
The regulatory requirements referred to above restrict
$12.42 billion, respectively. As of December 2013 and
Group Inc.’s ability to withdraw capital from its regulated
December 2012, GSEC had regulatory net capital, as
subsidiaries. As of December 2013 and December 2012,
defined by Rule 15c3-1, of $1.38 billion and $2.02 billion,
Group Inc. was required to maintain approximately
respectively, which exceeded the amount required by
$31.20 billion and $31.01 billion, respectively, of minimum
$1.21 billion and $1.92 billion, respectively.
equity capital in these regulated subsidiaries. This minimum
In addition to its alternative minimum net capital equity capital requirement includes certain restrictions
requirements, GS&Co. is also required to hold tentative net imposed by federal and state laws as to the payment of
capital in excess of $1 billion and net capital in excess of dividends to Group Inc. by its regulated subsidiaries. In
$500 million in accordance with the market and credit risk addition to limitations on the payment of dividends
standards of Appendix E of Rule 15c3-1. GS&Co. is also imposed by federal and state laws, the Federal Reserve
required to notify the SEC in the event that its tentative net Board, the FDIC and the New York State Department of
capital is less than $5 billion. As of December 2013 and Financial Services have authority to prohibit or to limit the
December 2012, GS&Co. had tentative net capital and net payment of dividends by the banking organizations they
capital in excess of both the minimum and the supervise (including GS Bank USA) if, in the relevant
notification requirements. regulator’s opinion, payment of a dividend would
constitute an unsafe or unsound practice in the light of the
financial condition of the banking organization.

194 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Note 21. Note 22.


Earnings Per Common Share Transactions with Affiliated Funds
Basic earnings per common share (EPS) is calculated by The firm has formed numerous nonconsolidated investment
dividing net earnings applicable to common shareholders funds with third-party investors. As the firm generally acts
by the weighted average number of common shares as the investment manager for these funds, it is entitled to
outstanding. Common shares outstanding includes receive management fees and, in certain cases, advisory fees
common stock and RSUs for which no future service is or incentive fees from these funds. Additionally, the firm
required as a condition to the delivery of the underlying invests alongside the third-party investors in certain funds.
common stock. Diluted EPS includes the determinants of
The tables below present fees earned from affiliated funds,
basic EPS and, in addition, reflects the dilutive effect of the
fees receivable from affiliated funds and the aggregate
common stock deliverable for stock warrants and options
carrying value of the firm’s interests in affiliated funds.
and for RSUs for which future service is required as a
condition to the delivery of the underlying common stock.
Year Ended December
The table below presents the computations of basic and in millions 2013 2012 2011
diluted EPS. Fees earned from affiliated funds $2,897 $ 2,935 $ 2,789

Year Ended December


As of December
in millions, except per share amounts 2013 2012 2011
in millions 2013 2012
Numerator for basic and diluted
Fees receivable from funds $ 817 $ 704
EPS — net earnings applicable
Aggregate carrying value of
to common shareholders $7,726 $7,292 $2,510
interests in funds 13,124 14,725
Denominator for basic EPS —
weighted average number of
common shares 471.3 496.2 524.6
As of December 2013 and December 2012, the firm had
Effect of dilutive securities: outstanding guarantees to its funds of $147 million and
RSUs 7.2 11.3 14.6 outstanding loans and guarantees to its funds of
Stock options and warrants 21.1 8.6 17.7 $582 million, respectively. The amount as of
Dilutive potential common shares 28.3 19.9 32.3 December 2013 primarily relates to a guarantee that the
Denominator for diluted EPS — firm has voluntarily provided in connection with a
weighted average number of
common shares and dilutive
financing agreement with a third-party lender executed by
potential common shares 499.6 516.1 556.9 one of the firm’s real estate funds that is not covered by the
Basic EPS $16.34 $14.63 $ 4.71 Volcker Rule. The amount of the guarantee could be
Diluted EPS 15.46 14.13 4.51 increased up to a maximum of $300 million. The amount as
of December 2012 was collateralized by certain fund assets
In the table above, unvested share-based payment awards and primarily related to certain real estate funds for which
that have non-forfeitable rights to dividends or dividend the firm voluntarily provided financial support to alleviate
equivalents are treated as a separate class of securities in liquidity constraints during the financial crisis and to enable
calculating EPS. The impact of applying this methodology them to fund certain investment opportunities. As of
was a reduction in basic EPS of $0.05 for 2013 and $0.07 December 2013 and December 2012, the firm had no
for both 2012 and 2011. outstanding commitments to extend credit or other
The diluted EPS computations in the table above do not guarantees to its funds.
include antidilutive RSUs and common shares underlying
antidilutive stock options and warrants of 6.0 million for
2013, 52.4 million for 2012 and 9.2 million for 2011.

Goldman Sachs 2013 Annual Report 195


Notes to Consolidated Financial Statements

The Volcker Rule will restrict the firm from providing Note 23.
financial support to covered funds (as defined in the rule) Interest Income and Interest Expense
after the expiration of the transition period in July 2015,
subject to possible extensions through July 2017. As a Interest income is recorded on an accrual basis based on
general matter, in the ordinary course of business, the firm contractual interest rates. The table below presents the
does not expect to provide additional voluntary financial firm’s sources of interest income and interest expense.
support to any covered funds but may choose to do so with
respect to funds that are not subject to the Volcker Rule; Year Ended December
however, in the event that such support is provided, the in millions 2013 2012 2011
amount of any such support is not expected to be material. Interest income
Deposits with banks $ 186 $ 156 $ 125
In addition, in the ordinary course of business, the firm may Securities borrowed, securities
also engage in other activities with its affiliated funds purchased under agreements to
including, among others, securities lending, trade resell and federal funds sold 1 43 (77) 666
execution, market making, custody, and acquisition and Financial instruments owned, at
fair value 8,159 9,817 10,718
bridge financing. See Note 18 for the firm’s investment
Other interest 2 1,672 1,485 1,665
commitments related to these funds. Total interest income 10,060 11,381 13,174
Interest expense
Deposits 387 399 280
Securities loaned and securities sold
under agreements to repurchase 576 822 905
Financial instruments sold, but not
yet purchased, at fair value 2,054 2,438 2,464
Short-term borrowings 3 394 581 526
Long-term borrowings 3 3,752 3,736 3,439
Other interest 4 (495) (475) 368
Total interest expense 6,668 7,501 7,982
Net interest income $ 3,392 $ 3,880 $ 5,192

1. Includes rebates paid and interest income on securities borrowed.


2. Includes interest income on customer debit balances and other interest-
earning assets.
3. Includes interest on unsecured borrowings and other secured financings.
4. Includes rebates received on other interest-bearing liabilities and interest
expense on customer credit balances.

196 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Note 24.
Income Taxes
Provision for Income Taxes Deferred Income Taxes
Income taxes are provided for using the asset and liability Deferred income taxes reflect the net tax effects of
method under which deferred tax assets and liabilities are temporary differences between the financial reporting and
recognized for temporary differences between the financial tax bases of assets and liabilities. These temporary
reporting and tax bases of assets and liabilities. The firm differences result in taxable or deductible amounts in future
reports interest expense related to income tax matters in years and are measured using the tax rates and laws that
“Provision for taxes” and income tax penalties in will be in effect when such differences are expected to
“Other expenses.” reverse. Valuation allowances are established to reduce
deferred tax assets to the amount that more likely than not
The tables below present the components of the provision/
will be realized and primarily relate to the ability to utilize
(benefit) for taxes and a reconciliation of the U.S. federal
losses in various tax jurisdictions. Tax assets and liabilities
statutory income tax rate to the firm’s effective income
are presented as a component of “Other assets” and “Other
tax rate.
liabilities and accrued expenses,” respectively.
Year Ended December The table below presents the significant components of
in millions 2013 2012 2011 deferred tax assets and liabilities, excluding the impact of
Current taxes netting within tax jurisdictions.
U.S. federal $2,589 $3,013 $ 405
State and local 466 628 392 As of December
Non-U.S. 613 447 204
in millions 2013 2012
Total current tax expense 3,668 4,088 1,001
Deferred tax assets
Deferred taxes
Compensation and benefits $2,740 $2,447
U.S. federal (188) (643) 683
Unrealized losses 309 1,477
State and local 67 38 24
ASC 740 asset related to unrecognized tax benefits 475 685
Non-U.S. 150 249 19
Non-U.S. operations 1,318 965
Total deferred tax (benefit)/expense 29 (356) 726
Net operating losses 232 222
Provision for taxes $3,697 $3,732 $1,727
Occupancy-related 108 119
Other comprehensive income-related 69 114
Year Ended December Other, net 729 435
2013 2012 2011 5,980 6,464
Valuation allowance (183) (168)
U.S. federal statutory income tax rate 35.0% 35.0% 35.0%
Total deferred tax assets $5,797 $6,296
State and local taxes, net of U.S. federal
income tax effects 4.1 3.8 4.4 Depreciation and amortization 1,269 1,230
Tax credits (1.0) (1.0) (1.6) Other comprehensive income-related 68 85
Non-U.S. operations 1 (5.6) (4.8) (6.7) Total deferred tax liabilities $1,337 $1,315
Tax-exempt income, including dividends (0.5) (0.5) (2.4)
Other (0.5) 0.8 (0.7)
Effective income tax rate 31.5% 33.3% 28.0%

1. Includes the impact of permanently reinvested earnings.

Goldman Sachs 2013 Annual Report 197


Notes to Consolidated Financial Statements

The firm has recorded deferred tax assets of $232 million The firm permanently reinvests eligible earnings of certain
and $222 million as of December 2013 and foreign subsidiaries and, accordingly, does not accrue any
December 2012, respectively, in connection with U.S. U.S. income taxes that would arise if such earnings were
federal, state and local and foreign net operating loss repatriated. As of December 2013 and December 2012, this
carryforwards. The firm also recorded a valuation policy resulted in an unrecognized net deferred tax liability
allowance of $45 million and $60 million as of of $4.06 billion and $3.75 billion, respectively, attributable
December 2013 and December 2012, respectively, related to reinvested earnings of $22.54 billion and
to these net operating loss carryforwards. $21.69 billion, respectively.
As of December 2013, the U.S. federal and foreign net Unrecognized Tax Benefits
operating loss carryforwards were $38 million and The firm recognizes tax positions in the financial statements
$854 million, respectively. If not utilized, the U.S. federal only when it is more likely than not that the position will be
net operating loss carryforward will begin to expire in sustained on examination by the relevant taxing authority
2014. The foreign net operating loss carryforwards can be based on the technical merits of the position. A position
carried forward indefinitely. State and local net operating that meets this standard is measured at the largest amount
loss carryforwards of $781 million will begin to expire in of benefit that will more likely than not be realized on
2014. If these carryforwards expire, they will not have a settlement. A liability is established for differences between
material impact on the firm’s results of operations. The firm positions taken in a tax return and amounts recognized in
had no foreign tax credit carryforwards and no related net the financial statements.
deferred income tax assets as of December 2013 or
As of December 2013 and December 2012, the accrued
December 2012.
liability for interest expense related to income tax matters
The firm had no capital loss carryforwards and no related and income tax penalties was $410 million and
net deferred income tax assets as of December 2013 or $374 million, respectively. The firm recognized $53 million
December 2012. for 2013, $95 million for 2012 and $21 million for 2011 of
interest and income tax penalties. It is reasonably possible
The valuation allowance increased by $15 million and
that unrecognized tax benefits could change significantly
$103 million during 2013 and 2012, respectively. The
during the twelve months subsequent to December 2013
increase in 2013 was primarily due to an increase in
due to potential audit settlements, however, at this time it is
deferred tax assets from which the firm does not expect to
not possible to estimate any potential change.
realize any benefit. The increase in 2012 was primarily due
to the acquisition of deferred tax assets considered more
likely than not to be unrealizable.

198 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

The table below presents the changes in the liability for The table below presents the earliest tax years that remain
unrecognized tax benefits. This liability is included in subject to examination by major jurisdiction.
“Other liabilities and accrued expenses.” See Note 17 for
further information. As of
Jurisdiction December 2013
U.S. Federal 2008
As of December
New York State and City 2004
in millions 2013 2012 2011
United Kingdom 2008
Balance, beginning of year $2,237 $1,887 $2,081 Japan 2010
Increases based on tax positions Hong Kong 2006
related to the current year 144 190 171
Korea 2010
Increases based on tax positions
related to prior years 149 336 278
For U.S. Federal, IRS examinations of fiscal 2008 through
Decreases related to tax positions
of prior years (471) (109) (41) calendar 2010 began in 2011. IRS examinations of fiscal
Decreases related to settlements (299) (35) (638) 2005 through 2007 were finalized during the third quarter
Acquisitions/(dispositions) — (47) 47 of 2013. The field work for the examinations of 2008
Exchange rate fluctuations 5 15 (11) through 2010 has been completed but the examinations
have not been administratively finalized. The examinations
Balance, end of year $1,765 $2,237 $1,887
Related deferred income tax asset 1 475 685 569
of 2011 and 2012 began in 2013.
Net unrecognized tax benefit 2 $1,290 $1,552 $1,318 New York State and City examinations of fiscal 2004
1. Included in “Other assets.” See Note 12.
through 2006 began in 2008. The examinations of fiscal
2. If recognized, the net tax benefit would reduce the firm’s effective income
2007 through 2010 began in 2013.
tax rate.
All years subsequent to the years in the table above remain
Regulatory Tax Examinations open to examination by the taxing authorities. The firm
The firm is subject to examination by the U.S. Internal believes that the liability for unrecognized tax benefits it has
Revenue Service (IRS) and other taxing authorities in established is adequate in relation to the potential for
jurisdictions where the firm has significant business additional assessments.
operations, such as the United Kingdom, Japan, Hong In January 2013, the firm was accepted into the
Kong, Korea and various states, such as New York. The tax Compliance Assurance Process program by the IRS. This
years under examination vary by jurisdiction. The firm does program allows the firm to work with the IRS to identify
not expect completion of these audits to have a material and resolve potential U.S. federal tax issues before the filing
impact on the firm’s financial condition but it may be of tax returns. The 2013 tax year is the first year being
material to operating results for a particular period, examined under the program. The firm was accepted into
depending, in part, on the operating results for that period. the program again for the 2014 tax year.

Goldman Sachs 2013 Annual Report 199


Notes to Consolidated Financial Statements

Note 25.
Business Segments
The firm reports its activities in the following four business The segment information presented in the table below is
segments: Investment Banking, Institutional Client Services, prepared according to the following methodologies:
Investing & Lending and Investment Management.
‰ Revenues and expenses directly associated with each
Basis of Presentation segment are included in determining pre-tax earnings.
In reporting segments, certain of the firm’s business lines
‰ Net revenues in the firm’s segments include allocations of
have been aggregated where they have similar economic
interest income and interest expense to specific securities,
characteristics and are similar in each of the following
commodities and other positions in relation to the cash
areas: (i) the nature of the services they provide, (ii) their
generated by, or funding requirements of, such
methods of distribution, (iii) the types of clients they serve
underlying positions. Net interest is included in segment
and (iv) the regulatory environments in which they operate.
net revenues as it is consistent with the way in which
The cost drivers of the firm taken as a whole — management assesses segment performance.
compensation, headcount and levels of business activity —
‰ Overhead expenses not directly allocable to specific
are broadly similar in each of the firm’s business segments.
segments are allocated ratably based on direct
Compensation and benefits expenses in the firm’s segments
segment expenses.
reflect, among other factors, the overall performance of the
firm as well as the performance of individual businesses. Management believes that the following information
Consequently, pre-tax margins in one segment of the firm’s provides a reasonable representation of each segment’s
business may be significantly affected by the performance contribution to consolidated pre-tax earnings and
of the firm’s other business segments. total assets.
The firm allocates assets (including allocations of excess
liquidity and cash, secured client financing and other
assets), revenues and expenses among the four business
segments. Due to the integrated nature of these segments,
estimates and judgments are made in allocating certain
assets, revenues and expenses. The allocation process is
based on the manner in which management currently views
the performance of the segments. Transactions between
segments are based on specific criteria or approximate
third-party rates. Total operating expenses include
corporate items that have not been allocated to individual
business segments.

200 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

For the Year Ended or as of December


in millions 2013 2012 2011
Investment Banking Financial Advisory $ 1,978 $ 1,975 $ 1,987
Equity underwriting 1,659 987 1,085
Debt underwriting 2,367 1,964 1,283
Total Underwriting 4,026 2,951 2,368
Total net revenues 6,004 4,926 4,355
Operating expenses 3,475 3,330 2,995
Pre-tax earnings $ 2,529 $ 1,596 $ 1,360
Segment assets $ 1,901 $ 1,712 $ 1,983

Institutional Client Services Fixed Income, Currency and Commodities


Client Execution $ 8,651 $ 9,914 $ 9,018
Equities client execution 2,594 3,171 3,031
Commissions and fees 3,103 3,053 3,633
Securities services 1,373 1,986 1,598
Total Equities 7,070 8,210 8,262
Total net revenues 1 15,721 18,124 17,280
Operating expenses 11,782 12,480 12,837
Pre-tax earnings $ 3,939 $ 5,644 $ 4,443
Segment assets $788,238 $825,496 $813,660

Investing & Lending Equity securities $ 3,930 $ 2,800 $ 603


Debt securities and loans 1,947 1,850 96
Other 1,141 1,241 1,443
Total net revenues 7,018 5,891 2,142
Operating expenses 2,684 2,666 2,673
Pre-tax earnings/(loss) $ 4,334 $ 3,225 $ (531)
Segment assets $109,285 $ 98,600 $ 94,330

Investment Management Management and other fees $ 4,386 $ 4,105 $ 4,188


Incentive fees 662 701 323
Transaction revenues 415 416 523
Total net revenues 5,463 5,222 5,034
Operating expenses 4,354 4,294 4,020
Pre-tax earnings $ 1,109 $ 928 $ 1,014
Segment assets $ 12,083 $ 12,747 $ 13,252

Total Net revenues $ 34,206 $ 34,163 $ 28,811


Operating expenses 22,469 22,956 22,642
Pre-tax earnings $ 11,737 $ 11,207 $ 6,169
Total assets $911,507 $938,555 $923,225

1. Includes $37 million for 2013, $121 million for 2012 and $115 million for 2011 of realized gains on available-for-sale securities held in the firm’s Americas reinsurance
business, in which a majority stake was sold in April 2013.

Goldman Sachs 2013 Annual Report 201


Notes to Consolidated Financial Statements

Total operating expenses in the table above include the Geographic Information
following expenses that have not been allocated to the Due to the highly integrated nature of international
firm’s segments: financial markets, the firm manages its businesses based on
the profitability of the enterprise as a whole. The
‰ charitable contributions of $155 million for 2013,
methodology for allocating profitability to geographic
$169 million for 2012 and $103 million for 2011; and
regions is dependent on estimates and management
‰ real estate-related exit costs of $19 million for 2013, judgment because a significant portion of the firm’s
$17 million for 2012 and $14 million for 2011. Real activities require cross-border coordination in order to
estate-related exit costs are included in “Depreciation and facilitate the needs of the firm’s clients.
amortization” and “Occupancy” in the consolidated
Geographic results are generally allocated as follows:
statements of earnings.
‰ Investment Banking: location of the client and investment
The tables below present the amounts of net interest income
banking team.
or interest expense included in net revenues, and the
amounts of depreciation and amortization expense ‰ Institutional Client Services: Fixed Income, Currency and
included in pre-tax earnings. Commodities Client Execution, and Equities (excluding
Securities Services): location of the market-making desk;
Year Ended December Securities Services: location of the primary market for the
in millions 2013 2012 2011 underlying security.
Investment Banking $ — $ (15) $ (6) ‰ Investing & Lending: Investing: location of the
Institutional Client Services 3,250 3,723 4,360
investment; Lending: location of the client.
Investing & Lending 25 26 635
Investment Management 117 146 203 ‰ Investment Management: location of the sales team.
Total net interest income $3,392 $3,880 $5,192

Year Ended December


in millions 2013 2012 2011
Investment Banking $ 143 $ 164 $ 174
Institutional Client Services 567 796 944
Investing & Lending 440 564 563
Investment Management 165 204 188
Total depreciation and amortization 1 $1,322 $1,738 $1,869

1. Includes real estate-related exit costs of $7 million for 2013 and $10 million
for 2012 that have not been allocated to the firm’s segments.

202 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

The table below presents the total net revenues, pre-tax well as the percentage of total net revenues, pre-tax
earnings and net earnings of the firm by geographic region earnings and net earnings (excluding Corporate) for each
allocated based on the methodology referred to above, as geographic region.

Year Ended December


$ in millions 2013 2012 2011
Net revenues
Americas $19,858 58% $20,159 59% $17,873 62%
Europe, Middle East and Africa 8,828 26 8,612 25 7,074 25
Asia 1 (includes Australia and New Zealand) 5,520 16 5,392 16 3,864 13
Total net revenues $34,206 100% $34,163 100% $28,811 100%
Pre-tax earnings/(loss)
Americas $ 6,794 57% $ 6,960 61% $ 5,307 85%
Europe, Middle East and Africa 3,237 27 2,943 26 1,210 19
Asia (includes Australia and New Zealand) 1,880 16 1,490 13 (231) (4)
Subtotal 11,911 100% 11,393 100% 6,286 100%
Corporate 2 (174) (186) (117)
Total pre-tax earnings $11,737 $11,207 $ 6,169
Net earnings/(loss)
Americas $ 4,425 54% $ 4,259 56% $ 3,522 78%
Europe, Middle East and Africa 2,382 29 2,369 31 1,103 24
Asia (includes Australia and New Zealand) 1,353 17 972 13 (103) (2)
Subtotal 8,160 100% 7,600 100% 4,522 100%
Corporate (120) (125) (80)
Total net earnings $ 8,040 $ 7,475 $ 4,442

1. Net revenues in Asia in 2011 primarily reflect lower net revenues in Investing & Lending, principally due to losses from public equities, reflecting a significant decline
in equity markets in Asia during 2011.

2. Consists of charitable contributions of $155 million for 2013, $169 million for 2012 and $103 million for 2011; and real estate-related exit costs of $19 million for
2013, $17 million for 2012 and $14 million for 2011.

Goldman Sachs 2013 Annual Report 203


Notes to Consolidated Financial Statements

Note 26.
Credit Concentrations
Credit concentrations may arise from market making, client To reduce credit exposures, the firm may enter into
facilitation, investing, underwriting, lending and agreements with counterparties that permit the firm to
collateralized transactions and may be impacted by changes offset receivables and payables with such counterparties
in economic, industry or political factors. The firm seeks to and/or enable the firm to obtain collateral on an upfront or
mitigate credit risk by actively monitoring exposures and contingent basis. Collateral obtained by the firm related to
obtaining collateral from counterparties as deemed derivative assets is principally cash and is held by the firm
appropriate. or a third-party custodian. Collateral obtained by the firm
related to resale agreements and securities borrowed
While the firm’s activities expose it to many different
transactions is primarily U.S. government and federal
industries and counterparties, the firm routinely executes a
agency obligations and non-U.S. government and agency
high volume of transactions with asset managers,
obligations. See Note 9 for further information about
investment funds, commercial banks, brokers and dealers,
collateralized agreements and financings.
clearing houses and exchanges, which results in significant
credit concentrations. The table below presents U.S. government and federal
agency obligations, and non-U.S. government and agency
In the ordinary course of business, the firm may also be
obligations, that collateralize resale agreements and
subject to a concentration of credit risk to a particular
securities borrowed transactions (including those in “Cash
counterparty, borrower or issuer, including sovereign
and securities segregated for regulatory and other
issuers, or to a particular clearing house or exchange.
purposes”). Because the firm’s primary credit exposure on
The table below presents the credit concentrations in cash such transactions is to the counterparty to the transaction,
instruments held by the firm. the firm would be exposed to the collateral issuer only in
the event of counterparty default.
As of December
$ in millions 2013 2012 As of December
U.S. government and federal in millions 2013 2012
agency obligations 1 $90,118 $114,418 U.S. government and federal
% of total assets 9.9% 12.2% agency obligations $100,672 $73,477
Non-U.S. government and Non-U.S. government and
agency obligations 1 $40,944 $ 62,252 agency obligations 1 79,021 64,724
% of total assets 4.5% 6.6%
1. Principally consists of securities issued by the governments of Germany,
1. Substantially all included in “Financial instruments owned, at fair value” and France and the United Kingdom.
“Cash and securities segregated for regulatory and other purposes.”

As of December 2013 and December 2012, the firm did not


have credit exposure to any other counterparty that
exceeded 2% of total assets.

204 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Note 27.
Legal Proceedings
The firm is involved in a number of judicial, regulatory and Management is generally unable to estimate a range of
arbitration proceedings (including those described below) reasonably possible loss for matters other than those
concerning matters arising in connection with the conduct included in the estimate above, including where (i) actual or
of the firm’s businesses. Many of these proceedings are in potential plaintiffs have not claimed an amount of money
early stages, and many of these cases seek an indeterminate damages, unless management can otherwise determine an
amount of damages. appropriate amount, (ii) the matters are in early stages
(such as the action filed by the Libyan Investment Authority
Under ASC 450, an event is “reasonably possible” if “the
discussed below), (iii) there is uncertainty as to the
chance of the future event or events occurring is more than
likelihood of a class being certified or the ultimate size of
remote but less than likely” and an event is “remote” if “the
the class, (iv) there is uncertainty as to the outcome of
chance of the future event or events occurring is slight.”
pending appeals or motions, (v) there are significant factual
Thus, references to the upper end of the range of reasonably
issues to be resolved, and/or (vi) there are novel legal issues
possible loss for cases in which the firm is able to estimate a
presented. For example, the firm’s potential liability with
range of reasonably possible loss mean the upper end of the
respect to future mortgage-related “put-back” claims and
range of loss for cases for which the firm believes the risk of
any future claims arising from the ongoing investigations by
loss is more than slight.
members of the Residential Mortgage-Backed Securities
With respect to matters described below for which Working Group of the U.S. Financial Fraud Enforcement
management has been able to estimate a range of Task Force (RMBS Working Group) may ultimately result
reasonably possible loss where (i) actual or potential in a significant increase in the firm’s liabilities for mortgage-
plaintiffs have claimed an amount of money damages, related matters, but is not included in management’s
(ii) the firm is being, or threatened to be, sued by purchasers estimate of reasonably possible loss. However,
in an underwriting and is not being indemnified by a party management does not believe, based on currently available
that the firm believes will pay any judgment, or (iii) the information, that the outcomes of such matters will have a
purchasers are demanding that the firm repurchase material adverse effect on the firm’s financial condition,
securities, management has estimated the upper end of the though the outcomes could be material to the firm’s
range of reasonably possible loss as being equal to (a) in the operating results for any particular period, depending, in
case of (i), the amount of money damages claimed, (b) in the part, upon the operating results for such period. See
case of (ii), the amount of securities that the firm sold in the Note 18 for further information on mortgage-
underwritings and (c) in the case of (iii), the price that related contingencies.
purchasers paid for the securities less the estimated value, if
any, as of December 2013 of the relevant securities, in each
of cases (i), (ii) and (iii), taking into account any factors
believed to be relevant to the particular matter or matters of
that type. As of the date hereof, the firm has estimated the
upper end of the range of reasonably possible aggregate loss
for such matters and for any other matters described below
where management has been able to estimate a range of
reasonably possible aggregate loss to be approximately
$3.6 billion in excess of the aggregate reserves for
such matters.

Goldman Sachs 2013 Annual Report 205


Notes to Consolidated Financial Statements

Mortgage-Related Matters. Beginning in April 2010, a In June 2012, the Board received a demand from a
number of purported securities law class actions were filed shareholder that the Board investigate and take action
in the U.S. District Court for the Southern District of New relating to the firm’s mortgage-related activities and to
York challenging the adequacy of Group Inc.’s public stock sales by certain directors and executives of the firm.
disclosure of, among other things, the firm’s activities in the On February 15, 2013, this shareholder filed a putative
CDO market, the firm’s conflict of interest management, shareholder derivative action in New York Supreme Court,
and the SEC investigation that led to GS&Co. entering into New York County, against Group Inc. and certain current
a consent agreement with the SEC, settling all claims made or former directors and employees, based on these activities
against GS&Co. by the SEC in connection with the and stock sales. The derivative complaint includes
ABACUS 2007-AC1 CDO offering (ABACUS 2007-AC1 allegations of breach of fiduciary duty, unjust enrichment,
transaction), pursuant to which GS&Co. paid $550 million abuse of control, gross mismanagement and corporate
of disgorgement and civil penalties. The consolidated waste, and seeks, among other things, unspecified monetary
amended complaint filed on July 25, 2011, which names as damages, disgorgement of profits and certain corporate
defendants Group Inc. and certain officers and employees governance and disclosure reforms. On May 28, 2013,
of Group Inc. and its affiliates, generally alleges violations Group Inc. informed the shareholder that the Board
of Sections 10(b) and 20(a) of the Exchange Act and seeks completed its investigation and determined to refuse the
unspecified damages. On June 21, 2012, the district court demand. On June 20, 2013, the shareholder made a books
dismissed the claims based on Group Inc.’s not disclosing and records demand requesting materials relating to the
that it had received a “Wells” notice from the staff of the Board’s determination. The parties have agreed to stay
SEC related to the ABACUS 2007-AC1 transaction, but proceedings in the putative derivative action pending
permitted the plaintiffs’ other claims to proceed. resolution of the books and records demand.
On February 1, 2013, a putative shareholder derivative In addition, the Board has received books and records
action was filed in the U.S. District Court for the Southern demands from several shareholders for materials relating
District of New York against Group Inc. and certain of its to, among other subjects, the firm’s mortgage servicing and
officers and directors in connection with mortgage-related foreclosure activities, participation in federal programs
activities during 2006 and 2007, including three CDO providing assistance to financial institutions and
offerings. The derivative complaint, which is based on homeowners, loan sales to Fannie Mae and Freddie Mac,
similar allegations to those at issue in the consolidated class mortgage-related activities and conflicts management.
action discussed above and purported shareholder
derivative actions that were previously dismissed, includes
allegations of breach of fiduciary duty, challenges the
accuracy and adequacy of Group Inc.’s disclosure and
seeks, among other things, declaratory relief, unspecified
compensatory and punitive damages and restitution from
the individual defendants and certain corporate governance
reforms. On May 20, 2013, the defendants moved to
dismiss the action.

206 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

GS&Co., Goldman Sachs Mortgage Company (GSMC) On September 30, 2010, a putative class action was filed in
and GS Mortgage Securities Corp. (GSMSC) and three the U.S. District Court for the Southern District of New
current or former Goldman Sachs employees are defendants York against GS&Co., Group Inc. and two former
in a putative class action commenced on GS&Co. employees on behalf of investors in $823 million
December 11, 2008 in the U.S. District Court for the of notes issued in 2006 and 2007 by two synthetic CDOs
Southern District of New York brought on behalf of (Hudson Mezzanine 2006-1 and 2006-2). The amended
purchasers of various mortgage pass-through certificates complaint asserts federal securities law and common law
and asset-backed certificates issued by various claims, and seeks unspecified compensatory, punitive and
securitization trusts established by the firm and other damages. The defendants’ motion to dismiss was
underwritten by GS&Co. in 2007. The complaint generally granted as to plaintiff’s claim of market manipulation and
alleges that the registration statement and prospectus denied as to the remainder of plaintiff’s claims by a decision
supplements for the certificates violated the federal dated March 21, 2012. On May 21, 2012, the defendants
securities laws, and seeks unspecified compensatory counterclaimed for breach of contract and fraud. By a
damages and rescission or rescissionary damages. By a decision dated January 22, 2014, the court granted the
decision dated September 6, 2012, the U.S. Court of plaintiff’s motion for class certification. On
Appeals for the Second Circuit affirmed the district court’s February 6, 2014, defendants petitioned for leave to appeal
dismissal of plaintiff’s claims with respect to 10 of the 17 the class certification order.
offerings included in plaintiff’s original complaint but
Various alleged purchasers of, and counterparties and
vacated the dismissal and remanded the case to the district
providers of credit enhancement involved in transactions
court with instructions to reinstate the plaintiff’s claims
relating to, mortgage pass-through certificates, CDOs and
with respect to the other seven offerings. On
other mortgage-related products (including Aozora Bank,
October 31, 2012, the plaintiff served a fourth amended
Ltd., Basis Yield Alpha Fund (Master), the Charles Schwab
complaint relating to those seven offerings, plus seven
Corporation, CIFG Assurance of North America, Inc.,
additional offerings (additional offerings). On
CMFG Life Insurance Company and related parties,
June 3, 2010, another investor (who had unsuccessfully
Deutsche Zentral-Genossenschaftbank, the FDIC (as
sought to intervene in the action) filed a separate putative
receiver for Guaranty Bank), the Federal Home Loan Banks
class action asserting substantively similar allegations
of Chicago and Seattle, the FHFA (as conservator for
relating to one of the additional offerings. The district court
Fannie Mae and Freddie Mac), HSH Nordbank, IKB
twice granted defendants’ motions to dismiss this separate
Deutsche Industriebank AG, Joel I. Sher (Chapter 11
action, both times with leave to replead. That separate
Trustee) on behalf of TMST, Inc. (TMST), f/k/a Thornburg
plaintiff has filed an amended complaint and has moved to
Mortgage, Inc. and certain TMST affiliates, John Hancock
further amend this complaint to add claims with respect to
and related parties, Massachusetts Mutual Life Insurance
two more of the additional offerings; defendants have
Company, MoneyGram Payment Systems, Inc., National
moved to dismiss and opposed the amendment. The
Australia Bank, the National Credit Union Administration
securitization trusts issued, and GS&Co. underwrote,
(as conservator or liquidating agent for several failed credit
approximately $11 billion principal amount of certificates
unions), Phoenix Light SF Limited and related parties,
to all purchasers in the fourteen offerings at issue in
Royal Park Investments SA/NV, The Union Central Life
the complaints.
Insurance Company, Ameritas Life Insurance Corp., Acacia
Life Insurance Company, Watertown Savings Bank and
Commerzbank) have filed complaints or summonses with
notice in state and federal court or initiated arbitration
proceedings against firm affiliates, generally alleging that
the offering documents for the securities that they
purchased contained untrue statements of material fact and
material omissions and generally seeking rescission and/or
damages. Certain of these complaints allege fraud and seek
punitive damages. Certain of these complaints also name
other firms as defendants.

Goldman Sachs 2013 Annual Report 207


Notes to Consolidated Financial Statements

A number of other entities (including John Hancock and On February 25, 2013, Group Inc. was added as a
related parties, Norges Bank Investment Management, defendant through an amended complaint in a putative
Selective Insurance Company and Texas County & District class action, originally filed on April 6, 2012 in the U.S.
Retirement System) have threatened to assert claims of District Court for the Southern District of New York,
various types against the firm in connection with the sale of against Litton, Ocwen and Ocwen Loan Servicing, LLC
mortgage-related securities. The firm has entered into (Ocwen Servicing). The amended complaint generally
agreements with a number of these entities to toll the alleges that Litton and Ocwen Servicing systematically
relevant statute of limitations. breached agreements and violated various federal and state
consumer protection laws by failing to modify the mortgage
As of the date hereof, the aggregate amount of mortgage-
loans of homeowners participating in the federal Home
related securities sold to plaintiffs in active and threatened
Affordable Modification Program, and names Group Inc.
cases described in the preceding two paragraphs where
based on its prior ownership of Litton. The plaintiffs seek
those plaintiffs are seeking rescission of such securities was
unspecified compensatory, statutory and punitive damages
approximately $17.9 billion (which does not reflect
as well as declaratory and injunctive relief. On
adjustment for any subsequent paydowns or distributions
April 29, 2013, Group Inc. moved to dismiss.
or any residual value of such securities, statutory interest or
any other adjustments that may be claimed). This amount The firm has also received, and continues to receive,
does not include the potential claims by these or other requests for information and/or subpoenas from federal,
purchasers in the same or other mortgage-related offerings state and local regulators and law enforcement authorities,
that have not been described above, or claims that have including members of the RMBS Working Group, relating
been dismissed. to the mortgage-related securitization process, subprime
mortgages, CDOs, synthetic mortgage-related products,
The firm has entered into agreements with Deutsche Bank
particular transactions involving these products, and
National Trust Company and U.S. Bank National
servicing and foreclosure activities, and is cooperating with
Association to toll the relevant statute of limitations with
these regulators and other authorities, including in some
respect to claims for repurchase of residential mortgage
cases agreeing to the tolling of the relevant statute of
loans based on alleged breaches of representations related
limitations. See also “Regulatory Investigations and
to $11.4 billion original notional face amount of
Reviews and Related Litigation” below.
securitizations issued by trusts for which they act
as trustees. The firm expects to be the subject of additional putative
shareholder derivative actions, purported class actions,
Group Inc., Litton, Ocwen and Arrow Corporate Member
rescission and “put back” claims and other litigation,
Holdings LLC, a former subsidiary of Group Inc., are
additional investor and shareholder demands, and
defendants in a putative class action pending since
additional regulatory and other investigations and actions
January 23, 2013 in the U.S. District Court for the Southern
with respect to mortgage-related offerings, loan sales,
District of New York generally challenging the
CDOs, and servicing and foreclosure activities. See Note 18
procurement manner and scope of “force-placed” hazard
for information regarding mortgage-related contingencies
insurance arranged by Litton when homeowners failed to
not described in this Note 27.
arrange for insurance as required by their mortgages. The
complaint asserts claims for breach of contract, breach of
fiduciary duty, misappropriation, conversion, unjust
enrichment and violation of Florida unfair practices law,
and seeks unspecified compensatory and punitive damages
as well as declaratory and injunctive relief. The second
amended complaint, filed on November 19, 2013, added an
additional plaintiff and RICO claims. On
January 21, 2014, Group Inc. moved to sever the claims
against it and certain other defendants.

208 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Private Equity-Sponsored Acquisitions Litigation. GS&Co. underwrote approximately $5.57 billion principal
Group Inc. is among numerous private equity firms named amount of securities to all purchasers in the offerings
as defendants in a federal antitrust action filed in the U.S. included in the amended complaint. On May 14, 2012,
District Court for the District of Massachusetts in ResCap, RALI and RFC filed for Chapter 11 bankruptcy in
December 2007. As amended, the complaint generally the U.S. Bankruptcy Court for the Southern District of New
alleges that the defendants have colluded to limit York. On June 28, 2013, the district court entered a final
competition in bidding for private equity-sponsored order and judgment approving a settlement between
acquisitions of public companies, thereby resulting in lower plaintiffs and ResCap, RALI, RFC, RFSC and their officers
prevailing bids and, by extension, less consideration for and directors named as defendants in the action.
shareholders of those companies in violation of Section 1 of
MF Global Securities Litigation. GS&Co. is among
the U.S. Sherman Antitrust Act and common law. The
numerous underwriters named as defendants in class action
complaint seeks, among other things, treble damages in an
complaints filed in the U.S. District Court for the Southern
unspecified amount. On March 13, 2013, the court granted
District of New York commencing November 18, 2011.
in part and denied in part defendants’ motions for summary
These complaints generally allege that the offering
judgment, rejecting plaintiffs’ theory of overarching
materials for two offerings of MF Global Holdings Ltd.
collusion, but permitting plaintiffs’ claims to proceed based
convertible notes (aggregating approximately $575 million
on narrower theories. On October 21, 2013, plaintiffs
in principal amount) in February 2011 and July 2011,
moved for class certification.
among other things, failed to describe adequately the
RALI Pass-Through Certificates Litigation. GS&Co. is nature, scope and risks of MF Global’s exposure to
among numerous underwriters named as defendants in a European sovereign debt, in violation of the disclosure
putative securities class action initially filed in requirements of the federal securities laws. On
September 2008 in New York Supreme Court, and November 12, 2013, the court denied the defendants’
subsequently removed to the U.S. District Court for the motions to dismiss the amended complaint. GS&Co.
Southern District of New York. As to the underwriters, underwrote an aggregate principal amount of
plaintiffs allege that the offering documents in connection approximately $214 million of the notes. On
with various offerings of mortgage-backed pass-through October 31, 2011, MF Global Holdings Ltd. filed for
certificates violated the disclosure requirements of the Chapter 11 bankruptcy in the U.S. Bankruptcy Court in
federal securities laws. In addition to the underwriters, the Manhattan, New York.
defendants include Residential Capital, LLC (ResCap),
GS&Co. has also received inquiries from various
Residential Accredit Loans, Inc. (RALI), Residential
governmental and regulatory bodies and self-regulatory
Funding Corporation (RFC), Residential Funding Securities
organizations concerning certain transactions with MF
Corporation (RFSC), and certain of their officers and
Global prior to its bankruptcy filing. Goldman Sachs is
directors. On January 3, 2013, the district court certified a
cooperating with all such inquiries.
class in connection with one offering underwritten by
GS&Co. which includes only initial purchasers who bought Employment-Related Matters. On September 15, 2010,
the securities directly from the underwriters or their agents a putative class action was filed in the U.S. District for the
no later than ten trading days after the offering date. On Southern District of New York by three female former
April 30, 2013, the district court granted in part plaintiffs’ employees alleging that Group Inc. and GS&Co. have
request to reinstate a number of the previously dismissed systematically discriminated against female employees in
claims relating to an additional nine offerings underwritten respect of compensation, promotion, assignments,
by GS&Co. On May 10, 2013, the plaintiffs filed an mentoring and performance evaluations. The complaint
amended complaint incorporating those nine additional alleges a class consisting of all female employees employed
offerings. On December 27, 2013, the court granted the at specified levels by Group Inc. and GS&Co. since
plaintiffs’ motion for class certification as to the nine July 2002, and asserts claims under federal and New York
additional offerings but denied the plaintiffs’ motion to City discrimination laws. The complaint seeks class action
expand the time period and scope covered by the previous status, injunctive relief and unspecified amounts of
class definition. On January 10, 2014, defendants compensatory, punitive and other damages. On
petitioned for leave to appeal the December 27, 2013 class July 17, 2012, the district court issued a decision granting in
certification order. part Group Inc.’s and GS&Co.’s motion to strike certain of

Goldman Sachs 2013 Annual Report 209


Notes to Consolidated Financial Statements

plaintiffs’ class allegations on the ground that plaintiffs swaps more generally, and setting out its process for
lacked standing to pursue certain equitable remedies and determining fines and other remedies. Group Inc.’s current
denying Group Inc.’s and GS&Co.’s motion to strike understanding is that the proceedings related to profit
plaintiffs’ class allegations in their entirety as premature. sharing and fee arrangements for clearing of credit default
On March 21, 2013, the U.S. Court of Appeals for the swaps have been suspended indefinitely. The firm has
Second Circuit held that arbitration should be compelled received civil investigative demands from the U.S.
with one of the named plaintiffs, who as a managing Department of Justice (DOJ) for information on similar
director was a party to an arbitration agreement with matters. Goldman Sachs is cooperating with the
the firm. investigations and reviews.
Investment Management Services. Group Inc. and GS&Co. and Group Inc. are among the numerous
certain of its affiliates are parties to various civil litigation defendants in putative antitrust class actions relating to
and arbitration proceedings and other disputes with clients credit derivatives, filed beginning in May 2013 and
relating to losses allegedly sustained as a result of the firm’s consolidated in the U.S. District Court for the Southern
investment management services. These claims generally District of New York. The complaints generally allege that
seek, among other things, restitution or other compensatory defendants violated federal antitrust laws by conspiring to
damages and, in some cases, punitive damages. forestall the development of alternatives to over-the-
counter trading of credit derivatives and maintain inflated
Goldman Sachs Asset Management International (GSAMI)
bid-ask spreads for credit derivatives trading. The
is the defendant in an action filed on July 9, 2012 with the
complaints seek declaratory and injunctive relief as well as
High Court of Justice in London by certain entities
treble damages in an unspecified amount. On
representing Vervoer, a Dutch pension fund, alleging that
January 31, 2014, the plaintiffs filed a consolidated
GSAMI was negligent in performing its duties as investment
amended complaint.
manager in connection with the allocation of the plaintiffs’
funds among asset managers in accordance with asset Libya-Related Litigation. GSI is the defendant in an
allocations provided by plaintiffs and that GSAMI action filed on January 21, 2014 with the High Court of
breached its contractual and common law duties to the Justice in London by the Libyan Investment Authority,
plaintiffs. Specifically, plaintiffs allege that GSAMI caused relating to nine derivative transactions between the plaintiff
their assets to be invested in unsuitable products for an and GSI and seeking, among other things, rescission of the
extended period, thereby causing losses, and caused them to transactions and unspecified equitable compensation and
be under-exposed for a period of time to certain other damages exceeding $1 billion.
investments that performed well, thereby resulting in
European Commission Price-Fixing Matter. On
foregone potential gains. The plaintiffs are seeking
July 5, 2011, the European Commission issued a Statement
monetary damages up to €209 million.
of Objections to Group Inc. raising allegations of an
Financial Advisory Services. Group Inc. and certain of its industry-wide conspiracy to fix prices for power cables,
affiliates are from time to time parties to various civil including by an Italian cable company in which certain
litigation and arbitration proceedings and other disputes Goldman Sachs-affiliated investment funds held ownership
with clients and third parties relating to the firm’s financial interests from 2005 to 2009. The Statement of Objections
advisory activities. These claims generally seek, among other proposes to hold Group Inc. jointly and severally liable for
things, compensatory damages and, in some cases, punitive some or all of any fine levied against the cable company
damages, and in certain cases allege that the firm did not under the concept of parental liability under EU
appropriately disclose or deal with conflicts of interest. competition law.
Credit Derivatives Antitrust Matters. The European Municipal Securities Matters. GS&Co. (along with, in
Commission announced in April 2011 that it was initiating some cases, other financial services firms) is named as
proceedings to investigate further numerous financial respondent in a number of FINRA arbitrations filed by
services companies, including Group Inc., in connection municipalities, municipal-owned entities, state-owned
with the supply of data related to credit default swaps and agencies or instrumentalities and non-profit entities, based
in connection with profit sharing and fee arrangements for on GS&Co.’s role as underwriter of the claimants’
clearing of credit default swaps, including potential anti- issuances of an aggregate of over $2.4 billion of auction rate
competitive practices. On July 1, 2013, the European securities from 2003 through 2007 and as a broker-dealer
Commission issued to those financial services companies a with respect to auctions for these securities. The claimants
Statement of Objections alleging that they colluded to limit generally allege that GS&Co. failed to disclose that it had a
competition in the trading of exchange-traded unfunded practice of placing cover bids in auctions, and failed to
credit derivatives and exchange trading of credit default inform the claimant of the deterioration of the auction rate

210 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

market beginning in the fall of 2007, and that, as a result, Regulatory Investigations and Reviews and Related
the claimant was forced to engage in a series of expensive Litigation. Group Inc. and certain of its affiliates are
refinancing and conversion transactions after the failure of subject to a number of other investigations and reviews by,
the auction market in February 2008. Certain claimants and in some cases have received subpoenas and requests for
also allege that GS&Co. advised them to enter into interest documents and information from, various governmental
rate swaps in connection with their auction rate securities and regulatory bodies and self-regulatory organizations and
issuances, causing them to incur additional losses. The litigation relating to various matters relating to the firm’s
claims include breach of fiduciary duty, fraudulent businesses and operations, including:
concealment, negligent misrepresentation, breach of
‰ the 2008 financial crisis;
contract, violations of the Exchange Act and state securities
laws, and breach of duties under the rules of the Municipal ‰ the public offering process;
Securities Rulemaking Board and the NASD. One claimant
‰ the firm’s investment management and financial
has also filed a complaint against GS&Co. in federal court
advisory services;
asserting the same claims as in the FINRA arbitration.
‰ conflicts of interest;
GS&Co. filed complaints and motions in federal court
seeking to enjoin certain of the arbitrations pursuant to the ‰ research practices, including research independence and
exclusive forum selection clauses in the transaction interactions between research analysts and other firm
documents, which have been denied in one case and granted personnel, including investment banking personnel, as
in others, and in each case has been appealed. well as third parties;
Commodities-Related Litigation. Group Inc. and its ‰ transactions involving municipal securities, including
subsidiaries, GS Power Holdings LLC and Metro wall-cross procedures and conflict of interest disclosure
International Trade Services LLC, are among the with respect to state and municipal clients, the trading
defendants in a number of putative class actions filed and structuring of municipal derivative instruments in
beginning on August 1, 2013 and consolidated in the U.S. connection with municipal offerings, political
District Court for the Southern District of New York. The contribution rules, underwriting of Build America Bonds,
complaints generally allege violation of federal antitrust municipal advisory services and the possible impact of
laws and other federal and state laws in connection with the credit default swap transactions on municipal issuers;
management of aluminum storage facilities. The complaints
‰ the sales, trading and clearance of corporate and
seek declaratory, injunctive and other equitable relief as
government securities, currencies, commodities and other
well as unspecified monetary damages, including
financial products and related activities, including
treble damages.
compliance with the SEC’s short sale rule, algorithmic
Currencies-Related Litigation. GS&Co. and Group Inc. and quantitative trading, futures trading, options trading,
are among the defendants named in several putative transaction reporting, technology systems and controls,
antitrust class actions relating to trading in the foreign securities lending practices, trading and clearance of
exchange markets, filed since December 2013 in the U.S. credit derivative instruments, commodities activities and
District Court for the Southern District of New York. The metals storage, private placement practices, allocations of
complaints generally allege that defendants violated federal and trading in fixed-income securities, trading activities
antitrust laws in connection with an alleged conspiracy to and communications in connection with the
manipulate the foreign currency exchange markets and seek establishment of benchmark rates and compliance with
declaratory and injunctive relief as well as treble damages in the U.S. Foreign Corrupt Practices Act; and
an unspecified amount.
‰ insider trading, the potential misuse of material nonpublic
information regarding private company and
governmental developments and the effectiveness of the
firm’s insider trading controls and information barriers.
Goldman Sachs is cooperating with all such regulatory
investigations and reviews.

Goldman Sachs 2013 Annual Report 211


Notes to Consolidated Financial Statements

Note 28. Note 29.


Employee Benefit Plans Employee Incentive Plans
The firm sponsors various pension plans and certain other The cost of employee services received in exchange for a
postretirement benefit plans, primarily healthcare and life share-based award is generally measured based on the
insurance. The firm also provides certain benefits to former grant-date fair value of the award. Share-based awards that
or inactive employees prior to retirement. do not require future service (i.e., vested awards, including
awards granted to retirement-eligible employees) are
Defined Benefit Pension Plans and Postretirement
expensed immediately. Share-based awards that require
Plans
future service are amortized over the relevant service
Employees of certain non-U.S. subsidiaries participate in
period. Expected forfeitures are included in determining
various defined benefit pension plans. These plans generally
share-based employee compensation expense.
provide benefits based on years of credited service and a
percentage of the employee’s eligible compensation. The The firm pays cash dividend equivalents on outstanding
firm maintains a defined benefit pension plan for certain RSUs. Dividend equivalents paid on RSUs are generally
U.K. employees. As of April 2008, the U.K. defined benefit charged to retained earnings. Dividend equivalents paid on
plan was closed to new participants, but continues to RSUs expected to be forfeited are included in compensation
accrue benefits for existing participants. These plans do not expense. The firm accounts for the tax benefit related to
have a material impact on the firm’s consolidated results dividend equivalents paid on RSUs as an increase to
of operations. additional paid-in capital.
The firm also maintains a defined benefit pension plan for The firm generally issues new shares of common stock upon
substantially all U.S. employees hired prior to delivery of share-based awards. In certain cases, primarily
November 1, 2003. As of November 2004, this plan was related to conflicted employment (as outlined in the
closed to new participants and frozen such that existing applicable award agreements), the firm may cash settle
participants would not accrue any additional benefits. In share-based compensation awards accounted for as equity
addition, the firm maintains unfunded postretirement instruments. For these awards, whose terms allow for cash
benefit plans that provide medical and life insurance for settlement, additional paid-in capital is adjusted to the
eligible retirees and their dependents covered under these extent of the difference between the value of the award at
programs. These plans do not have a material impact on the the time of cash settlement and the grant-date value of
firm’s consolidated results of operations. the award.
The firm recognizes the funded status of its defined benefit Stock Incentive Plan
pension and postretirement plans, measured as the The firm sponsors a stock incentive plan, The Goldman
difference between the fair value of the plan assets and the Sachs Amended and Restated Stock Incentive Plan
benefit obligation, in the consolidated statements of (2013) (2013 SIP), which provides for grants of incentive
financial condition. As of December 2013, “Other assets” stock options, nonqualified stock options, stock
and “Other liabilities and accrued expenses” included appreciation rights, dividend equivalent rights, restricted
$179 million (related to overfunded pension plans) and stock, RSUs, and other share-based awards, each of which
$482 million, respectively, related to these plans. As of may be subject to performance conditions. On
December 2012, “Other assets” and “Other liabilities and May 23, 2013, shareholders approved the 2013 SIP. The
accrued expenses” included $225 million (related to 2013 SIP replaces The Goldman Sachs Amended and
overfunded pension plans) and $645 million, respectively, Restated Stock Incentive Plan (SIP) previously in effect, and
related to these plans. applies to awards granted on or after the date of approval.
Defined Contribution Plans
The firm contributes to employer-sponsored U.S. and non-
U.S. defined contribution plans. The firm’s contribution to
these plans was $219 million for 2013, $221 million for
2012 and $225 million for 2011.

212 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

The total number of shares of common stock that may be Restricted Stock Units
delivered pursuant to awards granted under the 2013 SIP The firm grants RSUs to employees under the 2013 SIP,
cannot exceed 60 million shares, subject to adjustment for which are valued based on the closing price of the
certain changes in corporate structure as permitted under underlying shares on the date of grant after taking into
the 2013 SIP. The 2013 SIP will terminate on the date of the account a liquidity discount for any applicable post-vesting
annual meeting of shareholders that occurs in 2016. As of transfer restrictions. RSUs generally vest and underlying
December 2013, 59.3 million shares were available for shares of common stock deliver as outlined in the
grant under the 2013 SIP. applicable RSU agreements. Employee RSU agreements
generally provide that vesting is accelerated in certain
circumstances, such as on retirement, death, disability and
conflicted employment. Delivery of the underlying shares of
common stock is conditioned on the grantees satisfying
certain vesting and other requirements outlined in the
award agreements. The table below presents the activity
related to RSUs.

Weighted Average Grant-Date


Restricted Stock Fair Value of Restricted Stock
Units Outstanding Units Outstanding
Future No Future Future No Future
Service Service Service Service
Required Required Required Required
Outstanding, December 2012 8,689,521 4 15,390,351 $116.07 $121.99
Granted 1, 2 6,230,961 11,226,808 125.49 120.98
Forfeited (785,926) (152,194) 120.54 117.56
Delivered 3 — (11,369,831) — 129.01
Vested 2, 4 (5,907,687) 5,907,687 121.45 121.45
Outstanding, December 2013 8,226,869 4 21,002,821 118.91 117.53

1. The weighted average grant-date fair value of RSUs granted during 2013, 2012 and 2011 was $122.59, $84.72 and $141.21, respectively. The fair value of the RSUs
granted during 2013, 2012 and 2011 includes a liquidity discount of 13.7%, 21.7% and 12.7%, respectively, to reflect post-vesting transfer restrictions of up to
4 years.
2. The aggregate fair value of awards that vested during 2013, 2012 and 2011 was $2.26 billion, $1.57 billion and $2.40 billion, respectively.
3. Includes RSUs that were cash settled.
4. Includes restricted stock subject to future service requirements as of December 2013 and December 2012 of 4,768 and 276,317 shares, respectively. 271,549
shares of restricted stock vested during 2013.

In the first quarter of 2014, the firm granted to its Stock Options
employees 13.8 million year-end RSUs, of which Stock options generally vest as outlined in the applicable
4.2 million RSUs require future service as a condition of stock option agreement. No options have been granted
delivery. These awards are subject to additional conditions since 2010. In general, options expire on the tenth
as outlined in the award agreements. Generally, shares anniversary of the grant date, although they may be subject
underlying these awards, net of required withholding tax, to earlier termination or cancellation under certain
deliver over a three-year period but are subject to post- circumstances in accordance with the terms of the
vesting transfer restrictions through January 2019. These applicable stock option agreement and the SIP in effect at
grants are not included in the above table. the time of grant.

Goldman Sachs 2013 Annual Report 213


Notes to Consolidated Financial Statements

The table below presents the activity related to stock options.

Aggregate Weighted Average


Options Weighted Average Intrinsic Value Remaining Life
Outstanding Exercise Price (in millions) (years)
Outstanding, December 2012 43,217,111 $ 99.51 $1,672 5.55
Exercised (579,066) 112.43
Forfeited (71,865) 78.78
Expired (939) 96.08
Outstanding, December 2013 42,565,241 99.37 3,465 4.60
Exercisable, December 2013 42,565,241 99.37 3,465 4.60

The total intrinsic value of options exercised during As of December 2013, there was $475 million of total
2013, 2012 and 2011 was $26 million, $151 million and unrecognized compensation cost related to non-vested
$143 million, respectively. The table below presents share-based compensation arrangements. This cost is
options outstanding. expected to be recognized over a weighted average period
of 1.54 years.
Weighted
Weighted Average The table below presents the share-based compensation and
Average Remaining the related excess tax benefit/(provision).
Options Exercise Life
Exercise Price Outstanding Price (years)
$ 75.00 - $ 89.99 34,002,081 $ 78.78 5.00 Year Ended December
90.00 - 119.99 — — — in millions 2013 2012 2011
120.00 - 134.99 2,527,036 131.64 1.92 Share-based compensation $2,039 $1,338 $2,843
135.00 - 149.99 — — — Excess net tax benefit related to
150.00 - 164.99 55,000 154.16 0.17 options exercised 3 53 55
165.00 - 194.99 — — — Excess net tax benefit/(provision) related to
195.00 - 209.99 5,981,124 202.27 3.48 share-based awards 1 94 (11) 138
Outstanding, December 2013 42,565,241 99.37 4.60
1. Represents the net tax benefit/(provision) recognized in additional paid-in
capital on stock options exercised and the delivery of common stock
underlying share-based awards.

214 Goldman Sachs 2013 Annual Report


Notes to Consolidated Financial Statements

Note 30.
Parent Company
Group Inc. — Condensed Statements of Earnings Group Inc. — Condensed Statements of Cash Flows
Year Ended December Year Ended December
in millions 2013 2012 2011 in millions 2013 2012 2011
Revenues Cash flows from operating activities
Dividends from bank subsidiaries $2,000 $ — $ 1,000 Net earnings $ 8,040 $ 7,475 $ 4,442
Dividends from nonbank subsidiaries 4,176 3,622 4,967 Adjustments to reconcile net earnings to net
Undistributed earnings of subsidiaries 1,086 3,682 481 cash provided by operating activities
Other revenues 2,209 1,567 (3,381) Undistributed earnings of subsidiaries (1,086) (3,682) (481)
Total non-interest revenues 9,471 8,871 3,067 Depreciation and amortization 15 15 14
Interest income 4,048 4,751 4,547 Deferred income taxes 1,398 (1,258) 809
Interest expense 4,161 4,287 3,917 Share-based compensation 194 81 244
Net interest income/(expense) (113) 464 630 Changes in operating assets and liabilities
Net revenues, including net interest Financial instruments owned, at fair value (3,235) 2,197 7,387
income/(expense) 9,358 9,335 3,697 Financial instruments sold, but not yet
Operating expenses purchased, at fair value 183 (3) (536)
Compensation and benefits 403 452 300 Other, net 586 1,888 (2,408)
Other expenses 424 448 252 Net cash provided by operating activities 6,095 6,713 9,471
Total operating expenses 827 900 552 Cash flows from investing activities
Pre-tax earnings 8,531 8,435 3,145 Purchase of property, leasehold improvements
Provision/(benefit) for taxes 491 960 (1,297) and equipment (3) (12) (42)
Net earnings 8,040 7,475 4,442 Repayments/(issuances) of short-term loans
Preferred stock dividends 314 183 1,932 by/(to) subsidiaries, net (5,153) 6,584 20,319
Net earnings applicable to Issuance of term loans to subsidiaries (2,174) (17,414) (42,902)
common shareholders $7,726 $ 7,292 $ 2,510 Repayments of term loans by subsidiaries 7,063 18,715 21,850
Capital distributions from/(contributions to)
Group Inc. — Condensed Statements of Financial Condition subsidiaries, net 655 (298) 4,642
As of December Net cash provided by/(used for)
in millions 2013 2012 investing activities 388 7,575 3,867
Assets Cash flows from financing activities
Cash and cash equivalents $ 17 $ 14 Unsecured short-term borrowings, net 1,296 (2,647) (727)
Loans to and receivables from subsidiaries Proceeds from issuance of
Bank subsidiaries 3,453 4,103 long-term borrowings 28,458 26,160 27,251
Nonbank subsidiaries 1 171,566 174,609 Repayment of long-term borrowings, including
Investments in subsidiaries and other affiliates the current portion (29,910) (35,608) (27,865)
Bank subsidiaries 20,041 20,671 Preferred stock repurchased — — (3,857)
Nonbank subsidiaries and other affiliates 53,353 52,646 Common stock repurchased (6,175) (4,640) (6,048)
Financial instruments owned, at fair value 16,065 19,132 Dividends and dividend equivalents paid on
Other assets 7,575 4,782 common stock, preferred stock and
Total assets $272,070 $275,957 restricted stock units (1,302) (1,086) (2,771)
Proceeds from issuance of preferred stock, net
Liabilities and shareholders’ equity of issuance costs 991 3,087 —
Payables to subsidiaries $ 489 $ 657 Proceeds from issuance of common stock,
Financial instruments sold, but not yet purchased, including stock option exercises 65 317 368
at fair value 421 301 Excess tax benefit related to share-
Unsecured short-term borrowings based compensation 98 130 358
With third parties 2 30,611 29,898 Cash settlement of share-based compensation (1) (1) (40)
With subsidiaries 4,289 4,253 Net cash used for financing activities (6,480) (14,288) (13,331)
Unsecured long-term borrowings Net increase/(decrease) in cash and
With third parties 3 153,576 158,761 cash equivalents 3 — 7
With subsidiaries 4 1,587 3,574 Cash and cash equivalents, beginning of year 14 14 7
Other liabilities and accrued expenses 2,630 2,797 Cash and cash equivalents, end of year $ 17 $ 14 $ 14
Total liabilities 193,603 200,241
SUPPLEMENTAL DISCLOSURES:
Commitments, contingencies and guarantees Cash payments for third-party interest, net of capitalized interest, were
$2.78 billion, $5.11 billion and $3.83 billion for 2013, 2012 and
Shareholders’ equity
2011, respectively.
Preferred stock 7,200 6,200
Cash payments for income taxes, net of refunds, were $3.21 billion,
Common stock 8 8
$1.59 billion and $1.39 billion for 2013, 2012 and 2011, respectively.
Restricted stock units and employee stock options 3,839 3,298
Non-cash activity:
Additional paid-in capital 48,998 48,030 During 2011, $103 million of common stock was issued in connection with the
Retained earnings 71,961 65,223 acquisition of GS Australia.
Accumulated other comprehensive loss (524) (193) 1. Primarily includes overnight loans, the proceeds of which can be used to
Stock held in treasury, at cost (53,015) (46,850) satisfy the short-term obligations of Group Inc.
Total shareholders’ equity 78,467 75,716 2. Includes $5.83 billion and $4.91 billion at fair value for 2013 and
Total liabilities and shareholders’ equity $272,070 $275,957 2012, respectively.
3. Includes $8.67 billion and $8.19 billion at fair value for 2013 and
2012, respectively.
4. Unsecured long-term borrowings with subsidiaries by maturity date are
$213 million in 2015, $136 million in 2016, $150 million in 2017, $71 million
in 2018, and $1.02 billion in 2019-thereafter.

Goldman Sachs 2013 Annual Report 215


Supplemental Financial Information

Quarterly Results (unaudited)


The following represents the firm’s unaudited quarterly adjustments that are, in the opinion of management,
results for 2013 and 2012. These quarterly results were necessary for a fair statement of the results. These
prepared in accordance with U.S. GAAP and reflect all adjustments are of a normal, recurring nature.

Three Months Ended


December September June March
in millions, except per share data 2013 2013 2013 2013
Non-interest revenues $7,981 $5,882 $7,786 $ 9,165
Interest income 2,391 2,398 2,663 2,608
Interest expense 1,590 1,558 1,837 1,683
Net interest income 801 840 826 925
Net revenues, including net interest income 8,782 6,722 8,612 10,090
Operating expenses 1 5,230 4,555 5,967 6,717
Pre-tax earnings 3,552 2,167 2,645 3,373
Provision for taxes 1,220 650 714 1,113
Net earnings 2,332 1,517 1,931 2,260
Preferred stock dividends 84 88 70 72
Net earnings applicable to common shareholders $2,248 $1,429 $1,861 $ 2,188
Earnings per common share
Basic $ 4.80 $ 3.07 $ 3.92 $ 4.53
Diluted 4.60 2.88 3.70 4.29
Dividends declared per common share 0.55 0.50 0.50 0.50

Three Months Ended


December September June March
in millions, except per share data 2012 2012 2012 2012
Non-interest revenues $8,263 $7,515 $5,537 $ 8,968
Interest income 2,864 2,629 3,055 2,833
Interest expense 1,891 1,793 1,965 1,852
Net interest income 973 836 1,090 981
Net revenues, including net interest income 9,236 8,351 6,627 9,949
Operating expenses 1 4,923 6,053 5,212 6,768
Pre-tax earnings 4,313 2,298 1,415 3,181
Provision for taxes 1,421 786 453 1,072
Net earnings 2,892 1,512 962 2,109
Preferred stock dividends 59 54 35 35
Net earnings applicable to common shareholders $2,833 $1,458 $ 927 $ 2,074
Earnings per common share
Basic $ 5.87 $ 2.95 $ 1.83 $ 4.05
Diluted 5.60 2.85 1.78 3.92
Dividends declared per common share 0.50 0.46 0.46 0.35

1. The timing and magnitude of changes in the firm’s discretionary compensation accruals can have a significant effect on results in a given quarter.

216 Goldman Sachs 2013 Annual Report


Supplemental Financial Information

Common Stock Price Range


The table below presents the high and low sales prices per share of the firm’s common stock.

Year Ended December


2013 2012 2011
High Low High Low High Low
First quarter $159.00 $129.62 $128.72 $ 92.42 $175.34 $153.26
Second quarter 168.20 137.29 125.54 90.43 164.40 128.30
Third quarter 170.00 149.28 122.60 91.15 139.25 91.40
Fourth quarter 177.44 152.83 129.72 113.84 118.07 84.27

As of February 14, 2014, there were 11,661 holders of On February 14, 2014, the last reported sales price for the
record of the firm’s common stock. firm’s common stock on the New York Stock Exchange
was $163.72 per share.

Goldman Sachs 2013 Annual Report 217


Supplemental Financial Information

Common Stock Performance


The following graph compares the performance of an each of the firm’s common stock, the S&P 500 Index and
investment in the firm’s common stock from the S&P 500 Financials Index, and the dividends were
December 26, 2008 (the last trading day before the firm’s reinvested on the date of payment without payment of any
2009 fiscal year) through December 31, 2013, with the commissions. The performance shown in the graph
S&P 500 Index and the S&P 500 Financials Index. The represents past performance and should not be considered
graph assumes $100 was invested on December 26, 2008 in an indication of future performance.

$300

$250

$200

$150

$100

$50

$0
Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13

The Goldman Sachs Group, Inc. S&P 500 Index S&P 500 Financials Index

The table below shows the cumulative total returns in S&P 500 Index and the S&P 500 Financials Index, and the
dollars of the firm’s common stock, the S&P 500 Index and dividends were reinvested on the date of payment without
the S&P 500 Financials Index for Goldman Sachs’ last five payment of any commissions. The performance shown in
fiscal year ends, assuming $100 was invested on the table represents past performance and should not be
December 26, 2008 in each of the firm’s common stock, the considered an indication of future performance.

12/26/08 12/31/09 12/31/10 12/31/11 12/31/12 12/31/13


The Goldman Sachs Group, Inc. $100.00 $224.98 $226.19 $123.05 $176.42 $248.36
S&P 500 Index 100.00 130.93 150.65 153.83 178.42 236.20
S&P 500 Financials Index 100.00 124.38 139.47 115.67 148.92 201.92

218 Goldman Sachs 2013 Annual Report


Supplemental Financial Information

Selected Financial Data

For the Year Ended or as of December


2013 2012 2011 2010 2009
Income statement data (in millions)
Non-interest revenues $ 30,814 $ 30,283 $ 23,619 $ 33,658 $ 37,766
Interest income 10,060 11,381 13,174 12,309 13,907
Interest expense 6,668 7,501 7,982 6,806 6,500
Net interest income 3,392 3,880 5,192 5,503 7,407
Net revenues, including net interest income 34,206 34,163 28,811 39,161 45,173
Compensation and benefits 12,613 12,944 12,223 15,376 16,193
U.K. bank payroll tax — — — 465 —
Non-compensation expenses 9,856 10,012 10,419 10,428 9,151
Pre-tax earnings $ 11,737 $ 11,207 $ 6,169 $ 12,892 $ 19,829
Balance sheet data (in millions)
Total assets $911,507 $938,555 $923,225 $911,332 $848,942
Other secured financings (long-term) 7,524 8,965 8,179 13,848 11,203
Unsecured long-term borrowings 160,965 167,305 173,545 174,399 185,085
Total liabilities 833,040 862,839 852,846 833,976 778,228
Total shareholders’ equity 78,467 75,716 70,379 77,356 70,714
Common share data (in millions, except per share amounts)
Earnings per common share
Basic $ 16.34 $ 14.63 $ 4.71 $ 14.15 $ 23.74
Diluted 15.46 14.13 4.51 13.18 22.13
Dividends declared per common share 2.05 1.77 1.40 1.40 1.05
Book value per common share 1 152.48 144.67 130.31 128.72 117.48
Average common shares outstanding
Basic 471.3 496.2 524.6 542.0 512.3
Diluted 499.6 516.1 556.9 585.3 550.9
Selected data (unaudited)
Total staff
Americas 16,600 16,400 17,200 19,900 18,900
Non-Americas 16,300 16,000 16,100 15,800 13,600
Total staff 32,900 32,400 33,300 35,700 32,500
Assets under supervision (in billions)
Asset class
Alternative investments $ 142 $ 151 $ 148 $ 150 $ 148
Equity 208 153 147 162 160
Fixed income 446 411 353 346 328
Long-term assets under supervision 796 715 648 658 636
Liquidity products 246 250 247 259 319
Total assets under supervision $ 1,042 $ 965 $ 895 $ 917 $ 955

1. Book value per common share is based on common shares outstanding, including RSUs granted to employees with no future service requirements, of 467.4 million,
480.5 million, 516.3 million, 546.9 million and 542.7 million as of December 2013, December 2012, December 2011, December 2010 and
December 2009, respectively.

Goldman Sachs 2013 Annual Report 219


Supplemental Financial Information

Statistical Disclosures
Distribution of Assets, Liabilities and Shareholders’ Equity
The table below presents a summary of consolidated average balances and interest rates.

For the Year Ended December


2013 2012 2011
Average Average Average Average Average Average
in millions, except rates balance Interest rate balance Interest rate balance Interest rate
Assets
Deposits with banks $ 61,921 $ 186 0.30% $ 52,500 $ 156 0.30% $ 38,039 $ 125 0.33%
U.S. 56,848 167 0.29 49,123 132 0.27 32,770 95 0.29
Non-U.S. 5,073 19 0.37 3,377 24 0.71 5,269 30 0.57
Securities borrowed, securities purchased under
agreements to resell and federal funds sold 327,748 43 0.01 331,828 (77) (0.02) 351,896 666 0.19
U.S. 198,677 (289) (0.15) 191,166 (431) (0.23) 219,240 (249) (0.11)
Non-U.S. 129,071 332 0.26 140,662 354 0.25 132,656 915 0.69
Financial instruments owned, at fair value 1, 2 292,965 8,159 2.78 310,982 9,817 3.16 287,322 10,718 3.73
U.S. 182,158 5,353 2.94 190,490 6,548 3.44 183,920 7,477 4.07
Non-U.S. 110,807 2,806 2.53 120,492 3,269 2.71 103,402 3,241 3.13
Other interest-earning assets 3 149,071 1,672 1.12 136,427 1,485 1.09 143,270 1,665 1.16
U.S. 91,495 1,064 1.16 90,071 974 1.08 99,042 915 0.92
Non-U.S. 57,576 608 1.06 46,356 511 1.10 44,228 750 1.70
Total interest-earning assets 831,705 10,060 1.21 831,737 11,381 1.37 820,527 13,174 1.61
Cash and due from banks 6,212 7,357 4,987
Other non-interest-earning assets 2 106,095 107,702 118,901
Total assets $944,012 $946,796 $944,415
Liabilities
Interest-bearing deposits $ 69,707 $ 387 0.56% $ 56,399 $ 399 0.71% $ 40,266 $ 280 0.70%
U.S. 60,824 352 0.58 48,668 362 0.74 33,234 243 0.73
Non-U.S. 8,883 35 0.39 7,731 37 0.48 7,032 37 0.53
Securities loaned and securities sold under
agreements to repurchase 178,686 576 0.32 177,550 822 0.46 171,753 905 0.53
U.S. 114,884 242 0.21 121,145 380 0.31 110,235 280 0.25
Non-U.S. 63,802 334 0.52 56,405 442 0.78 61,518 625 1.02
Financial instruments sold, but not yet
purchased, at fair value 1, 2 92,913 2,054 2.21 94,740 2,438 2.57 102,282 2,464 2.41
U.S. 37,923 671 1.77 41,436 852 2.06 52,065 984 1.89
Non-U.S. 54,990 1,383 2.52 53,304 1,586 2.98 50,217 1,480 2.95
Short-term borrowings 4 60,926 394 0.65 70,359 581 0.83 78,497 526 0.67
U.S. 40,511 365 0.90 47,614 479 1.01 50,659 431 0.85
Non-U.S. 20,415 29 0.14 22,745 102 0.45 27,838 95 0.34
Long-term borrowings 4 174,195 3,752 2.15 176,698 3,736 2.11 186,148 3,439 1.85
U.S. 168,106 3,635 2.16 170,163 3,582 2.11 179,004 3,235 1.81
Non-U.S. 6,089 117 1.92 6,535 154 2.36 7,144 204 2.86
Other interest-bearing liabilities 5 203,482 (495) (0.24) 206,790 (475) (0.23) 203,940 368 0.18
U.S. 144,888 (904) (0.62) 150,986 (988) (0.65) 149,958 (535) (0.36)
Non-U.S. 58,594 409 0.70 55,804 513 0.92 53,982 903 1.67
Total interest-bearing liabilities 779,909 6,668 0.85 782,536 7,501 0.96 782,886 7,982 1.02
Non-interest-bearing deposits 655 324 140
Other non-interest-bearing liabilities 2 86,095 91,406 88,681
Total liabilities 866,659 874,266 871,707
Shareholders’ equity
Preferred stock 6,892 4,392 3,990
Common stock 70,461 68,138 68,718
Total shareholders’ equity 77,353 72,530 72,708
Total liabilities and shareholders’ equity $944,012 $946,796 $944,415
Interest rate spread 0.36% 0.41% 0.59%
Net interest income and net yield on interest-
earning assets $ 3,392 0.41 $ 3,880 0.47 $ 5,192 0.63
U.S. 1,934 0.37 2,556 0.49 3,600 0.67
Non-U.S. 1,458 0.48 1,324 0.43 1,592 0.56
Percentage of interest-earning assets and
interest-bearing liabilities attributable to
non-U.S. operations 6
Assets 36.37% 37.38% 34.80%
Liabilities 27.28 25.88 26.53

220 Goldman Sachs 2013 Annual Report


Supplemental Financial Information

1. Consists of cash financial instruments, including equity securities and convertible debentures.
2. Derivative instruments and commodities are included in other non-interest-earning assets and other non-interest-bearing liabilities.
3. Primarily consists of cash and securities segregated for regulatory and other purposes and certain receivables from customers and counterparties.
4. Interest rates include the effects of interest rate swaps accounted for as hedges.
5. Primarily consists of certain payables to customers and counterparties.
6. Assets, liabilities and interest are attributed to U.S. and non-U.S. based on the location of the legal entity in which the assets and liabilities are held.

Goldman Sachs 2013 Annual Report 221


Supplemental Financial Information

Changes in Net Interest Income, Volume and Rate


Analysis
The table below presents an analysis of the effect on net changes due to volume/rate variance have been allocated
interest income of volume and rate changes. In this analysis, to volume.

For the Year Ended


December 2013 versus December 2012 December 2012 versus December 2011
Increase (decrease) due Increase (decrease) due
to change in: to change in:
Net Net
in millions Volume Rate change Volume Rate change
Interest-earning assets
Deposits with banks $ 29 $ 1 $ 30 $ 32 $ (1) $ 31
U.S. 23 12 35 45 (8) 37
Non-U.S. 6 (11) (5) (13) 7 (6)
Securities borrowed, securities purchased under agreements to resell
and federal funds sold (41) 161 120 83 (826) (743)
U.S. (11) 153 142 63 (245) (182)
Non-U.S. (30) 8 (22) 20 (581) (561)
Financial instruments owned, at fair value (490) (1,168) (1,658) 689 (1,590) (901)
U.S. (245) (950) (1,195) 225 (1,154) (929)
Non-U.S. (245) (218) (463) 464 (436) 28
Other interest-earning assets 135 52 187 (74) (106) (180)
U.S. 17 73 90 (97) 156 59
Non-U.S. 118 (21) 97 23 (262) (239)
Change in interest income (367) (954) (1,321) 730 (2,523) (1,793)
Interest-bearing liabilities
Interest-bearing deposits $ 75 $ (87) $ (12) $ 118 $ 1 $ 119
U.S. 70 (80) (10) 115 4 119
Non-U.S. 5 (7) (2) 3 (3) –
Securities loaned and securities sold under agreements to repurchase 26 (272) (246) (6) (77) (83)
U.S. (13) (125) (138) 34 66 100
Non-U.S. 39 (147) (108) (40) (143) (183)
Financial instruments sold, but not yet purchased, at fair value (20) (364) (384) (127) 101 (26)
U.S. (62) (119) (181) (219) 87 (132)
Non-U.S. 42 (245) (203) 92 14 106
Short-term borrowings (67) (120) (187) (54) 109 55
U.S. (64) (50) (114) (31) 79 48
Non-U.S. (3) (70) (73) (23) 30 7
Long-term borrowings (53) 69 16 (200) 497 297
U.S. (44) 97 53 (186) 533 347
Non-U.S. (9) (28) (37) (14) (36) (50)
Other interest-bearing liabilities 57 (77) (20) 10 (853) (843)
U.S. 38 46 84 (7) (446) (453)
Non-U.S. 19 (123) (104) 17 (407) (390)
Change in interest expense 18 (851) (833) (259) (222) (481)
Change in net interest income $(385) $ (103) $ (488) $ 989 $(2,301) $(1,312)

222 Goldman Sachs 2013 Annual Report


Supplemental Financial Information

Available-for-sale Securities Portfolio


The table below presents the fair value of available-for-sale majority stake in April 2013. See Note 3 for further
securities as of December 2012. Such assets related to the information about this sale.
firm’s reinsurance business, in which the firm sold a

Gross Gross
Amortized Unrealized Unrealized Fair
in millions Cost Gains Losses Value
Available-for-sale securities, December 2012
Commercial paper, certificates of deposit, time deposits and other money market instruments $ 467 $ — $— $ 467
U.S. government and federal agency obligations 814 47 (5) 856
Non-U.S. government and agency obligations 2 — — 2
Mortgage and other asset-backed loans and securities 3,049 341 (8) 3,382
Corporate debt securities 3,409 221 (5) 3,625
State and municipal obligations 539 91 (1) 629
Other debt obligations 112 3 (2) 113
Total available-for-sale securities $8,392 $703 $(21) $9,074

The table below presents the fair value, amortized cost and contractual maturity as of December 2012. Yields are
weighted average yields of available-for-sale securities by calculated on a weighted average basis.

As of December 2012
Due After Due After
Due in One Year Through Five Years Through Due After
One Year or Less Five Years Ten Years Ten Years Total
$ in millions Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
Fair value of available-for-sale securities
Commercial paper, certificates of deposit, time
deposits and other money market instruments $467 —% $ — —% $ — —% $ — —% $ 467 —%
U.S. government and federal agency obligations 57 — 267 1 88 2 444 4 856 3
Non-U.S. government and agency obligations — — — — — — 2 4 2 4
Mortgage and other asset-backed loans
and securities 4 3 218 5 23 6 3,137 6 3,382 6
Corporate debt securities 74 2 804 3 1,567 4 1,180 5 3,625 4
State and municipal obligations — — 10 5 — — 619 6 629 6
Other debt obligations 18 1 6 1 5 5 84 4 113 3
Total available-for-sale securities $620 $1,305 $1,683 $5,466 $9,074
Amortized cost of available-for-sale securities $617 $1,267 $1,593 $4,915 $8,392

Goldman Sachs 2013 Annual Report 223


Supplemental Financial Information

Deposits Short-term and Other Borrowed Funds


The table below presents a summary of the firm’s interest- The table below presents a summary of the firm’s securities
bearing deposits. loaned and securities sold under agreements to repurchase
and short-term borrowings. These borrowings generally
Average Balances mature within one year of the financial statement date and
Year Ended December include borrowings that are redeemable at the option of the
in millions 2013 2012 2011 holder within one year of the financial statement date.
U.S.:
Savings 1 $39,411 $32,235 $25,916 Securities Loaned and Securities Sold
Time 21,413 16,433 7,318 Under Agreements to Repurchase
Total U.S. deposits 60,824 48,668 33,234 As of December
Non-U.S.: $ in millions 2013 2012 2011
Demand 4,613 5,318 5,378 Amounts outstanding at year-end $183,527 $185,572 $171,684
Time 4,270 2,413 1,654 Average outstanding during the year 178,686 177,550 171,753
Total Non-U.S. deposits 8,883 7,731 7,032 Maximum month-end outstanding 196,393 198,456 190,453
Total deposits $69,707 $56,399 $40,266 Weighted average interest rate
During the year 0.32% 0.46% 0.53%
At year-end 0.28 0.44 0.39
Average Interest Rates
Year Ended December
2013 2012 2011 Short-Term Borrowings 1, 2

U.S.: As of December
Savings 1 0.30% 0.42% 0.42% $ in millions 2013 2012 2011
Time 1.09 1.38 1.84 Amounts outstanding at year-end $ 61,982 $ 67,349 $ 78,223
Total U.S. deposits 0.58 0.74 0.73 Average outstanding during the year 60,926 70,359 78,497
Non-U.S.: Maximum month-end outstanding 66,978 75,280 87,281
Demand 0.22 0.30 0.46
Weighted average interest rate
Time 0.59 0.87 0.73 During the year 0.65% 0.83% 0.67%
Total Non-U.S. deposits 0.39 0.48 0.53 At year-end 0.89 0.79 0.92
Total deposits 0.56 0.71 0.70
1. Includes short-term secured financings of $17.29 billion, $23.05 billion and
1. Amounts are available for withdrawal upon short notice, generally within $29.19 billion as of December 2013, December 2012 and December 2011,
seven days. respectively.
2. The weighted average interest rates for these borrowings include the effect
Ratios of hedging activities.
The table below presents selected financial ratios.

Year Ended
December
2013 2012 2011
Net earnings to average assets 0.9% 0.8% 0.5%
Return on average common
shareholders’ equity 1 11.0 10.7 3.7
Return on average total shareholders’ equity 2 10.4 10.3 6.1
Total average equity to average assets 8.2 7.7 7.7
Dividend payout ratio 3 13.3 12.5 31.0

1. Based on net earnings applicable to common shareholders divided by


average monthly common shareholders’ equity.
2. Based on net earnings divided by average monthly total shareholders’ equity.
3. Dividends declared per common share as a percentage of diluted earnings
per common share.

224 Goldman Sachs 2013 Annual Report


Supplemental Financial Information

Cross-border Outstandings
Cross-border outstandings are based on the Federal The tables below present cross-border outstandings and
Financial Institutions Examination Council’s (FFIEC) commitments for each country in which cross-border
regulatory guidelines for reporting cross-border outstandings exceed 0.75% of consolidated assets in
information and represent the amounts that the firm may accordance with the FFIEC guidelines.
not be able to obtain from a foreign country due to country-
Cross-border outstandings in the tables below include cash,
specific events, including unfavorable economic and
receivables, securities purchased under agreements to resell,
political conditions, economic and social instability, and
securities borrowed and cash financial instruments, but
changes in government policies.
exclude derivative instruments. Securities purchased under
Credit exposure represents the potential for loss due to the agreements to resell and securities borrowed are presented
default or deterioration in credit quality of a counterparty gross, without reduction for related securities collateral
or an issuer of securities or other instruments the firm holds held, based on the domicile of the counterparty. Margin
and is measured based on the potential loss in an event of loans (included in receivables) are presented based on the
non-payment by a counterparty. Credit exposure is reduced amount of collateral advanced by the counterparty.
through the effect of risk mitigants, such as netting Commitments in the table below primarily consist of
agreements with counterparties that permit the firm to commitments to extend credit and forward starting resale
offset receivables and payables with such counterparties or and securities borrowing agreements.
obtaining collateral from counterparties. The tables below
do not include all the effects of such risk mitigants and do
not represent the firm’s credit exposure.

As of December 2013
Total cross-border
in millions Banks Governments Other outstandings Commitments
Country
Cayman Islands $ 12 $ 1 $35,969 $35,982 $ 1,671
Japan 23,026 123 11,981 35,130 5,086
France 12,427 2,871 16,567 1 31,865 12,060
Germany 5,148 4,336 7,793 17,277 4,716
Spain 7,002 2,281 2,491 11,774 1,069
United Kingdom 2,688 217 7,321 10,226 19,014
Netherlands 1,785 540 5,786 8,111 1,962

As of December 2012
Total cross-border
in millions Banks Governments Other outstandings Commitments
Country
Cayman Islands $ — $ — $39,283 $39,283 $ 1,088
France 6,991 2,370 23,161 1 32,522 18,846
Japan 16,679 19 8,908 25,606 9,635
Germany 4,012 10,976 7,912 22,900 4,887
Spain 3,790 4,237 1,816 9,843 473
Ireland 438 68 7,057 7,563 2 176
United Kingdom 1,422 237 5,874 7,533 20,327
China 2,564 1,265 3,564 7,393 —
Brazil 1,383 3,704 2,280 7,367 865
Switzerland 3,706 230 3,133 7,069 1,305

1. Primarily comprised of secured lending transactions with a clearing house which are secured by collateral.
2. Primarily comprised of interests in and receivables from funds domiciled in Ireland, but whose underlying investments are primarily located outside of Ireland, and
secured lending transactions.

Goldman Sachs 2013 Annual Report 225


Supplemental Financial Information

As of December 2011
Total cross-border
in millions Banks Governments Other outstandings Commitments
Country
France $ 5,343 $ 2,859 $32,349 1 $40,551 $14,256
Cayman Islands — — 33,742 33,742 3,434
Japan 18,745 31 6,457 25,233 11,874
Germany 5,458 16,089 3,162 24,709 4,010
United Kingdom 2,111 3,349 5,243 10,703 26,588
Italy 6,143 3,054 841 10,038 3 435
Ireland 1,148 63 8,801 2 10,012 35
China 6,722 38 2,908 9,668 —
Switzerland 3,836 40 5,112 8,988 532
Canada 676 1,019 6,841 8,536 1,125
Australia 1,597 470 5,209 7,276 397

1. Primarily comprised of secured lending transactions with a clearing house which are secured by collateral.
2. Primarily comprised of interests in and receivables from funds domiciled in Ireland, but whose underlying investments are primarily located outside of Ireland, and
secured lending transactions.
3. Primarily comprised of secured lending transactions which are primarily secured by German government obligations.

226 Goldman Sachs 2013 Annual Report


Board Members, Officers and Directors
as of March 20, 2014

Board of Management Managing Directors


Directors Committee Managing Directors are organized by Managing Director class

Lloyd C. Blankfein Lloyd C. Blankfein Lloyd C. Blankfein Edith W. Cooper*


Chairman and Chief Chairman and Chief John P. Curtin, Jr. John S. Daly
Executive Officer Executive Officer Mark Schwartz Gordon E. Dyal
Richard A. Friedman Michael P. Esposito*
Gary D. Cohn Gary D. Cohn Timothy J. O’Neill Matthew T. Fremont-Smith
President and Chief President and Chief Gregory K. Palm Andrew M. Gordon
Operating Officer Operating Officer Masanori Mochida Walter H. Haydock
M. Michele Burns John S. Weinberg Gene T. Sykes James A. Hudis
Center Fellow and Strategic Michael S. Sherwood John S. Weinberg David J. Kostin
Advisor at Stanford University Mark Schwartz Sharmin Mossavar-Rahmani Paulo C. Leme
Center on Longevity Vice Chairmen Armen A. Avanessians Kathy M. Matsui
Gary D. Cohn Geraldine F. McManus
Claes Dahlbäck Craig W. Broderick Christopher A. Cole Michael J. Poulter
Senior Advisor to R. Martin Chavez Michael S. Sherwood* Paul M. Russo
Investor AB and Foundation Christopher A. Cole Esta E. Stecher Sarah E. Smith
Asset Management Edith W. Cooper Thomas C. Brasco Steven H. Strongin
Michael D. Daffey Peter D. Brundage John J. Vaske
William W. George Gordon E. Dyal Andrew A. Chisholm David M. Solomon
Professor of Management Practice Isabelle Ealet Abby Joseph Cohen Karen R. Cook
at Harvard Business School Richard A. Friedman E. Gerald Corrigan Gregory A. Agran
James A. Johnson Justin G. Gmelich Charles P. Eve Raanan A. Agus
Chairman of Johnson Capital Richard J. Gnodde Christopher G. French Dean C. Backer
Partners Ken W. Hitchner C. Douglas Fuge Stuart N. Bernstein
Eric S. Lane Richard J. Gnodde Alison L. Bott
Lakshmi N. Mittal Gwen R. Libstag Jeffrey B. Goldenberg Mary D. Byron
Chairman and Chief Executive Masanori Mochida Timothy J. Ingrassia Thomas G. Connolly
Officer of ArcelorMittal S.A. Timothy J. O’Neill Bruce M. Larson James Del Favero
John F.W. Rogers Gwen R. Libstag Michele I. Docharty
Adebayo O. Ogunlesi
Paul M. Russo Victor M. Lopez-Balboa Thomas M. Dowling
Chairman and Managing Partner of
Pablo J. Salame Sanjeev K. Mehra Keith L. Hayes
Global Infrastructure Partners
Stephen M. Scherr John P. Shaughnessy Daniel E. Holland, III
Peter Oppenheimer Jeffrey W. Schroeder Theodore T. Sotir Michael R. Housden
Senior Vice President and Chief Harvey M. Schwartz W. Thomas York, Jr.* Paul J. Huchro
Financial Officer of Apple, Inc. Sarah E. Smith Jonathan A. Beinner Andrew J. Jonas
David M. Solomon Steven M. Bunson James M. Karp
James J. Schiro Esta E. Stecher Matthew S. Darnall Matthew Lavicka
Former Chairman and Steven H. Strongin Alexander C. Dibelius Ronald S. Levin
Chief Executive Officer of Gene T. Sykes Karlo J. Duvnjak Richard P. McNeil
Zurich Insurance Group Ltd. Ashok Varadhan Isabelle Ealet Michael R. Miele
Debora L. Spar Elizabeth C. Fascitelli Suok J. Noh
Gregory K. Palm
President of Barnard College Oliver L. Frankel David B. Philip
General Counsel
Celeste A. Guth Ellen R. Porges
Mark E. Tucker Alan M. Cohen Gregory T. Hoogkamp Katsunori Sago
Executive Director, Group Global Head of Compliance William L. Jacob, III Pablo J. Salame
Chief Executive and President of Andrew J. Kaiser Jeffrey W. Schroeder
AIA Group Limited Robert C. King, Jr. Harvey M. Schwartz
John A. Mahoney Donald J. Truesdale
David A. Viniar
J. William McMahon John S. Willian
Former Chief Financial Officer of
Stephen R. Pierce Andrew F. Wilson*
The Goldman Sachs Group, Inc.
John J. Rafter Paul M. Young*
John F.W. Rogers Jack Levy*
John F.W. Rogers Michael M. Smith Mark F. Dehnert
Secretary to the Board Haruko Watanuki Michael H. Siegel
Paolo Zannoni Matthew C. Westerman
Frances R. Bermanzohn* Jason H. Ekaireb
Robert A. Berry Seaborn S. Eastland
Craig W. Broderick Alan J. Brazil
Richard M. Campbell-Breeden W. Reed Chisholm II
Anthony H. Carpet Michael D. Daffey
Michael J. Carr Joseph P. DiSabato
Kent A. Clark James H. Donovan

*Partnership Committee Member

Goldman Sachs 2013 Annual Report 227


Board Members, Officers and Directors
as of March 20, 2014

Donald J. Duet Todd G. Owens Christoph W. Stanger Helena Koo


Michael L. Dweck Helen Paleno Robin A. Vince Stefan R. Bollinger
Earl S. Enzer Archie W. Parnell Andrea A. Vittorelli Gregory B. Carey
Christopher H. Eoyang Alan M. Rapfogel Theodore T. Wang Paul R. Aaron
Norman Feit Sara E. Recktenwald Elisha Wiesel Andrew W. Alford
Robert K. Frumkes Thomas S. Riggs, III Denise A. Wyllie Fareed T. Ali
Gary T. Giglio Marcus Schenck Sheila H. Patel William D. Anderson, Jr.
Michael J. Graziano Susan J. Scher Mark E. Agne Rachel Ascher
Peter Gross Stephen M. Scherr Gareth W. Bater Dolores S. Bamford
Douglas C. Heidt Abraham Shua Sally A. Boyle* Benjamin C. Barber
Kenneth W. Hitchner John E. Waldron Philippe L. Camu Slim C. Bentami
Philip Holzer Michael W. Warren John W. Cembrook Christoph M. Brand
Walter A. Jackson David D. Wildermuth William J. Conley, Jr. Michael J. Brandmeyer
Roy R. Joseph Kevin L. Willens Thomas W. Cornacchia* Andrew I. Braun
James C. Katzman Edward R. Wilkinson David H. Dase Anne F. Brennan
Shigeki Kiritani Timothy H. Moe François-Xavier de Mallmann Tony M. Briney
Todd W. Leland Charles Baillie Elisabeth Fontenelli* Nancy D. Browne
Bonnie S. Litt Stacy Bash-Polley* Elizabeth J. Ford Elizabeth M. Burban
John V. Mallory Susan M. Benz Colleen A. Foster Anthony Cammarata, Jr.
John J. McCabe Johannes M. Boomaars Linda M. Fox David C. Carlebach
James A. McNamara J. Theodore Borter Kieu L. Frisby Donald J. Casturo
Fergal J. O’Driscoll Timothy J. Bridges Timur F. Galen James R. Charnley
Nigel M. O’Sullivan Colin Coleman Rachel C. Golder Jeffrey F. Daly
James R. Paradise* Kenneth W. Coquillette Kevin J. Guidotti Debora J. Daskivich
Philip A. Raper Michael J. Crinieri Elizabeth M. Hammack Michael C. Dawley
Michael J. Richman Craig W. Crossman Kenneth L. Hirsch Ahmad B. Deek
Elizabeth E. Robinson* Jeffrey R. Currie James P. Kenney Aidan P. Dunn
Thomas M. Schwartz Bradley S. DeFoor Steven E. Kent William J. Elliott
Lisa M. Shalett Alvaro del Castano Yasuro K. Koizumi Mark Evans
Ralph J. Silva Robert K. Ehudin Robert A. Koort William J. Fallon
Johannes R. Sulzberger Kathy G. Elsesser Brian J. Lahey Matthew J. Fassler
Eiji Ueda Peter C. Enns Hugh J. Lawson Wolfgang Fink
Ashok Varadhan Katherine B. Enquist Ronald Lee Dino Fusco
Martin M. Werner James P. Esposito Deborah R. Leone James R. Garman
Wassim G. Younan Douglas L. Feagin Thomas R. Lynch Sarah J. Gray
Donald W. Himpele Timothy T. Furey Peter J. Lyon Jan Hatzius
Alison J. Mass* Gonzalo R. Garcia James P. McCarthy Jens D. Hofmann
Ben I. Adler Justin G. Gmelich Dermot W. McDonogh Laura A. Holleman
Philip S. Armstrong Michael J. Grimaldi Arjun N. Murti Dane E. Holmes
William J. Bannon Simon N. Holden Craig J. Nossel Robyn A. Huffman
Scott B. Barringer Shin Horie Anthony J. Noto Leonid Ioffe
Steven M. Barry Adrian M. Jones Peter C. Oppenheimer Christopher M. Keogh
Jordan M. Bender Alan S. Kava Gilberto Pozzi Peter Kimpel
Valentino D. Carlotti Andreas Koernlein Louisa G. Ritter Eugene H. Leouzon
Linda S. Daines J. Christopher A. Kojima* Lisa A. Rotenberg Iain Lindsay
Stephen Davies Takahiro Komatsu Pamela S. Ryan Hugo P. MacNeill
Daniel L. Dees Rudolf N. Lang Clare R. Scherrer Kevin T. McGuire
Kenneth M. Eberts, III Brian J. Lee Vivian C. Schneck-Last Avinash Mehrotra
David A. Fishman George C. Lee, II John A. Sebastian Jonathan M. Meltzer
Orit Freedman Weissman Tim Leissner* Peter A. Seccia Christopher Milner
Naosuke Fujita Brian T. Levine Peter D. Selman Christina P. Minnis
Enrico S. Gaglioti Paula B. Madoff Heather K. Shemilt Ted K. Neely, II
Mary L. Harmon Puneet Malhi Gavin Simms Michael L. November
Edward A. Hazel Bruce H. Mendelsohn Alec P. Stais Konstantinos N. Pantazopoulos*
Sean C. Hoover Michael J. Millette Laurence Stein Robert D. Patch
Kenneth L. Josselyn Milton R. Millman Thomas D. Teles Kenneth A. Pontarelli*
Eric S. Lane Philip J. Moffitt Frederick Towfigh Lora J. Robertson
Gregg R. Lemkau* Simon P. Morris Philip J. Venables Lorin P. Radtke
Ryan D. Limaye Thomas C. Morrow* Alejandro Vollbrechthausen J. Timothy Romer
Robert A. Mass Marc O. Nachmann Eileen M. Dillon John R. Sawtell
J. Ronald Morgan, III Steven M. Pinkos Deborah B. Wilkens Harvey S. Shapiro
Rie Murayama Richard J. Revell Shinichi Yokote Suhail A. Sikhtian
Jeffrey P. Nedelman Marc A. Rothenberg Alan M. Cohen Ying Ying Glenda So
Gavin G. O’Connor Daniel M. Shefter Michiel P. Lap David Z. Solomon

*Partnership Committee Member

228 Goldman Sachs 2013 Annual Report


Board Members, Officers and Directors
as of March 20, 2014

Robert C. Spofford C. Annette Kelton Adam S. Clayton Matthew A. Jaume


Joseph J. Struzziery, III John J. Kim Jonathan M. Penkin Tanweer Kabir
Damian E. Sutcliffe Hideki Kinuhata Mark R. Etherington Afwa D. Kandawire
Robert J. Sweeney Michael E. Koester Craig W. Packer Herman R. Klein Wassink
Pawan Tewari Geoffrey C. Lee Michael Rimland Edward C. Knight
Paul Walker* Laurent Lellouche Keith Ackerman Akiko Koda
Dominic A. Wilson John R. Levene Carlos Pertejo Ravi G. Krishnan
Steve Windsor David M. Marcinek Dojin Kim Jorg H. Kukies
Martin Wiwen-Nilsson Marvin Markus Massimo Della Ragione Shiv Kumar
Yoshihiko Yano Thomas F. Matthias Iain N. Drayton Edwin Wing-Tang Kwok
Xing Zhang F. Scott McDermott Fadi Abuali David W. Lang
R. Martin Chavez John J. McGuire, Jr. David Z. Alter Nyron Z. Latif
Atosa Moini Sean T. McHugh Vincent L. Amatulli Matthew D. Leavitt
Stephen J. O’Flaherty David R. Mittelbusher Ramaz A. Ashurov David A. Lehman
Court E. Golumbic Bryan P. Mix Andrew J. Bagley David B. Ludwig
Alasdair J. Warren Junko Mori Susan E. Balogh Raghav Maliah
Ian Gilday Takashi Murata Jennifer A. Barbetta Matthew F. Mallgrave
Andy Fisher Amol S. Naik Gerard M. Beatty Karim H. Manji
Marshall Smith Nicholas W. Phillips Roger S. Begelman Scott D. Marchakitus
Charles F. Adams Louis Piliego Oliver B. Benkert Fabio N. Mariani
Farid Pasha Michelle H. Pinggera Avanish R. Bhavsar Ramnek S. Matharu
Hidehiro Imatsu M. Louise Pitt Christopher E. Blume Shogo Matsuzawa
Nick S. Advani James F. Radecki Shane M. Bolton Thomas C. Mazarakis
Analisa M. Allen Richard N. Ramsden William C. Bousquette, Jr. Penny A. McSpadden
Ichiro Amano Carl J. Reed Janet A. Broeckel Celine-Marie G. Mechain
Tracey E. Benford Scott A. Romanoff Richard J. Butland Simon H. Moseley
Gaurav Bhandari Michael J. Rost Jon Butler Jeff Mullen
Marc O. Boheim David T. Rusoff Joseph A. Camarda Edward T. Naylor
V. Bunty Bohra* Ankur A. Sahu John H. Chartres Graham H. Officer
Ralane F. Bonn Guy E. Saidenberg Alex S. Chi Lisa Opoku
John E. Bowman, III Julian Salisbury* Steven N. Cho Gerald B. Ouderkirk, III
Oonagh T. Bradley David A. Schwimmer Kasper Christoffersen Charles L. Park
Samuel S. Britton Rebecca M. Shaghalian Gary W. Chropuvka Jae Hyuk Park
Torrey J. Browder Julian F. Simon Jesse H. Cole Francesco Pascuzzi
Derek T. Brown Michael L. Simpson Brian M. Coleman Jeffrey Rabinowitz
Samantha R. Brown Barry Sklar Cyril Cottu Ante Razmilovic
Steve M. Bunkin Mark R. Sorrell Vijay B. Culas Lawrence J. Restieri, Jr.
Charles E. Burrows John D. Storey Kyle R. Czepiel Michael E. Ronen
Shawn P. Byron Ram K. Sundaram Manda J. D’Agata Adam C. Rosenberg
Marguarite A. Carmody Tatsuya Suzuki John F. Daly Ricardo Salaman
Stuart A. Cash Michael J. Swenson Michael J. Daum Thierry Sancier
Denis P. Coleman, III Joseph D. Swift Nicola A. Davies David J. Santina
Richard N. Cormack Teresa Teague Craig M. Delizia Kara Saxon
James V. Covello Klaus B. Toft Stacey Ann DeMatteis Ian M. Schmidek
Christian P. de Haaij John H. Tribolati Christina Drews Steven M. Schwartz
Olaf Diaz-Pintado Suzette M. Unger Steven T. Elia Stephen B. Scobie
David P. Eisman Leo J. Van Der Linden Harry Eliades Judith L. Shandling
Carl Faker Simone Verri Suzanne Escousse Graham P. Shaw
Stephan J. Feldgoise Toby C. Watson Steven A. Ferjentsik Hazem A. Shawki
Patrick J. Fels Oliver C. Will Carlos Fernandez-Aller Radford Small
Benjamin W. Ferguson Andrew E. Wolff* Gregory C. Ferrero Ramsey D. Smith
Samuel W. Finkelstein Jennifer O. Youde David A. Friedland Kevin M. Sterling
Peter E. Finn Thomas G. Young Irwin Goldberg Robert M. Suss
Sean J. Gallagher Han Song Zhu Juan D. Gomez-Villalba J. Richard Suth
Ivan C. Gallegos Rivas Steven A. Mayer Philip W. Grovit Daiki Takayama
Francesco U. Garzarelli Michael T. Smith Magnus C. Hardeberg Tin Hsien Tan
Michelle Gill Thomas G. Fruge Harold P. Hope, III Megan M. Taylor
Jason A. Gottlieb Clifford D. Schlesinger Gregory P. Hopper Richard J. Taylor
Mark K. Hancock Krishnamurthy Sudarshan Ericka T. Horan Oliver Thym
Martin Hintze Maziar Minovi Stephanie Hui Ingrid C. Tierens
Todd Hohman Tuan Lam Irfan S. Hussain Joseph K. Todd
James P. Houghton Todd E. Eagle Tsuyoshi Inoue Hiroyuki Tomokiyo
Christopher E. Hussey Jess T. Fardella Makoto Ito Jill L. Toporek
Etsuko Kanayama Robin Rousseau Kathleen Jack David Townshend

*Partnership Committee Member

Goldman Sachs 2013 Annual Report 229


Board Members, Officers and Directors
as of March 20, 2014

Patrick M. Tribolet Christian Channell Richard M. Manley Michael L. Warren


Richard J. Tufft Eva Chau Joseph S. Mauro Simon R. Watson
Toshihiko Umetani David Chou Matthew B. McClure Vivien Webb Wong
John P. Underwood Thalia Chryssikou Carolyn E. McGuire Peter A. Weidman
Thomas S. Vandever Michael J. Civitella Jack Mendelson Karl D. Wianecki
Richard C. Vanecek Kathleen A. Connolly Xavier C. Menguy Gavin A. Wills
Kurt J. Von Holzhausen Cecile Crochu Jason Moo Stephen T.C. Wong
Philippa A. Vizzone Anne Marie B. Darling Grant R. Moyer Shunichi Yamada
Fred Waldman Paul S. Davies Gersoni A. Munhoz Kentaro Yamagishi
Daniel S. Weiner Bruno P. De Kegel Michael Nachmani Raymond L. Yin
Owen O. West Matthew P. DeFusco Allison F. Nathan Ka Yan Wilfred Yiu
Alan S. Wilmit Daniel Deng Chris Oberoi Hisaaki Yokoo
David T. Wilson Jonathan G. Donne Jun Ohama Hsin Yue Yong
Edward C. Wilson William P. Douglas Gregory G. Olafson Rafael I. de Fex
Christopher D. Woolley Alessandro Dusi Beverly L. O’Toole Andre Laport Ribeiro
Brendan Wootten Mark S. Edwards Edward S. Pallesen Beatriz Sanchez
Salvatore T. Lentini Akishige Eguchi Dave S. Park Ricardo Mora
Brendan M. McGovern Halil Emecen Anthony W. Pasquariello Joseph A. Stern
Shigemitsu Sugisaki David P. Ferris Jignesh Patel Jeffrey L. Verschleiser
Takashi Yoshimura Jonathan H. Fine Nirubhan Pathmanabhan Jeffrey B. Andreski
Drake Pike David A. Fox Richard A. Peacock Albert J. Cass, III
David K. Cheung Jay A. Friedman Antonio R. Pereira Hidefumi Fukuda
Matthew C. Schwab Ramani Ganesh James R. Peters Rondy Jennings
Julie A. Harris Huntley Garriott Luis Puchol-Plaza Peeyush Misra
Michael S. Swell Maksim Gelfer Sumit Rajpal Neil C. Kearns
John C. Shaffer Gabe E. Gelman Peggy D. Rawitt Jeffrey M. Scruggs
William F. Spoor Tamilla F. Ghodsi Donald C. Reed Antonio F. Esteves
Erich Bluhm Federico J. Gilly James H. Reynolds Caglayan Cetin
David G. McDonald Marc C. Gilly Sean D. Rice Aya Stark Hamilton
Ezra Nahum John L. Glover, III Robert E. Ritchie Alan Zagury
Dina H. Powell Richard C. Govers Scott M. Rofey Mary Anne Choo
Anthony Gutman* Bradley J. Gross Jeroen Rombouts Daniel J. Rothman
Peter C. Russell Michael L. Hensch Douglas L. Sacks Jami Rubin
Celeste J. Tambaro Ning Hong Yann Samuelides Ajay Sondhi
Michael M. Furth Pierre Hudry Laura D. Sanchez Philippe Challande
Andrew Wilkinson Jonathan O. Hughes Luke A. Sarsfield, III Marc d’Andlau
Gregory P. Lee Yuji Ito Richard A. Schafrann Lancelot M. Braunstein
Alexis Maged Brian J. Jacoby Oliver Schiller Eric L. Hirschfield
Robert M. Pulford Andrius Jankunas Martin A. Schneider Charles A. Irwin
Maximillian C. Justicz Dominique M. Jooris Michael T. Seigne Robert D. Boroujerdi
Patrick Tassin de Nonneville Rajiv K. Kamilla Konstantin A. Shakhnovich Christopher Pilot
David M. Inggs Brian A. Kane Richard Shannon Arthur Ambrose
Edward B. Droesch Vijay M. Karnani Daniel A. Sharfman Graham N. Ambrose
Timothy J. Talkington Noriko Kawamura Faryar Shirzad Gregory A. Asikainen
Daniel J. Bingham Dirk-Jan J. Keijer Connie J. Shoemaker David J. Atkinson
Sergei S. Stankovski William P. Keirstead Anna K. Skoglund Heather L. Beckman
Gerald Messier Prashant R. Khemka Andrew J. Smith Shomick D. Bhattacharya
Andrea Vella Vivien Khoo Bing Song David C. Bicarregui
Karl J. Robijns Tammy A. Kiely Aurora J. Swithenbank Miguel A. Bilbao
Timothy Callahan Jisuk Kim Carl H. Taniguchi Matthias B. Bock
Julian C. Allen Lee Guan Kelvin Koh Mark J. Taylor Jason H. Brauth
Joanne L. Alma Masafumi Koike Ryan J. Thall Justin M. Brickwood
Quentin Andre Satoshi Kubo Robert B. Thompson Michael G. Broadbery
Sergei Arsenyev Kim M. Lazaroo Terence Ting Michael R. Brooke
Aaron M. Arth Scott L. Lebovitz Jacquelyn G. Titus Shoqat Bunglawala
Ian T. Bailey David A. Levy Mark C. Toomey David Castelblanco
Vivek J. Bantwal Dirk L. Lievens Kenneth A. Topping Michael L. Chandler
Michael H. Bartsch David B. Lischer Pamela C. Torres Toby J. Chapman
Philip R. Berlinski Stephen I. Lucas Padideh N. Trojanow Omar J. Chaudhary
Brian W. Bolster Patrick O. Luthi Kenro Tsutsumi Hyung-Jin Chung
C. Kane Brenan Christina Ma Peter van der Goes, Jr. Giacomo Ciampolini
Michael A. Cagnassola Whitney C. Magruder Damien R. Vanderwilt Samara P. Cohen
Jimmy R. Carlberg Suneil Mahindru Sherif J. Wahba Stephanie E. Cohen
Glen T. Casey Monica M. Mandelli Zhixue Josh Wang Richard Cohn

*Partnership Committee Member

230 Goldman Sachs 2013 Annual Report


Board Members, Officers and Directors
as of March 20, 2014

James M. Conti Ning Ma John A. Weir Canute H. Dalmasse


David Coulson John G. Madsen Noah Y. Weisberger Stephen J. DeAngelis
Robert Crane Brian M. Margulies Ellis Whipple Michele della Vigna
Nicholas T. Cullen, III Michael C. Marsh Pansy Piao Wong Brian R. Doyle
Thomas J. Davis Robert A. McEvoy Yat Wai Wu Orla Dunne
Ann M. Dennison William T. McIntire Andrew P. Wyke Karey D. Dye
Michael J. DesMarais Christopher G. Mckey Seigo Yamasaki Sarel Eldor
Sheetal Dhanuka Paul J. Miller Xi Ye Sanja Erceg
Robert Drake-Brockman Yutaka Miura Susan Yung Alexander E. Evis
Yuichiro Eda Joseph Montesano Maoqi Zhang Robert A. Falzon
Eric Elbaz Jennifer L. Moyer Xiaoyin Zhang Danielle Ferreira
Edward A. Emerson David J. Mullane Robert Allard Allan W. Forrest
Thomas J. Fennimore Eric D. Muller Matthew T. Kaiser Mark Freeman
Andrew B. Fontein T. Clark Munnell, Jr. Kenneth Damstrom Boris Funke
Salvatore Fortunato Guy A. Nachtomi Robert M. Dannenberg Udhay Furtado
Sheara J. Fredman Jyothsna G. Natauri Tareq Islam Jian Mei Gan
Thomas S. Friedberger Jeffrey R. Nazzaro Michael Paese Mark E. Giancola
Jacques Gabillon Carey Nemeth Jonathan Ezrow Cyril J. Goddeeris
Dean M. Galligan John M. O’Connell Asad Haider Brian S. Goldman
Matthew R. Gibson Kristin A. Olson Hector Chan Jennifer E. Gordon
Jeffrey M. Gido Kevin W. Pamensky Toshiya Saito Adam C. Graves
Nick V. Giovanni Nash Panchal Una M. Neary Lars A. Gronning
Boon Leng Goh Tracey A. Perini Shantanu Shete Carey Baker Halio
Alexander S. Golten Jonathan G. Pierce Keith Tomao Thomas V. Hansen
Wade G. Griggs, III Dmitri Potishko Steve L. Bossi Michael J. Hayes
Ralf Hafner Francois J. Rigou Bobby Vedral Edouard Hervey
Jeffrey D. Hamilton Stuart Riley Etienne Comon Timothy S. Hill
Joanne Hannaford Santiago J. Rubin Li Hui Suo Jeffrey J. Huffman
Nicholas M. Harper Howard H. Russell Dalinc Ariburnu* Corey M. Jassem
Honora M. Harvey Natasha P. Sai John D. Melvin Ian A. Jensen-Humphreys
Takashi Hatanaka Christian D. Salomone Tabassum A. Inamdar Baoshan Jin
Charles P. Himmelberg Krishnan P. Sankaran Benny Adler Aynesh L. Johnson
Timothy R. Hodge Timothy K. Saunders, Jr. Bruce A. Albert Eri Kakuta
Russell W. Horwitz Peter Scheman Umit Alptuna John D. Kast
Russell E. Hutchinson Pedro E. Scherer Matthew T. Arnold Kevin G. Kelly
Tetsuji Ichimori Stephanie R. Schueppert Divyata Ashiya Jane M. Kelsey
Elena Ivanova Hugo P. Scott-Gall Taraneh Azad Anita K. Kerr
Maria S. Jelescu Gaurav Seth Vishal Bakshi Michael Kirch
Steve Jeneste Kiran V. Shah David C. Bear Marie Louise Kirk
Thomas F. Jessop Raj Shah Deborah Beckmann Katharina Koenig
Kara R. Johnston Roopesh K. Shah Gary K. Beggerow Tatiana A. Kotchoubey
Denis Joly Takehisa Shimada Andrea Berni Dennis M. Lafferty
Eric S. Jordan Tomoya Shimizu Roop Bhullar Raymond Lam
Anil C. Karpal Nameer A. Siddiqui John D. Blondel John V. Lanza
Aasem G. Khalil David A. Sievers Jill A. Borst Craig A. Lee
Donough Kilmurray Brigit L. Simler Peter Bradley Rose S. Lee
Tobias Koester Jason E. Singer James W. Briggs José Pedro Leite da Costa
Adam M. Korn David R. Spurr Heather L. Brownlie Luca M. Lombardi
Paul Kornfeld Michael H. Stanley Richard M. Buckingham Joseph W. Long
Ulrich R. Kratz Matthew F. Stanton Robert Buff Todd D. Lopez
Florence Kui Umesh Subramanian Maxwell S. Bulk Galia V. Loya
Glen M. Kujawski Kathryn E. Sweeney Paul J. Burgess Peter R. Lyneham
Michael E. Kurlander Teppei Takanabe Jonathan P. Bury Gregory P. Lyons
Cory H. Laing Troy S. Thornton Kevin G. Byrne Paget R. MacColl
Meena K. Lakdawala Ben W. Thorpe Thomas J. Carella Lisa S. Mantil
Richard N. Lamming Matthew E. Tropp Doris Cheung Clifton C. Marriott
Sarah C. Lawlor Charles-Eduard van Rossum Alina Chiew Daniel G. Martin
Benjamin Leahy Mark A. Van Wyk Getty Chin Elizabeth G. Martin
Timothy M. Leahy Jonathan R. Vanica Paul Christensen Jason L. Mathews
Dominic J. Lee Rajesh Venkataramani Andrew Chung Masaaki Matsuzawa
Lakith R. Leelasena John R. Vitha, II Alberto Cirillo Alexander M. Mayer
Edward K. Leh Katherine M. Walker Nigel C. Cobb John P. McLaughlin
Philippe H. Lenoble Brent D. Watson Martin A. Cosgrove Jean-Pascal Meyre
Eugeny Levinzon Nicole A. Weeldreyer Patrick C. Cunningham Arthur M. Miller

*Partnership Committee Member

Goldman Sachs 2013 Annual Report 231


Board Members, Officers and Directors
as of March 20, 2014

Heather K. Miner Nick Yim Charles P. Bouckaert Ruth Gao


Gregory P. Minson Albert E. Youssef Marco Branca David M. Garofalo
Hironobu Moriyama Alexei Zabudkin Didier Breant Luke F. Gillam
Edward G. Morse Adam J. Zotkow Kelly Reed Brennan Lisa M. Giuffra de Diaz
Teodoro Moscoso Robert J. Liberty Craig T. Bricker Matthew J. Glickman
Robert T. Naccarella Atanas Djumaliev Nellie A. Bronner Parameswaran Gopikrishnan
Olga A. Naumovich Sonjoy Chatterjee Sara Burigo Luke G. Gordon
Brett J. Nelson Yun Liu James M. Busby Pooja Grover
Roger Ng Asita Anche Elizabeth A. Byrnes Patricia R. Hall
Victor K. Ng Bernard Thye Peng Teo Alvaro Camara Anna Hardwick
Stephen J. Nundy Shannon E. Young, III Ramon Camina Mendizabal Caroline Heller
Jernej Omahen Boris M. Baroudel Tavis C. Cannell Richard I. Hempsell
Daniel S. Oneglia Johan M.D. Den Hoedt Michael J. Casabianca Isabelle Hennebelle-Warner
Anna Ostrovsky Johannes P. Fritze Jacqueline M. Cassidy Jeremy P. Herman
Marco Pagliara Richard Gostling Leor Ceder Matthias Hieber
Gena Palumbo Jeffrey S. Isaacs Eli W. Chamberlain Amanda S. Hindlian
Jonathan E. Perry William Shope, Jr. Gilbert Chan Darren S. Hodges
Gerald J. Peterson Steven K. Barg Kevin M. Chan Simon Hurst
Julien D. Petit Guido Filippa Francis S. Chlapowski Edward McKay Hyde
Charlotte L. Pissaridou Kathleen Hughes Dongsuk Choi Nagisa Inoue
David S. Plutzer Michael Zeier Stephen L. Christian Marc Irizarry
Ian E. Pollington David Wells Peter I. Chu Shintaro Isono
Alexander E. Potter Philip A. May Vania H. Chu Benon Z. Janos
Alberto Ramos Alastair Maxwell Emmanuel D. Clair Ronald Jansen
Marko J. Ratesic Jiming Ha Bracha Cohen Mikhail Jirnov
Sunder K. Reddy Sara Strang Darren W. Cohen Benjamin R. Johnson
Joanna Redgrave Julian Zhu Christopher J. Creed Mariam Kamshad
Ryan E. Roderick Michael Wise Helen A. Crowley Makiko Kawamura
Philip J. Salem Pierre-Emmanuel Y. Juillard Elie M. Cukierman Christina Kelerchian
Hana Thalova Clemens Grafe Matthew J. Curtis Andre H. Kelleners
Jason M. Savarese Gary Suen Jason S. Cuttler Sven H. Khatri
Joshua S. Schiffrin Jeffrey A. Barclay Sterling D. Daines Sandip S. Khosla
Rick Schonberg David K. Gallagher Kevin J. Daly David A. Killian
Johan F. Schulten Frederique Gilain-Huneeus Rajashree Datta Melinda Kleehamer
Gaik Khin Nancy Seah Philip J. Shelley Samantha S. Davidson Maxim B. Klimov
Oliver R.C. Sedgwick Theodore Lubke Adam E. Davis Goohoon Kwon
David Sismey Patrick J. Moran Sally Pope Davis Laurent-Olivier Labeis
Bryan Slotkin Ronald Arons Raymond E. de Castro Lambert M. Lau
Timothy A. Smith Michael S. Goldstein George J. Dennis Sandra G. Lawson
Warren E. Smith John P. Killian Sara V. Devereux David H. Leach
Thomas E. Speight Brett A. Olsher Diana R. Dieckman Deborah A. Lento
Russell W. Stern James B. Adams Avi Dimor Gavin J. Leo-Rhynie
Joseph Stivaletti Geoffrey P. Adamson Lisa A. Donnelly Leon Leung
Chandra K. Sunkara Yashar Aghababaie Mark T. Drabkin Ke Li
Kengo Taguchi Nicole Agnew Tilo A. Dresig Xing Li
Kristi A. Tange Ahmet Akarli Thomas K. Dunlap Sabrina Y. Liak
Jonathan E.A. ten Oever Ali A. Al-Ali Steven M. Durham Jason R. Lilien
David S. Thomas Jorge Alcover Michael S. DuVally Amy M. Liu
Jonathan S. Thomas Moazzam Ali Masahiro Ehara Bernard C. Liu
Andrew Tilton Shawn M. Anderson Grant M. Eldred Nelson Lo
Frank T. Tota Gina M. Angelico Manal I. Eldumiati Kyri Loupis
Hiroshi Ueki John J. Arege Charles W. Evans Yvonne Low
Naohide Une Paula G. Arrojo Anne M. Fairchild Joshua Lu
Fernando P. Vallada Richard J. Asbery Craig R. Farber Yvonne Lung
Samuel Villegas Naohiko Baba John W. Fathers Marcello Magaletti
Christian von Schimmelmann Gargi Banerjee Lev Finkelstein Uday Malhotra
Martin Weber Amit Bansal Warren P. Finnerty Upacala Mapatuna
Gregory F. Werd Thomas J. Barrett, III Elizabeth O. Fischer Kristerfor T. Mastronardi
Ronnie A. Wexler Roger K. Bartlett John J. Flynn Ikuo Matsuhashi
David A. Whitehead Stephen E. Becker Veronica Foo Francois Mauran
David Whitmore Ron Bezoza Francesca Fornasari Brendan M. McCarthy
David Williams David R. Binnion Christian L. Fritsch Patrick E. McCarthy
Julian Wills James Black Andrew J. Fry Michael J. McCreesh
William Wong Michael Bogdan Charles M. Fuller Mathew R. McDermott

232 Goldman Sachs 2013 Annual Report


Board Members, Officers and Directors
as of March 20, 2014

Charles M. McGarraugh Robert A. Spencer Johan G. van Jaarsveld Darrick Geant


Vahagn Minasian Thomas G. Stelmach Heather Bellini Houston Huang
Matthew R. Mitchell Thomas A. Stokes Royal I. Hansen Felipe F. Mattar
Ryan C. Mitchell Sinead M. Strain Dan P. Petrozzo Heath Terry
Christine Miyagishima Phillip B. Suh Andrew Armstrong Jonathan H. Xiong
Igor Modlin Jamie Sutherland David John Acton Jeremy W. Cave
Michael Moizant Anton Sychev Kate A. Aitken Jose C. Labate
Petra Monteiro Hideaki Takada Chris Baohm Michael Clarke
Heather L. Mulahasani Konnin Tam Andrew Barclay Ryad Yousuf
Eric Murciano Bong Loo Tan George Batsakis Jeff A. Psaki
Colin D. Murphy Yasuko Taniguchi Ruben K. Bhagobati Hiroko Adachi
Paul M. Mutter Daniel W. Tapson Timothy M. Burroughs Sajid Ahmed
Arvind Narayanan Richard M. Thomas Chris D. Champion Flavio Aidar
Mani Natarajan Francis S. Todd Nicholas J. Fay Lee M. Alexander
Antti K. Niini Christos Tomaras Joseph A. Fayyad Osman Ali
Daniel Nissenbaum Lale Topcuoglu Ryan S. Fisher Ilana D. Ash
Kevin Ohn Thomas A. Tormey Zac Fletcher Dominic Ashcroft
Thomas A. Osmond Chi Keung Tse David Goatley Farshid M. Asl
James Park Weidong Tu Christian J. Guerra Vladislav E. Avsievich
Katherine J. Park Reha Tutuncu Dion Hershan Lucy Baldwin
Kyung-Ah Park Mei Ling Tye Andrew J. Hinchliff Jonathan K. Barry
Ian L. Parker Nicholas A. Valtz Nell C. Hutton Yasmine Bassili
Benjamin R. Payne Nicholas J. van den Arend Nick S. Jacobson Jonathan Bayliss
Thomas G. Pease Alexandra S. Vargas Christian W. Johnston Omar L. Beer
Andrew J. Pena Peter G. Vermette Gordon Livingstone Mark W. Bigley
Stuart R. Pendell Matthew P. Verrochi Brendan R. Lyons Timothy C. Bishop
Ricardo H. Penfold Sindy Wan Steven Maartensz James Blackham
Andrew Philipp Freda Wang Matthew J. McNee Jacki Bond
Sasa Pilipovic Yi Wang Anthony I. J. Miller Jonathan E. Breckenridge
Asahi M. Pompey Mitchell S. Weiss Craig R. Murray John Brennan
Ling C. Pong Greg R. Wilson Andrew K. Rennie Brian R. Broadbent
Raya Prabhu Mark J. Wilson Matthew G. Ross Jerome Brochard
Macario Prieto Gudrun Wolff Simon A. Rothery Jason R. Broder
Joshua Purvis Isaac W. Wong Duncan Rutherford Robin Brooks
Xiao Qin David J. Woodhouse Nick D. Sims Amy C. Brown
Philippe Quix Stuart J. Wrigley Conor J. Smyth Stefan Burgstaller
J Ram Jerry Wu Ashley K. Spencer Christopher Henry Bush
Rajiv Ramachandran Jihong Xiang Andrew R. A. Sutherland Michael J. Butkiewicz
Maximilliano Ramirez Ying Xu Andrew R. Tanner Eoghainn L. Calder
Gary M. Rapp Lan Xue Kate A. Temby Scott S. Calidas
Felicia J. Rector Angel Young Tim F. Toohey Katrien Carbonez
Christopher C. Rollins Daniel M. Young Paul S. J. Uren Sean V. Carroll
Colin J. Ryan Raheel Zia Sean Walsh John B. Carron
Maheshwar R. Saireddy David A. Markowitz David Watts David E. Casner
Ian P. Savage Kent Wosepka Dion Werbeloff Kenneth G. Castelino
Bennett J. Schachter Joseph Jiampietro Jeremy Williams Vincent Catherine
Martin L. Schmelkin China D. Onyemeluke Vaishali Kasture Winston Chan
Laurie E. Schmidt Terri M. Messina Robert G. Burke Gary A. Chandler
Dirk Schumacher Michele Cortese Charles Cheng Christopher H. Chattaway
Carsten Schwarting Kamal S. Hamdan Jia Ming Hu Jonathan L. Cheatle
Thomas Schweppe Max I. Coreth Sanjiv Shah Simon Cheung
Dmitri Sedov Sanjiv Nathwani John Clappier Pierre Chu
Stacy D. Selig Ramez Attieh Huw R. Pill Jean-Paul Churchouse
Kunal Shah Joe Raia Alan P. Konevsky Gregory Chwatko
Tejas A. Shah Erwin W. Shilling PV Krishna Massimiliano Ciardi
Alasdair G. Share Brad Brown Suk Yoon Choi Simon M. Collier
William Q. Shelton Soares R. Rodolfo Richard J. Quigley Kenneth Connolly
Jason E. Silvers Julian M. Trott Alex Andrew A. von Moll Frederic J.F. Crosnier
Ales Sladic Aaron J. Peyton Antoine de Guillenchmidt Alistair K. Cross
Howard D. Sloan Jayne Lerman Carl Stern Robert G. Crystal
Michelle D. Smith Ross Levinsky Tunde J. Reddy David J. Curtis
Stephanie P. Smith Eduard E. van Wyk Paul Ockene Keith L. Cynar
Thomas J. Smith Keshav K. Sanghi Andrew Robin Simon Dangoor
Sangam Sogani David A. Youngberg Ronald Hua Jennifer L. Davis

Goldman Sachs 2013 Annual Report 233


Board Members, Officers and Directors
as of March 20, 2014

Thomas Degn-Petersen Peter B. Lardner Peter Sheridan Chris Nelson


Kevin M. Dommenge Alison W. Lau Seung Shin Barry Olson
Benjamin J. Dyer Arden Lee Andrea Skarbek Mike Schaffer
Christopher M. Dyer Hung Ke Lee Spencer Sloan Ken Sugimoto
Mariano Echeguren Sang-Jun Lee William Smiley Scott Toornburg
Charles P. Edwards Howard Russell Leiner Taylor Smisson Berthold von Thermann
Katherine A. El-Hillow Rainer Lenhard Gary Smolyanskiy Michelle Khalili
Jenniffer Emanuel Stephen L. Lessar Nishi Somaiya Li Cui
Hafize Gaye Erkan Daphne Leung Michael R. Sottile, Jr. Jasdeep Maghera
Sean Fan Chad J. Levant Andre Souza Yongzhi Jiang
Richard M. Fearn Weigang Li Oliver Stewart-Malir Rafael Borja
Michael A. Fisher Gloria W. Lio Christopher W. Taendler Craig Sainsbury
Nick Forster Chang Lee Liow Winnie Tam Andrew Donohue
Jennifer A. Fortner Matthew Liste Trevor Tam Nicholas T. Pappas
Nanssia Fragoudaki Edmund Lo Luke D. Taylor Zachary T. Ablon
Grady C. Frank Justin Lomheim Vipul Thakore Reyhaan Aboo
Michael C. Freedman David A. Mackenzie Michael D. Thompson Jeff Albee
Thomas Gasson Regis Maignan Artur Tomala Carlos Albertotti
Antonio Gatti Sameer R. Maru John B. Tousley Shahzad Ali
Frank S. Ghali Miyuki I. Matsumoto Alexandre Traub David E. Alvillar
Jason A. Ginsburg Antonino Mattarella Eddie Tse Timothy Amman
Joshua Glassman Jack McFerran Hidetoshi Uriu Lucia Arienti
Gary M. Godshaw Aziz McMahon Dirk Urmoneit Jacqueline Arthur
Albert Goh Jans Meckel Michael Voris Willem Baars
Ernest Gong Ali Meli Thomas W. Waite Nilesh Banerjee
Jonathan J. Goodfellow Vrinda Menon Steve Weddell Michael Bang
Michael Goosay Raluca Ragab Paul Weitzkorn Marc Banziger
Poppy Gozal Milko Milkov Andrew M. Whyte Yibo Bao
Genevieve Gregor Shinsuke Miyaji Ed Wittig Vlad Y. Barbalat
Krag (Buzz) Gregory Gabriel Mollerberg Jon J. Wondrack Tanya Barnes
Nick E. Guano Matthew L. Moore Yvonne Y. Woo Melissa Barrett
Nicholas Halaby Robert Mullane XueYing Shel Xu Alyssa Benza
Sanjay A. Harji Eric S. Neveux Takashi Yamada Bruce Berg
Corey R. Harris Dale Nolan Xiaohong Lilly Yang Dinkar Bhatia
Thomas J. Harrop Asim H. Nurmohamed Wai Yip Meera Bhutta
Brian M. Haufrect Simon G. Osborn Yusuke Yoshizawa Matthew G. Bieber
Adam T. Hayes Hilary Packer Kota Yuzawa Keith Birch
Robert Hinch Daniel M. J. Parker Richard Zhu Kerry Blum
Ida Hoghooghi Srivathsan Parthasarathy Mikhail Zlotnik Tim Boddy
Michael P. Huber Giles R. Pascoe Richard Phillips Matteo Botto Poala
Jonathan S. Hunt Rahul Patkar Jake Siewert Ryan Boucher
Ahmed Husain Robert D. Patton Tom Ferguson Joseph Braik
Aytac Ilhan Deepan Pavendranathan Jeffrey Burch Fernando Bravo
Omar Iqbal Alejandro E. Perez Daniel Zarkowsky Chris Buddin
Gurjit S. Jagpal Jan M. Petzel Masaki Taniguchi Paul H. Burchard
Simona Jankowski Tushar Poddar Matthew Gleason Caroline Carr
Arbind K. Jha Jeff Pollard Joshua Kruk Marie-Ange Causse
Xiangrong Jin Nicole Pullen-Ross Robert L. Goodman Daniel Cepeda
Danielle G. Johnson Steven J. Purdy Claude Schmidt Jean-Baptiste Champon
Michael G. Johnson Ali Raissi Paul V. Jensen Raymond Chan
Jean Joseph Rosanne Reneo Scott Ackerman Rita Chan
Edina Jung Paul Rhodes Sven Dahlmeyer Pierre Chavenon
Philipp O. Kahre Jill Rosenberg Jones Michael Dalton Gigi Chavez de Arnavat
Abhishek Kapur Jason T. Rowe John Gajdica Angus Cheng
Sho Kawano Matthew Rubens Todd Giannoble Nikhil Choraria
Jeremiah E. Keefe Joshua A. Rubinson John Gibson Adam Clark
Ryan J. Kelly Owi Ruivivar Brenda Grubbs Hugo Clark
Brian J. Kennedy Jennifer A. Ryan Stephen Hipp Colin Convey
Nimesh Khiroya Andrew S. Rymer Tim Johnson Piers Cox
Jeff Kim Hiroyoshi Sandaya Hiroyasu Kaizuka Chris Crampton
Phillip Kimber Eduardo Sayto Klaus Kraegel Fredrik Creutz
Kathryn A. Koch Michael Schmitz Francesco Magliocchetti Heidi Cruz
Fiona Laffan Mike Schmitz David Miller Angelo Curreli
James Lamanna Michael Schramm Wes Moffett Laurianne Curtil
Kerry C. Landreth Beesham A. Seecharan Chance Monroe Pol De Win

234 Goldman Sachs 2013 Annual Report


Board Members, Officers and Directors
as of March 20, 2014

Anthony Dewell John H. Knorring Andrea Raphael Neil Wolitzer


Joshua A. Dickstein Marina Koupeeva Kareem Raymond Willie W. Wong
Kuniaki Doi Jane Lah Neil Reeve Nicola Wright
Jessica Douieb Pierre Lamy Claudia Reim Makoto Yamada
Martine Doyon Arthur Leiz Grant Richard Wendy Yun
Dexter D’Souza Alex Levy Valentina Riva Genya Zemlyakova
David Dubner Alexander S. Lewis Fernando Rivera Jing Zhang
Amy Elliott Tim Li Brian Robinson Allen Zhao
Theodore Enders Zheng Li Tom Robinson Anthony Davis
Aidan Farrell Stephane Lintner Javier Rodriguez Sarah Rennie
Raymond Filocoma Ilya Lisansky David Roman Steve Kron
Andrea Finan Darren Littlejohn Katya Rosenblatt Chin Thean Quek
Jeffrey Fine Jean Liu Richard J. Rosenblum Saleh Romeih
James A. Fitzsimmons John Liu Amanda Rubin John G. Childers
Matthew Flett Wanlin Liu Bryan Rukin Nicholas Jordan
Robert G. Frahm III Wendy Mahmouzian Akshay Sahni Caroline L. Arnold
Alisdair Fraser Mazen Makarem Gunjan Samtani Matteo Lorenzini
Barry Friedeman Daniel R. Mallinson Lucas W. Sandral Douglas R. De Filippi
Charlie Gailliot Thomas Manetta Philip Saunders Kate G. Richdale*
Renyuan Gao Robert C. Mara III Monika Schaller Frank Niehage
Manuel A. Garcia Stephen Markman Michael Schlee Thomas H. Veit
Suzanne Gauron Dunstan Marris Jonathan Schorr Simon M. Robertson
Darren T. Gilbert Jon May Anton Schreider Torben Nielsen
Jason Gilbert Kristen McDuffy Peter Schwab Thomas C. Ernst
Eric Goldstein Victoria McLean Roy A. Schwartz Qi Li
Jamie Goodman Sean McWeeney, Jr. Joshua Schwimmer Ashley R. Woodruff
Betsy Gorton Benoit Mercereau Stuart Sclater-Booth Stephanie J. Goldstein
Pooja Goyal Edouard Metrailler Kunal Shah Marc O. Getman
Jason Granet Samantha Migdal Martin Sharpe Cornelia S. Spiegel
David Granson Jeffrey Miller Hao Shen Dimitrios Nikolakopoulos
David Grant Marko Milos Mark Siconolfi Henry P. Hilliard
Tim Grayson Teruko Miyoshi Vanessa Simonetti Jack O. Johnston
Brian Greeff Steven Moffitt Amit Sinha David Adelman
Marci Green Sarah Mook Matthew Slater Yiqian Sun
Stephen Griffin Hari Moorthy Ian Spaulding Jason M. Wingard
Kristen Grippi Michael Moran Richard Spencer John P. Hardt
Dinesh Gupta Paula P. Moreira Lesley Steele Tyler L. Schiff
Manav Gupta Alister A. Morrison Heiko Steinmetz John D. Axtell
Yuhei Hara Peter Mortimer Michael Strafuss Chris Hsieh
Toshiya Hari Chukri Moubarak Takashi Suwabe Ian Smith
Todd Haskins Sara Naison-Tarajano Linda Tai Kevin A. Zerrusen
Aime Hendricks Anthony J. Nardi Laura Takacs Katherine A. Abrat
Michael Henry Gleb Naumovich Maurice Tamman Afsheen Afshar
Peter U. Hermann Sean Naylen Eng Guan Tan Puneet Agarwal
Alejandro Hernandez Olaf Nordmeyer Katsunori Tanaka Sergio Akselrad
James Herring Barry O’Brien Bob Tankoos Philip J. Aldis
Jamie Higgins Patrick O’Connell Belina Thiagarajah Margaret C. Anadu
Peter J. Hirst Zahabiya Officewala John R. Thomas Vishweshwar Anantharam
Christopher Hogan Keisuke Okuda Cullen Thomason Silvia Ardagna
Mike Holmes Elizabeth Overbay Glenn Thorpe Matthew J. Armas
Jonathan P. Horner Robert A. Palazzi Michele Titi-Cappelli Anthony M. Arnold
Katie Hudson Philip Pallone Timothy G. Tomalin-Reeves Yacov Arnopolin
Kenneth Hui Mitesh J. Parikh Carrie Van Syckel Celine Assouline
Lars Humble Brian A. Pasquinelli Tammy VanArsdalen Roberto Awad
Amer Ikanovic Nita Patel Carmine Venezia Amin Azmoudeh
Stephanie Ivy Manolo Pedrini Frank Viola Davie M. Baccei
Antoine Izard Douglas Penick Heather von Zuben Eric Bai
Gunnar Jakobsson David Perdue Monali Vora Taran Bakker
James M. Joyce Michael Perloff Martin Walsh Padmanabhan Balasubramanian
John C. Joyce Patrick Perreault Ward Waltemath Kevin S. Barker
Benjamin D. Kass Alec Phillips Stephen Warren Lindsay D. Basloe
Christopher Keller Marc Pillemer Luke Wei Peter G. Beckman
Simon J. Kingsbury Noah Poponak Matthew Weir Collin E. Bell
Judge Kirby Kim-Thu Posnett Chris Wells Navtej S. Bhullar
Jeffrey Klein Sameer Ralhan Geoffrey M. Williams Jean Altier Bohm

*Partnership Committee Member

Goldman Sachs 2013 Annual Report 235


Board Members, Officers and Directors
as of March 20, 2014

Francois-Xavier T. Bouillet James A. Fulton Matthew J. Leisen Jonathan Rousse


Douglas J. Bouquard Roger Gardiner Vincenzo Lento John B. Ryan
David J. Bowen Grace Ge Wesley M. LePatner Yassaman A. Salas
Elizabeth C. Bowyer Matija Gergolet Xufa Liao Thomas V. Scarpati
Sarah J. Brungs Philip V. Giuca Jr. Brian Liloia Joao H. Schmidt
Michael S. Bruun Brian D. Glass Reginaldo Lima Rachel C. Schnoll
Beat M. Cabiallavetta Edward M. Glassmeyer Marcel K. Liplijn Marc H. Schreiber
Niharika Cabiallavetta Craig I. Glassner Malcolm M. MacDonald Bruce E. Schwartz
John R. Cahill Nicholas P. Godfrey John L. Marshall Lyle M. Schwartz
Gregory D. Calnon Lawrence Grassi Jonathan D. Matz Anshul Sehgal
Robert A. Camacho Jett G. Greenberg Patricia M. McCarthy John R. Semczuk
David Campbell David Gribble Michael McGinn Hideyuki Seo
Thomas J. Campbell Benjamin D. Grizzle Alan S. Mclean Jonathan I. Shapiro
Michael Casey Anil Grover Olympia S. McNerney Johann W. Shudlick
John T. Cassidy Fredrik Grunberger Scott R. Mehling Andrew R. Silverman
Pascal A. Cerf Michael D. Gurney Noa A. Meyer Brian A. Singer
Tiffani L. Chambers David Ha Alexandra Miani Jeremie Sokolowsky
Sharmini Chetwode Kirsten Hagen Jung Min Simone Song
Patricia Chew Digboloy Halder Jerry Minier William Stamatakis
Travis J. Chmelka Phillip J. Han Anthony F. Mirabile Sven J. Stehn
Lisa M. Coar Sarah J. Harper Anindya Mohinta Jeremy G. Stent
Charles A. Cognata Hunter L. Henry Michael H. Mooney Alan D. Stewart
Dahlia Cohen Debra Herschmann Sam A. Morgan Daniel R. Strack
Larry R. Colburn Michael B. Hickey William I. Morgan Alexandra J. Stubbings
Peter R. Colven Michael F. Higgins Peter C. Morreale Masato Sunaga
Stuart P. Connolly Axel K. Hoefer Frederick D. Morris Takaaki Suzuki
Stephen T. Considine Judy E. Hong Piyush Mubayi Chia Min Tan
Damien R. Courvalin Timothy Hooley Kaushik Murali Robert Tau
Nora Creedon Erdit F. Hoxha Mark A. Najarian Sujay H. Telang
Alicia A. Crighton James W. Huckaby Joshua P. Newsome Baris Temelkuran
Adam M. Crook Michael J. Husson Logan J. Nicholson Rene J. Theriault
Piers N. Curle Maximos M. Iakovlev Michael A. Nickols Bart Thomson
Michael L. D’Addario Inci Isikli Sergei Y. Nodelman Cassandra S. Tok
Aneesh K. Daga Omer Ismail Jolie A. Norris Alexandros Tomas
John M. Dailey Glade A. Jacobsen Edward J. Oakley Karen T. Trapani
Viktor C. Danielson Sumedh Jaiswal Timothy A. O’Donovan Kamakshya Trivedi
Eric R. Dann Michael T. Jalkut Brian D. O’Keeffe Emma Tsui
Suzanne N. de Verdelon Channa W. Jayaweera Mark D. Olivier Ervin H. Tu
Michael Deninno Derek V. Jean-Baptiste Stephen K. Orr John M. Tully
J. Stratford R. Dennis Chitranjan Jeyarajah Bartosz J. Ostenda Thomas Turner
Anthony DeRose Jessica V. Jones Enrico Ottavian Michael Ungari
Arun Dhar Sami N. Kamhawi Hiroshi Ozawa Krishnamurthy Vaidyanathan
Scott K. Diamond Geraldine P. Keefe Matthew C. Papas Ana L. Vazquez-Ubarri
Rachel Diller Zaid M. Khaldi Douglas M. Paterson Sofie Wacha
Lin Ding Talat Khan Cyrille Perard Scott H. Walter
Rohan N. Doctor Gautam R. Khanna Christopher A. Perez Bryce K. Wan
Anthony J. Duggan Robert B. Kimmel Amit Pilowsky James Wang
Sinead Dunphy Hiroki Kimoto Dominic M. Pomponi Kent J. Wasson
Michael Durso Banu Kisakurek Brandon T. Press Michael M. Watts
Michael J. Eakins Gilbert H. Klemann Kenneth S. Prince Stephen M. Waxman
Mike E. Ebeling Victor Klimchenko Elizabeth R. Pritchard Connie Wen
Kene Ejikeme Gordon G. Kluzak Kenneth G. Purtell Colin M. White
Simon B. Ennis Heidi K. Kniesel Donald E. Raab Kyle R. Williams
Ashley J. Everett Kimiyasu Kono Radovan Radman Stephen E. Withnell
Amir Fais Paul J. Konzelmann Mohan Rajagopal Audrey Woon
Joseph Femenia Eric J. Kramer Neema M. Raphael Chiharu Yamagami
Ivan A. Fillon Pavel Krotkov Michael T. Rendel Suzzanne Yao
Andrew H. Fisher Rohit Kumar Osmin Rivera Rana Yared
Andrew F. Flahive Yojiro Kunitomo Ludovic Rodhain Bervan Y. Yeh
Brian K. Fortson David D. LaBianca Javier Rodriguez-Alarcon Tony Yip
Bridget L. Fraser Jonathan M. Lamm Cosmo Roe Emi Yoshibe
Olivier Frendo Adam S. Lane Andrew L. Rosivach Vladimir M. Zakharov
Gedaliah Friedenberg Risa Lederhandler Jennifer K. Roth Kalyana Kommineni
Nicolas B. Friedman Andrei Legostaev Armin D. Rothauser

236 Goldman Sachs 2013 Annual Report


Directors, Advisors and Offices
as of March 20, 2014

Advisory Senior Board of Offices


Directors Directors International Advisors

Eric S. Dobkin John C. Whitehead Robert B. Zoellick Amsterdam


Jonathan L. Cohen Donald R. Gant Chairman, International Advisors Atlanta
Alan A. Shuch James P. Gorter Auckland
Claudio Aguirre
Robert E. Higgins Robert B. Menschel Bangalore
José Luís Arnaut
Carlos A. Cordeiro Robert E. Mnuchin Bangkok
Erik Åsbrink
Timothy G. Freshwater Thomas B. Walker, Jr. Beijing
Efthymios Christodoulou
Paul S. Efron Richard L. Menschel Boston
Juan Claro González
John J. Powers Eugene Mercy, Jr. Buenos Aires
Charles de Croisset
Robert J. Markwick Stephen B. Kay Calgary
Charles Curran, A.C.
Maykin Ho Robert N. Downey Chicago
Silverio Foresi Guillermo de la Dehesa
Roy J. Zuckerberg Dallas
Vladimír Dlouhý
Terrence Campbell Robert M. Conway Doha
Walter W. Driver, Jr.
Susan A. Willetts David M. Silfen Dubai
Lord Griffiths of Fforestfach
Joseph H. Gleberman Eugene V. Fife Dublin
Professor Victor Halberstadt
Charles G.R. Manby Peter G. Sachs Frankfurt
Linnea Roberts Professor Otmar Issing
Willard J. Overlock, Jr. Geneva
Roberto Junguito
Lindsay P. LoBue Mark O. Winkelman Hong Kong
Mario Laborín Gómez
Philippe J. Altuzarra John R. Farmer Houston
Ian Macfarlane, A.C.
Timothy M. Kingston Robert J. Katz Jersey City
Jon A. Woodruff Dr. Axel May
Robin Neustein Johannesburg
Tito T. Mboweni
Paul G. Sundberg Robert Hurst Kuala Lumpur
H. John Gilbertson, Jr. Enrico Vitali
Robert S. Kaplan London
Kaysie P. Uniacke William C. Landreth Los Angeles
Oliver Bolitho David Ryan Madrid
Jonathan Hall J. Michael Evans Melbourne
Chang-Po Yang Mexico City
Miami
Peter D. Sutherland KCMG Milan
Chairman of Goldman Sachs Monte Carlo
International Moscow
Mumbai
New York
Paris
Philadelphia
Princeton
Riyadh
Salt Lake City
San Francisco
Santiago
São Paulo
Seattle
Seoul
Shanghai
Singapore
Stockholm
Sydney
Taipei
Tampa
Tel Aviv
Tokyo
Toronto
Warsaw
Washington, D.C.
West Palm Beach
Zurich

Goldman Sachs 2013 Annual Report 237


In Memoriam
ALFRED FELD
1915 – 2 013
L O N G E S T- S E RV I N G E M P L OY E E O F
G O L DM A N S AC H S
1933 –19 42 , 19 48 – 2 013

Al Feld joined Goldman Sachs on July 10, 1933 as an office boy; he


was 18 years old. At the time, our firm was located at 30 Pine Street
and numbered 200 people, including five partners. Al attended night
school and earned a BS in accounting in 1936 and an MBA in 1939
from New York University. He joined our Research Department,
initially covering the mining industry and later the railroad industry.
In 1942, Al was called to serve in the U.S. Army in World War II. He
returned to the firm in 1948 to join our first retail securities sales group,
selling stocks and bonds to individual and institutional clients. In the
mid-1950s, when Goldman Sachs became the first firm on Wall Street
to set up a sales group dedicated to institutional investors, Al continued
to focus on individual clients, becoming part of what is now Private
Wealth Management.
In 2013, Al celebrated 74 years with Goldman Sachs.
During the course of almost three quarters of a century, Al witnessed
some of the most significant developments in our firm’s history,
including the codification of our Business Principles in 1979 and our
IPO in 1999. He was known as a Goldman Sachs culture carrier who
embodied the core values of our firm. He had a reputation for sound
client coverage, advising some of the firm’s most important clients. Al
loved Goldman Sachs and gave tirelessly to supporting our people. He
mentored new generations reminding them of the great leaders who
built this firm and the responsibility of all of us who walk in their
shadows to continue to work with integrity, in a spirit of teamwork for
the good of our clients and shareholders.
We are deeply grateful to this gentle man who
gave so much to Goldman Sachs.
He will be missed.

238 Goldman Sachs 2013 Annual Report


Shareholder Information

Executive Offices 2013 Annual Report on Form 10-K


The Goldman Sachs Group, Inc. Copies of the firm’s 2013 Annual Report on
200 West Street Form 10-K as filed with the U.S. Securities and Exchange
New York, New York 10282 Commission can be accessed via our Web site at
1-212-902-1000 www.goldmansachs.com/shareholders/.
www.goldmansachs.com
Copies can also be obtained by
Common Stock contacting Investor Relations via email at
gs-investor-relations@goldmansachs.com
The common stock of The Goldman Sachs Group, Inc. is
or by calling 1-212-902-0300.
listed on the New York Stock Exchange and trades under
the ticker symbol “GS.”
Transfer Agent and Registrar for Common Stock
Shareholder Inquiries Questions from registered shareholders of The Goldman
Sachs Group, Inc. regarding lost or stolen stock certificates,
Information about the firm, including all quarterly earnings
dividends, changes of address and other issues related to
releases and financial filings with the U.S. Securities and
registered share ownership should be addressed to:
Exchange Commission, can be accessed via our Web site
at www.goldmansachs.com.
Computershare
480 Washington Boulevard
Shareholder inquiries can also be
Jersey City, New Jersey 07310
directed to Investor Relations via email at
U.S. and Canada: 1-800-419-2595
gs-investor-relations@goldmansachs.com
International: 1-201-680-6541
or by calling 1-212-902-0300.
www.computershare.com

Independent Registered Public Accounting Firm


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PricewaterhouseCoopers Center
300 Madison Avenue
New York, New York 10017

The papers used in the printing of this Annual Report are certified by © 2014 The Goldman Sachs Group, Inc. All rights reserved.
the Forest Stewardship Council™ , which promotes environmentally
Except where specifically defined, the terms “Goldman Sachs,” “firm,”
appropriate, socially beneficial and economically viable management
“we,” “us” and “our” in this document may refer to The Goldman Sachs
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Group, Inc. and/or its subsidiaries and affiliates worldwide, or to one
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