UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, | Commission File Number: 001-14965 |
The Goldman Sachs Group, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 13-4019460 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| 200 West Street, New York, N.Y. | 10282 | |
| (Address of principal executive offices) | (Zip Code) | |
(212)
902-1000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Exchange on which registered | ||
Common stock, par value $.01 per share | GS | NYSE | ||
Depositary Shares, Each Representing 1/1,000th Interest in a Share of Floating Rate Non-Cumulative Preferred Stock, Series A | GS PrA | NYSE | ||
Depositary Shares, Each Representing 1/1,000th Interest in a Share of Floating Rate Non-Cumulative Preferred Stock, Series C | GS PrC | NYSE | ||
Depositary Shares, Each Representing 1/1,000th Interest in a Share of Floating Rate Non-Cumulative Preferred Stock, Series D | GS PrD | NYSE | ||
Depositary Shares, Each Representing 1/1,000th Interest in a Share of 5.50% Fixed-to-Floating Non-Cumulative Preferred Stock, Series J | GS PrJ | NYSE | ||
Depositary Shares, Each Representing 1/1,000th Interest in a Share of 6.375% Fixed-to-Floating Non-Cumulative Preferred Stock, Series K | GS PrK | NYSE | ||
5.793% Fixed-to-Floating | GS/43PE | NYSE | ||
Floating Rate Normal Automatic Preferred Enhanced Capital Securities of Goldman Sachs Capital III | GS/43PF | NYSE | ||
Medium-Term Notes, Series | GS/ | NYSE | ||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ NoIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” inRule 12b-2
of the Exchange Act.| Large accelerated filer ☒ | Accelerated filer ☐ | Non-accelerated filer ☐ |
| Smaller reporting company ☐ | Emerging growth company ☐ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2
of the Exchange Act). ☐ Yes ☒ NoAs of June 30, 2020,2021, the aggregate market value of the common stock of the registrant held by$67.6$127.4 billion.
non-affiliates
of the registrant was approximately As of February 5, 2021,11, 2022, there were 345,794,361337,922,970 shares of the registrant’s common stock outstanding.
Documents incorporated by reference
Form 10-K
in response to Part III, Items 10, 11, 12, 13 and 14.THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 20202021
INDEX
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| Goldman Sachs | ||
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
INDEX
Page No. | ||||
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Item 14 | ||||
Item 15 | ||||
| Goldman Sachs | ||
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
PART I
Item 1. Business
Introduction
Goldman Sachs is a leading global financial institution that delivers a broad range of financial services across investment banking, securities, investment management and consumer banking to a large and diversified client base that includes corporations, financial institutions, governments and individuals. Our purpose is to advance sustainable economic growth and financial opportunity. Our goal, reflected in ourinitiative, is to deliver the full range of our services and expertise to support our clients in a more accessible, comprehensive and efficient manner, across businesses and product areas.
One Goldman Sachs
When we use the terms “Goldman Sachs,” “we,” “us” and “our,” we mean The Goldman Sachs Group, Inc. (Group Inc. or parent company), a Delaware corporation, and its consolidated subsidiaries. When we use the term “our subsidiaries,” we mean the consolidated subsidiaries of Group Inc. References to “this2020.2021. All references to 2021, 2020 2019 and 20182019 refer to our years ended, or the dates, as the context requires, December 31, 2020,2021, December 31, 20192020 and December 31, 2018,2019, respectively.
Form 10-K”
are to our Annual Report onForm 10-K
for the year ended December 31, Group Inc. is a bank holding company (BHC) and a financial holding company (FHC) regulated by the Board of Governors of the Federal Reserve System (FRB). Our U.S. depository institution subsidiary, Goldman Sachs Bank USA (GS Bank USA), is a New York State-chartered bank.
Our Business Segments
We report our activities in four business segments: Investment Banking, Global Markets, Asset Management, and Consumer & Wealth Management. Investment Banking generates revenues from financial advisory, underwriting and corporate lending activities. Global Markets consists of Fixed Income, Currency and Commodities (FICC) and Equities, and generates revenues from intermediation and financing activities. Asset Management generates revenues from management and other fees, incentive fees, equity investments, and lending and debt investments. Consumer & Wealth Management consists of Wealth management and Consumer banking, and generates revenues from management and other fees, incentive fees, private banking and lending, and consumer-oriented activities.
The chart below presents our four business segments and their revenue sources.
Investment Banking
Investment Banking serves public and private sector clients around the world. We provide financial advisory services, help companies raise capital to strengthen and grow their businesses and provide financing to corporate clients. We seek to develop and maintain long-term relationships with a diverse global group of institutional clients, including corporations, governments, states and municipalities. Our goal is to deliver to our institutional clients all of our resources in a seamless fashion, with investment banking serving as the main initial point of contact.
Investment Banking generates revenues from the following:
Financial advisory.
Underwriting.
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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Equity underwriting.underwriting
.
We underwrite common and preferred stock and convertible and exchangeable securities. We regularly receive mandates for large, complex transactions and have held a leading position in worldwide public common stock offerings and worldwide initial public offerings for many years.
Debt underwriting.
underwriting.
We underwrite and originate various types of debt instruments, including investment-grade and high-yield debt, bank and bridge loans, including in connection with acquisition financing, and emerging- and growth-market debt, which may be issued by, among others, corporate, sovereign, municipal and agency issuers. In addition, we underwrite and originate structured securities, which include mortgage-related securities and other asset-backed securities.
Corporate lending.
We also provide transaction banking services, including to certain of our corporate and financial institution clients. Transaction banking revenues include net interest income attributed to transaction banking deposits.
Global Markets
Global Markets serves our clients who buy and sell financial products, raise funding and manage risk. We do this by acting as a market maker and offering market expertise on a global basis. Global Markets makes markets and facilitates client transactions in fixed income, equity, currency and commodity products. In addition, we make markets in, and clear client transactions on, major stock, options and futures exchanges worldwide.
As a market maker, we provide prices to clients globally across thousands of products in all major asset classes and markets. At times, we take the other side of transactions ourselves if a buyer or seller is not readily available, and at other times we connect our clients to other parties who want to transact. Our willingness to make markets, commit capital and take risk in a broad range of products is crucial to our client relationships. Market makers provide liquidity and play a critical role in price discovery, which contributes to the overall efficiency of the capital markets. In connection with our market-making activities, we maintain (i) market-making positions, typically for a short period of time, in response to, or in anticipation of, client demand, and (ii) positions to actively manage our risk exposures that arise from these market-making activities (collectively, inventory).
Our clients are institutions that are primarily professional market participants, including investment entities whose ultimate clients include individual investors investing for their retirement, buying insurance or saving surplus cash.
We execute a high volume of transactions for our clients in large, highly liquid markets (such as markets for U.S. Treasury securities, stocks and certain agency mortgage pass-through securities). We also execute transactions for our clients in less liquid markets (such as
mid-cap
corporate bonds, emerging market currencies and certainnon-agency
mortgage-backed securities) for spreads and fees that are generally somewhat larger than those charged in more liquid markets. Additionally, we structure and execute transactions involving customized or tailor-made products that address our clients’ risk exposures, investment objectives or other complex needs (such as a jet fuel hedge for an airline), as well as derivative transactions related to client advisory and underwriting activities.Through our global sales force, we maintain relationships with our clients, receiving orders and distributing investment research, trading ideas, market information and analysis. Much of this connectivity between us and our clients is maintained on technology platforms, including, and operates globally where markets are open for trading.provides institutional investors with market intelligence, risk analytics, proprietary datasets and trade execution across multiple asset classes.
Marquee
Marquee
Global Markets and our other businesses are supported by our Global Investment Research division, which, as of December 2020,2021, provided fundamental research on approximately 3,000 companies worldwide and approximately 50 national economies, as well as on industries, currencies and commodities.
Global Markets activities are organized by asset class and include both “cash” and “derivative” instruments. “Cash” refers to trading the underlying instrument (such as a stock, bond or barrel of oil). “Derivative” refers to instruments that derive their value from underlying asset prices, indices, reference rates and other inputs, or a combination of these factors (such as an option, which is the right or obligation to buy or sell a certain bond, stock or other asset on a specified date in the future at a certain price, or an interest rate swap, which is the agreement to convert a fixed rate of interest into a floating rate or vice versa).
| 2 | Goldman Sachs |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Global Markets consists of FICC and Equities.
FICC.
FICC generates revenues from intermediation and financing activities.
FICC intermediation.
Interest Rate Products.
Government bonds (including inflation-linked securities) across maturities, other government-backed securities, and interest rate swaps, options and other derivatives.
Credit Products.
Investment-grade and high-yield corporate securities, credit derivatives, exchange-traded funds (ETFs), bank and bridge loans, municipal securities, emerging market and distressed debt, and trade claims.
Mortgages.
Commercial mortgage-related securities, loans and derivatives, residential mortgage-related securities, loans and derivatives (including U.S. government agency-issued collateralized mortgage obligations and other securities and loans), and other asset-backed securities, loans and derivatives.
Currencies.
Currency options, spot/forwards and other derivatives on
G-10
currencies and emerging-market products.Commodities.
Commodity derivatives and, to a lesser extent, physical commodities, involving crude oil and petroleum products, natural gas, agricultural, base, precious and other metals, electricity, coal, agriculturalincluding renewable power, environmental products and other commodity products.
FICC financing.
Equities.
Equities generates revenues from intermediation and financing activities.
Equities intermediation.
over-the-counter
We also structure and make markets in derivatives on indices, industry sectors, financial measures and individual company stocks. We develop strategies and provide information about portfolio hedging and restructuring and asset allocation transactions for our clients. We also work with our clients to create specially tailored instruments to enable sophisticated investors to establish or liquidate investment positions or undertake hedging strategies. We are one of the leading participants in the trading and development of equity derivative instruments.
Our exchange-based market-making activities include making markets in stocks and ETFs, futures and options on major exchanges worldwide.
We generate commissions and fees from executing and clearing institutional client transactions on major stock, options and futures exchanges worldwide, as well as OTC transactions. We provide our clients with access to a broad spectrum of equity execution services, including electronic.
“low-touch”
access and more complex “high-touch” execution through both traditional and electronic platforms, includingMarquee
Equities financing.financing
.
We earn fees by providing clearing, settlement and custody services globally. In addition, we provide our hedge fund and other clients with a technology platform and reporting that enables them to monitor their security portfolios and manage risk exposures.
We provide services that principally involve borrowing and lending securities to cover institutional clients’ short sales and borrowing securities to cover our short sales and to make deliveries into the market. In addition, we are an active participant insecurities lending and third-party agency lending activities.
broker-to-broker
We provide financing to our clients for their securities trading activities through margin loans that are collateralized by securities, cash or other acceptable collateral. We earn a spread equal to the difference between the amount we pay for funds and the amount we receive from our client.
We execute swap transactions to provide our clients with exposure to securities and indices.
| Goldman Sachs | 3 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Asset Management
Asset Management provides investment services to help clients preserve and grow their financial assets. We provide these services to our institutional clients, as well as investors who primarily access our products through a network of third-party distributors around the world.
We manage client assets across a broad range of investment strategies and asset classes, including equity, fixed income and alternative investments. Alternative investments primarily includes hedge funds, credit funds, private equity, real estate, currencies, commodities and asset allocation strategies. Our investment offerings include those managed on a fiduciary basis by our portfolio managers, as well as strategiesthose managed by third-party managers. We offer our investmentsinvestment solutions in a variety of structures, including separately managed accounts, mutual funds, private partnerships and other commingled vehicles.
We also provide customized investment advisory solutions designed to address our clients’ investment needs. These solutions begin with identifying clients’ objectives and continue through portfolio construction, ongoing asset allocation and risk management and investment realization. We draw from a variety of third-party managers, as well as our proprietary offerings, to implement solutions for clients.
Asset Management generates revenues from the following:
Management and other fees.
Incentive fees.
In certain circumstances, we also receive incentive fees based on a percentage of a fund’s or a separately managed account’s return, or when the return exceeds a specified benchmark or other performance targets. Such fees include overrides, which consist of the increased share of the income and gains derived primarily from our private equity and credit funds when the return on a fund’s investments over the life of the fund exceeds certain threshold returns.
Equity investments.
Lending and debt investments.
Consumer & Wealth Management
Consumer & Wealth Management helps clients achieve their individual financial goals by providing a broad range of wealth advisory and banking services, including financial planning, investment management, deposit taking,deposit-taking and lending. Services are offered through our global network of advisors and via our digital platforms.
Wealth Management.
Wealth Management management
provides tailored wealth advisory services to clients across the wealth spectrum. We operate globally serving individuals, families, family offices, and foundations and endowments. Our relationships are established directly or introduced through corporations that sponsor financial wellness programs for their employees.
We offer personalized financial planning inclusive of income and liability management, compensation and benefits analysis, trust and estate structuring, tax optimization, philanthropic giving, and asset protection. We also provide customized investment advisory solutions, and offer structuring and execution capabilities in security and derivative products across all major global markets. We leverage a broad, open-architecture investment platform and our global execution capabilities to help clients achieve their investment goals. In addition, we offer clients a full range of private banking services, including a variety of deposit alternatives and loans that our clients use to finance investments in both financial and nonfinancial assets, bridge cash flow timing gaps or provide liquidity and flexibility for other needs.
Wealth management generates revenues from the following:
Management and other fees.
Incentive fees.
Private banking and lending.
| 4 | Goldman Sachs |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Consumer Banking.
Marcus by Goldman Sachs
and credit cards, to finance the purchases of goods or services. We also accept deposits (including savings and time deposits) through Marcus, in GS Bank USA and Goldman Sachs International Bank (GSIB).
Marcus Invest
Consumer banking revenues consist of net interest income earned on unsecured loans issued to consumers through Marcus and credit card lending activities, and net interest income allocatedattributed to consumer deposits.
Business Continuity and Information Security
Business continuity and information security, including cyber security, are high priorities for us. Their importance has been highlighted by (i) the coronavirusthatsome of which have resulted in the unauthorized access to or disclosure of personal information and other sensitive or confidential information, the theft and destruction of corporate information and requests for ransom payments, and (iii) extreme weather events.
(COVID-19)
pandemic and the work-from-home arrangements implemented by companies worldwide in response, including us, (ii) numerous highly publicized events in recent years, including cyber attacks against financial institutions, governmental agencies, large consumer-based companies, software and information technology service providers and other organizations, Our Business Continuity & Technology Resilience Program has been developed to provide reasonable assurance of business continuity in the event of disruptions at our critical facilities or of our systems, and to comply with regulatory requirements, including those of FINRA. Because we are a BHC, our Business Continuity & Technology Resilience Program is also subject to review by the FRB. The key elements of the program are crisis management, business continuity, technology resilience, business recovery, assurance and verification, and process improvement. In the area of information security, we have developed and implemented a framework of principles, policies and technology designed to protect the information provided to us by our clients and our own information from cyber attacks and other misappropriation, corruption or loss. Safeguards are designed to maintain the confidentiality, integrity and availability of information. For further information about the Business Continuity Planning strategy we have implemented in response to the
COVID-19
pandemic, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Regulatory and Other Matters — Impact ofCOVID-19
Pandemic” in Part II, Item 7 of thisForm 10-K.
Human Capital Management
Our people are our greatest asset. We believe that a major strength and principal reason for our success is the quality, dedication, determination and collaboration of our people, which enables us to serve our clients, generate long-term value for our shareholders and contribute to the broader community. We invest heavily in developing and supporting our people throughout their careers, and we strive to maintain a work environment that fosters professionalism, excellence, high standards of business ethics, diversity, teamwork and cooperation among our employees worldwide.
| Goldman Sachs 2021 Form 10-K | 5 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Diversity and Inclusion
The strength of our culture, our ability to execute our strategy, and our relationships with clients all depend on a diverse workforce and an inclusive work environment that encourages a wide range of perspectives. We believe that employee diversity at all levels of our businesses,organization, from entry-level analysts to senior management, as well as the Board of Directors of Group Inc. (Board), which as of December 2021, was approximately 62% diverse by race, gender or sexual orientation, is essential to our sustainability. Our management team works closely with our Global Inclusion and Diversity Committee to continue to increase diversity of our global workforce at all levels. In addition, we also have global and regional Inclusion and Diversity Committees which promote an environment that values different perspectives, challenges conventional thinking and maximizes the potential of all our people.
We believe that increased diversity, including diversity of experience, gender identity, race, ethnicity, sexual orientation, disability and veteran status, in addition to being a social imperative, is vital to our commercial success through the creativity that it fosters. For this reason, we have established a comprehensive action plan with aspirational diversity hiring goals which are set forth below and are focused on cultivating an inclusive environment for all our colleagues.
Diverse leadership is crucial to our long-term success and to driving innovation, and we have implemented and expanded outreach and career advancement programs for rising diverse executive talent. A primeFor example, is our Managing Director Retention Initiative, which includes sponsorship and the creation of career development plans for newly promoted diverse managing directors. Wewe are also focused on providing diverse vice presidents the necessary coaching, sponsorship and advocacy to support their career trajectories and strengthen their leadership platforms, including through programs, such as our Asian Talent Initiative.Vice President Career Investment Initiative focused on high-performing Black and Hispanic/Latinx VPs in the Americas and EMEA. Many other career development initiatives are aimed at fostering diverse talent at the analyst and associate level, including the Black Analyst and Associate Initiative, the Hispanic/Latinx AnalystsAnalyst Initiative and the Women’s Career Strategies Initiative. We have also established Inclusion Networks and Interest Forums that are open to all professionals at Goldman Sachs to promote and advance connectivity, understanding, inclusion and diversity.
Reflecting our efforts to increase diversity, the composition of our most recent partnership class was 27% women professionals, 17% Asian professionals, 7% Black professionals and 5% Hispanic/Latinx andprofessionals. The composition of our most recent managing director class was 29%30% women 26%professionals, 28% Asian 4%professionals, 5% Black professionals and 2% Hispanic/Latinx. In addition, our 2020 campus analyst class in the Americas was 55% women, 31% Asian, 17%5% Hispanic/Latinx and 11% Black. These metrics are based on self-identification.professionals.
We have also set forth the following aspirational goals:
We aim for analyst and associate hiring (which accounts for over 70% of our annual hiring) to achieve representation of 50% women professionals, 11% Black professionals and 14% Hispanic/Latinx professionals in the Americas, and 9% Black professionals in the U.K. In 2021, our analyst and associate hires included 45% women professionals, 11% Black professionals and 15% Hispanic/Latinx professionals in the Americas, and 14% Black professionals in the U.K.
We aim for women professionals to represent 40% of our vice presidents globally by 2025 and 50% of all our employees globally over time, while also endeavoring for women to comprise 30% of senior talent (vice presidents and above) in the U.K. by 2023.2023, while also endeavoring for women employees to comprise 50% of all of our employees globally over time. As of December 2021, women professionals represented 32% of our vice president population globally and 31% of senior talent (vice presidents and above) in the U.K., and women employees represented 41% of all of our employees globally.
We aim for Black professionals to represent 7% of our vice president population in the Americas and in the U.K., and for Hispanic/Latinx professionals to represent 9% of our vice president population in the Americas, both by 2025. As of December 2021, Black professionals represented 4% of our vice president population in the Americas and 4% in the U.K., and Hispanic/Latinx professionals represented 6% of our vice president population in the Americas.
We aim to double the number of campus hires in the U.S. recruited from historicallyHistorically Black collegesColleges and universitiesUniversities (HBCUs) by 2025.2025 relative to 2020.
The metrics above are based on self-identification.
| 6 | Goldman Sachs 2021 Form 10-K |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Talent Development and Retention
We seek to help our people achieve their full potential by investing in them and supporting a culture of continuous development. Our goals are to maximize individual capabilities, increase commercial effectiveness and innovation, reinforce our culture, expand professional opportunities, and help our people contribute positively to their communities.
Instilling our culture in all employees is a continuous process, in which training plays an important part. We offer our employees the opportunity to participate in ongoing educational offerings and periodic seminars through Goldman Sachs University (GSU).University. To accelerate their integration into the firm and our culture, new hires have the opportunity to receive training before they start working and orientation programs with an emphasis on culture and networking, and nearly all employees participate in at least one training event each year. For our more senior employees, we provide guidance and training on how to manage people and projects effectively, exhibit strong leadership and exemplify the firm’sour culture. We are also focused on developing a high performing, diverse leadership pipeline and career planning for our next generation of leaders.
We maintain a variety of programs aimed at employees’ professional growth and support throughout their careers and as they evolve into leaders, including initiatives, such as our Vice President and Managing Director Leadership Acceleration Initiatives.Enhancing our people’s experience of internal mobility is a key focus, as we believe that this will inspire employees, help retain top talent and create diverse experiences to build future leaders.
Another important part of instilling our culture is our employee performance review process. Employees are reviewed by supervisors,In 2021, weWe have also implemented “The Three Conversations at GS” through which managers establish goals with their team members at the start of the year, check in
co-workers
and employees whom they supervise in a360-degree
review process that is integral to our team approach and includes an evaluation of an employee’s performance with respect to risk management, protecting our reputation, adherence to our code of conduct, compliance, and diversity and inclusion principles. Our approach to evaluating employee performance centers on providing robust, timely and actionable feedback that facilitates professional development. We have directed our managers, as leaders at the firm, to take an active coaching role with their teams. mid-year
on progress and then close out the year with a conversation on performance against goals.We believe that our people value opportunities to contribute to their communities and that these opportunities enhance their job satisfaction. We also believe that being able to volunteer together with colleagues and participate in community organizations working on local service projects strengthens our people’s bond with us. Community TeamWorks, our signature volunteering initiative, enables our people to participate in high-impact, team-based volunteer opportunities, including projects coordinated with hundreds of nonprofit partner organizations worldwide. During 2019,2021, our people volunteered over 150,000approximately 80,000 hours of service globally through Community TeamWorks, with more than 26,000approximately 15,000 employees partnering with approximately 900370 nonprofit organizations on over 1,800approximately 800 community projects. To respond to the interest of our people in helping with the response to the during 2020 to support vulnerable populations remotely, including small business owners, students and the elderly.
COVID-19
pandemic, we have developed a series of opportunitiesWellness
We recognize that for our people to be successful in the workplace they need support in their personal, as well as their professional lives. We have created a strong support framework for wellness, which is intended to enable employees to better balance their roles at work and their responsibilities at home. We have recently made significant additionsIn addition to this framework, including increasingproviding 20 weeks of parental leave to 20 weeks for all employees.employees, we provide other benefits to support the wellness of our employees, including family care leave, bereavement leave and, for longer-tenured employees, an unpaid sabbatical leave. We also continue to advance our resilience programs, offering our people a range of counseling, coaching, medical advisory and personal wellness services. We have increased the availability of these resources during the
COVID-19
pandemic, and we have continued to evolve and strengthen virtual offerings with the aim of maintaining the physical and mental well-being of our employees, enhancing their effectiveness and cohesiveness and providing them with greater opportunities to access support.We also introduced a
COVID-19
10-day
family leave policy, available to our people globally to care for family members due toCOVID-19
related illness or meet childcare needs, including homeschooling. We remain focused on facilitating the safe return of our employees to our offices, as circumstances permit, and employees in a number of our locations around the world have returned to the office to varying degrees. Given that the situation regarding theCOVID-19
pandemic varies geographically, our approach to transitioning back to the office is tailored to each location, and it evolves based on the specific conditions and requirements of each location. We have comprehensive protocols in place, including regular testing, and we will continue to be guided by a people-first approach as circumstances evolve.| Goldman Sachs 2021 Form 10-K | 7 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
In addition, to support the financial wellness of our employees, we offer a variety of resources that help them manage their personal financial health and decision-making, including financial education series, live and
on-demand
webinars, articles and interactive digital tools.Global Reach and Strategic Locations
As a firm with a global client base, we take a strategic approach to attracting, developing and managing a global workforce. Our clients are located worldwide and we are an active participant in financial markets around the world. As of December 2020,2021, we had headcount of 40,500,43,900, offices in over 35 countries and 53%52% of our headcount was based in the Americas, 19%18% in EMEA and 28%30% in Asia. Our employees come from over 160180 countries and speak more than 110 languages as of December 2020.2021.
In addition to maintaining offices in major financial centers around the world, we have established key strategic locations, including in Bengaluru, Salt Lake City, Dallas, Singapore and Warsaw. We continue to evaluate the expanded use of strategic locations, including cities in which we do not currently have a presence.
As of December 2020, 36%2021, 40% of our employees were working in one of these key strategic locations, and our goal is to increase this percentage to approximately 40% by the end of 2022.locations. We believe our investment in these strategic locations enables us to build centers of excellence around specific capabilities that support our business initiatives.
Sustainability
We have a long-standing commitment to sustainability. Our two priorities in this area are helping clients across industries facilitate and thrive in a
low-carbon
economy (Climate Transition) and leveraging our capabilities to advance economic empowerment (Inclusive Growth).We have established a Sustainable Finance Group, which serves as the centralized group that drives climate strategy and sustainability efforts across our firm, including commercial efforts alongside our businesses to advance Climate Transition and Inclusive Growth. In 2020, we created a new role, Global Head of Sustainability and Inclusive Growth, which, like ourinitiative, is intended to facilitate the application of our full capabilities across both Climate Transition and Inclusive Growth. Each of our segments has launched a Sustainability Council. These councils focus on identifying key Environmental, Social and Governance (ESG) priorities for the segment, developing sustainability-related capabilities and delivering sustainability-focused solutions to clients in a holistic way.
One Goldman Sachs
Our activities relating to sustainability present both financial and nonfinancial risks, and we have processes for managing these risks, similar to the other risks we face. We have integrated oversight of climate-related risks into our risk management governance structure, from senior management to our Board and its committees, including the Risk and Public Responsibilities Committees. The Risk Committee of the Board oversees firmwide financial and nonfinancial risks, which include climate risk, and, as part of its oversight, receives updates on our risk management approach to climate risk. The Public Responsibilities Committee of the Board assists the Board in its oversight of our firmwide sustainability strategy and sustainability risks affecting us, including with respect to climate change. As part of its oversight, the Public Responsibilities Committee receives periodic updates on our sustainability strategy, and also periodically reviews our governance and related policies and processes for sustainability and climate change-related risks. We have also implemented an Environmental Policy Framework to guide our overall approach to sustainability issues. We apply this Framework when evaluating transactions for environmental and social risks and impacts. Our employees also receive training with respect to environmental and social risks, including for sectors and industries that we believe have higher potential for these risks. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Overview and Structure of Risk Management — Climate Risk Management” in Part II, Item 7 of this
Form 10-K
for further information about our climate risk management.| 8 | Goldman Sachs 2021 Form 10-K |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
As a leading financial institution, we acknowledge the importance of Climate Transition for our business. In February 2021, we launched our inaugural sustainability bond of $800 million, which is aligned with our sustainable finance framework for future issuances and funds a range ofpathway. In that context, we have set an initial set of targets for 2030 focused on three sectors — power, oil and gas, and auto manufacturing — where we believe we can have the most significant impact and we see an opportunity to proactively engage our clients, investors, advocacy groups and multi-stakeholder organizations, deploy capital required for transition, and invest in new commercial solutions to drive decarbonization in the real economy. Carbon neutrality is also a priority for the operation of our firm and our supply chain. In 2015, we achieved carbon neutrality in our operations and business travel, ahead of our 2020 goal announced in 2009. We have expanded our operational carbon commitment to include our supply chain, targeting
on-balance
sheet sustainable finance activity. In addition, we are working with various external groups to develop methods, metrics and frameworks for the financial sector, with an aim to support greater consistency, comparability and utility in approaches to measuring the financial sector’s contribution to Climate Transition initiatives. We believe we can advance sustainability by partnering with our clients across our businesses, including by developing new sustainability-linked financing solutions, offering strategic advice, or coinvesting alongside our clients in clean energy companies. We have announced a target to deploy $750 billion in sustainable financing, investing and advisory activity by the beginning of 2030. As of December 2021, we achieved approximately 40% of that goal, with the majority dedicated to Climate Transition. In addition, we have announced our commitment to align our financing activities with anet-zero-by-2050
net-zero
carbon emissions by 2030.In addition to Climate Transition, our approach to sustainability also centers on Inclusive Growth and advancing economic empowerment and financial opportunity for all. We have sponsored initiatives, such as. An overarching theme of our sustainability strategy is promoting diversity and inclusion as an imperative for us, as well as our clients and their boards. These efforts are further strengthened by strategic partnerships that we have established in areas where we have identified gaps, or believe we are able to drive even greater impact through collaboration. We also believe our ability to achieve our sustainability objectives is critically dependent on the strengths and talents of our people, and we recognize that our people are able to maximize their impact by collaborating in a diverse and inclusive work environment. See “Business — Human Capital Management” for information about our human capital management goals, programs and policies.
One
Million Black Women,
Launch With GS, our Urban Investment Group, 10,000 Women and 10,000 Small Businesses
Competition
The financial services industry and all of our businesses are intensely competitive, and we expect them to remain so. Our competitors are other entities that provide investment banking (including transaction banking), market-making, investment management services, commercial and/or consumer lending, deposit-taking and other banking products and services, as well as those entities that make investments in securities, commodities, derivatives, real estate, loans and other financial assets. These entities include brokers and dealers, investment banking firms, commercial banks, credit card issuers, insurance companies, investment advisers, mutual funds, hedge funds, private equity funds, merchant banks, consumer finance companies and financial technology and other internet-based companies. We compete with some entities globally and with others on a regional, product or niche basis. We compete based on a number of factors, including transaction execution, client experience, products and services, innovation, reputation and price.
We have faced, and expect to continue to face, pressure to retain market share by committing capital to businesses or transactions on terms that offer returns that may not be commensurate with their risks. In particular, corporate clients seek such commitments (such as agreements to participate in their loan facilities) from financial services firms in connection with investment banking and other assignments.
Consolidation and convergence have significantly increased the capital base and geographic reach of some of our competitors, and have also hastened the globalization of the securities and other financial services markets. As a result, we have had to commit capital to support our international operations and to execute large global transactions. To capitalize on some of our most significant opportunities, we will have to compete successfully with financial institutions that are larger and have more capital and that may have a stronger local presence and longer operating history outside the U.S.
We also compete with smaller institutions that offer more targeted services, such as independent advisory firms. Some clients may perceive these firms to be less susceptible to potential conflicts of interest than we are, and, as described below, our ability to effectively compete with them could be affected by regulations and limitations on activities that apply to us but may not apply to them.
| Goldman Sachs 2021 Form 10-K | 9 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
A number of our businesses are subject to intense price competition. Efforts by our competitors to gain market share have resulted in pricing pressure in our investment banking, market-making, lendingconsumer, wealth management and asset management businesses. For example, the increasing volume of trades executed electronically, through the internet and through alternative trading systems, has increased the pressure on trading commissions, in that commissions for electronic trading are generally lower than those for
non-electronic
trading. It appears that this trend towardlow-commission
trading will continue. Price competition has also led to compression in the difference between the price at which a market participant is willing to sell an instrument and the price at which another market participant is willing to buy it (i.e., bid/offer spread), which has affected our market-making businesses. The increasing prevalence of passive investment strategies that typically have lower fees than other strategies we offer has affected the competitive and pricing dynamics for our asset management products and services. In addition, we believe that we will continue to experience competitive pressures in these and other areas in the future as some of our competitors seek to obtain market share by further reducing prices, and as we enter into or expand our presence in markets that may rely more heavily on electronic trading and execution.We also compete on the basis of the types of financial products and client experiences that we and our competitors offer. In some circumstances, our competitors may offer financial products that we do not offer and that our clients may prefer, or our competitors may develop technology platforms that provide a better client experience.
The provisions of the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), the requirements promulgated by the Basel Committee on Banking Supervision (Basel Committee) and other financial regulations could affect our competitive position to the extent that limitations on activities, increased fees and compliance costs or other regulatory requirements do not apply, or do not apply equally, to all of our competitors or are not implemented uniformly across different jurisdictions. For example, the provisions of the Dodd-Frank Act that prohibit proprietary trading and restrict investments in certain hedge and private equity funds differentiate between U.S.-based and
non-U.S.-based
banking organizations and givenon-U.S.-based
banking organizations greater flexibility to trade outside of the U.S. and to form and invest in funds outside the U.S.Likewise, the obligations with respect to derivative transactions under Title VII of the Dodd-Frank Act depend, in part, on the location of the counterparties to the transaction.
The impact of regulatory developments on our competitive position has depended and will continue to depend to a large extent on the manner in which the required rulemaking and regulatory guidance evolve, the extent of international convergence, and the development of market practice and structures under the evolving regulatory regimes, as described further in “Regulation” below.
We also face intense competition in attracting and retaining qualified employees. Our ability to continue to compete effectively has depended and will continue to depend upon our ability to attract new employees, retain and motivate our existing employees and to continue to compensate employees competitively amid intense public and regulatory scrutiny on the compensation practices of large financial institutions. Our pay practices and those of certain of our competitors are subject to review by, and the standards of, the FRB and other regulators inside and outside the U.S., including the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) in the U.K. We also compete for employees with institutions whose pay practices are not subject to regulatory oversight. See “Regulation — Compensation Practices” and “Risk Factors — Competition — Our businesses may be adversely affected if we are unable to hire and retain qualified employees” in Part I, Item 1A of this
Form 10-K
for further information about such regulation.Regulation
As a participant in the global financial services industry, we are subject to extensive regulation and supervision worldwide. The regulatory regimes applicable to our operations worldwide have recently been, and continue to be, subject to significant changes. The Basel Committee is the primary global standard setter for prudential bank regulation; however, its standards do not become effective in a jurisdiction until the relevant regulators have adopted rules to implement its standards. The implications of these regulations for our businesses depend to a large extent on their implementation by the relevant regulators globally, and the market practices and structures that develop.
New regulations have been adopted or are being considered by regulators and policy makers worldwide, as described below. The effects of any changes to the regulations affecting our businesses, including as a result of the proposals described below, are uncertain and will not be known until such changes are finalized and market practices and structures develop under the revised regulations.
| 10 | Goldman Sachs 2021 Form 10-K |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Our principal subsidiaries operating in the U.S. include GS Bank USA, Goldman Sachs & Co. LLC (GS&Co.), J. Aron & Company LLC (J. Aron) and Goldman Sachs Asset Management, L.P. Our principal subsidiaries operating in Europe include Goldman Sachs International (GSI), GSIB and Goldman Sachs Asset Management International (GSAMI), which are incorporated and headquartered in the U.K., and Goldman Sachs Bank Europe SE (GSBE), which is incorporated and headquartered in Germany. Our principal subsidiaries operating in Asia include Goldman Sachs Japan Co., Ltd. (GSJCL).
As a result of the U.K.’s withdrawal from the E.U. (Brexit), the regulatory framework that governs transactions and business undertaken by our U.K. subsidiaries has changed, especially in connection with transactions and business relating to the E.U.
Banking Supervision and Regulation
Group Inc. is a BHC under the U.S. Bank Holding Company Act of 1956 (BHC Act) and an FHC under amendments to the BHC Act effected by the U.S. Gramm-Leach-Bliley Act of 1999 (GLB Act), and is subject to supervision and examination by the FRB, which is our primary regulator.
The FRB has aFRB’s rating system for large financial institutions that is intended to alignaligned with its supervisory program. It consistsprogram and is comprised of component ratings for capital planning and positions, liquidity risk management and positions, and governance and controls. The FRB has proposed guidance for the governance and controls component.
Under the system of “functional regulation” established under the BHC Act, the primary regulators of our U.S.Goldman Sachs & Co. LLC (GSGS&Co.), entities registered with or regulated by the CFTC with respect to futures-related and swaps-related activities and investment advisers registered with the SEC with respect to their investment advisory activities.
non-bank
subsidiaries directly regulate the activities of those subsidiaries, with the FRB exercising a supervisory role. Such “functionally regulated” subsidiaries include broker-dealers and security-based swap dealers registered with the SEC, such as our principal U.S. broker-dealer, Our principal U.S. bank subsidiary, GS Bank USA, is supervised and regulated by the FRB, the FDIC, the New York State Department of Financial Services (NYDFS) and the Consumer Financial Protection Bureau (CFPB). GS Bank USA also has a London branch, in London, which is regulated by the FCA and PRA. APRA, and a Tokyo branch, which is regulated by the Japan Financial Services Agency. We conduct a number of our activities are conducted partially or entirely through GS Bank USA and its subsidiaries, including: corporate loans (including leveraged lending); and transaction banking; consumer loans (including installment and credit card loans); small business loans (including installment, lines of credit and credit cards); wealth management loans (including mortgages); interest rate, credit, currency and other derivatives; deposit-taking; and agency lending.
Goldman Sachs Paris Inc. et Cie (GSPIC), is an investment firm regulated by the French Prudential Supervision and Resolution Authority and the Financial Markets Regulator, may, among otherAuthority. GSPIC’s activities conductinclude certain activities that GSBE is prevented from undertaking. CertainGSPIC applied in October 2021 to become a credit institution.
| Goldman Sachs 2021 Form 10-K | 11 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Our principal subsidiaries alsoin the U.K. include GSI, a U.K. broker-dealer and a designated investment firm, and GSIB, a U.K. bank. Both GSI and GSIB are regulated by the PRA and the FCA. As an investment firm, GSI is subject to prudential requirements applicable to banks, including capital and liquidity requirements. GSI provides broker-dealer services in and from the U.K. and is registered with the CFTC as a swap dealer and with the SEC as a securities-based swap dealer. GSIB engages in lending (including securities lending) and deposit-taking activities and is a primary dealer for U.K. government bonds. GSI and GSIB maintain cross-border licenses or exemptions asnon-E.U.institutions in E.U.branches outside of the U.K. and are subject to the laws and regulations of the jurisdictions where permitted by domestic legislation.they are located.
Capital and Liquidity Requirements.
We and GS Bank USA are subject to regulatory risk-based capital and leverage requirements that are calculated in accordance with the regulations of the FRB (Capital Framework). The Capital Framework is largely based on the Basel Committee’s framework for strengthening the regulation, supervision and risk management of banks (Basel III) and also implements certain provisions of the Dodd-Frank Act. Under the tailoring rules adopted by the U.S. federal bank regulatory agencies in October 2019,agencies’ tailoring framework, we and GS Bank USA are subject to “Category I” standards because we have been designated as a global systemically important bankunder the Capital Framework, we and GS Bank USA are “Advanced approach” banking organizations. Under the FRB’s capital adequacy requirements,Capital Framework, we and GS Bank USA must meet specific regulatory capital requirements that involve quantitative measures of assets, liabilities and certain
(G-SIB).
Accordingly, off-balance
sheet items. The sufficiency of our capital levels is also subject to qualitative judgments by regulators. We and GS Bank USA are also subject to liquidity requirements established by the U.S. federal bank regulatory agencies.GSBE is subject to capital and liquidity requirements prescribed in the E.U. Capital Requirements Regulation, as amended (CRR), and the E.U. Fourth Capital Requirements Directive, (CRD IV)as amended (CRD), which are largely based on Basel III. GSBE is
The most recent previous amendments to the CRR and CRD (respectively, CRR II and CRD V) include changes to the market risk, counterparty credit risk, large exposures and leverage ratio frameworks. These changes have been applicable in the E.U. since June 2021.
GSI and GSIB are subject to the U.K. capital and liquidity requirementsframeworks, which are also largely based on Basel III and remain predominantly aligned with the E.U. capital and liquidity frameworks. Amendments similar to CRR II and CRD V became applicable in the U.K. on January 1, 2022. Requirements established by E.U. and U.K. authorities which are therefore similar to those applicable to GS Bank USA and us. Following the end of the Brexit transition period, from December 31, 2020, GSI and GSIB have become subject to the U.K. capital framework, which is predominantly aligned with the E.U. capital framework.
Risk-Based Capital Ratios.
G-SIB
surcharge (under both Capital Rules). For GS Bank USA, the capital conservation buffer requirements The SCB is based on the results of the Federal Reserve’s supervisory stress tests and our planned common stock dividends.dividends and is likely to change over time based on the results of the annual supervisory stress tests. See “Stress Tests and Capital Planning” below. The countercyclical capital buffer is designed to counteract systemic vulnerabilities and currently applies only to banking organizations subject to Category I, II or III standards, including us.us and GS Bank USA. Several other national supervisors also require countercyclical capital buffers. Thecouldmay change in the future.future including due to additional guidance from our regulators and/or positional changes. As a result, the minimum capital ratios to which we are subject are likely to change over time.
G-SIB
surcharge and countercyclical capital buffer applicable to us The U.S. federal bank regulatory agencies adoptedhave a rule in November 2019 that will implementimplements the Basel Committee’s standardized approach for measuring counterparty credit risk exposures in connection with derivative contractsbeginning January 1, 2022, but with the option to adopt starting April 1, 2020, “Advanced approach” banking organizations will beare required to use purposes of calculating their standardized risk-weighted assets (RWAs) and, with some adjustments, for purposes of determining their supplementary leverage ratios (SLRs) discussed below.
(SA-CCR).
Under the rule, SA-CCR
for| 12 | Goldman Sachs 2021 Form 10-K |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
The capital requirements applicable to GSBE, GSI and GSIB include both minimum requirements and buffers. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Management and Regulatory Capital” in Part II, Item 7 of this
Form 10-K
and Note 20 to the consolidated financial statements in Part II, Item 8 of thisForm 10-K
for information about our capital ratios and those of GS Bank USA, GSBE, GSI and GSIB.The Basel Committee standards include guidelines for calculating incremental capital ratio requirements for banking institutions that are systemically significant from a domestic but not global perspectiveWhenDepending on how these guidelines are implemented by national regulators, they may apply, among others, to certain subsidiaries of V and CRR II provide that institutions that are systemically important at the E.U. or member state level, known as other systemically important institutionsof up to 3% of CET1, according to their degree of systemic importanceThe designated authority may imposeIn 2021, BaFin identified GSBE as anthat is greater than 3% in certain cases. CRD IV andapplicable from January 1, 2022.
(D-SIBs).
G-SIBs.
These guidelines are in addition to the framework forG-SIBs,
but are more principles-based. The CRD(O-SIIs),
may be subject to additional capital ratio requirements, (O-SII
buffers). O-SII
in Germany and set anO-SII
buffer, In the CRR currently provide for an additional requirement of up to 2%.O-SIIsare identified annually, along with their applicable buffers. TheU.K., the PRA has identified Goldman Sachs Group UK Limited (GSG UK), the parent company of GSI and GSIB, as anO-SII.O-SIIGSG UK’sbut has not applied anbuffer is currently set at zero percent.
buffer.O-SII
The Basel Committee published standards in December 2017 that it described as the finalization of the Basel III post-crisis regulatory reforms.reforms (Basel III Revisions). These standards set a floor on internally modeled capital requirements at a percentage of the capital requirements under the standardized approach. They also revise the Basel Committee’s standardized and internal model-based approaches for credit risk, provide a new standardized approach for operational risk capital and revise the frameworks for credit valuation adjustment (CVA) risk. The Basel Committee framework contemplates that national regulators implement these standards by January 1, 2023, and that the new floor be phased in through January 1, 2028. In July 2020, the Basel Committee finalized further revisions to the framework for CVA risk, which are intended to align that framework with the market risk framework.
The U.S. federal bank regulatory authorities have not yet proposed rules implementing the Basel III Revisions for purposes of their risk-based capital ratios. The European Commission proposed rules to implement the Basel III Revisions in October 2021. The proposed E.U. rules contemplate amendments to the CRR and the CRD, referred to as CRR III and CRD VI, to take effect in January 2025. The U.K. authorities have not yet released a proposal on the Basel III Revisions.
The Basel Committee has also published an updated frameworks relating to Pillar 3 disclosure requirements and the regulatory capital treatment of securitization exposuresframework and a revisedmethodology. Themethodology, but the U.S. federal bank regulatory agencies have not yet proposed rules implementing these Basel Committee frameworks orthem. The updated securitization framework has been implemented in the December 2017 standards for purposes of risk-based capital ratios.
G-SIB
assessment Leverage Ratios.
Under the Capital Framework, we and GS Bank USA are subject to Tier 1 leverage ratios and SLRs established by the FRB. As a
G-SIB,
the SLR requirements applicable to us include both a minimum requirement and a buffer requirement, which operates in the same manner as the risk-based buffer requirements described above. In April 2018, the FRB and the OCC issued a proposed rule which would (i) replace the current 2% SLR buffer forG-SIBs,
including us, with a buffer equal to 50% of theirG-SIB
surcharge and (ii) revise the 6% SLR requirement for Category I banks, such as GS Bank USA, to be “well capitalized” with a requirement equal to 3% plus 50% of their parent’sG-SIB
surcharge. This proposal, together with the adopted rule requiring use ofSA-CCR
for purposes of calculating the SLR, would implement certain of the revisions to the leverage ratio framework published by the Basel Committee in December 2017.| Goldman Sachs 2021 Form 10-K | 13 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
GSBE and certain of total leverage exposure relating to client-cleared derivative contracts.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Equity Capital Management and Regulatory Capital” in Part II, Item 7 of this
Form 10-K
and Note 20 to the consolidated financial statements in Part II, Item 8 of thisForm 10-K
for information about our and GS Bank USA’s Tier 1 leverage ratios and SLRs, and GSI’s leverage ratio.Liquidity Ratios.
The Basel Committee’s framework for liquidity risk measurement, standards and monitoring requires banking organizations to measure their liquidity against two specific liquidity tests: the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR).
The LCR rule issued by the U.S. federal bank regulatory agencies and applicable to both us and GS Bank USA is generally consistent with the Basel Committee’s framework and is designed to ensure that a banking organization maintains an adequate level of unencumbered, high-quality liquid assets equal to or greater than the expected net cash outflows under an acute short-term liquidity stress scenario. We and GS Bank USA are required to maintain a minimum LCR of 100%. We disclose, on a quarterly basis, our average daily LCR. See “Available Information” below and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Equity Capital Management and Regulatory Capital” in Part II, Item 7 of this
Form 10-K
for information about our average daily LCR.The NSFR is designed to promote medium- and long-term stable funding of the assets and
off-balance
sheet activities of banking organizations over aone-year
time horizon. The Basel Committee’s NSFR framework requires banking organizations to maintain a minimum NSFR of 100%.The U.S. federal bank regulatory agencies issued a final rule, which became effective in July 2021, implementing the NSFR for large U.S. banking organizations, including us and GS Bank USA. The final rule will become effective on July 1, 2021, and weWe will be required to publicly disclose our quarterly average daily NSFR levels semiannually beginning in 2023. The CRR II implementsimplemented the NSFR for certain E.U. financial institutions, including GSBE. This requirement will be applicable beginningGSBE, which became effective in June 2021. Following the U.K.’s withdrawal from the E.U. on December 31, 2020, GSI and GSIB have become subject to theThe NSFR requirement implemented in the U.K., which is expected to become became effective in January 2022.2022 and is applicable to both GSI and GSIB.
The FRB’s enhanced prudential standards require BHCs with $100 billion or more in total consolidated assets to comply with enhanced liquidity and overall risk management standards, which include maintaining a level of highly liquid assets based on projected funding needs for 30 days, and increased involvement by boards of directors in liquidity and overall risk management. Although the liquidity requirement under these rules has some similarities to the LCR, it is a separate requirement. GSI and GSIB have their own liquidity planning process, which incorporates internally designed stress tests developed in accordance with the guidelines of the PRA’s Internal Liquidity Adequacy Assessment Process (ILAAP). GSBE also has its own liquidity planning process, which incorporates internally designed stress tests and those required under German regulatory requirements and the ECB Guide to Internal Liquidity Adequacy Assessment Process (ILAAP). GSI and GSIB have their own liquidity planning processes, which incorporate internally designed stress tests developed in accordance with the guidelines of the PRA’s ILAAP.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Overview and Structure of Risk Management” and “— Liquidity Risk Management” in Part II, Item 7 of this
Form 10-K
for information about the LCR and NSFR, as well as our risk management practices and liquidity.Stress Tests and Capital Planning.
The FRB’s Comprehensive Capital Analysis and Review (CCAR) is designed to ensure that large BHCs, including us, have sufficient capital to permit continued operations during times of economic and financial stress. As required by the FRB, we perform an annual capital stress test and incorporate the results into an annual capital plan, which we submit to the FRB for review. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Overview and Structure of Risk Management — Capital Risk Management” in Part II, Item 7 of this
Form 10-K
for further information about our annual capital plan. As described in “Available Information” below, summary results of the annual stress test are published on our website.As part of the CCAR process, the FRB evaluates our plan to make capital distributions across a range of macroeconomic and company-specific assumptions, based on our and the FRB’s own stress tests.
| Goldman Sachs |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Form 10-K
for information about our SCB The final rule implementing the SCB provides thatrequires a BHC mustto receive priorthe FRB’s approval for any dividend, stock repurchase or other capital distribution, other than a capital distribution on a newly issued capital instrument, if the BHC is required to resubmit its capital plan.
U.S. depository institutions with total consolidated assets of $250 billion or more that are subsidiaries of U.S.connectionaddition, GSI and GSIB have their own capital planning and stress testing processes, which incorporate internally designed stress tests developed in accordance with the November 2020 resubmission described above under “Stress Tests,” the FRB required those BHCs to suspend stock repurchases during the third and fourth quarters of 2020 and not to increase common stock dividends or pay common stock dividends in excess of their average net income over the prior four quarters. In December 2020, the FRB announced that it would require BHCs not to increase common stock dividends and would permit common stock dividends and stock repurchases that, in the aggregate, do not exceed a BHC’s average net income over the prior four quarters, as well as stock repurchases equal to the amount of share issuances related to expensed employee compensation. We suspended stock repurchases during the first quarter of 2020 and, consistent with the FRB’s requirement for all large BHCs, extended the suspension of stock repurchases through the fourth quarter of 2020. We resumed stock repurchases in the first quarter of 2021.PRA’s ICAAP guidelines.
G-SIBs
are required to submit annualcompany-run
stress test results to the FRB. As a result of recent growth in its balance sheet, GS Bank USA will be required to submit its annual stress test results in 2022. GSBE also has its own capital and stress testing process, which incorporates internally designed stress tests and those required under German regulatory requirements and the ECB Guide to Internal Capital Adequacy Assessment Process (ICAAP). In U.S. federal and state laws impose limitations on the payment of dividends by U.S. depository institutions, such as GS Bank USA. In general, the amount of dividends that may be paid by GS Bank USA is limited to the lesser of the amounts calculated under a recent earnings test and an undivided profits test. Under the recent earnings test, a dividend may not be paid if the total of all dividends declared by the entity in any calendar year is in excess of the current year’s net income combined with the retained net income of the two preceding years, unless the entity obtains prior regulatory approval. Under the undivided profits test, a dividend may not be paid in excess of the entity’s undivided profits (generally, accumulated net profits that have not been paid out as dividends or transferred to surplus). In addition, as, unless the entity receives regulatory and stockholder approval. As a result of GS Bank USA’s election to exclude holdings of U.S. Treasury securities and deposits at the Federal Reservedividend payments from its total leverage exposure, in calculating the supplementary leverage ratio, any dividend by GS Bank USA through March 31,to Group Inc. in connection with the acquisition of GSBE in July 2021, is subject to the prior approval of the FRB.GS Bank USA cannot currently declare any dividends without regulatory approval.
The applicable U.S. banking regulators have authority to prohibit or limit the payment of dividends if, in the banking regulator’s opinion, payment of a dividend would constitute an unsafe or unsound practice in light of the financial condition of the banking organization.
Source of Strength.
The Dodd-Frank Act requires BHCs to act as a source of strength to their U.S. bank subsidiaries and to commit capital and financial resources to support those subsidiaries. This support may be required by the FRB at times when BHCs might otherwise determine not to provide it. Capital loans by a BHC to a U.S. subsidiary bank are subordinate in right of payment to deposits and to certain other indebtedness of the subsidiary bank. In addition, if a BHC commits to a U.S. federal banking agency that it will maintain the capital of its bank subsidiary, whether in response to the FRB’s invoking itsauthority or in response to other regulatory measures, that commitment will be assumed by the bankruptcy trustee for the BHC and the bank will be entitled to priority payment in respect of that commitment, ahead of other creditors of the BHC.
source-of-strength
| Goldman Sachs 2021 Form 10-K | 15 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Transactions betweenBetween Affiliates.
Transactions between GS Bank USA or its subsidiaries, including GSBE, and Group Inc. or its other subsidiaries and affiliates are subject to restrictions under the Federal Reserve Act and regulations issued by the FRB. These laws and regulations generally limit the types and amounts of transactions (such as loans and other credit extensions, including credit exposure arising from resale agreements, securities borrowing and derivative transactions, from GS Bank USA or its subsidiaries to Group Inc. or its other subsidiaries and affiliates and purchases of assets by GS Bank USA or its subsidiaries from Group Inc. or its other subsidiaries and affiliates) that may take place and generally require those transactions, to the extent permitted, to be on market terms or better to GS Bank USA or its subsidiaries. These laws and regulations generally do not apply to transactions between GS Bank USA and its subsidiaries. Similarly, PRA rules and German regulatory requirements provide that certain transactions between GSI, GSIB, GSBE and their respectiveGS Bank USA or its other affiliates, including Group Inc. and GS Bank USA,, must be on market terms and are subject to special internal approval requirements. PRA rules provide similar requirements for transactions between GSI and GSIB and their respective affiliates.
The BHC Act prohibits the FRB from requiring a payment by a BHC subsidiary to a depository institution if the functional regulator of that subsidiary objects to the payment. In that case, the FRB could instead require the divestiture of the depository institution and impose operating restrictions pending the divestiture.
Resolution and Recovery.Recovery Plans.
We are required by the FRB and the FDIC to submit a periodic plan for our rapid and orderly resolution in the event of material financial distress or failure (resolution plan). If thethese regulators jointly determine that an institution has failed to remediate identified shortcomings in its resolution plan andor that its resolution plan, after any permitted resubmission, is not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code, the regulatorsthey may jointly impose more stringent capital, leverage or liquidity requirements or restrictions on growth, activities or operations, or may jointly order the institution to divest assets or operations, in order to facilitate orderly resolution in the event of failure. We submitted our 2019 resolution plan in June 2019 and theThe FRB and FDIC did not identify deficiencies or shortcomings. In October 2019, the FRB and FDIC adoptedhave a rule requiring U.S.targetedfull submission by July 1, 2021.2023. See “Risk Factors — The application of Group Inc.’s proposed resolution strategy could result in greater losses for Group Inc.’s security holders” in Part I, Item 1A of this
G-SIBs
to submit resolution plans on atwo-year
cycle (alternating between full and targeted submissions). We submitted our 2021 resolution plan, which was a targeted submission, in June 2021. Our next required submission is a Form 10-K
and “Available Information” in Part I, Item 1 of thisForm 10-K
for further information about our resolution plan.We are also required by the FRB to submit, on a periodic basis, a global recovery plan that outlines the steps that we could take to reduce risk, maintain sufficient liquidity and conserve capital in times of prolonged stress. Certain of our subsidiaries are also subject to similar recovery plan requirements.
The FDIC has issued a rule requiring each insured depository institution (IDI) with $50 billion or more in assets, such as GS Bank USA, to provide a resolution plan. Our resolution plan for GS Bank USA must, among other things, demonstrate that it is adequately protected from risks arising from our other entities. GS Bank USA’s most recent resolution plan was submitted in June 2018. In April 2019, the FDIC released an advanced notice of proposed rulemaking about potential changes to its resolution planning requirements for IDIs, including GS Bank USA, and delayed the next round of IDI resolution plan submissions until the rulemaking process is complete. Although the rulemaking process is still pending, in January 2021, the FDIC announced its intention to resume requiringrequire resolution plan submissions for IDIs with $100 billion or more in assets, including GS Bank USA. In June 2021, the FDIC issued guidance for those resolution plans. This guidance splits covered IDIs into two groups for purposes of the timing of resolution plan submissions, and GS Bank USA is in the second group with a later submission date.
The U.S. federal bank regulatory agencies have adopted rules imposing restrictions on qualified financial contracts (QFCs) entered into byG-SIBs,G-SIBs.which became fully effective in January 2020. The rules are intended to facilitate the orderly resolution of a failedCompliance can beGS Bank USA has achieved compliance by adhering to the International Swaps and Derivatives Association Universal Resolution Stay Protocol (ISDA Universal Protocol) orand International Swaps and Derivatives Association 2018 U.S. Resolution Stay Protocol (U.S. ISDA Protocol) described below.
G-SIB
by limiting the ability of theG-SIB
to enter into a QFC unless (i) the counterparty waives certain default rights in such contract arising upon the entry of theG-SIB
or one of its affiliates into resolution, (ii) the contract does not contain enumerated prohibitions on the transfer of such contract and/or any related credit enhancement, and (iii) the counterparty agrees that the contract will be subject to the special resolution regimes set forth in the Dodd-Frank Act orderly liquidation authority (OLA) and the Federal Deposit Insurance Act of 1950 (FDIA), described below. Certain of our subsidiaries along with those of a number of other major global banking organizations,also adhere to the ISDA Universal Protocol, which was developed and updated in coordination with the Financial Stability Board (FSB), an international body that sets standards and coordinates the work of national financial authorities and international standard-setting bodies.these protocols. The ISDA Universal Protocol imposes a stay on certain cross-default and early termination rights within standard ISDA derivative contracts and securities financing transactions between adhering parties in the event that one of them is subject to resolution in its home jurisdiction, including a resolution under the OLA or the FDIA in the U.S. In addition, certain Group Inc. subsidiaries adhere to theThe U.S. ISDA Protocol, which was based on the ISDA Universal Protocol, and was created to allow market participants to comply with the final QFC rules adopted by the federal bank regulatory agencies.
| 16 | Goldman Sachs 2021 Form 10-K |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
The amended E.U. Bank Recovery and Resolution Directive (BRRD II)(BRRD), as amended by the BRRD II, establishes a framework for the recovery and resolution of financial institutions in the E.U., such as GSBE. The BRRD II provides national supervisory authorities with tools and powers to II requires E.U. member states to grant certain resolution powers to national and, where relevant, E.U. resolution authorities, including the power to impose a temporary stay and to recapitalize a failing entity by writing down its unsecured debt or converting its unsecured debt into equity. Financial institutions in the E.U. must provide that contracts governed by
pre-emptively
address potential financial crises in order to promote financial stability and minimize taxpayers’ exposure to losses. The BRRDnon-E.U.
law recognize those temporary stay andbail-in
powers unless doing so would be impracticable. GSBE is under the direct authority of the Single Resolution Board for resolution planning. Regulatory authorities in the E.U. may require financial institutions in the E.U., including subsidiaries ofnon-E.U.
groups, to submit recovery plans and to assist the relevant resolution authority in constructing resolution plans for the E.U. entities. GSBE’s primary regulator with respect to recovery planning is the ECB, and it is also regulated by BaFin and Deutsche Bundesbank.The U.K. Special Resolution Regime confers substantially the same powers on the Bank of England, as the U.K. resolution authority, and substantially the same requirements on U.K. financial institutions. Further, certain U.K. financial institutions, including GSI and GSIB, have beenare required to meet the Bank of England’s expectations contained in the U.K. Resolution Assessment Framework, including with respect to loss absorbency, contractual stays, operational continuity and funding in resolution. They are also required by the PRA to submit solvent wind-down plans on how they could be wound down in a stressed environment. The PRA is also the regulatory authority in the U.K. that supervises recovery planning, and GSI and GSIB are each required to submit recovery plans to the PRA.
Total Loss-Absorbing Capacity (TLAC).
The FRB has issued a rule addressing U.S. implementation of the FSB’sFinancial Stability Board’s (FSB’s) TLAC principles and term sheet on minimum TLAC requirements forrequirements,requirements; (ii) establishes minimum requirements for “eligible long-term debt” (i.e., debt that is unsecured, has a maturity of at least one year from issuance and satisfies certain additional criteria) requirements,; (iii) prohibits certain parent company transactionstransactions; and (iv) caps the amount of parent company liabilities that are not eligible long-term debt.
G-SIBs.
The rule (i) establishes minimum TLAC The rule also prohibits a BHC that has been designated as a U.S. of subsidiaries that are subject to early termination provisions if the BHC enters into an insolvency or receivership proceeding, subject to an exception for guarantees permitted by rules of the U.S. federal banking agencies imposing restrictions on QFCs; (ii) incurring liabilities guaranteed by subsidiaries; (iii) issuing short-term debt;debt to third parties; or (iv) entering into derivatives and certain other financial contracts with external counterparties.
G-SIB
from (i) guaranteeing subsidiaries’ liabilitiesAdditionally, the rule caps, at 5% of the value of the parent company’s eligible TLAC, the amount of unsecured
non-contingent
third-party liabilities that are not eligible long-term debt that could rank equally with or junior to eligible long-term debt.G-SIBs,
including those issued for purposes of satisfying TLAC requirements.The rule will becomeCRR and the BRRD are designed to, among other things, implement the FSB’s minimum TLAC requirement for
G-SIBs.
For example, the CRR requires E.U. subsidiaries of anon-E.U.
G-SIB
to meet internal TLAC requirements if they exceed the threshold of 5% of theG-SIB’s
RWAs, operating income or leverage exposure. GSBE does not currently exceed these thresholds. Under the U.K. financial services regime, GSG UK exceeds the applicable thresholds and therefore, it is subject to internal TLAC requirements.The CRD requires aApril 1, 2021.in January 2022.
non-E.U.
group with more than €40 billion of assets in the E.U., such as us, to establish an E.U. intermediate holding company (E.U. IHC) by December 30, 2023 if it has, as in our case, two or more of certain types of E.U. financial institution subsidiaries, including broker-dealers and banks. Anon-E.U.
group may have two E.U. IHCs if a request for a second is approved. The CRR requires E.U. IHCs to satisfy capital and liquidity requirements, a minimum requirement for own funds and eligible liabilities (MREL), and certain other prudential requirements at a consolidated level. The U.K. has not implemented the requirement for an IHC; however, the PRA has introduced a requirement to approve or exempt certain U.K. financial holding companies, including GSG UK, which became effective | Goldman Sachs 2021 Form 10-K | 17 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
The BRRD II and the U.K. resolution regime subject institutions to a minimum requirement for own funds and eligible liabilities (MREL),an MREL, which is generally consistent with the FSB’s TLAC standard. In June 2018, the Bank of England published a statement of policy on internal MREL, which requires a material U.K. subsidiary of an overseas banking group, such as GSI, to meet a minimum internal MREL requirement to facilitate the transfer of losses to its resolution entity, which for GSI is Group Inc. The transitional minimum internal MREL requirement began to phase in from January 1, 2019 and will becomebecame fully effective on January 1, 2022. In order to comply with the MREL statement of policy,bail-intriggers we have been provided to the Bank of England the right to exercise
bail-in
triggers over certain intercompany regulatory capital and senior debt instruments issued by GSI. These triggers enable the Bank of England to write down such instruments or convert such instruments to equity. The triggers can be exercised by the Bank of England if it determines that GSI has reached the point ofnon-viability
and the FRB and the FDIC have not objected to thebail-in
or if Group Inc. enters bankruptcy or similar proceedings.Insolvency of a BHC or IDI.
The Dodd-Frank Act created a resolution regime, OLA, for BHCs and their affiliates that are systemically important. Under OLA, the BRRD II are designed to,FDIC may be appointed as receiver for the systemically important institution and its failedimplementthat the FSB’s minimum TLAC requirement forG-SIBs.For example, CRR II requires E.U. subsidiariesinstitution is in default or in danger of anon-E.U.default, that the institution’s failure would have serious adverse effects on the U.S. financial system and that resolution under OLA would avoid or mitigate those effects.
non-bank
subsidiaries if, upon the recommendation of applicable regulators, the U.S. Secretary of the Treasury determines, among other things, If the FDIC is appointed as GSG UK, to meet 90%receiver under OLA, then the powers of the TLAC requirement applicable to E.U.G-SIBs.receiver, and the rights and obligations of creditors and other parties who have dealt with the institution, would be determined under OLA, and not under the bankruptcy or insolvency law that would otherwise apply. The powers of the receiver under OLA are generally based on the powers of the FDIC as receiver for depository institutions under the FDIA, described below.
Substantial differences in the E.U.rights of creditors exist between OLA and the U.S. Bankruptcy Code, including the right of the FDIC under OLA to disregard the strict priority of creditor claims in some circumstances, the use of an administrative claims procedure to determine creditors’ claims (as opposed to the judicial procedure utilized in bankruptcy proceedings), such as us,and the right of the FDIC to establish an E.U. intermediatetransfer claims to a “bridge” entity. In addition, OLA limits the ability of creditors to enforce certain contractual cross-defaults against affiliates of the institution in receivership. The FDIC has issued a notice that it would likely resolve a failed FHC by transferring its assets to a “bridge” holding company (E.U. IHC) by December 30, 2023 if it has, as in our case, twounder its “single point of entry” or more of certain types of E.U. financial institution subsidiaries, including broker-dealers and banks, and an E.U. group can request“SPOE” strategy pursuant to have a second E.U. IHC. CRR II requires E.U. IHCs to satisfy capital, liquidity, MREL and certain other prudential requirements at a consolidated level. The U.K. has not implemented the requirement for an E.U. IHC.OLA.
Under the FDIA, if the FDIC is appointed as conservator or receiver for an IDI such as GS Bank USA, upon its insolvency or in certain other events, the FDIC has broad powers, including the power:
To transfer any of the IDI’s assets and liabilities to a new obligor, including a newly formed “bridge” bank, without the approval of the depository institution’s creditors;
To enforce the IDI’s contracts pursuant to their terms without regard to any provisions triggered by the appointment of the FDIC in that capacity; or
To repudiate or disaffirm any contract or lease to which the IDI is a party, the performance of which is determined by the FDIC to be burdensome and the repudiation or disaffirmance of which is determined by the FDIC to promote the orderly administration of the IDI.
In addition, the claims of holders of domestic deposit liabilities and certain claims for administrative expenses against an IDI would be afforded a priority over other general unsecured claims, including deposits at
non-U.S.
branches and claims of debtholders of the IDI, in the “liquidation or other resolution” of such an institution by any receiver. As a result, whether or not the FDIC ever sought to repudiate any debt obligations of GS Bank USA, the debtholders (other than depositors at U.S. branches) would be treated differently from, and could receive, if anything, substantially less than, the depositors at U.S. branches of GS Bank USA.| Goldman Sachs |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Deposit Insurance.
Deposits at GS Bank USA have the benefit of FDIC insurance up to the applicable limits. The FDIC’s Deposit Insurance Fund is funded by assessments on IDIs. GS Bank USA’s assessment (subject to adjustment by the FDIC) is currently based on its average total consolidated assets less its average tangible equity during the assessment period, its supervisory ratings and specified forward-looking financial measures used to calculate the assessment rate. The deposits of GSBE are covered by the German statutory deposit protection program to the extent provided by law. In addition, GSBE has elected to participate in the German voluntary deposit protection program which provides insurance for certain eligible deposits not covered by the German statutory deposit program. Deposits at GSIB are covered by the U.K. Financial Services Compensation Scheme and deposits at GSBE are covered by the German statutory deposit protection scheme and a voluntarytop-upscheme, in each case up to the applicable limits.
Prompt Corrective Action.
The U.S. Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) requires the U.S. federal bank regulatory agencies to take “prompt corrective action” in respect of depository institutions that do not meet specified capital requirements. FDICIA establishes five capital categories for FDIC-insured banks, such as GS Bank USA: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.
An institution may be downgraded to, or deemed to be in, a capital category that is lower than is indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters. FDICIA imposes progressively more restrictive constraints on operations, management and capital distributions, as the capital category of an institution declines. Failure to meet the capital requirements could also require a depository institution to raise capital. Ultimately, critically undercapitalized institutions are subject to the appointment of a receiver or conservator, as described in “Insolvency of an IDI or a BHC” above.
The prompt corrective action regulations do not apply to BHCs. However, the FRB is authorized to take appropriate action at the BHC level, based upon the undercapitalized status of the BHC’s depository institution subsidiaries. In certain instances, relating to an undercapitalized depository institution subsidiary, the BHC would be required to guarantee the performance of the undercapitalized subsidiary’s capital restoration plan and might be liable for civil money damages for failure to fulfill its commitments on that guarantee. Furthermore, in the event of the bankruptcy of the BHC, the guarantee would take priority over the BHC’s general unsecured creditors, as described in “Source of Strength” above.
Volcker Rule and Other Restrictions on Activities.
As a BHC, we are subject to limitations on the types of business activities in which we may engage in.engage.
Volcker Rule.
The Volcker Rule prohibits “proprietary trading,” but permits activities such as underwriting, market making and risk-mitigation hedging, requires an extensive compliance program and includes additional reporting and record-keeping requirements.
In addition, the Volcker Rule limits the sponsorship of, and investment in, “covered funds” (as defined in the rule) by banking entities, including us. It also limits certain types of transactions between us and our sponsored and advised funds, similar to the limitations on transactions between depository institutions and their affiliates. Covered funds include our private equity funds, certain of our credit and real estate funds, our hedge funds and certain other investment structures. The limitation on investments in covered funds requires us to limit our investment in each such fund to 3% or less of the fund’s net asset value, and to limit our aggregate investment in all such funds to 3% or less of our Tier 1 capital.
The FRB has extended the conformance period to July 2022 for our investments in, and relationships with, certain legacy “illiquid funds” (as defined in the Volcker Rule) that were in place prior to December 2013. See Note 8 to the consolidated financial statements in Part II, Item 8 of this
Form 10-K
for further information about our investments in such funds.Other Restrictions.
FHCs generally can engage in a broader range of financial and related activities than are otherwise permissible for BHCs as long as they continue to meet the eligibility requirements for FHCs. The broader range of permissible activities for FHCs includes underwriting, dealing and making markets in securities and making investments in
non-FHCs
(merchant banking activities). In addition, certain FHCs, including us, are permitted to engage in certain commodities activities in the U.S. that may otherwise be impermissible for BHCs, so long as the assets held pursuant to these activities do not equal 5% or more of their consolidated assets.The FRB, however, has the authority to limit an FHC’s ability to conduct activities that would otherwise be permissible, and will likely do so if the FHC does not satisfactorily meet certain requirements of the FRB. For example, if an FHC or any of its U.S. depository institution subsidiaries ceases to maintain its status as well-capitalized or well-managed, the FRB may impose corrective capital and/or managerial requirements, as well as additional limitations or conditions. If the deficiencies persist, the FHC may be required to divest its U.S. depository institution subsidiaries or to cease engaging in activities other than the business of banking and certain closely related activities.
| Goldman Sachs 2021 Form 10-K | 19 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
If any IDI subsidiary of an FHC fails to maintain at least a “satisfactory” rating under the Community Reinvestment Act, the FHC would be subject to restrictions on certain new activities and acquisitions.
In addition, we are required to obtain prior FRB approval before certain acquisitions and before engaging in certain banking and other financial activities both within and outside the U.S.
The FRB issued a proposed rule in September 2016 which, if adopted, would impose new requirements on the physical commodity activities and certain merchant banking activities of FHCs, including, among other things, additional capital requirements, stringent quantitative limits on permissible physical trading activity, and new public reporting requirements. In addition, in a September 2016 report,At that time, the FRB recommended that Congress repeal authorities for FHCs to engage in merchant banking activities and for certain FHCs to engage in certain otherwise impermissible commodities activities.
G-SIBs,
like us, The New York State banking law imposes lending limits (which take into account credit exposure from derivative transactions) and other requirements that could impact the manner and scope of GS Bank USA’s activities.
The U.S. federal bank regulatory agencies have issued guidance that focuses on transaction structures and risk management frameworks and that outlines high-level principles forleveraged lending, including underwriting standards, valuation and stress testing. This guidance has, among other things, limited the percentage amount of debt that can be included in certain transactions.
safe-and-sound
As a German credit institution, GSBE will become subject to Volcker Rule-type prohibitions in Germany on “proprietary trading” as well asunder German banking law and regulations once its financial assets exceed certain thresholds. Prohibited activities will then include proprietary trading, certain types of high-frequency trading and certain types of lending and guarantee businesses with defined prohibited counterparties, such as hedge funds and other highly-leveragedhighly leveraged funds, once its assets exceed certain thresholds.unless an exclusion or an exemption applies. See “Volcker Rule” above for further information.
U.K. banks that have over £25 billion of core retail deposits are required to separate their retail banking services from their investment and international banking activities, commonly known as “ring-fencing.” GSIB is not currently subject to the ring-fencing requirement, and if it were to become subject to it, GSIB would need to make significant operational and structural changes.
Broker-Dealer and Securities Regulation
Our broker-dealer subsidiaries are subject to regulations that cover all aspects of the securities business, including sales methods, trade practices, the use and safekeeping of clients’ funds and securities, capital structure, record-keeping, the financing of clients’ purchases, and the conduct of directors, officers and employees. In the U.S., the SEC is the federal agency responsible for the administration of the federal securities laws. GS&Co. is registered as a broker-dealer, a securities-based swap dealer, a municipal advisor and an investment adviser with the SEC and as a broker-dealer in all 50 states and the District of Columbia. U.S. self-regulatory organizations, such as FINRA and the NYSE, adopt rules that apply to, and examine, broker-dealers such as GS&Co.
U.S. state securities and other U.S. regulators also have regulatory or oversight authority over GS&Co. Similarly, our businesses are also subject to regulation by variousnon-U.S.governmental and regulatory bodies and self-regulatory authorities in virtually all countries where we have offices, as described further below. For a description of net capital requirements applicable to GS&Co., see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Equity Capital Management and Regulatory Capital — U.S. Regulated Broker-Dealer Subsidiaries” in Part II, Item 7 of this
Form 10-K.
The SEC issued a proposed rule in November 2021 which, if adopted, would require lenders of securities to provide the material terms of securities lending transactions to a registered national securities association, such as FINRA.
In Europe, we provide broker-dealer services, including through GSI, GSBE (which is a credit institution), GSPIC and GSPIC,GSI, that are subject to oversight by European and national regulators. These services are regulated in accordance with U.K.E.U., E.U.U.K. and national laws and regulations. These laws require, among other things, compliance with certain capital adequacy and liquidity standards, customer protection requirements and market conduct and trade reporting rules. Certain of our European subsidiaries are also regulated by the securities, derivatives and commodities exchanges of which they are members.
| 20 | Goldman Sachs 2021 Form 10-K |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
The Securities and Futures Commission in Hong Kong, the Monetary Authority of Singapore, the China Securities Regulatory Commission, the Korean Financial Supervisory Service, the Reserve Bank of India, the Securities and Exchange Board of India,
the Australian Securities and Investments Commission, and the Australian Securities Exchange, the Monetary Authority of Singapore, the Korean Financial Supervisory Service and the Central Bank of Brazil, among others, regulate various of our subsidiaries and also have capital standards and other requirements comparable to the rules of the SEC.U.S. regulators.
Our exchange-based market-making activities are subject to extensive regulation by a number of securities exchanges. As a market maker on exchanges, we are required to maintain orderly markets in the securities to which we are assigned.
In the E.U. and the U.K., MiFID IIthe European Markets in Financial Instruments Directive (MiFID II) includes extensive market structure reforms, such as the establishment of new trading venue categories for the purposes of discharging the obligation to trade OTC derivatives on a trading platform and enhancedintroducedinclude enhanced transaction reporting, the publication of best execution data by investment firms and trading venues, transparency on costs and charges of service to investors, changes to the way investment managers can pay for the receipt of investment research, rules limiting the payment and receipt of soft commissions and other forms of inducements, and mandatory unbundling for broker-dealers between execution and other major services.
pre-
and post-trade transparency covering a wider range of financial instruments. In equities, MiFID II introduced volume caps onnon-transparent
liquidity trading for trading venues, limited the use of broker-dealer crossing networks and created a new regime for systematic internalizers, which are investment firms that execute client transactions outside a trading venue. Additional control requirements were introduced for algorithmic trading, high frequency trading and direct electronic access. Commodities trading firms are required to calculate their positions and adhere to specific position limits. Other reforms The SEC requires broker-dealers to act in the best interest of their customers, and also issued an interpretation clarifying the SEC’s views of the existing fiduciary duty owed by investment advisers to their clients.customers. Additionally, the SEC adopted a rule that requiresrules require broker-dealers and investment advisers to provide a standardized, short-form disclosure highlighting services offered, applicable standards of conduct, fees and costs, the differences between brokerage and advisory services, and any conflicts of interest. Requirements under these rules became effective in June 2020. Several states have adopted or proposed adopting uniform fiduciary duty standards applicable to broker-dealers and advisers.broker-dealers.
The SEC, FINRA and regulators in various
non-U.S.
jurisdictions have imposed both conduct-based and disclosure-based requirements with respect to research reports and research analysts and may impose additional regulations.GS&Co., GS Bank USA and other U.S. subsidiaries are also subject to rules adopted by U.S. federal agencies pursuant to the Dodd-Frank Act that require any person who organizes or initiates certain asset-backed securities transactions to retain a portion (generally, at least five percent) of any credit risk that the person conveys to a third party. For certain securitization transactions, retention by third-party purchasers may satisfy this requirement. Certain of our
non-U.S.
subsidiaries, including GSI, are subject to risk retention requirements in connection with securitization activities.Swaps, Derivatives and Commodities Regulation
The commodity futures, commodity options and swaps industry in the U.S. is subject to regulation under the U.S. Commodity Exchange Act (CEA). The CFTC is the U.S. federal agency charged with the administration of the CEA. In addition, the SEC is the U.S. federal agency charged with the regulation of security-based swaps. The rules and regulations of various self-regulatory organizations, such as the Chicago Mercantile Exchange, other futures exchanges and the National Futures Association, also govern commodity futures, commodity options and swaps activities.
The terms “swaps” and “security-based swaps” include a wide variety of derivative instruments in addition to those conventionally referred to as swaps (including certain forward contracts and options), and relate to a wide variety of underlying assets or obligations, including currencies, commodities, interest or other monetary rates, yields, indices, securities, credit events, loans and other financial obligations.
| Goldman Sachs 2021 Form 10-K | 21 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
CFTC rules require registration of swap dealers, mandatory clearing and execution of interest rate and credit default swaps and real-time public reporting and adherence to business conduct standards for all GSBE and J. Aron, & Company LLC (J. Aron), are registered with the CFTC as swap dealers. In July 2020, the CFTC adopted final rules establishing capital requirements for swap dealers that are not subject to the capital rules of a prudential regulator, such as the FRB.FRB, became effective in October 2021. The CFTC has also adopted financial reporting requirements for covered swap entities and amended existing capital rules for CFTC-registered futures commission merchants to provide explicit capital requirements for proprietary positions in swaps and security-based swaps that are not cleared by a clearing organization. Compliance with the final rules is required by October 6, 2021. Certain of our registered swap dealers, including J. Aron, will beare subject to the CFTC’s capital requirements.
in-scope
swaps. A number of these requirements, particularly those regarding recordkeeping and reporting, also apply to transactions that do not involve a registered swap dealer. GS&Co. and other subsidiaries, including GS Bank USA, GSBE, GSIOur affiliates registered as swap dealers are subject to the margin rules issued by the CFTC (in the case of ourwill phaseare in the process of being phased in through September 2022, depending on certain activity levels of the swap dealer and the relevant counterparty. Inter-affiliate transactions under the CFTC and FRB margin rules are generally exempt from initial margin requirements. In June 2020,
non-bank
swap dealers) and the FRB (in the case of GS Bank USA and GSBE). The rules for variation margin have become effective, and those for initial margin SEC rules govern the FRBregistration and regulation of security-based swap dealers. Security-based swaps are defined as swaps on single securities, single loans or narrow-based baskets or indices of securities. The SEC has adopted a final rule that exempts inter-affiliate swaps from its initialnumber of rules for security-based swap dealers, including (i) capital, margin and segregation requirements; (ii) record-keeping, financial reporting and notification requirements; (iii) business conduct standards; (iv) regulatory and public trade reporting; and (v) the application of risk mitigation techniques to uncleared portfolios of security-based swaps. The compliance date for these SEC rules, as well as SEC rules addressing registration requirements and business conduct standards, was generally October 2021. In the fourth quarter of 2021, certain of our subsidiaries, including GS&Co., registered with the SEC as security-based swap dealers and became subject to certain thresholds.the SEC’s regulations regarding security-based swaps. The SEC has recently proposed additional regulations regarding security-based swaps that would, among other things, require public reporting of large positions in security-based swaps.
The CFTC hasand the SEC have adopted rules relating to cross-border regulation of swaps, securities-based swaps, business conduct and registration requirements. The CFTC hasand the SEC have entered into agreements with certain including in the E.U., regarding the cross-border regulation of derivatives and the mutual recognition of cross-border execution facilities and clearing houses, and hashave approved substituted compliance with certainregulations, including E.U. regulations related to certain business conduct requirements and margin rules. The U.S. prudential regulators have not yet made a determination with respect to substituted compliance for transactions subject to
non-U.S.
regulatorsnon-U.S.
non-U.S.
margin rules.Similar types of swap regulation have been proposed or adopted in jurisdictions outside the U.S., including in the E.U. and Japan. ForUnder the European Market Infrastructure Regulation (EMIR), for example, the E.U. and the U.K. have established regulatory requirements relating to portfolio reconciliation and reporting, clearing certain OTC derivatives and margining for uncleared derivatives activitiesactivities. In addition, under the European Market InfrastructureMarkets in Financial Instruments Directive and Regulation, (EMIR).transactions in certain types of derivatives are required to be executed on regulated platforms or exchanges.
The CFTC has adopted position limit rules that will limit the size of positions in physical commodity derivatives that can be held by any entity, or any group of affiliates or other parties trading under common control, subject to certain exemptions, such asownership or control. Swap dealers may currently claim an exemption from the position limits for the bona fide hedging positions. However, effective in 2023, the new rules will eliminate the risk management exemption, which allowed swap dealers to claim an exemption for the hedging of swap-related risks.risks, but this exemption will be eliminated in 2023. The new CFTC position limits will apply to certain positions in swaps, as well as futures and options on futures on physical commodities and options on such futures, and these limits will apply to both physically and cash settled positions. Currently, position limits on futures on physical commodities are administered byIn addition, in 2023, the relevant exchanges, with the exception of futures on certain agricultural commodities, which are administered by the CFTC. Under the CFTC’s position limit rules allwill become applicable to swaps that are economically equivalent to such futures and options on futures on an enumerated list of physical commodities, including certain agricultural, energy and metals commodities, as well as related swaps, will be subject to the CFTC’s position limits.options. The new position limit rules initially impose limits in the spot month only (i.e., during the delivery period for the physical commodities, which is typically a period of several days), although the CFTC may in the future impose limits innon-spotmonths as well.. CFTC spot andnon-spot non- spot month limits will continue to apply to futures on certain legacy agricultural commodities, and it is possible that
non-spot
month limits will at some point be adopted for other categories of commodities.| 22 | Goldman Sachs 2021 Form 10-K |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
J. Aron is authorized by the U.S. Federal Energy Regulatory Commission (FERC) to sell wholesale physical power at market-based rates. As a FERC-authorized power marketer, J. Aron is subject to regulation under the U.S. Federal Power Act and FERC regulations and to the oversight of FERC. As a result of our investing activities, Group Inc. is also an “exempt holding company” under the U.S. Public Utility Holding Company Act of 2005 and applicable FERC rules.
In addition, as a result of our power-related and commodities activities, we are subject to energy, environmental and other governmental laws and regulations, as described in “Risk Factors — Our commodities activities, particularly our physical commodities activities, subject us to extensive regulation and involve certain potential risks, including environmental, reputational and other risks, that may expose us to significant liabilities and costs” in Part I, Item 1A of this
Form 10-K.
GS&Co. is registered with the CFTC as a futures commission merchant, and several of our subsidiaries, including GS&Co., are registered with the CFTC and act as commodity pool operators and commodity trading advisors. Goldman Sachs Financial Markets, L.P. is registered with the SEC as an OTC derivatives dealer.
Asset Management and Wealth Management Regulation
Our asset management and wealth management businesses are subject to extensive oversight by regulators around the world relating to, among other things, the fair treatment of clients, safeguarding of client assets, offerings of funds, marketing activities, transactions among affiliates and our management of client funds.
Interpretations issued by the SEC clarify the SEC’s views of the existing fiduciary duty owed by investment advisers to their clients. Additionally, SEC rules require investment advisers to provide a standardized, short-form disclosure highlighting services offered, applicable standards of conduct, fees and costs, the differences between brokerage and advisory services, and any conflicts of interest. Several states have adopted or proposed adopting uniform fiduciary duty standards applicable to advisers.
Certain of our European subsidiaries, including GSBE in the E.U. and GSAMI in the U.K. and GSBE in the E.U., are subject to MiFID II and/or related regulations (including the U.K. legislation making such regulations part of U.K. law), which govern the approval, organizational, marketing and reporting requirements of U.K. or E.U.-based investment managers and the ability of investment fund managers located outside the E.U. or the U.K. to access those markets. Our asset management business in the U.K. and the E.U. significantly depends on our ability to delegate parts of our activities to other affiliates.
On January 1, 2022, GSAMI became subject to a new prudential regime for U.K. investment firms, the Investment Firms Prudential Regime (IFPR), which governs the prudential requirements for U.K. investment firms prudentially regulated by the FCA.
Consumer Regulation
Our U.S. consumer-oriented activities are subject to extensive oversight by federal and state regulators. These businesses are subject to supervision and regulation by the CFPB with respect to federal consumer protection laws, including laws relating to fair lending and the prohibition of unfair, deceptive or abusive acts or practices in connection with the offer, sale or provision of consumer financial products and services. Our consumer-oriented businessesactivities are also subject to various state and local consumer protection laws. These laws, rules and regulations, which, among other things, impose obligations relating to our marketing, origination, servicing and collections activityactivities in our consumer businesses. Many of these laws, rules and regulations also apply to our small business lending activities, which are also subject to supervision and regulation by federal and state regulators as well. Ourregulators. In addition, our U.K. consumer deposit-taking activities are also subject to consumer protection regulations.
Compensation Practices
Our compensation practices are subject to oversight by the FRB and, with respect to some of our subsidiaries and employees, by other regulatory bodies worldwide.
The FSB has released standards for implementation by local regulators to implement certain compensation principles for banks and other financial companiesthat are designed to encourage sound compensation practices.practices at banks and other financial companies. The U.S. federal bank regulatory agencies have also provided guidance designed to ensure that incentive compensation arrangements at banking organizations take into account risk and are consistent with safe and sound practices. The guidance sets forth the following three key principles with respect to incentive compensation arrangements: (i) the arrangements should provide employees with incentives that appropriately balance risk and financial results in a manner that does not encourage employees to expose their organizations to imprudent risk; (ii) the arrangements should be compatible with effective controls and risk management; and (iii) the arrangements should be supported by strong corporate governance. The guidance provides that supervisory findings with respect to incentive compensation will be incorporated, as appropriate, into the organization’s supervisory ratings, which can affect its ability to make acquisitions or perform other actions. The guidance also notes that enforcement actions may be taken against a banking organization if its incentive compensation arrangements or related risk management, control or governance processes pose a risk to the organization’s safety and soundness.
| Goldman Sachs 2021 Form 10-K | 23 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
The Dodd-Frank Act requires the U.S. financial regulators, including the FRB and SEC, to adopt rules on incentive-based payment arrangements at specified regulated entities having at least $1 billion in total assets. The U.S. financial regulators proposed revised rules in 2016, which have not been finalized.
The NYDFS issuedNYDFS’ guidance in October 2016 emphasizing that its regulated banking institutions, including GS Bank USA, must ensureemphasizes that any incentive compensation arrangements tied to employee performance indicators areat banking institutions regulated by the NYDFS, including GS Bank USA, must be subject to effective risk management, oversight and control.
In the E.U., certain provisions in the CRR and CRD IV include compensation provisionsare designed to implementmeet the FSB’s compensation standards. These rules have been implemented by E.U. member states and in the U.K. and, among other things,provisions limit the ratio of variable to fixed compensation of all employees at GSBE and of certain employees at our other operating subsidiaries in the E.U. and in the U.K., including those employees identified as having a material impact on the risk profile of regulated entities. CRR II and CRD V amendamended certain aspects of these rules, including, among other things, by increasing minimum variable compensation deferral periods. Substantially similar requirements apply in the U.K. in relation to GSI and GSIB.
The E.U. has also introduced rules regulating compensation for certain persons providing services to certain investment funds. These requirements are in addition to the guidance issued by U.S. financial regulators and the Dodd-Frank Act provision, each as described above.
Anti-Money Laundering and Anti-Bribery Rules and Regulations
The U.S. Bank Secrecy Act, as amended (BSA), as amendedincluding by the USA PATRIOT Act of 2001, (PATRIOT Act), contains anti-money laundering and financial transparency laws and authorizes or mandates the implementationpromulgation of various regulations applicable to all financial institutions, including standards for verifying client identification at account opening, and obligations to monitor client transactions and report suspicious activities. Through these and other provisions, the BSA and the PATRIOT Act seekseeks, among other things, to promote the identification of parties that may be involved in terrorism, money laundering or other suspicious activities. Anti-money laundering laws outside the U.S. contain some similar provisions.
The Anti-Money Laundering Act of 2020 (AMLA), which amends the BSA, was enacted.enacted in January 2021. The AMLA is intended to comprehensively reform and modernize U.S. anti-money laundering laws. Among other things, the AMLA codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the U.S. Department of the Treasury to promulgate priorities for anti-money laundering and countering the financing of terrorism policy; requires the development of standards by the U.S. Department of the Treasury for evaluatingtesting technology and internal processes for BSA compliance; and expands enforcement- and investigation-related authority, including a significant expansion in the available sanctions for certain BSA violationsviolations; and institutingexpands BSA whistleblower incentives and protections. Many of the statutory provisions in the AMLA will require additional rulemakings, reports and other measures, and the impact of the AMLA will depend on, among other things, rulemaking and implementation guidance. In June 2021, the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of Treasury, issued the priorities for anti-money laundering and countering the financing of terrorism policy, as required under the AMLA. The priorities include: corruption, cybercrime, terrorist financing, fraud, transnational crime, drug trafficking, human trafficking and proliferation financing.
We are subject to other laws and regulations worldwide relating to anti-money laundering and financial transparency, including the E.U. Anti-Money Laundering Directives. In addition, we are subject to laws and regulations worldwide, including the U.S. Foreign Corrupt Practices Act (FCPA) and, the U.K. Bribery Act relating toand other laws and regulations worldwide regarding corrupt and illegal payments, to, and hiring practices with regard to,or providing anything of value, for the benefit of government officials and others. The scope of the types of payments or other benefits covered by these laws is very broadbroad. These laws and regulators are frequently using enforcement proceedingsregulations include requirements relating to define the scopeidentification of these laws. The obligation of financial institutions to identify their clients, to monitormonitoring for and reportreporting suspicious transactions, to monitormonitoring direct and indirect payments to politically exposed persons, to respond to requests forproviding information byto regulatory authorities and law enforcement agencies, and to sharesharing information with other financial institutions, has required the implementation and maintenance of internal practices, procedures and controls.institutions.
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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Privacy and Cyber Security Regulation
Our businesses are subject to numerous laws and regulations enacted by U.S. federal and state governments, the E.U., the U.K. or othernon-U.S.jurisdictions and/or enacted by various regulatory organizations or exchanges relating to the privacy of the information ofregarding clients, employees or others, includingand others. These include the GLB Act, the E.U.’s General Data Protection Regulation (GDPR), the U.K.’s Data Protection Act 2018, the Japanese Personal Information Protection Act, the Personal Information Protection Law of the People’s Republic of China (PIPL), the Hong Kong Personal Data (Privacy) Ordinance, the Australian Privacy Act, the Brazilian Bank Secrecy Law, and the California Consumer Privacy Act of 2018 (CCPA). The GDPR has heightened our privacy compliance obligations, impacted certain of our businesses’ collection, processing and retention of personal data and imposed strict standards for reporting data breaches. The GDPR also provides for significant penalties forsubstantive obligations underCCPA was amended in 2020 by the 2020 amendmentsCalifornia Privacy Rights Act (CPRA), which, among other things, will expand the scope of data subject to the CCPA becomewhen the CPRA becomes effective on January 1, 2023. In addition, several other states and
non-compliance.
In addition, the CCPA imposes compliance obligations with regard to the collection, use and disclosure of personal information. The non-U.S.
jurisdictions have enacted, or are proposing, privacy and data protection laws similar to the GDPR and the CCPA. The PIPL, which went into effect on November 1, 2021, limits the legal bases for processing personal information, contains heightened notice and consent requirements for the handling of certain types of personal information and imposes special cross-border data transfer rules under certain circumstances.The NYDFS also requires financial institutions regulated by the NYDFS, including GS Bank USA, to, among other things, (i) establish and maintain a cyber security program designed to ensure the confidentiality, integrity and availability of their information systems; (ii) implement and maintain a written cyber security policy setting forth policies and procedures for the protection of their information systems and nonpublic information; and (iii) designate a Chief Information Security Officer.
In December 2020,November 2021, the U.S. federal bank regulatory agencies releasedadopted a proposed rule regarding notification requirements for banking organizations related to significant computer securitycomputer-security incidents. Under the proposal,final rule, a BHC or state member bank, such as Group Inc. or GS Bank USA, would beis required to notify the FRBits primary regulator within 36 hours of incidents that could result inhave materially disrupted or degraded, or are reasonably likely to materially disrupt or degrade, the banking organization’s inabilityability to deliver services to a material portion of its customer base, jeopardize the viability of key operations of the banking organization, or impactpose a threat to the financial stability of the financial sector.United States. The rule is effective April 1, 2022, with compliance required by May 1, 2022.
Information about our Executive Officers
Set forth below are the name, age, present title, principal occupation and certain biographical information for the executive officers who have been appointed by, and serve at the pleasure of, Group Inc.’s BoardBoard.
Philip R. Berlinski, 45
Mr. Berlinski has been Global Treasurer since October 2021; he also serves as Chief Executive Officer of Directors (Board).Goldman Sachs Bank USA. He had previously served as Chief Operating Officer of Global Equities from May 2019. Prior to that, he was
Co-Head
of Global Equities Trading and Execution Services from September 2016 to May 2019.Denis P. Coleman III, 48
Mr. Coleman has been Chief Financial Officer since January 2022. He had previously served as Deputy Chief Financial Officer from September 2021 and, prior to that,
Co-Head
of the Global Financing Group from June 2018 to September 2021. From 2016 to June 2018, he was Head of the EMEA Financing Group, and from 2009 to 2016 he was Head of EMEA Credit Finance in London.Sheara J. Fredman, 4546
Ms. Fredman has been Controller and Chief Accounting Officer since November 2019. She had previously served as Head of Regulatory Controllers from September 2017 and, prior to that, she had served as Global Product Controller.
Brian J. Lee, 5455
Mr. Lee has been Chief Risk Officer since November 2019. He had previously served as Controller and Chief Accounting Officer from March 2017 and, prior to that, he had served as Deputy Controller from 2014.
Ericka T. Leslie, 51
Ms. Leslie has been Chief Administrative Officer since February 18, 2022. She had previously served as Global Head of Operations and Platform Engineering for the Global Markets Division from March 2020, as Global Head of Operations for the Securities Division from January 2019 and as Head of Global Operations for the Commodities business from September 2008.
John F.W. Rogers, 6465
Mr. Rogers has been an Executive Vice President since April 2011 and Chief of Staff and Secretary to the Board since December 2001.
| Goldman Sachs |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Kathryn H. Ruemmler, 50
Ms. Ruemmler has been the Chief Legal Officer, General Counsel and Secretary since March 2021, and was previously Global Head of Regulatory Affairs from April 2020. From June 2014 to April 2020, Ms. Ruemmler was a Litigation Partner at Latham & Watkins LLP, a global law firm, where she was Global Chair of the White Collar Defense and Investigations practice.
David M. Solomon, 5960
Mr. Solomon has been Chairman of the Board since January 2019 and Chief Executive Officer and a director since October 2018. He had previously served as President and Chief or Co-Chief Operating Officer from January 2017 and
Co-Head
of the Investment Banking Division from July 2006 to December 2016.John E. Waldron, 5152
Mr. Waldron has been President and Chief Operating Officer since October 2018. He had previously served as
Co-Head
of the Investment Banking Division from December 2014. Prior to that he was Global Head of Investment Banking Services/Client Coverage for the Investment Banking Division and had oversight of the Investment Banking Services Leadership Group, and from 2007 to 2009 was GlobalCo-Head
of the Financial Sponsors Group.Available Information
Our internet address isemployees and our Sustainability Report.employees. Within the time period required by the SEC, we will post on our website any amendment to the Code of Business Conduct and Ethics and any waiver applicable to any executive officer, director or senior financial officer.
www.goldmansachs.com
and the investor relations section of our website is located atwww.goldmansachs.com/investor-relations
, where we make available, free of charge, our annual reports onForm 10-K,
quarterly reports onForm 10-Q
and current reports onForm 8-K
and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Also posted on our website, and available in print upon request of any shareholder to our Investor Relations Department (Investor Relations), are our certificate of incorporation andby-laws,
charters for our Audit, Risk, Compensation, Corporate Governance and Nominating, and Public Responsibilities Committees, our Policy Regarding Director Independence Determinations, our Policy on Reporting of Concerns Regarding Accounting and Other Matters, our Corporate Governance Guidelines and our Code of Business Conduct and Ethics governing our directors, officers and Our website also includes information about (i) purchases and sales of our equity securities by our executive officers and directors; (ii) disclosure relating to certainand (vi) our average daily LCR.LCR; (vii) our People Strategy Report; (viii) our Sustainability Report; and (ix) our Task Force on Climate-Related Financial Disclosures (TCFD) Report.
non-GAAP
financial measures (as defined in the SEC’s Regulation G) that we may make public orally, telephonically, by webcast, by broadcast or by other means; (iii) DFAST results; (iv) the public portion of our resolution plan submission; (v) our Pillar 3 disclosure; Investor Relations can be contacted at The Goldman Sachs Group, Inc., 200 West Street, 29th Floor, New York, New York 10282, Attn: Investor Relations, telephone:. We use our website, our Twitter account (twitter.com/GoldmanSachs), our Instagram account (instagram.com/GoldmanSachs) andthe following, as well as other social media channels, as additional means of disclosingto disclose public information to investors, the media and others. others:
212-902-0300,
e-mail:
gs-investor-relations@gs.com
Our website (
www.goldmansachs.com
);Our Twitter account (
twitter.com/GoldmanSachs
); andOur Instagram account (
instagram.com/GoldmanSachs
).Our officers may use similar social media channels to disclose public information. It is possible that certain information we or our officers post on our website and on social media could be deemed material, and we encourage investors, the media and others interested in Goldman Sachs to review the business and financial information we or our officers post on our website and on the social media channels identified above. The information on our website and those social media channels is not incorporated by reference into this
Form 10-K.
We have included in this
Form 10-K,
and our management may make, statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts or statements of current conditions, but instead represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside our control.By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results, financial condition, liquidity and capital actions may differ, possibly materially, from the anticipated results, financial condition, liquidity and liquiditycapital actions in these forward-looking statements. Important factors that could cause our results, financial condition, liquidity and capital actions to differ from those in these statements include, among others, those described below and in “Risk Factors” in Part I, Item 1A of this
Form 10-K.
| Goldman Sachs |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
These statements may relate to, among other things, (i) our future plans and results, including our target ROE, ROTE, efficiency ratio, and CET1 capital ratio and firmwide assets under supervision (AUS) inflows, and how they can be achieved, (ii) trends in or growth opportunities for our businesses, including the timing, costs, profitability, benefits and other aspects of business and strategic initiatives and their impact on our efficiency ratio, (iii) our level of future compensation expense, including as a percentage of both operating expenses and revenues net of provision for credit losses, (iv) our investment banking transaction backlog and future results, (v) our expected interest income and interest expense, (vi) our expense savings and strategic locations initiatives, (vii) expenses we may incur, including future litigation expense and expenses from investing in our consumer and transaction banking businesses, (viii) the projected growth of our deposits and other funding, asset liability management and funding strategies and related interest expense savings, (ix) our business initiatives, including transaction banking and new consumer financial products, (x) our planned 2021 parent vanilla2022 benchmark debt issuances, (xi) the amount, composition and location of GCLAglobal core liquid assets (GCLA) we expect to hold, (xii) our credit exposures, (xiii) our expected provisions for credit losses, (including those related to ourco-brandedcredit card relationship with General Motors), (xiv) the adequacy of our allowance for credit losses, (xv) the projected growth of our installment loanconsumer lending and credit card businesses, (xvi) the objectives and effectiveness of our business continuity plan (BCP), information security program, risk management and liquidity policies, (xvii) our resolution plan and strategy and their implications for stakeholders, (xviii) the design and effectiveness of our resolution capital and liquidity models and triggers and alerts framework, (xix) the results of stress tests, (xx) the effect of changes to regulations, and our future status, activities or reporting under banking and financial regulation, (xxi) our NSFR, (xxii)(xx) our expected tax rate, (xxiii)(xxi) the future state of our liquidity and regulatory capital ratios, and our prospective capital distributions (including dividends and repurchases), (xxiv)(xxii) our expected SCB and(xxv)(xxiii) legal proceedings, governmental investigations or other contingencies, (xxvi) the 1MDB settlements, including(xxiv) the asset recovery guarantee and our remediation activities (xxvii) the effectiveness ofrelated to our strategy with respect to Brexit, (xxviii)1Malaysia Development Berhad (1MDB) settlements, (xxv) the replacement of IBORs and our transition to alternative risk-free reference rates, (xxix)(xxvi) the impact of the(xxx)(xxvii) the effectiveness of our management of our human capital, including our diversity goals, (xxviii) our sustainability and (xxxi)carbon neutrality targets and goals, (xxix) our plans for our people to return to our offices.offices, (xxx) future inflation and (xxxi) our completed, announced and prospective acquisitions, including our completed acquisition of the General Motors
G-SIB
surcharge, COVID-19
pandemic on our business, results, financial position and liquidity, co-branded
credit card portfolio and our announced acquisitions of NN Investment Partners and GreenSky.Statements about our target ROE, ROTE,return on average common shareholders’ equity (ROE), return on average tangible common shareholders’ equity (ROTE), efficiency ratio and expense savings, and how they can be achieved, are based on our current expectations regarding our business prospects and are subject to the risk that we may be unable to achieve our targets due to, among other things, changes in our business mix, lower profitability of new business initiatives, increases in technology and other costs to launch and bring new business initiatives to scale, and increases in liquidity requirements.
Statements about our target ROE, ROTE and CET1 capital ratio, and how they can be achieved, are based on our current expectations regarding the capital requirements applicable to us and are subject to the risk that our actual capital requirements may be higher than currently anticipated because of, among other factors, changes in the regulatory capital requirements applicable to us resulting from changes in regulations or the interpretation or application of existing regulations or changes in the nature and composition of our activities. Statements about our firmwide AUS inflows targets are based on our current expectations regarding our fundraising prospects and are subject to the risk that actual inflows may be lower than expected due to, among other factors, competition from other asset managers, changes in investment preferences and changes in economic or market conditions.
Statements about the timing, costs, profitability, benefits and other aspects of business and expense savings initiatives, the level and composition of more durable revenues and increases in market share are based on our current expectations regarding our ability to implement these initiatives and actual results may differ, possibly materially, from current expectations due to, among other things, a delay in the timing of these initiatives, increased competition and an inability to reduce expenses and grow businesses with durable revenues.
Statements about the level of future compensation expense, including as a percentage of both operating expenses and revenues net of provision for credit losses, and our efficiency ratio as our platform business initiatives reach scale are subject to the risks that the compensation and other costs to operate our businesses, including platform initiatives, may be greater than currently expected.
| Goldman Sachs 2021 Form 10-K | 27 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Statements about our investment banking transaction backlog and future results are subject to the risk that such transactions may be modified or may not be completed at all and related net revenues may not be realized or may be materially less than expected. Important factors that could have such a result include, for underwriting transactions, a decline or weakness in general economic conditions, an outbreak of hostilities, volatility in the securities markets or an adverse development with respect to the issuer of the securities and, for financial advisory transactions, a decline in the securities markets, an inability to obtain adequate financing, an adverse development with respect to a party to the transaction or a failure to obtain a required regulatory approval. For information about other important factors that could adversely affect our investment banking transactions, see “Risk Factors” in Part I, Item 1A of this
Form 10-K.
Statements about the projected growth of our deposits and other funding, asset liability management and funding strategies and related interest expense savings, and our installment loanconsumer lending and credit card businesses, are subject to the risk that actual growth and savings may differ, possibly materially, from that currently anticipated due to, among other things, changes in interest rates and competition from other similar products.
Statements about planned 2021 parent vanilla2022 benchmark debt issuances and the amount, composition and location of GCLA we expect to hold are subject to the risk that actual issuances and GCLA levels may differ, possibly materially, from that currently expected due to changes in market conditions, business opportunities or our funding and projected liquidity needs.
Statements about our expected provisions for credit losses (including those related to ourco-brandedcredit card relationship with General Motors) are subject to the risk that actual credit losses may differ and our expectations may change, possibly materially, from that currently anticipated due to, among other things, changes to the composition of our loan portfolio and changes in the economic environment in future periods and our forecasts of future economic conditions, as well as changes in our models, policies and other management judgments.
Statements about our future effective income tax rate are subject to the risk that it may differ from the anticipated rate indicated in such statements, possibly materially, due to, among other things, changes in the tax rates applicable to us, changes in our earnings mix, our profitability and entities in which we generate profits, the assumptions we have made in forecasting our expected tax rate, the interpretation or application of existing tax statutes and regulations, as well as any corporate tax legislation that may be enacted or any guidance that may be issued by the U.S. Internal Revenue Service.
Statements about the future state of our liquidity and regulatory capital ratios (including our SCB and
G-SIB
surcharge), and our prospective capital distributions (including dividends and repurchases), are subject to the risk that our actual liquidity, regulatory capital ratios and capital distributions may differ, possibly materially, from what is currently expected due to, among other things, the need to use capital to support clients, increased regulatory requirements resulting from changes in regulations or the interpretation or application of existing regulations, results of applicable supervisory stress tests and changes to the composition of our balance sheet.Statements about the risk exposure related to the asset recovery guarantee provided to the Government of Malaysia are subject to the risk that the actual value of, or credit received for, assets and proceeds from assets seized and returned to the Government of Malaysia may be less than currently anticipated. Statements about the application for and pursuit of exemptions and authorizations from regulatory authorities, including the U.S. Department of Labor, in connection with the settlements relating to 1Malaysia Development Berhad (1MDB) and the progress or the status of remediation activities relating to 1MDB are based on our expectations regarding the prospects for receiving the exemptions and authorizations and theour current remediation plans. Accordingly, our ability to receive the exemptions and authorizations and complete the remediation activities may change, possibly materially, from what is currently expected.
Statements about our objectives in management of our human capital, including our diversity goals, are based on our current expectations and are subject to the risk that we may not achieve these objectives and goals due to, among other things, competition in recruiting and attracting diverse candidates and unsuccessful efforts in retaining diverse employees.
Statements about our sustainability and carbon neutrality targets and goals are based on our current expectations and are subject to the risk that we may not achieve these targets and goals due to, among other things, global socio-demographic and economic trends, energy prices, lack of technological innovations, climate-related conditions and weather events, legislative and regulatory changes, and other unforeseen events or conditions.
Statements about our plans for our people to return to our offices are based on our current expectations and that return may be delayed due to, among other factors, future events that are unpredictable, including the course of theavailability, use and effectiveness of vaccines.vaccines over the long term and against new variants.
COVID-19
pandemic, responses of governmental authorities, the emergence of new variants ofCOVID-19
and the Statements about future inflation are subject to the risk that actual inflation may differ, possibly materially, due to, among other things, changes in economic growth, unemployment or consumer demand.
Statements about our announced acquisitions of NN Investment Partners and GreenSky are subject to the risk that the transaction may not close on the timeline contemplated or at all, including due to a failure to obtain requisite regulatory approval.
| 28 | Goldman Sachs 2021 Form 10-K |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
We face a variety of risks that are substantial and inherent in our businesses.
The following is a summary of some of the more important factors that could affect our businesses:
Market
Our businesses have been and may in the future be adversely affected by conditions in the global financial markets and broader economic conditions.
Our businesses have been and may in the future be adversely affected by declining asset values, particularly where we have net “long” positions, receive fees based on the value of assets managed, or receive or post collateral.
Our market-making activities have been and may in the future be affected by changes in the levels of market volatility.
Our investment banking, client intermediation, asset management and wealth management businesses have been adversely affected and may in the future be adversely affected by market uncertainty or lack of confidence among investors and CEOs due to declines in economic activity and other unfavorable economic, geopolitical or market conditions.
Our asset management and wealth management businesses have been and may in the future be adversely affected by the poor investment performance of our investment products or a client preference for products other than those which we offer or for products that generate lower fees.
Liquidity
Our liquidity, profitability and businesses may be adversely affected by an inability to access the debt capital markets or to sell assets.
Our businesses have been and may in the future be adversely affected by disruptions or lack of liquidity in the credit markets, including reduced access to credit and higher costs of obtaining credit.
Reductions in our credit ratings or an increase in our credit spreads may adversely affect our liquidity and cost of funding.
Group Inc. is a holding company and its liquidity depends on payments from its subsidiaries, many of which are subject to legal, regulatory and other restrictions on providing funds or assets to Group Inc.
Credit
Our businesses, profitability and liquidity may be adversely affected by deterioration in the credit quality of or defaults by third parties.
Concentration of risk increases the potential for significant losses in our market-making, underwriting, investing and financing activities.
Derivative transactions and delayed documentation or settlements may expose us to credit risk, unexpected risks and potential losses.
Operational
A failure in our operational systems or infrastructure, or those of third parties, as well as human error, malfeasance or other misconduct, could impair our liquidity, disrupt our businesses, result in the disclosure of confidential information, damage our reputation and cause losses.
A failure to protect our computer systems, networks and information, and our clients’ information, against cyber attacks and similar threats could impair our ability to conduct our businesses, result in the disclosure, theft or destruction of confidential information, damage our reputation and cause losses.
We may incur losses as a result of ineffective risk management processes and strategies.
We may incur losses as a result of unforeseen or catastrophic events, including pandemics, terrorist attacks, extreme weather events or other natural disasters.
Climate change could disrupt our businesses and adversely affect client activity levels and the creditworthiness of our clients and counterparties, and our efforts to address concerns relating to climate change could result in damage to our reputation.
Legal and Regulatory
Our businesses and those of our clients are subject to extensive and pervasive regulation around the world.
A failure to appropriately identify and address potential conflicts of interest could adversely affect our businesses.
We may be adversely affected by increased governmental and regulatory scrutiny or negative publicity.
Substantial civil or criminal liability or significant regulatory action against us could have material adverse financial effects or cause us significant reputational harm, which in turn could seriously harm our business prospects.
| Goldman Sachs 2021 Form 10-K | 29 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
In conducting our businesses around the world, we are subject to political, legal, regulatory and other risks that are inherent in operating in many countries.
The application of regulatory strategies and requirements in the U.S. and
non-U.S.
jurisdictions to facilitate the orderly resolution of large financial institutions could create greater risk of loss for Group Inc.’s security holders.The application of Group Inc.’s proposed resolution strategy could result in greater losses for Group Inc.’s security holders.
Our commodities activities, particularly our physical commodities activities, subject us to extensive regulation and involve certain potential risks, including environmental, reputational and other risks that may expose us to significant liabilities and costs.
Competition
Our results have been and may in the future be adversely affected by the composition of our client base.
The financial services industry is highly competitive.
The growth of electronic trading and the introduction of new products and technologies, including trading technologies and cryptocurrencies, has increased competition.
Our businesses would be adversely affected if we are unable to hire and retain qualified employees.
Legal and Regulatory
Our businesses and those of our clients are subject to extensive and pervasive regulation around the world.
A failure to appropriately identify and address potential conflicts of interest could adversely affect our businesses.
We may be adversely affected by increased governmental and regulatory scrutiny or negative publicity.
Substantial civil or criminal liability or significant regulatory action against us could have material adverse financial effects or cause us significant reputational harm, which in turn could seriously harm our business prospects.
| Goldman Sachs 2021 Form 10-K | 29 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
In conducting our businesses around the world, we are subject to political, legal, regulatory and other risks that are inherent in operating in many countries.
The application of regulatory strategies and requirements in the U.S. and
non-U.S.
jurisdictions to facilitate the orderly resolution of large financial institutions could create greater risk of loss for Group Inc.’s security holders.The application of Group Inc.’s proposed resolution strategy could result in greater losses for Group Inc.’s security holders.
Our commodities activities, particularly our physical commodities activities, subject us to extensive regulation and involve certain potential risks, including environmental, reputational and other risks that may expose us to significant liabilities and costs.
Competition
Our results have been and may in the future be adversely affected by the composition of our client base.
The financial services industry is highly competitive.
The growth of electronic trading and the introduction of new products and technologies, including trading technologytechnologies and cryptocurrencies, has increased competition.
Our businesses would be adversely affected if we are unable to hire and retain qualified employees.
Legal and Regulatory
Our businesses and those of our clients are subject to extensive and pervasive regulation around the world.
A failure to appropriately identify and address potential conflicts of interest could adversely affect our businesses.
We may be adversely affected by increased governmental and regulatory scrutiny or negative publicity.
Substantial civil or criminal liability or significant regulatory action against us could have material adverse financial effects or cause us significant reputational harm, which in turn could seriously harm our business prospects.
| Goldman Sachs 2021 Form 10-K | 29 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
In conducting our businesses around the world, we are subject to political, legal, regulatory and other risks that are inherent in operating in many countries.
The application of regulatory strategies and requirements in the U.S. and
non-U.S.
jurisdictions to facilitate the orderly resolution of large financial institutions could create greater risk of loss for Group Inc.’s security holders.The application of Group Inc.’s proposed resolution strategy could result in greater losses for Group Inc.’s security holders.
Our commodities activities, particularly our physical commodities activities, subject us to extensive regulation and involve certain potential risks, including environmental, reputational and other risks that may expose us to significant liabilities and costs.
Competition
Our results have been and may in the future be adversely affected by the composition of our client base.
The financial services industry is highly competitive.
The growth of electronic trading and the introduction of new products and technologies, including trading technologies and cryptocurrencies, has increased competition.
Our businesses would be adversely affected if we are unable to hire and retain qualified employees.
Market Developments and General Business Environment
Our businesses, financial condition, liquidity and results of operations have been and may in the future be adversely affected by the
COVID-19
pandemic.Certain of our businesses, our funding instruments and financial products may be adversely affected by changes in or the discontinuance of Interbank Offered Rates (IBORs), in particular LIBOR.
Certain of our businesses and our funding instruments may be adversely affected by changes in other reference rates, currencies, indexes, baskets or ETFs to which products we offer or funding that we raise are linked.
We face enhanced risks as new business initiatives and acquisitions lead us to engage in new activities, operate in new locations, transact with a broader array of clients and counterparties and expose us to new asset classes and new markets.
We may not be able to fully realize the expected benefits or synergies from acquisitions in the time frames we expect, or at all.
The following are detailed descriptions of our Risk Factors summarized above:
Market
Our businesses have been and may in the future be adversely affected by conditions in the global financial markets and broader economic conditions.
Many of our businesses, by their nature, do not produce predictable earnings, and all of our businesses are materially affected by conditions in the global financial markets and economic conditions generally, both directly and through their impact on client activity levels and creditworthiness. These conditions can change suddenly and negatively.
Our financial performance is highly dependent on the environment in which our businesses operate. A favorable business environment is generally characterized by, among other factors, high global gross domestic product growth, regulatory and market conditions that result in transparent, liquid and efficient capital markets, low inflation, business, consumer and investor confidence, stable geopolitical conditions and strong business earnings.
Unfavorable or uncertain economic and market conditions can be caused by: low levels of or declines in economic growth, business activity or investor, business or consumer confidence; changes in consumer spending or borrowing patterns; pandemics; limitations on the availability or increases in the cost of credit and capital; illiquid markets; increases in inflation, interest rates, exchange rate or basic commodity price volatility or default rates; concerns about sovereign defaults; uncertainty concerning fiscal or monetary policy, government shutdowns, debt ceilings or funding; the extent of and uncertainty about potential increases in tax rates and other regulatory changes; limitations on international trade and travel; laws and regulations that limit trading in, or the issuance of, securities of issuers outside their domestic markets; outbreaks of domestic or international tensions or hostilities, terrorism, nuclear proliferation, cyber security threats or attacks and other forms of disruption to or curtailment of global communication, energy transmission or transportation networks or other geopolitical instability or uncertainty; corporate, political or other scandals that reduce investor confidence in capital markets; extreme weather events or other natural disasters; or a combination of these or other factors.
| 30 | Goldman Sachs 2021 Form 10-K |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
The financial services industry and the securities and other financial markets have been materially and adversely affected in the past by significant declines in the values of nearly all asset classes, by a serious lack of liquidity and by high levels of borrower defaults. In addition, concerns about the
COVID-19
pandemic, European sovereign debt risk and its impact on the European banking system, limitations on international trade, and potential or actual changes in interest rates, inflation and other market conditions, have, at times, negatively impacted the levels of client activity.General uncertainty about economic, political and market activities, and the scope, timing and impact of regulatory reform, as well as weak consumer, investor and CEO confidence resulting in large part from such uncertainty, has in the past negatively impacted client activity, which can adversely affect many of our businesses. Periods of low volatility and periods of high volatility combined with a lack of liquidity, have at times had an unfavorable impact on our market-making businesses.
Financial institution returns may be negatively impacted by increased funding costs due in part to the lack of perceived government support of such institutions in the event of future financial crises relative to financial institutions in countries in which governmental support is maintained. In addition, liquidity in the financial markets has also been negatively impacted as market participants and market practices and structures continue to adjust to evolving regulatory frameworks.
Our businesses have been and may in the future be adversely affected by declining asset values, particularly where we have net “long” positions, receive fees based on the value of assets managed, or receive or post collateral.
Many of our businesses have net “long” positions in debt securities, loans, derivatives, mortgages, equities (including private equity and real estate) and most other asset classes. These include positions we take when we act as a principal to facilitate our clients’ activities, including our exchange-based market-making activities, or commit large amounts of capital to maintain positions in interest rate and credit products, as well as through our currencies, commodities, equities and mortgage-related activities. In addition, we invest in similar asset classes. Substantially all of our investing and market-making positions and a portion of our loans areon a daily or other periodic basis and declines in asset values directly and promptly impact our earnings, unless we have effectively “hedged” our exposures to those declines.
marked-to-market
In certain circumstances (particularly in the case of credit products, including leveraged loans, and private equities or other securities that are not freely tradable or lack established and liquid trading markets), it may not be possible or economic to hedge our exposures and to the extent that we do so the hedge may be ineffective or may greatly reduce our ability to profit from increases in the values of the assets. Sudden declines and significant volatility in the prices of assets have in the past and may in the future substantially curtail or eliminate the trading markets for certain assets, which may make it difficult to sell, hedge or value such assets. The inability to sell or effectively hedge assets reduces our ability to limit losses in such positions and the difficulty in valuing assets may negatively affect our capital, liquidity or leverage ratios, increase our funding costs and generally require us to maintain additional capital.
In our exchange-based market-making activities, we are obligated by stock exchange rules to maintain an orderly market, including by purchasing securities in a declining market. In markets where asset values are declining and in volatile markets, this results in losses and an increased need for liquidity.
We receive asset-based management fees based on the value of our clients’ portfolios or investment in funds managed by us and, in some cases, we also receive incentive fees based on increases in the value of such investments. Declines in asset values would ordinarily reduce the value of our clients’ portfolios or fund assets, which in turn would typically reduce the fees we earn for managing such assets.
| Goldman Sachs 2021 Form 10-K | 31 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
We post collateral to support our obligations and receive collateral that supports the obligations of our clients and counterparties. When the value of the assets posted as collateral or the credit ratings of the party posting collateral decline, the party posting the collateral may need to provide additional collateral or, if possible, reduce its trading position. An example of such a situation is a “margin call” in connection with a brokerage account. Therefore, declines in the value of asset classes used as collateral mean that either the cost of funding positions is increased or the size of positions is decreased. If we are the party providing collateral, this can increase our costs and reduce our profitability and if we are the party receiving collateral, this can also reduce our profitability by reducing the level of business done with our clients and counterparties.
In addition, volatile or less liquid markets increase the difficulty of valuing assets, which can lead to costly and time-consuming disputes over asset values and the level of required collateral, as well as increased credit risk to the recipient of the collateral due to delays in receiving adequate collateral. In cases where we foreclose on collateral, sudden declines in the value or liquidity of the collateral has in the past and may in the future, despite credit monitoring, over-collateralization, the ability to call for additional collateral or the ability to force repayment of the underlying obligation, result in significant losses to us, especially where there is a single type of collateral supporting the obligation. In addition, we have been and may in the future be subject to claims that the foreclosure was not permitted under the legal documents, was conducted in an improper manner or caused a client or counterparty to go out of business.
Our market-making activities have been and may in the future be affected by changes in the levels of market volatility.
Certain of our market-making activities depend on market volatility to provide trading and arbitrage opportunities to our clients, and decreases in volatility have reduced and may in the future reduce these opportunities and the level of client activity associated with them and adversely affect the results of these activities. Increased volatility, while it can increase trading volumes and spreads, also increases risk as measured by(VaR) and may expose us to increased risks in connection with our market-making activities or cause us to reduce our inventory in order to avoid increasing our VaR. Limiting the size of our market-making positions can adversely affect our profitability. In periods when volatility is increasing, but asset values are declining significantly, it may not be possible to sell assets at all or it may only be possible to do so at steep discounts. In those circumstances we may be forced to either take on additional risk or to realize losses in order to decrease our VaR. In addition, increases in volatility increase the level of our RWAs, which increases our capital requirements.
Value-at-Risk
Our investment banking, client intermediation, asset management and wealth management businesses have been adversely affected and may in the future be adversely affected by market uncertainty or lack of confidence among investors and CEOs due to declines in economic activity and other unfavorable economic, geopolitical or market conditions.
Our investment banking business has been and may in the future be adversely affected by market conditions. Poor economic conditions and other uncertain geopolitical conditions may adversely affect and have in the past adversely affected investor and CEO confidence, resulting in significant industry-wide declines in the size and number of underwritings and of financial advisory transactions, which would likely have an adverse effect on our revenues and our profit margins. In particular, because a significant portion of our investment banking revenues is derived from our participation in large transactions, a decline in the number of large transactions has in the past and would in the future adversely affect our investment banking business. Similarly, in recent years, cross-border initial public offerings and other securities offerings have accounted for a significant proportion of new issuance activity. Legislative, regulatory or other changes that limit trading in, or the issuance of, securities outside the issuers’ domestic markets have in the past and would in the future adversely affect our underwriting business.
In certain circumstances, market uncertainty or general declines in market or economic activity may adversely affect our client intermediation businesses by decreasing levels of overall activity or by decreasing volatility, but at other times market uncertainty and even declining economic activity may result in higher trading volumes or higher spreads or both.
Market uncertainty, volatility and adverse economic conditions, as well as declines in asset values, may cause our clients to transfer their assets out of our funds
or other products or their brokerage accounts and result in reduced net revenues, principally in our asset management and wealth management businesses. Even if clients do not withdraw their funds, they may invest them in products that generate less fee income.
| 32 | Goldman Sachs 2021 Form 10-K |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Our asset management and wealth management businesses have been and may in the future be adversely affected by the poor investment performance of our investment products or a client preference for products other than those which we offer or for products that generate lower fees.
Poor investment returns in our asset management and wealth management businesses, due to either general market conditions or underperformance (relative to our competitors or to benchmarks) by funds or accounts that we manage or investment products that we design or sell, affects our ability to retain existing assets and to attract new clients or additional assets from existing clients. This could affect the management and incentive fees that we earn on AUS or the commissions and net spreads that we earn for selling other investment products, such as structured notes or derivatives. To the extent that our clients choose to invest in products that we do not currently offer, we will suffer outflows and a loss of management fees. Further, if, due to changes in investor sentiment or the relative performance of certain asset classes or otherwise, clients continue to invest in products that generate lower fees (e.g., passively managed or fixed income products), our average effective management fee would continue to decline and our asset management and wealth management businesses could be adversely affected.
Liquidity
Our liquidity, profitability and businesses may be adversely affected by an inability to access the debt capital markets or to sell assets.
Liquidity is essential to our businesses. It is of critical importance to us, as most of the failures of financial institutions have occurred in large part due to insufficient liquidity. Our liquidity may be impaired by an inability to access secured and/or unsecured debt markets, an inability to raise or retain deposits, an inability to access funds from our subsidiaries or otherwise allocate liquidity optimally, an inability to sell assets or redeem our investments, lack of timely settlement of transactions, unusual deposit outflows, or other unforeseen outflows of cash or collateral, such as in March 2020, when corporate clients drew on revolving credit facilities in response to the
COVID-19
pandemic. This situation may arise due to circumstances that we may be unable to control, such as a general market or economic disruption or an operational problem that affects third parties or us, or even by the perception among market participants that we, or other market participants, are experiencing greater liquidity risk.We employ structured products to benefit our clients and hedge our own risks. The financial instruments that we hold and the contracts to which we are a party are often complex, and these complex structured products often do not have readily available markets to access in times of liquidity stress. Our investing and financing activities may lead to situations where the holdings from these activities represent a significant portion of specific markets, which could restrict liquidity for our positions.
Further, our ability to sell assets may be impaired if there is not generally a liquid market for such assets, as well as in circumstances where other market participants are seeking to sell similar otherwise generally liquid assets at the same time, as is likely to occur in a liquidity or other market crisis or in response to changes to rules or regulations. For example, recently an investment management firm with large positions with several financial institutions defaulted, resulting in rapidly declining prices in the securities underlying those positions. In addition, clearinghouses, exchanges and other financial institutions with which we interact may exercise
set-off
rights or the right to require additional collateral, including in difficult market conditions, which could further impair our liquidity.Regulatory changes relating to liquidity may also negatively impact our results of operations and competitive position. Numerous regulations have been adopted to introduce more stringent liquidity requirements for large financial institutions. These regulations address, among other matters, liquidity stress testing, minimum liquidity requirements, wholesale funding, limitations on the issuance of short-term debt and structured notes, deductions for holdings of TLAC and prohibitions on parent guarantees that are subject to certain cross-defaults. New and prospective liquidity-related regulations may overlap with, and be impacted by, other regulatory changes, including rules relating to minimum long-term debt requirements and TLAC, guidance on the treatment of brokered deposits and the capital, leverage and resolution and recovery frameworks applicable to large financial institutions. Given the overlap and complex interactions among these new and prospective regulations, they may have unintended cumulative effects, and their full impact will remain uncertain, while regulatory reforms are being adopted and market practices develop. In addition, our need to manage our operations in light of certain regulatory requirements when applicable thresholds are met has in the past limited and may in the future limit our ability to raise deposits in GSIB or other funding, which could adversely affect our liquidity or ability to respond efficiently to liquidity stress.
| Goldman Sachs 2021 Form 10-K | 33 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Our businesses have been and may in the future be adversely affected by disruptions or lack of liquidity in the credit markets, including reduced access to credit and higher costs of obtaining credit.
Widening credit spreads, as well as significant declines in the availability of credit, have in the past adversely affected our ability to borrow on a secured and unsecured basis and may do so in the future. We fund ourselves on an unsecured basis by issuing long-term debt and commercial paper, by raising deposits at our bank subsidiaries, by issuing hybrid financial instruments and by obtaining loans or lines of credit from commercial or other banking entities. We seek to finance many of our assets on a secured basis. Any disruptions in the credit markets may make it harder and more expensive to obtain funding for our businesses. If our available funding is limited or we are forced to fund our operations at a higher cost, these conditions may require us to curtail our business activities and increase our cost of funding, both of which could reduce our profitability, particularly in our businesses that involve investing, lending and market making.
Our clients engaging in mergers, acquisitions and other types of strategic transactions often rely on access to the secured and unsecured credit markets to finance their transactions. A lack of available credit or an increased cost of credit can adversely affect the size, volume and timing of our clients’ merger and acquisition transactions, particularly large transactions, and adversely affect our financial advisory and underwriting businesses.
Our credit businesses have been and may in the future be negatively affected by a lack of liquidity in credit markets. A lack of liquidity reduces price transparency, increases price volatility and decreases transaction volumes and size, all of which can increase transaction risk or decrease the profitability of these businesses.
Reductions in our credit ratings or an increase in our credit spreads may adversely affect our liquidity and cost of funding.
Our credit ratings are important to our liquidity. A reduction in our credit ratings could adversely affect our liquidity and competitive position, increase our borrowing costs, limit our access to the capital markets or trigger our obligations under certain provisions in some of our trading and collateralized financing contracts. Under these provisions, counterparties could be permitted to terminate contracts with us or require us to post additional collateral. Termination of our trading and collateralized financing contracts could cause us to sustain losses and impair our liquidity by requiring us to find other sources of financing or to make significant cash payments or securities movements.
As of December 2021, our counterparties could have called for additional collateral or termination payments related to our net derivative liabilities under bilateral agreements in an aggregate amount of $345 million in the event of a
one-notch
downgrade of our credit ratings and $1.54 billion in the event of atwo-notch
downgrade of our credit ratings. A downgrade by any one rating agency, depending on the agency’s relative ratings of us at the time of the downgrade, may have an impact which is comparable to the impact of a downgrade by all rating agencies. For further information about our credit ratings, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Liquidity Risk Management — Credit Ratings” in Part II, Item 7 of thisForm 10-K.
Our cost of obtaining long-term unsecured funding is directly related to our credit spreads (the amount in excess of the interest rate of benchmark securities that we need to pay). Increases in our credit spreads can significantly increase our cost of this funding. Changes in credit spreads are continuous, market-driven, and subject at times to unpredictable and highly volatile movements. Our credit spreads are also influenced by market perceptions of our creditworthiness and movements in the costs to purchasers of credit default swaps referenced to our long-term debt. The market for credit default swaps has proven to be extremely volatile and at times has lacked a high degree of transparency or liquidity.
| 34 | Goldman Sachs 2021 Form 10-K |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Group Inc. is a holding company and its liquidity depends on payments and loans from its subsidiaries, many of which are subject to legal, regulatory and other restrictions on providing funds or assets to Group Inc.
Group Inc. is a holding company and, therefore, depends on dividends, distributions, loans and other payments from its subsidiaries to fund share repurchases and dividend payments and to fund payments on its obligations, including debt obligations. Many of our subsidiaries, including our broker-dealer and bank subsidiaries, are subject to laws that restrict dividend payments or authorize regulatory bodies to block or reduce the flow of funds from those subsidiaries to Group Inc.
In addition, our broker-dealer and bank subsidiaries are subject to restrictions on their ability to lend or transact with affiliates and to minimum regulatory capital and other requirements, as well as restrictions on their ability to use funds deposited with them in brokerage or bank accounts to fund their businesses. Additional restrictions on related-party transactions, increased capital and liquidity requirements and additional limitations on the use of funds on deposit in bank or brokerage accounts, as well as lower earnings, can reduce the amount of funds available to meet the obligations of Group Inc., including under the FRB’s source of strength requirement, and even require Group Inc. to provide additional funding to such subsidiaries. Restrictions or regulatory action of that kind could impede access to funds that Group Inc. needs to make payments on its obligations, including debt obligations, or dividend payments. In addition, Group Inc.’s right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors.
There has been a trend towards increased regulation and supervision of our subsidiaries by the governments and regulators in the countries in which those subsidiaries are located or do business. Concerns about protecting clients and creditors of financial institutions that are controlled by persons or entities located outside of the country in which such entities are located or do business have caused or may cause a number of governments and regulators to take additional steps to “ring fence” or require internal total loss-absorbing capacity (which may also be subject to
“bail-in”
powers, as described below) at those entities in order to protect clients and creditors of those entities in the event of financial difficulties involving those entities. The result has been and may continue to be additional limitations on our ability to efficiently move capital and liquidity among our affiliated entities, or to Group Inc., including in times of liquidity stress, thereby increasing the overall level of capital and liquidity required by us on a consolidated basis.Furthermore, Group Inc. has guaranteed the payment obligations of certain of its subsidiaries, including GS&Co. and GS Bank USA, subject to certain exceptions. In addition, Group Inc. guarantees many of the obligations of its other consolidated subsidiaries on abasis, as negotiated with counterparties. These guarantees may require Group Inc. to provide substantial funds or assets to its subsidiaries or their creditors or counterparties at a time when Group Inc. is in need of liquidity to fund its own obligations.
transaction-by-transaction
The requirements for us and certain of our subsidiaries to develop and submit recovery and resolution plans to regulators, and the incorporation of feedback received from regulators, may require us to increase capital or liquidity levels or issue additional long-term debt at Group Inc. or particular subsidiaries or otherwise incur additional or duplicative operational or other costs at multiple entities, and may reduce our ability to provide Group Inc. guarantees of the obligations of our subsidiaries or raise debt at Group Inc. Resolution planning may also impair our ability to structure our intercompany and external activities in a manner that we may otherwise deem most operationally efficient. Furthermore, arrangements to facilitate our resolution planning may cause us to be subject to additional taxes. Any such limitations or requirements would be in addition to the legal and regulatory restrictions described above on our ability to engage in capital actions or make intercompany dividends or payments.
See “Business — Regulation” in Part I, Item 1 of this
Form 10-K
for further information about regulatory restrictions.| Goldman Sachs 2021 Form 10-K | 35 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Credit
Our businesses, profitability and liquidity may be adversely affected by deterioration in the credit quality of or defaults by third parties.
We are exposed to the risk that third parties that owe us money, securities or other assets will not perform their obligations. These parties may default on their obligations to us due to bankruptcy, lack of liquidity, operational failure or other reasons. A failure of a significant market participant, or even concerns about a default by such an institution, could lead to significant liquidity problems, losses or defaults by other institutions, which in turn could adversely affect us.
We are also subject to the risk that our rights against third parties may not be enforceable in all circumstances. In addition, deterioration in the credit quality of third parties whose securities or obligations we hold, including a deterioration in the value of collateral posted by third parties to secure their obligations to us under derivative contracts and loan agreements, could result in losses and/or adversely affect our ability to rehypothecate or otherwise use those securities or obligations for liquidity purposes.
A significant downgrade in the credit ratings of our counterparties could also have a negative impact on our results. While in many cases we are permitted to require additional collateral from counterparties that experience financial difficulty, disputes may arise as to the amount of collateral we are entitled to receive and the value of pledged assets. The termination of contracts and the foreclosure on collateral may subject us to claims for the improper exercise of our rights. Default rates, downgrades and disputes with counterparties as to the valuation of collateral typically increase significantly in times of market stress, increased volatility and illiquidity.
As part of our clearing and prime brokerage activities, we finance our clients’ positions, and we could be held responsible for the defaults or misconduct of our clients. Although we have limits and regularly review credit exposures to specific clients and counterparties and to specific industries, countries and regions that we believe may present credit concerns, default risk may arise from events or circumstances that are difficult to detect or foresee.
Concentration of risk increases the potential for significant losses in our market-making, underwriting, investing and financing activities.
Concentration of risk increases the potential for significant losses in our market-making, underwriting, investing and financing activities. The number and size of these transactions has affected and may in the future affect our results of operations in a given period. Moreover, because of concentrated risk, we may suffer losses even when economic and market conditions are generally favorable for our competitors. Disruptions in the credit markets can make it difficult to hedge these credit exposures effectively or economically. In addition, we extend large commitments as part of our credit origination activities.
Rules adopted under the Dodd-Frank Act, and similar rules adopted in other jurisdictions, require issuers of certain asset-backed securities and any person who organizes and initiates certain asset-backed securities transactions to retain economic exposure to the asset, which has affected the cost of and structures used in connection with these securitization activities. Our inability to reduce our credit risk by selling, syndicating or securitizing these positions, including during periods of market stress, could negatively affect our results of operations due to a decrease in the fair value of the positions, including due to the insolvency or bankruptcy of borrowers, as well as the loss of revenues associated with selling such securities or loans.
In the ordinary course of business, we may be subject to a concentration of credit risk to a particular counterparty, borrower, issuer (including sovereign issuers) or geographic area or group of related countries, such as the E.U., and a failure or downgrade of, or default by, such entity could negatively impact our businesses, perhaps materially, and the systems by which we set limits and monitor the level of our credit exposure to individual entities, industries, countries and regions may not function as we have anticipated. Regulatory reform, including the Dodd-Frank Act, has led to increased centralization of trading activity through particular clearing houses, central agents or exchanges, which has significantly increased our concentration of risk with respect to these entities. While our activities expose us to many different industries, counterparties and countries, we routinely execute a high volume of transactions with counterparties engaged in financial services activities, including brokers and dealers, commercial banks, clearing houses, exchanges and investment funds. This has resulted in significant credit concentration with respect to these counterparties.
| 36 | Goldman Sachs 2021 Form 10-K |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Derivative transactions and delayed documentation or settlements may expose us to credit risk, unexpected risks and potential losses.
We are party to a large number of derivative transactions, including credit derivatives. Many of these derivative instruments are individually negotiated and
non-standardized,
which can make exiting, transferring or settling positions difficult. Many credit derivatives require that we deliver to the counterparty the underlying security, loan or other obligation in order to receive payment. In a number of cases, we do not hold the underlying security, loan or other obligation and may not be able to obtain the underlying security, loan or other obligation. This could cause us to forfeit the payments due to us under these contracts or result in settlement delays with the attendant credit and operational risk, as well as increased costs to us.Derivative transactions may also involve the risk that documentation has not been properly executed, that executed agreements may not be enforceable against the counterparty, or that obligations under such agreements may not be able to be “netted” against other obligations with such counterparty. In addition, counterparties may claim that such transactions were not appropriate or authorized.
As a signatory to the ISDA Universal Protocol or U.S. ISDA Protocol (ISDA Protocols) and being subject to the FRB’s and FDIC’s rules on QFCs and similar rules in other jurisdictions, we may not be able to exercise remedies against counterparties and, as this new regime has not yet been tested, we may suffer risks or losses that we would not have expected to suffer if we could immediately close out transactions upon a termination event. The ISDA Protocols and these rules and regulations extend to repurchase agreements and other instruments that are not derivative contracts.
Derivative contracts and other transactions, including secondary bank loan purchases and sales, entered into with third parties are not always confirmed by the counterparties or settled on a timely basis. While the transaction remains unconfirmed or during any delay in settlement, we are subject to heightened credit and operational risk and in the event of a default may find it more difficult to enforce our rights.
In addition, as new complex derivative products are created, covering a wider array of underlying credit and other instruments, disputes about the terms of the underlying contracts could arise, which could impair our ability to effectively manage our risk exposures from these products and subject us to increased costs. The provisions of the Dodd-Frank Act requiring central clearing of credit derivatives and other OTC derivatives, or a market shift toward standardized derivatives, could reduce the risk associated with these transactions, but under certain circumstances could also limit our ability to develop derivatives that best suit the needs of our clients and to hedge our own risks, and could adversely affect our profitability and has increased our credit exposure to central clearing platforms.
Operational
A failure in our operational systems or infrastructure, or those of third parties, as well as human error, malfeasance or other misconduct, could impair our liquidity, disrupt our businesses, result in the disclosure of confidential information, damage our reputation and cause losses.
Our businesses are highly dependent on our ability to process and monitor, on a daily basis, a very large number of transactions, many of which are highly complex and occur at high volumes and frequencies, across numerous and diverse markets in many currencies. These transactions, as well as the information technology services we provide to clients, often must adhere to client-specific guidelines, as well as legal and regulatory standards.
Many rules and regulations worldwide govern our obligations to execute transactions and report such transactions and other information to regulators, exchanges and investors. Compliance with these legal and reporting requirements can be challenging, and we have been and may in the future be subject to regulatory fines and penalties for failing to follow these rules or to report timely, accurate and complete information in accordance with these rules. As such requirements expand, compliance with these rules and regulations has become more challenging.
| Goldman Sachs 2021 Form 10-K | 37 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
As our client base, including through our consumer businesses, and our geographical reach expand and the volume, speed, frequency and complexity of transactions, especially electronic transactions (as well as the requirements to report such transactions on a real-time basis to clients, regulators and exchanges) increase, developing and maintaining our operational systems and infrastructure becomes more challenging, and the risk of systems or human error in connection with such transactions increases, as well as the potential consequences of such errors due to the speed and volume of transactions involved and the potential difficulty associated with discovering errors quickly enough to limit the resulting consequences. Such risks are exacerbated in times of increased volatility. As with other similarly situated institutions, we utilize credit underwriting models in connection with our businesses, including our consumer-oriented activities. Allegations, whether or not accurate, that the ultimate underwriting decisions do not treat consumers or clients fairly, or comply with the applicable law or regulation, can result in negative publicity, reputational damage and governmental and regulatory scrutiny, investigations and enforcement actions.
Our financial, accounting, data processing or other operational systems and facilities may fail to operate properly or become disabled as a result of events that are wholly or partially beyond our control, such as a spike in transaction volume, adversely affecting our ability to process these transactions or provide these services. We must continuously update these systems to support our operations and growth and to respond to changes in regulations and markets, and invest heavily in systemic controls and training to pursue our objective of ensuring that such transactions do not violate applicable rules and regulations or, due to errors in processing such transactions, adversely affect markets, our clients and counterparties or us. Enhancements and updates to systems, as well as the requisite training, including in connection with the integration of new businesses, entail significant costs and create risks associated with implementing new systems and integrating them with existing ones.
The use of computing devices and phones is critical to the work done by our employees and the operation of our systems and businesses and those of our clients and our third-party service providers and vendors. Their importance has continued to increase, in particular in light of work-from-home arrangements implemented in response to the
COVID-19
pandemic. Computers and computer networks are subject to various risks, including, among others, cyber attacks, inherent technological defects, system failures and human error. For example, fundamental security flaws in computer chips found in many types of these computing devices and phones have been reported in the past and may be discovered in the future. Cloud technologies are also critical to the operation of our systems and platforms and our reliance on cloud technologies is growing. Service disruptions have resulted, and may result in the future, in delays in accessing, or the loss of, data that is important to our businesses and may hinder our clients’ access to our platforms. During 2021, there were a number of widely publicized cases of outages in connection with access to cloud computing providers. Addressing these and similar issues could be costly and affect the performance of these businesses and systems. Operational risks may be incurred in applying fixes and there may still be residual security risks.Additionally, although the prevalence and scope of applications of distributed ledger technology and similar technologies is growing, the technology is also nascent and may be vulnerable to cyber attacks or have other inherent weaknesses. We are exposed to risks, and may become exposed to additional risks, related to distributed ledger technology, including through our facilitation of clients’ activities involving financial products that use distributed ledger technology, such as blockchain or cryptocurrencies, our investments in companies that seek to develop platforms based on distributed ledger technology, the use of distributed ledger technology by third-party vendors, clients, counterparties, clearing houses and other financial intermediaries, and the receipt of cryptocurrencies or other digital assets as collateral.
| 38 | Goldman Sachs 2021 Form 10-K |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notwithstanding the proliferation of technology and technology-based risk and control systems, our businesses ultimately rely on people as our greatest resource, and, from time to time, they have in the past and may in the future make mistakes or engage in violations of applicable policies, laws, rules or procedures that are not always caught immediately by our technological processes or by our controls and other procedures, which are intended to prevent and detect such errors or violations. These have in the past and may in the future include calculation errors, mistakes in addressing emails, errors in software or model development or implementation, or simple errors in judgment, as well as intentional efforts to ignore or circumvent applicable policies, laws, rules or procedures. Human errors, malfeasance and other misconduct, including the intentional misuse of client information in connection with insider trading or for other purposes, even if promptly discovered and remediated, has in the past and may in the future result in reputational damage and losses and liabilities for us.
In addition, we face the risk of operational failure or significant operational delay, termination or capacity constraints of any of the clearing agents, exchanges, clearing houses or other financial intermediaries we use to facilitate our securities and derivatives transactions, and as our interconnectivity with our clients grows, we increasingly face the risk of operational failure or significant operational delay with respect to our clients’ systems.
There has been significant consolidation among clearing agents, exchanges and clearing houses and an increasing number of derivative transactions are cleared on exchanges, which has increased our exposure to operational failure or significant operational delay, termination or capacity constraints of the particular financial intermediaries that we use and could affect our ability to find adequate and cost-effective alternatives in the event of any such failure, delay, termination or constraint. Industry consolidation, whether among market participants or financial intermediaries, increases the risk of operational failure or significant operational delay as disparate complex systems need to be integrated, often on an accelerated basis.
The interconnectivity of multiple financial institutions with central agents, exchanges and clearing houses, and the increased centrality of these entities, increases the risk that an operational failure at one institution or entity may cause an industry-wide operational failure that could materially impact our ability to conduct business. Interconnectivity of financial institutions with other companies through, among other things, application programming interfaces or APIs presents similar risks. Any such failure, termination or constraint could adversely affect our ability to effect transactions, service our clients, manage our exposure to risk or expand our businesses or result in financial loss or liability to our clients, impairment of our liquidity, disruption of our businesses, regulatory intervention or reputational damage.
Despite our resiliency plans and facilities, our ability to conduct business may be adversely impacted by a disruption in the infrastructure that supports our businesses and the communities where we are located. This may include a disruption involving electrical, satellite, undersea cable or other communications, internet, transportation or other facilities used by us, our employees or third parties with which we conduct business, including cloud service providers. These disruptions may occur as a result of events that affect only our buildings or systems or those of such third parties, or as a result of events with a broader impact globally, regionally or in the cities where those buildings or systems are located, including, but not limited to, natural disasters, war, civil unrest, terrorism, economic or political developments, pandemics and weather events.
In addition, although we seek to diversify our third-party vendors to increase our resiliency, we are also exposed to the risk that a disruption or other information technology event at a common service provider to our vendors could impede their ability to provide products or services to us, including in connection with our new business initiatives. We may not be able to effectively monitor or mitigate operational risks relating to our vendors’ use of common service providers.
| Goldman Sachs 2021 Form 10-K | 39 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Aside from work-from-home arrangements during the
COVID-19
pandemic, nearly all of our employees in our primary locations, including the New York metropolitan area, London, Bengaluru, Hong Kong, Tokyo and Salt Lake City, work in close proximity to one another, in one or more buildings. Notwithstanding our efforts to maintain business continuity, given that our headquarters and the largest concentration of our employees are in the New York metropolitan area, and our two principal office buildings in the New York area both are located on the waterfront of the Hudson River, depending on the intensity and longevity of the event, a catastrophic event impacting our New York metropolitan area offices, including a terrorist attack, extreme weather event or other hostile or catastrophic event, could negatively affect our business. If a disruption occurs in one location and our employees in that location are unable to occupy our offices or communicate with or travel to other locations or successfully work remotely, our ability to service and interact with our clients may suffer, and we may not be able to successfully implement contingency plans that depend on communication, work-from-home arrangements or travel.A failure to protect our computer systems, networks and information, and our clients’ information, against cyber attacks and similar threats could impair our ability to conduct our businesses, result in the disclosure, theft or destruction of confidential information, damage our reputation and cause losses.
Our operations rely on the secure processing, storage and transmission of confidential and other information in our computer systems and networks and those of our vendors. There have been a number of highly publicized cases involving financial services companies, consumer-based companies, software and information technology service providers, governmental agencies and other organizations reporting the unauthorized access or disclosure of client, customer or other confidential information in recent years, as well as cyber attacks involving the dissemination, theft and destruction of corporate information or other assets, as a result of failure to follow procedures by employees or contractors or as a result of actions by third parties, including actions by foreign governments. There have also been several highly publicized cases where hackers have requested “ransom” payments in exchange for not disclosing customer information or for restoring access to information or systems.
We are regularly the target of attempted cyber attacks, includingattacks, and must continuously monitor and develop our systems to protect the integrity and functionality of our technology infrastructure and access to and the security of our data. We have faced an increasing number of attempted cyber attacks as we expand our mobile- and other internet-based products and services, as well as our usage of mobile and cloud technologies, and as we provide more of these services to a greater number of individual consumers. The increasing migration of our communication from devices we provide to employee-owned devices presents additional risks of cyber attacks, as do work-from-home arrangements such as those implemented in response to the
denial-of-service
COVID-19
pandemic. In addition, due to our interconnectivity with third-party vendors (and their respective service providers), central agents, exchanges, clearing houses and other financial institutions, we could be adversely impacted if any of them is subject to a successful cyber attack or other information security event. These impacts could include the loss of access to information or services from the third party subject to the cyber attack or other information security event, which could, in turn, interrupt certain of our businesses.Despite our efforts to ensure the integrity of our systems and information, we may not be able to anticipate, detect or implement effective preventive measures against all cyber threats, especially because the techniques used are increasingly sophisticated, change frequently and are often not recognized until launched. Cyber attacks can originate from a variety of sources, including third parties who are affiliated with or sponsored by foreign governments or are involved with organized crime or terrorist organizations. Third parties may also attempt to place individuals in our offices or induce employees, clients or other users of our systems to disclose sensitive information or provide access to our data or that of our clients, and these types of risks may be difficult to detect or prevent.
Although we take protective measures proactively and endeavor to modify them as circumstances warrant, our computer systems, software and networks may be vulnerable to unauthorized access, misuse, computer viruses or other malicious code, cyber attacks on our vendors and other events that could have a security impact. Risks relating to cyber attacks on our vendors have been increasing given the greater frequency and severity in recent years of supply chain attacks affecting software and information technology service providers. Due to the complexity and interconnectedness of our systems, the process of enhancing our protective measures can itself create a risk of systems disruptions and security issues. In addition, protective measures that we employ to compartmentalize our data may reduce our visibility into, and adversely affect our ability to respond to, cyber threats and issues with our systems.
| 40 | Goldman Sachs 2021 Form 10-K |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
If one or more of such events occur, this potentially could jeopardize our or our clients’ or counterparties’ confidential and other information processed, stored in, or transmitted through our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations or those of our clients, counterparties or third parties, which could impact their ability to transact with us or otherwise result in legal or regulatory action, significant losses or reputational damage. In addition, such an event could persist for an extended period of time before being detected, and, following detection, it could take considerable time for us to obtain full and reliable information about the extent, amount and type of information compromised. During the course of an investigation, we may not know the full impact of the event and how to remediate it, and actions, decisions and mistakes that are taken or made may further increase the negative effects of the event on our business, results of operations and reputation.
We have expended, and expect to continue to expend, significant resources on an ongoing basis to modify our protective measures and to investigate and remediate vulnerabilities or other exposures, but these measures may be ineffective and we may be subject to legal or regulatory action, as well as financial losses that are either not insured against or not fully covered through any insurance maintained by us.
Our clients’ confidential information may also be at risk from the compromise of clients’ personal electronic devices or as a result of a data security breach at an unrelated company. Losses due to unauthorized account activity could harm our reputation and may have adverse effects on our business, financial condition and results of operations.
The increased use of mobile and cloud technologies can heighten these and other operational risks, as can work-from-home arrangements. Certain aspects of the security of such technologies are unpredictable or beyond our control, and the failure by mobile technology and cloud service providers to adequately safeguard their systems and prevent cyber attacks could disrupt our operations and result in misappropriation, corruption or loss of confidential and other information. In addition, there is a risk that encryption and other protective measures, despite their sophistication, may be defeated, particularly to the extent that new computing technologies vastly increase the speed and computing power available.
We routinely transmit and receive personal, confidential and proprietary information by email and other electronic means. We have discussed and worked with clients, vendors, service providers, counterparties and other third parties to develop secure transmission capabilities and protect against cyber attacks, but we do not have, and may be unable to put in place, secure capabilities with all of our clients, vendors, service providers, counterparties and other third parties and we may not be able to ensure that these third parties have appropriate controls in place to protect the confidentiality of the information. An interception, misuse or mishandling of personal, confidential or proprietary information being sent to or received from a client, vendor, service provider, counterparty or other third party could result in legal liability, regulatory action and reputational harm.
We may incur losses as a result of ineffective risk management processes and strategies.
We seek to monitor and control our risk exposure through a risk and control framework encompassing a variety of separate but complementary financial, credit, operational, compliance and legal reporting systems, internal controls, management review processes and other mechanisms. Our risk management process seeks to balance our ability to profit from market-making, investing or lending positions, and underwriting activities, with our exposure to potential losses. While we employ a broad and diversified set of risk monitoring and risk mitigation techniques, those techniques and the judgments that accompany their application cannot anticipate every economic and financial outcome or the specifics and timing of such outcomes. Thus, in the course of our activities, we have incurred and may in the future incur losses. Market conditions in recent years have involved unprecedented dislocations and highlight the limitations inherent in using historical data to manage risk.
The models that we use to assess and control our risk exposures reflect assumptions about the degrees of correlation or lack thereof among prices of various asset classes or other market indicators. In times of market stress or other unforeseen circumstances, previously uncorrelated indicators may become correlated, or conversely previously correlated indicators may move in different directions. These types of market movements have at times limited the effectiveness of our hedging strategies and have caused us to incur significant losses, and they may do so in the future. These changes in correlation have been and may in the future be exacerbated where other market participants are using risk or trading models with assumptions or algorithms that are similar to ours. In these and other cases, it may be difficult to reduce our risk positions due to the activity of other market participants or widespread market dislocations, including circumstances where asset values are declining significantly or no market exists for certain assets.
| Goldman Sachs 2021 Form 10-K | 41 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
In addition, the use of models in connection with risk management and numerous other critical activities presents risks that such models may be ineffective, either because of poor design, ineffective testing, or improper or flawed inputs, as well as unpermitted access to such models resulting in unapproved or malicious changes to the model or its inputs.
To the extent that we have positions through our market-making or origination activities or we make investments directly through our investing activities, including private equity, that do not have an established liquid trading market or are otherwise subject to restrictions on sale or hedging, we may not be able to reduce our positions and therefore reduce our risk associated with those positions. In addition, to the extent permitted by applicable law and regulation, we invest our own capital in private equity, credit, real estate and hedge funds that we manage and limitations on our ability to withdraw some or all of our investments in these funds, whether for legal, reputational or other reasons, may make it more difficult for us to control the risk exposures relating to these investments.
Prudent risk management, as well as regulatory restrictions, may cause us to limit our exposure to counterparties, geographic areas or markets, which may limit our business opportunities and increase the cost of our funding or hedging activities.
As we have expanded and intend to continue to expand the product and geographic scope of our offerings of credit products to consumers, we are presented with different credit risks and must expand and adapt our credit risk monitoring and mitigation activities to account for these business activities. A failure to adequately assess and control such risk exposures could result in losses to us.
For further information about our risk management policies and procedures, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management” in Part II, Item 7 of this
Form 10-K.
We may incur losses as a result of unforeseen or catastrophic events, including pandemics, terrorist attacks, extreme weather events or other natural disasters.
The occurrence of unforeseen or catastrophic events, including pandemics, such as
COVID-19,
or other widespread health emergencies (or concerns over the possibility of such an emergency), terrorist attacks, extreme weather events, solar events or other natural disasters, could create economic and financial disruptions, and could lead to operational difficulties (including travel limitations and limitations on occupancy in our offices) that could impair our ability to manage our businesses.Climate change could disrupt our businesses and adversely affect client activity levels and the creditworthiness of our clients and counterparties, and our efforts to address concerns relating to climate change could result in damage to our reputation.
Climate change may cause extreme weather events that disrupt operations at one or more of our primary locations, which may negatively affect our ability to service and interact with our clients, adversely affect the value of our investments, including our real estate investments, and reduce the availability or increase the cost of insurance. Climate change and the transition to a less carbon-dependent economy may also have a negative impact on the operations or financial condition of our clients and counterparties, which may decrease revenues from those clients and counterparties and increase the credit risk associated with loans and other credit exposures to those clients and counterparties. In addition, climate change may impact the broader economy.
We are also exposed to risks resulting from changes in public policy, laws and regulations, or market and public perceptions and preferences in connection with the transition to a less carbon-dependent economy. These changes could adversely affect our business, results of operations and reputation. For example, our reputation and client relationships may be damaged as a result of our involvement, or our clients’ involvement, in certain industries or projects associated with causing or exacerbating climate change, as well as any decisions we make to continue to conduct or change our activities in response to considerations relating to climate change. If we are unable to achieve our objectives relating to climate change or our response to climate change is perceived to be ineffective or insufficient, our business, reputation and efforts to recruit and retain employees may suffer.
| 42 | Goldman Sachs 2021 Form 10-K |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
New regulations or guidance relating to climate change, as well as the perspectives of regulators, shareholders, employees and other stakeholders regarding climate change, may affect whether and on what terms and conditions we engage in certain activities or offer certain products. Federal and state, and
non-U.S.
banking regulators and supervisory authorities, shareholders and other stakeholders have increasingly viewed financial institutions as playing an important role in helping to address risks related to climate change, both directly and with respect to their clients, which may result in financial institutions coming under increased requirements and expectations regarding the disclosure and management of their climate risks and related lending, investment and advisory activities. We also may become subject to new or heightened regulatory requirements relating to climate change, such as requirements relating to operational resiliency or stress testing for various climate stress scenarios. Any such new or heightened requirements could result in increased regulatory, compliance or other costs or higher capital requirements. The risks associated with, and the perspective of regulators, shareholders, employees and other stakeholders regarding, climate change are continuing to evolve rapidly, which can make it difficult to assess the ultimate impact on us of climate change-related risks and uncertainties, and we expect that climate change-related risks will increase over time.Legal and Regulatory
Our businesses and those of our clients are subject to extensive and pervasive regulation around the world.
As a participant in the financial services industry and a systemically important financial institution, we are subject to extensive regulation in jurisdictions around the world. We face the risk of significant intervention by law enforcement, regulatory and taxing authorities, as well as private litigation, in all jurisdictions in which we conduct our businesses. In many cases, our activities have been and may continue to be subject to overlapping and divergent regulation in different jurisdictions. Among other things, as a result of law enforcement authorities, regulators or private parties challenging our compliance with existing laws and regulations, we or our employees have been, and could be, fined, criminally charged or sanctioned; prohibited from engaging in some of our business activities; subjected to limitations or conditions on our business activities, including higher capital requirements; or subjected to new or substantially higher taxes or other governmental charges in connection with the conduct of our businesses or with respect to our employees. These limitations or conditions may limit our business activities and negatively impact our profitability.
In addition to the impact on the scope and profitability of our business activities,compliance with existing laws and regulations has involved and will continue to involve significant amounts of time, including that of our senior leaders and that of a large number of dedicated compliance and other reporting and operational personnel, all of which may negatively impact our profitability.
day-to-day
Our revenues and profitability and those of our competitors have been and will continue to be impacted by requirements relating to capital, additional loss-absorbing capacity, leverage, minimum liquidity and long-term funding levels, requirements related to resolution and recovery planning, derivatives clearing and margin rules and levels of regulatory oversight, as well as limitations on which and, if permitted, how certain business activities may be carried out by financial institutions. The laws and regulations that apply to our businesses are often complex and, in many cases, we must make interpretive decisions regarding the application of those laws and regulations to our business activities. Changes in interpretations, whether in response to regulatory guidance, industry conventions, our own reassessments or otherwise, could adversely affect our businesses, results of operations or ability to satisfy applicable regulatory requirements, such as capital or liquidity requirements.
If there are new laws or regulations or changes in the interpretation or enforcement of existing laws or regulations applicable to our businesses or those of our clients, including capital, liquidity, leverage, long-term debt, total loss-absorbing capacity and margin requirements, restrictions on leveraged lending or other business practices, reporting requirements, requirements relating to recovery and resolution planning, tax burdens and compensation restrictions, that are imposed on a limited subset of financial institutions (whether based on size, method of funding, activities, geography or other criteria), compliance with these new laws or regulations, or changes in the enforcement of existing laws or regulations, could adversely affect our ability to compete effectively with other institutions that are not affected in the same way. In addition, regulation imposed on financial institutions or market participants generally, such as taxes on stock transfers and other financial transactions, could adversely impact levels of market activity more broadly, and thus impact our businesses. Changes to laws or regulations, such as tax laws, could also have a disproportionate impact on us, based on the way those laws or regulations are applied to financial services and financial firms or due to our corporate structure. For example, during the recent presidential election, the new U.S. administration offered tax policy ideas that if enacted would, among other things, increase the corporate tax rate and the U.S. tax rate on Global Intangible Low Taxed Income (GILTI). Any increase in the corporate tax rate or the U.S. tax on GILTI would increase our effective tax rate and provision for taxes, possibly materially.
| Goldman Sachs | 43 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
These developments could impact our profitability in the affected jurisdictions, or even make it uneconomic for us to continue to conduct all or certain of our businesses in those jurisdictions, or could cause us to incur significant costs associated with changing our business practices, restructuring our businesses, moving all or certain of our businesses and our employees to other locations or complying with applicable capital requirements, including reducing dividends or share repurchases, liquidating assets or raising capital in a manner that adversely increases our funding costs or otherwise adversely affects our shareholders and creditors.
U.S. andthosethe new credit and operational risk capital standards published in December 2017.2017 and the new market risk capital standard published in January 2019.
non-U.S.
regulatory developments, in particular the Dodd-Frank Act and Basel III, have significantly altered the regulatory framework within which we operate and have adversely affected and may in the future adversely affect our profitability. Among the aspects of the Dodd-Frank Act that have affected or may in the future affect our businesses are: increased capital, liquidity and reporting requirements; limitations on activities in which we may engage; increased regulation of and restrictions on OTC derivatives markets and transactions; limitations on incentive compensation; limitations on affiliate transactions; requirements to reorganize or limit activities in connection with recovery and resolution planning; increased deposit insurance assessments; and increased standards of care for broker-dealers and investment advisers in dealing with clients. The implementation of higher capital requirements, more stringent requirements relating to liquidity, long-term debt and total loss-absorbing capacity and the prohibition on proprietary trading and the sponsorship of, or investment in, covered funds by the Volcker Rule may continue to adversely affect our profitability and competitive position, particularly if these requirements do not apply equally to our competitors or are not implemented uniformly across jurisdictions. We may also become subject to higher and more stringent capital and other regulatory requirements as a result of the implementation of Basel Committee standards, including As described in “Business — Regulation — Banking Supervision and Regulation” in Part I, Item 1 of this as a consequence of our designation as a
Form 10-K,
the SCB has replaced the capital conservation buffer under the Standardized Capital Rules and resulted in higher Standardized capital ratio requirements. Failure to comply with these requirements could limit our ability to, among other things, repurchase shares, pay dividends and make certain discretionary compensation payments. In addition, if, as in 2020, we are required to resubmit our capital plan, we generally may not make capital distributions, such as share repurchases or dividends, without the prior approval of the FRB. Dividends and repurchases are also subject to oversight by the FRB, which can result in limitations. Limitations on our ability to make capital distributions could, among other things, prevent us from returning capital to our shareholders and impact our return on equity. Additionally,G-SIB,
we are subject to theG-SIB
surcharge. OurG-SIB
surcharge is updated annually based on financial data from the prior year. Expansion of our businesses, growth in our balance sheet and increased reliance on short-term wholesale funding have resulted in increases and in the future may result in further increases in ourG-SIB
surcharge and a corresponding increase in our capital requirements.We are also subject to laws and regulations, such as the GDPR and the California Consumer Privacy Act, relating to the privacy of the information of clients, employees or others, and any failure to comply with these laws and regulations could expose us to liability and/or reputational damage. As new privacy-related laws and regulations are implemented, the time and resources needed for us to comply with such laws and regulations, as well as our potential liability for
non-compliance
and reporting obligations in the case of data breaches, may significantly increase.In addition, our businesses are increasingly subject to laws and regulations relating to surveillance, encryption and data
on-shoring
in the jurisdictions in which we operate. Compliance with these laws and regulations may require us to change our policies, procedures and technology for information security, which could, among other things, make us more vulnerable to cyber attacks and misappropriation, corruption or loss of information or technology.| 44 | Goldman Sachs |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
We have entered into consumer-oriented deposit-taking, lending and credit card businesses, and we expect to expand the product and geographic scope of our offerings. Entering into these businesses subjects us to numerous additional regulations in the jurisdictions in which these businesses operate. Not only are these regulations extensive, but they involve types of regulations and supervision, as well as regulatory compliance risks, that have not historically applied to us. The level of regulatory scrutiny and the scope of regulations affecting financial interactions with consumers is often much greater than that associated with doing business with institutions andindividuals. Complying with these regulations is time-consuming, costly and presents new and increased risks.
high-net-worth
Increasingly, regulators and courts have sought to hold financial institutions liable for the misconduct of their clients where they have determined that the financial institution should have detected that the client was engaged in wrongdoing, even though the financial institution had no direct knowledge of the activities engaged in by its client. Regulators and courts have also increasingly found liability as a “control person” for activities of entities in which financial institutions or funds controlled by financial institutions have an investment, but which they do not actively manage. In addition, regulators and courts continue to seek to establish “fiduciary” obligations to counterparties to which no such duty had been assumed to exist. To the extent that such efforts are successful, the cost of, and liabilities associated with, engaging in brokerage, clearing, market-making, prime brokerage, investing and other similar activities could increase significantly. To the extent that we have fiduciary obligations in connection with acting as a financial adviser or investment adviser or in other roles for individual, institutional, sovereign or investment fund clients, any breach, or even an alleged breach, of such obligations could have materially negative legal, regulatory and reputational consequences.
For information about the extensive regulation to which our businesses are subject, see “Business — Regulation” in Part I, Item 1 of this
Form 10-K.
A failure to appropriately identify and address potential conflicts of interest could adversely affect our businesses.
Due to the broad scope of our businesses and our client base, we regularly address potential conflicts of interest, including situations where our services to a particular client or our own investments or other interests conflict, or are perceived to conflict, with the interests of that client or another client, as well as situations where one or more of our businesses have access to material
non-public
information that may not be shared with our other businesses and situations where we may be a creditor of an entity with which we also have an advisory or other relationship.In addition, our status as a BHC subjects us to heightened regulation and increased regulatory scrutiny by the FRB with respect to transactions between GS Bank USA and its subsidiaries and entities that are or could be viewed as affiliates of ours and, under the Volcker Rule, transactions between us and covered funds.
We have extensive procedures and controls that are designed to identify and address conflicts of interest, including those designed to prevent the improper sharing of information among our businesses. However, appropriately identifying and dealing with conflicts of interest is complex and difficult, and our reputation, which is one of our most important assets, could be damaged and the willingness of clients to enter into transactions with us may be adversely affected if we fail, or appear to fail, to identify, disclose and deal appropriately with conflicts of interest. In addition, potential or perceived conflicts could give rise to litigation or regulatory enforcement actions. Additionally, ourinitiative aims to increase collaboration among our businesses, which may increase the potential for actual or perceived conflicts of interest and improper information sharing.
One Goldman Sachs
We may be adversely affected by increased governmental and regulatory scrutiny or negative publicity.
Governmental scrutiny from regulators, legislative bodies and law enforcement agencies with respect to matters relating to compensation, our business practices, our past actions and other matters has increased dramatically.remains at high levels. Political and public sentiment regarding financial institutions has in the past and may in the future result in a significant amount of adverse press coverage, as well as adverse statements or charges by regulators or other government officials. Press coverage and other public statements that assert some form of wrongdoing (including, in some cases, press coverage and public statements that do not directly involve us) often result in some type of investigation by regulators, legislators and law enforcement officials or in lawsuits.
| Goldman Sachs 2021 Form 10-K | 45 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Responding to these investigations and lawsuits, regardless of the ultimate outcome of the proceeding, is time-consuming and expensive and can divert the time and effort of our senior management from our business. Penalties and fines sought by regulatory authorities have increased substantially over the last several years, and certain regulators have been more likely in recent years to commence enforcement actions or to advance or support legislation targeted at the financial services industry. Governmental authorities may also be more likely to pursue criminal or other actions, including seeking admissions of wrongdoing or guilty pleas, in connection with the resolution of an inquiry or investigation to the extent a company is viewed as having previously engaged in criminal, regulatory or other misconduct. Adverse publicity, governmental scrutiny and legal and enforcement proceedings can also have a negative impact on our reputation and on the morale and performance of our employees, which could adversely affect our businesses and results of operations.
The financial services industry generally and our businesses in particular have been subject to negative publicity. Our reputation and businesses may be adversely affected by negative publicity or information regarding our businesses and personnel, whether or not accurate or true, that may be posted on social media or other internet forums or published by news organizations. Postings on these types of forums may also adversely impact risk positions of our clients and other parties that owe us money, securities or other assets and increase the chance that they will not perform their obligations to us or reduce the revenues we receive from their use of our services. The speed and pervasiveness with which information can be disseminated through these channels, in particular social media, may magnify risks relating to negative publicity.
Substantial civil or criminal liability or significant regulatory action against us could have material adverse financial effects or cause us significant reputational harm, which in turn could seriously harm our business prospects.
We face significant legal risks in our businesses, and the volume of claims and amount of damages and penalties claimed in litigation and regulatory proceedings against financial institutions remain high. See Notes 18 and 27 to the consolidated financial statements in Part II, Item 8 of this
Form 10-K
for information about certain of our legal and regulatory proceedings and investigations. We have seen legal claims by consumers and clients increase in a market downturn and employment-related claims increase following periods in which we have reduced our headcount. Additionally, governmental entities have been plaintiffs and are parties in certain of our legal proceedings, and we may face future civil or criminal actions or claims by the same or other governmental entities, as well asfollow-on
civil litigation that is often commenced after regulatory settlements.Significant settlements by several large financial institutions, including, in some cases, us, with governmental entities have been publicly announced. The trend of large settlements with governmental entities may adversely affect the outcomes for other financial institutions in similar actions, especially where governmental officials have announced that the large settlements will be used as the basis or a template for other settlements. The uncertain regulatory enforcement environment makes it difficult to estimate probable losses, which can lead to substantial disparities between legal reserves and subsequent actual settlements or penalties.
Claims of collusion or anti-competitive conduct have become more common. Civil cases have been brought against financial institutions (including us) alleging bid rigging,
bid-rigging,
group boycotts or other anti-competitive practices. Antitrust laws generally provide for joint and several liability and treble damages. These claims have resulted in significant settlements in the past and may do so in the future.We are subject to laws and regulations worldwide, including the FCPA and the U.K. Bribery Act, relating to corrupt and illegal payments to, and hiring practices with regard to, government officials and others. Violation of these or similar laws and regulations have in the past resulted in and could in the future result in significant monetary penalties. Such violations could also result in severe restrictions on our activities and damage to our reputation.
Certain law enforcement authorities have recently required admissions of wrongdoing, and, in some cases, criminal pleas, as part of the resolutions of matters brought against financial institutions or their employees. See for example, “1MDB-Related Matters” in Note 27 to the consolidated financial statements in Part II, Item 8 of thiscould placeplaces limitations on the manner in which we can market our securities.
Form 10-K.
Any such resolution of a criminal matter involving us or our employees could lead to increased exposure to civil litigation, could adversely affect our reputation, could result in penalties or limitations on our ability to conduct our activities generally or in certain circumstances and could have other negative effects. Further, as a result of the 1MDB settlement, we are no longer a “well-known seasoned issuer,” which | 46 | Goldman Sachs 2021 Form 10-K |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
In conducting our businesses around the world, we are subject to political, legal, regulatory and other risks that are inherent in operating in many countries.
In conducting our businesses and supporting our global operations, we are subject to risks of possible nationalization, expropriation, price controls, capital controls, exchange controls, communications and other content restrictions, and other restrictive governmental actions. For example, sanctions have been imposed by the U.S. and the E.U. on certain individuals and companies in Russia and Venezuela. In many countries, the laws and regulations applicable to the securities and financial services industries and many of the transactions in which we are involved are uncertain and evolving, and it may be difficult for us to determine the exact requirements of local laws in every market. We are alsohave been in some cases subject to the risk that our businesses may be subject to divergent and conflicting laws and regulations across markets, and we are increasingly subject to the risk that the jurisdictions in which we operate may implement laws and regulations that directly conflict with those of another jurisdiction. Any determination by local regulators that we have not acted in compliance with the application of local laws in a particular market or our failure to develop effective working relationships with local regulators could have a significant and negative effect not only on our businesses in that market, but also on our reputation generally. Further, in some jurisdictions a failure, or alleged failure, to comply with laws and regulations has subjected and may in the future subject us and our personnel not only to civil actions, but also criminal actions and other sanctions. We are also subject to the enhanced risk that transactions we structure might not be legally enforceable in all cases.
While business and other practices throughout the world differ, our principal entities are subject in their operations worldwide to rules and regulations relating to corrupt and illegal payments, hiring practices and money laundering, as well as laws relating to doing business with certain individuals, groups and countries, such as the FCPA, the USA PATRIOT ActBSA and the U.K. Bribery Act. While we have invested and continue to invest significant resources in training and in compliance monitoring, the geographical diversity of our operations, employees, clients and consumers, as well as the vendors and other third parties that we deal with, greatly increases the risk that we may be found in violation of such rules or regulations and any such violation could subject us to significant penalties or adversely affect our reputation. See for example, “1MDB-Related Matters” in Note 27 to the consolidated financial statements in Part II, Item 8 of this
Form 10-K.
In addition, there have been a number of highly publicized cases around the world, involving actual or alleged fraud or other misconduct by employees in the financial services industry, in recent years, and we have had and may in the future have employee misconduct. This misconduct has included and may also in the future include intentional efforts to ignore or circumvent applicable policies, rules or procedures or misappropriation of funds and the theft of proprietary information, including proprietary software. It is not always possible to deter or prevent employee misconduct and the precautions we take to prevent and detect this activity have not been and may not be effective in all cases, as reflected by the settlements relating to 1MDB.
The application of regulatory strategies and requirements in the U.S. and
non-U.S.
jurisdictions to facilitate the orderly resolution of large financial institutions could create greater risk of loss for Group Inc.’s security holders.As described in “Business — Regulation — Banking Supervision and Regulation — Insolvency of an IDI or a BHC,” if the FDIC is appointed as receiver under OLA, the rights of Group Inc.’s creditors would be determined under OLA, and substantial differences exist in the rights of creditors between OLA and the U.S. Bankruptcy Code, including the right of the FDIC under OLA to disregard the strict priority of creditor claims in some circumstances, which could have a material adverse effect on our debtholders.
The FDIC has announced that a single point of entry strategy may be a desirable strategy under OLA to resolve a large financial institution in a manner that would, among other things, impose losses on shareholders, debtholders and other creditors of the
top-tier
BHC (in our case, Group Inc.), while the BHC’s subsidiaries may continue to operate. It is possible that the application of the single point of entry strategy under OLA, in which Group Inc. would be the only entity to enter resolution proceedings (and its material broker-dealer, bank and other operating entities would not enter resolution proceedings), would result in greater losses to Group Inc.’s security holders (including holders of our fixed rate, floating rate and indexed debt securities), than the losses that would result from the application of a bankruptcy proceeding or a different resolution strategy, such as a multiple point of entry resolution strategy for Group Inc. and certain of its material subsidiaries.| Goldman Sachs 2021 Form 10-K | 47 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Assuming Group Inc. entered resolution proceedings and that support from Group Inc. or other available resources to its subsidiaries was sufficient to enable the subsidiaries to remain solvent, losses at the subsidiary level would be transferred to Group Inc. and ultimately borne by Group Inc.’s security holders, third-party creditors of Group Inc.’s subsidiaries would receive full recoveries on their claims, and Group Inc.’s security holders (including our shareholders, debtholders and other unsecured creditors) could face significant and possibly complete losses. In that case, Group Inc.’s security holders would face losses while the third-party creditors of Group Inc.’s subsidiaries would incur no losses because the subsidiaries would continue to operate and would not enter resolution or bankruptcy proceedings. In addition, holders of Group Inc.’s eligible long-term debt and holders of Group Inc.’s other debt securities could face losses ahead of its other similarly situated creditors in a resolution under OLA if the FDIC exercised its right, described above, to disregard the priority of creditor claims.
OLA also provides the FDIC with authority to cause creditors and shareholders of the financial company in receivership to bear losses before taxpayers are exposed to such losses, and amounts owed to the U.S. government would generally receive a statutory payment priority over the claims of private creditors, including senior creditors.
In addition, under OLA, claims of creditors (including debtholders) could be satisfied through the issuance of equity or other securities in a bridge entity to which Group Inc.’s assets are transferred. If such aexchange were implemented, there can be no assurance that the value of the securities of the bridge entity would be sufficient to repay or satisfy all or any part of the creditor claims for which the securities were exchanged. While the FDIC has issued regulations to implement OLA, not all aspects of how the FDIC might exercise this authority are known and additional rulemaking is possible.
securities-for-claims
In addition, certain jurisdictions, including the U.K. and the E.U., have implemented or are considering, changes to resolution regimes to provide resolution authorities with the ability to recapitalize a failing entity by writing down its unsecured debt or converting its unsecured debt into equity. Such
“bail-in”
powers are intended to enable the recapitalization of a failing institution by allocating losses to its shareholders and unsecured debtholders. For example, the Bank of England requires a certain amount of intercompany funding that we provide to our material U.K. subsidiaries to contain a contractual trigger to expressly permit the Bank of England to exercise such“bail-in”
powers in certain circumstances. If the intercompany funding we provide to our subsidiaries is “bailed in,” Group Inc.’s claims on its subsidiaries would be subordinated to the claims of the subsidiaries’ third-party creditors or written down. U.S. regulators are considering andnon-U.S.
authorities have adopted requirements that certain subsidiaries of large financial institutions maintain minimum amounts of total loss-absorbing capacity that would pass losses up from the subsidiaries to thetop-tier
BHC and, ultimately, to security holders of thetop-tier
BHC in the event of failure.The application of Group Inc.’s proposed resolution strategy could result in greater losses for Group Inc.’s security holders.
In our resolution plan, Group Inc. would be resolved under the U.S. Bankruptcy Code. The strategy described in our resolution plan is a variant of the single point of entry strategy: Group Inc. and Goldman Sachs Funding LLC (Funding IHC), a wholly-owned, direct subsidiary of Group Inc., would recapitalize and provide liquidity to certain major subsidiaries, including through the forgiveness of intercompany indebtedness, the extension of the maturities of intercompany indebtedness and the extension of additional intercompany loans. If this strategy were successful, creditors of some or all of Group Inc.’s major subsidiaries would receive full recoveries on their claims, while Group Inc.’s security holders could face significant and possibly complete losses.
To facilitate the execution of our resolution plan, we formed Funding IHC. In exchange for an unsecured subordinated funding note and equity interest, Group Inc. transferred certain intercompany receivables and substantially all of its global core liquid assets (GCLA)GCLA to Funding IHC, and agreed to transfer additional GCLA above prescribed thresholds.
| 48 | Goldman Sachs 2021 Form 10-K |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
We also put in place a Capital and Liquidity Support Agreement (CLSA) among Group Inc., Funding IHC and our major subsidiaries. Under the CLSA, Funding IHC has provided Group Inc. with a committed line of credit that allows Group Inc. to draw sufficient funds to meet its cash needs during the ordinary course of business. In addition, if our financial resources deteriorate so severely that resolution may be imminent, (i) the committed line of credit will automatically terminate and the unsecured subordinated funding note will automatically be forgiven, (ii) all intercompany receivables owed by the major subsidiaries to Group Inc. will be transferred to Funding IHC or their maturities will be extended to five years, (iii) Group Inc. will be obligated to transfer substantially all of its remaining intercompany receivables and GCLA (other than an amount to fund anticipated bankruptcy expenses) to Funding IHC, and (iv) Funding IHC will be obligated to provide capital and liquidity support to the major subsidiaries. Group Inc.’s and Funding IHC’s obligations under the CLSA are secured pursuant to a related security agreement. Such actions would materially and adversely affect Group Inc.’s liquidity. As a result, during a period of severe stress, Group Inc. might commence bankruptcy proceedings at an earlier time than it otherwise would if the CLSA and related security agreement had not been implemented.
If Group Inc.’s proposed resolution strategy were successful, Group Inc.’s security holders could face losses while the third-party creditors of Group Inc.’s major subsidiaries would incur no losses because those subsidiaries would continue to operate and not enter resolution or bankruptcy proceedings. As part of the strategy, Group Inc. could also seek to elevate the priority of its guarantee obligations relating to its major subsidiaries’ derivative contracts or transfer them to another entity so that cross-default and early termination rights would be stayed under the ISDA Protocols, as applicable, which would result in holders of Group Inc.’s eligible long-term debt and holders of Group Inc.’s other debt securities incurring losses ahead of the beneficiaries of those guarantee obligations. It is also possible that holders of Group Inc.’s eligible long-term debt and other debt securities could incur losses ahead of other similarly situated creditors of Group Inc.’s major subsidiaries.
If Group Inc.’s proposed resolution strategy were not successful, Group Inc.’s financial condition would be adversely impacted and Group Inc.’s security holders, including debtholders, may as a consequence be in a worse position than if the strategy had not been implemented. In all cases, any payments to debtholders are dependent on our ability to make such payments and are therefore subject to our credit risk.
As a result of our recovery and resolution planning processes, including incorporating feedback from our regulators, we may incur increased operational, funding or other costs and face limitations on our ability to structure our internal organization or engage in internal or external activities in a manner that we may otherwise deem most operationally efficient.
Our commodities activities, particularly our physical commodities activities, subject us to extensive regulation and involve certain potential risks, including environmental, reputational and other risks that may expose us to significant liabilities and costs.
As part of our commodities business, we purchase and sell certain physical commodities, arrange for their storage and transport, and engage in market making of commodities. The commodities involved in these activities may include crude oil, refined oil products, natural gas, liquefied natural gas, electric power, agricultural products, metals (base and precious), minerals (including unenriched uranium), emission credits, coal, freight and related products and indices.
We make investments in and finance entities that engage in the production, storage and transportation of numerous commodities, including many of the commodities referenced above.
These activities subject us and/or the entities in which we invest to extensive and evolving federal, state and local energy, environmental, antitrust and other governmental laws and regulations worldwide, including environmental laws and regulations relating to, among others, air quality, water quality, waste management, transportation of hazardous substances, natural resources, site remediation and health and safety. Additionally, rising climate change concerns have led to additional regulation that could increase the operating costs and adversely affect the profitability of certain of our investments.
There may be substantial costs in complying with current or future laws and regulations relating to our commodities-related activities and investments. Compliance with these laws and regulations could require significant commitments of capital toward environmental monitoring, renovation of storage facilities or transport vessels, payment of emission fees and carbon or other taxes, and application for, and holding of, permits and licenses.
| Goldman Sachs 2021 Form 10-K | 49 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Commodities involved in our intermediation activities and investments are also subject to the risk of unforeseen or catastrophic events, which are likely to be outside of our control, including those arising from the breakdown or failure of transport vessels, storage facilities or other equipment or processes or other mechanical malfunctions, fires, leaks, spills or release of hazardous substances, performance below expected levels of output or efficiency, terrorist attacks, extreme weather events or other natural disasters or other hostile or catastrophic events. In addition, we rely on third-party suppliers or service providers to perform their contractual obligations and any failure on their part, including the failure to obtain raw materials at reasonable prices or to safely transport or store commodities, could expose us to costs or losses. Also, while we seek to insure against potential risks, we may not be able to obtain insurance to cover some of these risks and the insurance that we have may be inadequate to cover our losses.
The occurrence of any of such events may prevent us from performing under our agreements with clients, may impair our operations or financial results and may result in litigation, regulatory action, negative publicity or other reputational harm.
We may also be required to divest or discontinue certain of these activities for regulatory or legal reasons.reasons or due to the transition to a less carbon-dependent economy in response to climate change.
Competition
Our results have been and may in the future be adversely affected by the composition of our client base.
Our client base is not the same as that of our major competitors. Our businesses may have a higher or lower percentage of clients in certain industries or markets than some or all of our competitors. Therefore, unfavorable industry developments or market conditions affecting certain industries or markets have resulted in the past and may result in the future in our businesses underperforming relative to similar businesses of a competitor if our businesses have a higher concentration of clients in such industries or markets. For example, our market-making businesses have a higher percentage of clients with actively managed assets than some of our competitors and such clients have in the past and may in the future be disproportionately affected by low volatility.
Correspondingly, favorable or simply less adverse developments or market conditions involving industries or markets in a business where we have a lower concentration of clients in such industry or market have also resulted in the past and may result in the future in our underperforming relative to a similar business of a competitor that has a higher concentration of clients in such industry or market. For example, we have a smaller corporate client base in our market-making businesses than manysome of our peers and therefore those competitors may benefit more from increased activity by corporate clients. Similarly, we have not historically engaged in retail equities intermediation to the same extent as other financial institutions, which has in the past and could in the future adversely affect our market share in equities execution.
The financial services industry is highly competitive.
The financial services industry and all of our businesses are intensely competitive, and we expect them to remain so. We compete on the basis of a number of factors, including transaction execution, our products and services, innovation, reputation, creditworthiness and price. There has been substantial consolidation and convergence among companies in the financial services industry. This has hastened the globalization of the securities and other financial services markets. As a result, we have had to commit capital to support our international operations and to execute large global transactions. To the extent we expand into new business areas and new geographic regions, we will face competitors with more experience and more established relationships with clients, regulators and industry participants in the relevant market, which could adversely affect our ability to expand.
Governments and regulators have adopted regulations, imposed taxes, adopted compensation restrictions or otherwise put forward various proposals that have impacted or may impact our ability to conduct certain of our businesses in a cost-effective manner or at all in certain or all jurisdictions, including proposals relating to restrictions on the type of activities in which financial institutions are permitted to engage. These or other similar rules, many of which do not apply to all our U.S. or
non-U.S.
competitors, could impact our ability to compete effectively.Pricing and other competitive pressures in our businesses have continued to increase, particularly in situations where some of our competitors may seek to increase market share by reducing prices. For example, in connection with investment banking and other assignments, in response to competitive pressure we have experienced, we have extended and priced credit at levels that may not always fully compensate us for the risks we take.
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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
The financial services industry is highly interrelated in that a significant volume of transactions occur among a limited number of members of that industry. Many transactions are syndicated to other financial institutions and financial institutions are often counterparties in transactions. This has led to claims by other market participants and regulators that such institutions have colluded in order to manipulate markets or market prices, including allegations that antitrust laws have been violated. While we have extensive procedures and controls that are designed to identify and prevent such activities, allegations of such activities, particularly by regulators, can have a negative reputational impact and can subject us to large fines and settlements, and potentially significant penalties, including treble damages.
The growth of electronic trading and the introduction of new products and technologies, including trading technologytechnologies and cryptocurrencies, has increased competition.
Technology is fundamental to our business and our industry. The growth of electronic trading and the introduction of new technologies is changing our businesses and presenting us with new challenges. Securities, futures and options transactions are increasingly occurring electronically, both on our own systems and through other alternative trading systems, and it appears that the trend toward alternative trading systems will continue. Some of these alternative trading systems compete with us, particularly our exchange-based market-making activities, and we may experience continued competitive pressures in these and other areas. In addition, the increased use by our clients of
low-cost
electronic trading systems and direct electronic access to trading markets could cause a reduction in commissions and spreads. As our clients increasingly use our systems to trade directly in the markets, we may incur liabilities as a result of their use of our order routing and execution infrastructure.We have invested significant resources into the development of electronic trading systems and expect to continue to do so, but there is no assurance that the revenues generated by these systems will yield an adequate return, particularly given the generally lower commissions arising from electronic trades.
In addition, the emergence, adoption and evolution of new technologies, including distributed ledgers, such as cryptocurrencies and blockchain, have required us to invest resources to adapt our existing products and services, and we expect to continue to make such investments, which could be material. The adoption and evolution of such new technologies may also increase our compliance and regulatory costs. Further, technologies, such as cryptocurrencies, that do not require intermediation could also significantly disrupt payments processing and other financial services. Regulatory limitations on our involvement in products and platforms involving technologies such as cryptocurrencies may not apply equally or in some cases at all to certain of our competitors. We may not be as timely or successful in developing or integrating, or even able to develop or integrate, new products and technologies, such as cryptocurrencies, into our existing products and services, adapting to changes in consumer preferences or achieving market acceptance of our products and services, any of which could affect our ability to attract or retain clients, cause us to lose market share or result in service disruptions and in turn reduce our revenues or otherwise adversely affect us.
Our businesses would be adversely affected if we are unable to hire and retain qualified employees.
Our performance is largely dependent on the talents and efforts of highly skilled people; therefore, our continued ability to compete effectively in our businesses, to manage our businesses effectively and to expand into new businesses and geographic areas depends on our ability to attract new talented and diverse employees and to retain and motivate our existing employees. Factors that affect our ability to attract and retain such employees include the level and composition of our compensation and benefits, and our reputation as a successful business with a culture of fairly hiring, training and promoting qualified employees. As a significant portion of the compensation that we pay to our employees is in the form of
year-end
discretionary compensation, a significant portion of which is in the form of deferred equity-related awards, declines in our profitability, or in the outlook for our future profitability, as well as regulatory limitations on compensation levels and terms, can negatively impact our ability to hire and retain highly qualified employees.| Goldman Sachs 2021 Form 10-K | 51 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Competition from within the financial services industry and from businesses outside the financial services industry, including the technology industry, for qualified employees has often been intense. We have experienced increased competition in hiring and retaining employees to address the demands of, new regulatory requirements, expanding consumer-oriented businesses and our technology initiatives. This is also the case in emerging and growth markets, where we are often competing for qualified employees with entities that have a significantly greater presence or more extensive experience in the region.
Changes in law or regulation in jurisdictions in which our operations are located that affect taxes on our employees’ income, or the amount or composition of compensation, may also adversely affect our ability to hire and retain qualified employees in those jurisdictions.
As described further in “Business — Regulation —Compensation— Compensation Practices” in Part I, Item 1 of thisour competitors)the companies with which we compete for talent) by the FRB, the PRA, the FCA, the FDIC and other regulators worldwide. These limitations including any imposed by or as a result of future legislation or regulation, may require us to alterhave shaped our compensation practices, which has in ways that couldsome cases adversely affectaffected our ability to attract and retain talented employees.employees, in particular in relation to companies not subject to these limitations, and future legislation or regulation may have similar adverse effects.
Form 10-K,
our compensation practices are subject to review by, and the standards of, the FRB. As a large global financial and banking institution, we are subject to limitations on compensation practices (which may or may not affect Our operating expenses and efficiency ratio depend, in part, on our overall headcount and the proportion of our employees located in strategic locations. Our future human capital resource requirements and the benefits provided by strategic locations are uncertain, and we may not realize the benefits we anticipate.
Market Developments and General Business Environment
Our businesses, financial condition, liquidity and results of operations have been and may in the future be adversely affected by the
COVID-19
pandemic.The
COVID-19
pandemic created economic and financial disruptions that have in the past adversely affected and may in the future adversely affect our business, financial condition, liquidity and results of operations. The extent to which theCOVID-19
pandemic will negatively affect our businesses, financial condition, liquidity and results of operations will depend on future developments, including the emergence of new variants ofCOVID-19
and the effectiveness of vaccines and treatments over the long term and against new variants, which are highly uncertain and cannot be predicted.While financial markets have rebounded from the significant declines that occurred early in the pandemic and global economic conditions generally improved in 2021, certain of the circumstances that arose or became more pronounced after the onset of the
COVID-19
pandemic persisted in 2021, including (i) relatively weak consumer confidence; (ii) low levels of the federal funds rate and yields on U.S. Treasury securities which, at times, were near zero; (iii) ongoing heightened credit risk with regard to industries that have been most severely impacted by the pandemic, including, at times, oil and gas, gaming and lodging, and airlines; (iv) significant interest at times by investors in liquidity products, which generate lower fees, relative to risk assets, resulting in these products comprising a higher share of AUS as compared to thepre-pandemic
composition; (v) higher cyber security, information security and operational risks; and (vi) interruptions in the supply chain that have adversely affected many businesses and have contributed to higher rates of inflation.| 52 | Goldman Sachs 2021 Form 10-K |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Depending on the duration and severity of the pandemic going forward, as well as the effects of the pandemic on consumer and corporate confidence, the conditions noted above could continue for an extended period and other adverse developments may occur or reoccur, including (i) a repeat, or worse, of the decline in the valuation of equity, fixed-income and commodity markets that occurred at the outset of the pandemic; (ii) market dislocations that may make hedging strategies less effective or ineffective; (iii) a reduction in fees on AUS due to declines in the valuation of assets or a protracted trend toward asset classes that generate lower fees; (iv) disruption in the new issuance markets for debt and equity, leading to a decline in underwriting volumes; (v) declines in completed mergers and acquisitions; (vi) a deterioration in the liquidity profile of corporate borrowers, resulting in additional draws on credit lines; (vii) defaults by consumers or corporate clients on loans; (viii) changes in consumer spending or borrowing patterns; and (ix) greater challenges in valuing derivative positions and associated collateral, leading to significant increases in collateral calls and valuation disputes.
The effects of the
COVID-19
pandemic on economic and market conditions have in the past and may in the future also increase demands on our liquidity as we meet client needs. Likewise, these adverse developments have in the past and may in the future affect our capital and leverage ratios. The effects of theCOVID-19
pandemic and FRB requirements have in the past limited and may in the future limit capital distributions.Governmental authorities worldwide have taken increased measures to stabilize the markets and support economic growth. The continued success of these measures is unknown and they may not be sufficient to address future market dislocations or avert severe and prolonged reductions in economic activity.
Certain of our businesses, our funding instruments and financial products may be adversely affected by changes in or the discontinuance of Interbank Offered Rates (IBORs), in particular LIBOR.
The FCA and the administrator of LIBOR have announced that the publication of the most commonly used USD LIBOR settings will cease to be provided or cease to be representative after June 30, 2023. The publication of all other LIBOR settings ceased to be provided or ceased to be representative as of December 31, 2021. The U.S. federal banking agencies had also issued guidance strongly encouraging banking organizations to cease using the USD LIBOR as a reference rate in new contracts by December 31, 2021 at the latest. As the transition from LIBOR is ongoing, there continues to be substantial uncertainty as to the ultimate effect of the transition on the financial markets for LIBOR-linked financial instruments. Similar developments have occurred with respect to other IBORs.
Uncertainty regarding IBORs and the taking of discretionary actions or negotiation or implementation of fallback provisions could result in pricing volatility, loss of market share in certain products, adverse tax or accounting impacts, compliance, legal and operational costs and risks associated with client disclosures, as well as systems disruption, model disruption and other business continuity issues. In addition, uncertainty relating to IBORs could result in increased capital requirements for us given potential low transaction volumes, a lack of liquidity or limited observability for exposures linked to IBORs or any emerging successor rates and operational incidents associated with changes in and the discontinuance of IBORs.
The language in our contracts and financial instruments that define IBORs, in particular LIBOR, have developed over time and have various events that trigger when a successor rate to the designated rate would be selected. Once a trigger is satisfied, contracts and financial instruments often give the calculation agent (which may be us) discretion over the successor rate or benchmark to be selected. As a result, for the most commonly used USD LIBOR settings, there continues to be considerable uncertainty as to how the financial services industry will address the discontinuance of designated rates in contracts and financial instruments or such designated rates ceasing to be acceptable reference rates. This uncertainty could ultimately result in client disputes and litigation surrounding the proper interpretation of our IBOR-based contracts and financial instruments. For LIBOR settings that ceased to be provided or ceased to be representative as of December 2021, discretionary actions taken in connection with the implementation of fallback provisions could also result in client disputes and litigation particularly for derivatives and other synthetic instruments. Although we have adhered to the ISDA IBOR Fallbacks Protocol, the protocol is applicable to derivatives when both parties adhere to the protocol or otherwise agree for it to apply to their derivatives.
| Goldman Sachs 2021 Form 10-K | 53 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Further, the discontinuation of an IBOR, changes in an IBOR or changes in market acceptance of any IBOR as a reference rate may also adversely affect the yield on loans or securities held by us, amounts paid on securities we have issued, amounts received and paid on derivative instruments we have entered into, the value of such loans, securities or derivative instruments, the trading market for securities, the terms of new loans being made using different or modified reference rates, our ability to effectively use derivative instruments to manage risk, or the availability or cost of our floating-rate funding and our exposure to fluctuations in interest rates.
Certain of our businesses and our funding instruments may be adversely affected by changes in other reference rates, currencies, indexes, baskets or ETFs to which products we offer or funding that we raise are linked.
Many of the products that we own or that we offer, such as structured notes, warrants, swaps or security-based swaps, pay interest or determine the principal amount to be paid at maturity or in the event of default by reference to rates or by reference to an index, currency, basket, ETF or other financial metric (the underlier). In the event that the composition of the underlier is significantly changed, by reference to rules governing such underlier or otherwise, the underlier ceases to exist (for example, in the event that a country withdraws from the Euro or links its currency to or delinks its currency from another currency or benchmark, an index or ETF sponsor materially alters the composition of an index or ETF, or stocks in a basket are delisted or become impermissible to be included in the index or ETF), the underlier ceases to be recognized as an acceptable market benchmark or there are legal or regulatory constraints on linking a financial instrument to the underlier, we may experience adverse effects consistent with those described above for IBORs.
We face enhanced risks as new business initiatives and acquisitions lead us to engage in new activities, operate in new locations, transact with a broader array of clients and counterparties and expose us to new asset classes and new markets.
A number of our recent and planned business initiatives and expansions of existing businesses, including through acquisitions and partnership arrangements, may bring us into contact, directly or indirectly, with individuals and entities that are not within our traditional client and counterparty base, expose us to new asset classes and new markets, and present us with integration challenges. For example, we continue to transact business and invest in new regions, including a wide range of emerging and growth markets, and we expect this trend to continue. Various emerging and growth market countries have experienced severe economic and financial disruptions, including significant devaluations of their currencies, defaults or threatened defaults on sovereign debt, capital and currency exchange controls, and low or negative growth rates in their economies. The possible effects of any of these conditions include an adverse impact on our businesses and increased volatility in financial markets generally.
Furthermore, in a number of our businesses, including where we make markets, invest and lend, we own interests in, or otherwise become affiliated with the ownership and operation of, public services, such as airports, toll roads and shipping ports, as well as physical commodities and commodities infrastructure components, both within and outside the U.S.
We have increased and intend to further increase our consumer-oriented deposit-taking and lending activities. For example, we now issue credit cards to consumers and through our pending acquisition of GreenSky, we intend to expand our offering offinancing. To the extent we engage in those and other consumer-oriented activities, we have faced, and would continue to face, additional compliance, legal and regulatory risk, increased reputational risk and increased operational risk due to, among other things, higher transaction volumes and significantly increased retention and transmission of consumer and client information. Acquisitions and new products can also expose us to new or different types of risks. For example, providingfinancing through GreenSky will also subject us to risks relating to retaining and attracting merchants and servicing loans for other banks, as well as potential liability for remediation costs if merchants fail to fulfill their obligations to consumers. We are also subject to additional legal requirements, including with respect to suitability and consumer protection (for example, Regulation Best Interest, fair lending laws and regulations and privacy laws and regulations). Further, identity fraud may increase and credit reporting practices may change in a manner that makes it more difficult for financial institutions, such as us, to evaluate the creditworthiness of consumers.
point-of-sale
point-of-sale
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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
We have increased and intend to further increase our transaction banking activities. As a result, we expect to face additional compliance, legal and regulatory risk, including with respect to know-your-customer, anti-money laundering and reporting requirements and prohibitions on transfers of property belonging to countries, entities and individuals subject to sanctions by U.S. or other governmental authorities.
New business initiatives expose us to new and enhanced risks, including risks associated with dealing with governmental entities, reputational concerns arising from dealing with different types of clients, business partners, counterparties and investors, greater regulatory scrutiny of these activities, increased credit-related, market, sovereign and operational risks, risks arising from accidents or acts of terrorism, and reputational concerns with the manner in which certain assets are being operated or held or in which we interact with these clients, business partners, counterparties and investors. Legal, regulatory and reputational risks may also exist in connection with activities and transactions involving new products or markets where there is regulatory uncertainty or where there are different or conflicting regulations depending on the regulator or the jurisdiction involved, particularly where transactions in such products may involve multiple jurisdictions.
We have developed and pursued new business and strategic initiatives, including acquisitions, and expect to continue to do so. If and to the extent we are unable to successfully execute those initiatives, we may incur unanticipated costs and losses, and face other adverse consequences, such as negative reputational effects. In addition, the actual effects of pursuing those initiatives may differ, possibly materially, from the benefits that we expect to realize from them, such as generating additional revenues, achieving expense savings, reducing operational risk exposures or using capital and funding more efficiently. Engaging in new activities exposes us to a variety of risks, including that we may be unable to successfully develop new, competitive, efficient and effective systems and processes, and hire and retain the necessary personnel. Due to our lack of historical experience with unsecured consumer lending, our loan loss assumptions may prove to be incorrect and we may incur losses significantly above those which we originally anticipated in entering the business or in expanding the product offerings for the business.
In recent years, we have invested, and may continue to invest, more in businesses that we expect will generate a higher level of more consistent revenues. In order to develop and be able to offer consumer financial products that compete effectively, we have made and expect to continue to make significant investments in technology and human capital resources in connection with our consumer-oriented activities. Such investments and acquisitions may not be successful or have returns similar to our other businesses.
We may not be able to fully realize the expected benefits or synergies from acquisitions in the time frames we expect, or at all.
We have been engaging in selective acquisitions and expect to continue to do so in the future and these acquisitions may, individually or in the aggregate, be material to us. Any future acquisitions could involve the issuance of common stock and/or the payment of cash as consideration. The success of our acquisitions will depend, in part, on our ability to integrate the acquired businesses and realize anticipated synergies, cost savings and growth opportunities. We may face numerous risks and uncertainties in combining and integrating the relevant businesses and systems, including the need to combine or separate accounting and data processing systems and management controls and to integrate relationships with clients, counterparties, regulators and others in connection with acquisitions. Integration of acquired businesses is
time-consuming
and could disrupt our ongoing businesses, produce unforeseen regulatory or operating difficulties, cause us to incur incremental expenses or require incremental financial, management and other resources. It is also possible that an acquisition, once announced, may not close due to the failure to satisfy applicable closing conditions, such as the receipt of necessary shareholder or regulatory approvals.There is no assurance that any of our acquisitions will be successfully integrated or yield all of the expected positive benefits and synergies in the time frames that we expect, or at all. If we are not able to integrate our acquisitions successfully, our results of operations, financial condition and cash flows could be adversely affected.
| Goldman Sachs 2021 Form 10-K | 55 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Item 1B. Unresolved Staff Comments
There are no material unresolved written comments that were received from the SEC staff 180 days or more before the end of our fiscal year relating to our periodic or current reports under the Exchange Act.
Item 2. Properties
In the U.S. and elsewhere in the Americas, we have offices consisting of approximately 6.6 million square feet of leased and owned space. Our principal executive offices are located at 200 West Street, New York, New York and consist of approximately 2.1 million square feet. The building is located on a parcel leased from Battery Park City Authority pursuant to a ground lease. Under the lease, Battery Park City Authority holds title to all improvements, including the office building, subject to our right of exclusive possession and use until June 2069, the expiration date of the lease. Under the terms of the ground lease, we made a lump sum ground rent payment in June 2007 of $161 million for rent through the term of the lease.
In Europe, the Middle East and Africa, we have offices consisting of approximately 1.51.6 million square feet of leased and owned space. Our European headquarters is located in London at Plumtree Court, consisting of approximately 826,000 square feet under a lease which can be terminated in 2039.
In Asia, Australia and New Zealand, we have offices consisting of approximately 2.6 million square feet, including our offices in India, and regional headquarters in Tokyo and Hong Kong. In India, we have offices with approximately 1.6 million square feet, the majority of which have leases that will expire in 2028.
In the preceding paragraphs, square footage figures are provided only for properties that are used in the operation of our businesses. We regularly evaluate our space capacity in relation to current and projected headcount. We may incur exit costs in the future if we (i) reduce our space capacity or (ii) commit to, or occupy, new properties in locations in which we operate and dispose of existing space that had been held for potential growth. These costs may be material to our operating results in a given period.
Item 3. Legal Proceedings
We are involved in a number of judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of our businesses. Many of these proceedings are in early stages, and many of these cases seek an indeterminate amount of damages. We have estimated the upper end of the range of reasonably possible aggregate loss for matters where we have been able to estimate a range and we believe, based on currently available information, that the results of matters where we have not been able to estimate a range of reasonably possible loss, in the aggregate, will not have a material adverse effect on our financial condition, but may be material to our operating results in a given period. Given the range of litigation and investigations presently under way, our litigation expenses may remain high. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Use of Estimates” in Part II, Item 7 of this
Form 10-K.
See Notes 18 and 27 to the consolidated financial statements in Part II, Item 8 of thisForm 10-K
for information about our reasonably possible aggregate loss estimate and judicial, regulatory and legal proceedings.Item 4. Mine Safety Disclosures
Not applicable.
| 56 | Goldman Sachs 2021 Form 10-K |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
The principal market on which our common stock is traded is the NYSE under the symbol “GS.” Information relating to the performance of our common stock from December 31, 20152016 through December 31, 20202021 is set forth in “Supplemental Financial Information — Common Stock Performance” in Part II, Item 8 of this5, 2021,11, 2022, there were 6,4915,963 holders of record of our common stock.
Form 10-K.
As of February The table below presents purchases made by or on behalf of Group Inc. or any “affiliated purchaser” (as defined in2020.2021.
Rule 10b-18(a)(3)
under the Exchange Act) of our common stock during the fourth quarter of Total Shares Purchased | Average Price Paid Per Share | Total Shares Purchased as Part of a Publicly Announced Program | Maximum Shares That May Yet Be Purchased Under the Program | Total Shares Purchased | Average Price Paid Per Share | Total Shares Purchased as Part of a Publicly Announced Program | Maximum Shares That May Yet Be Purchased Under the Program | |||||||||||||||||||||||||
October | – | – | – | 49,693,762 | 1,214,611 | $411.65 | 1,214,611 | 34,390,960 | ||||||||||||||||||||||||
November | – | – | – | 49,693,762 | – | – | – | 34,390,960 | ||||||||||||||||||||||||
December | – | – | – | 49,693,762 | – | – | – | 34,390,960 | ||||||||||||||||||||||||
Total | – | – | 1,214,611 | 1,214,611 | ||||||||||||||||||||||||||||
Since March 2000, our Board has approved a repurchase program authorizing repurchases of up to 605 million shares of our common stock. The repurchase program is effected primarily through regular open-market purchases (which may include repurchase plans designed to comply with
Rule 10b5-1
and accelerated share repurchases), the amounts and timing of which are determined primarily by our current and projected capital position, but which may also be influenced by general market conditions and the prevailing price and trading volumes of our common stock. The repurchase program has no set expiration or termination date.Information relating to compensation plans under which our equity securities are authorized for issuance is presented in Part III, Item 12 of this
Form 10-K.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Introduction
The Goldman Sachs Group, Inc. (Group Inc. or parent company), a Delaware corporation, together with its consolidated subsidiaries, is a leading global financial institution that delivers a broad range of financial services across investment banking, securities, investment management and consumer banking to a large and diversified client base that includes corporations, financial institutions, governments and individuals. Founded in 1869, we are headquartered in New York and maintain offices in all major financial centers around the world. We report our activities in four business segments: Investment Banking, Global Markets, Asset Management, and Consumer & Wealth Management. See “Results of Operations” for further information about our business segments.
When we use the terms “we,” “us” and “our,” we mean Group Inc. and its consolidated subsidiaries. When we use the term “our subsidiaries,” we mean the consolidated subsidiaries of Group Inc. References to “this2020.2021. All references to “the consolidated financial statements” or “Supplemental Financial Information” are to Part II, Item 8 of this2019 and 20182019 refer to our years ended, or the dates, as the context requires, December 31, 2020,2021, December 31, 20192020 and December 31, 2018,2019, respectively. Any reference to a future year refers to a year ending on December 31 of that year.
Form 10-K”
are to our Annual Report onForm 10-K
for the year ended December 31, Form 10-K.
All references to 2021, 2020 Group Inc. is a bank holding company (BHC) and a financial holding company regulated by the Board of Governors of the Federal Reserve System (FRB).
In this discussion and analysis of our financial condition and results of operations, we have included information that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts or statements of current conditions, but instead represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside our control.
By identifying the followingthese statements for you in this manner, we are alerting you to the possibility that our actual results, and financial condition, liquidity and capital actions may differ, possibly materially, from the anticipated results, and financial condition, liquidity and capital actions in these forward-looking statements. Important factors that could cause our results, financial condition, liquidity and capital actions to differ from those in these statements include, among others, those described in “Risk Factors” in Part I, Item 1A of this“Cautionary Statement Pursuant to the U.S. Private Securities Litigation Reform Act of 1995”“Forward-Looking Statements” in Part I, Item 1 of this
Form 10-K
and Form 10-K.
| 58 | Goldman Sachs 2021 Form 10-K |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
These statements may relate to, among other things, (i) our future plans and results, including our target ROE, ROTE, efficiency ratio, and CET1Common Equity Tier 1 (CET1) capital ratio and firmwide assets under supervision (AUS) inflows, and how they can be achieved,2021 parent vanilla2022 benchmark debt issuances, (xi) the amount, composition and location of GCLAglobal core liquid assets (GCLA) we expect to hold, (xii) our credit exposures, (xiii) our expected provisions for credit losses, (including those related to ourco-brandedcredit card relationship with General Motors), (xiv) the adequacy of our allowance for credit losses, (xv) the projected growth of our installment loanconsumer lending and credit card businesses, (xvi) the objectives and effectiveness of our business continuity planBusiness Continuity Planning (BCP), strategy, information security program, risk management and liquidity policies, (xvii) our resolution plan and strategy and their implications for stakeholders, (xviii) the design and effectiveness of our resolution capital and liquidity models and triggers and alerts framework, (xix) the results of stress tests, (xx) the effect of changes to regulations, and our future status, activities or reporting under banking and financial regulation, (xxi) our NSFR, (xxii)(xx) our expected tax rate, (xxiii)(xxi) the future state of our liquidity and regulatory capital ratios, and our prospective capital distributions (including dividends and repurchases), (xxiv)(xxii) our expected SCB and(xxv)(xxiii) legal proceedings, governmental investigations or other contingencies, (xxvi) the 1MDB settlements, including(xxiv) the asset recovery guarantee and our remediation activities (xxvii) the effectiveness ofrelated to our strategy with respect to Brexit, (xxviii)1Malaysia Development Berhad (1MDB) settlements, (xxv) the replacement of IBORs and our transition to alternative risk-free reference rates, (xxix)(xxvi) the impact of the coronavirusCOVID-19(COVID-19)pandemic on our business, results, financial position and liquidity, (xxx)(xxvii) the effectiveness of our management of our human capital, including our diversity goals, (xxviii) our sustainability and (xxxi)carbon neutrality targets and goals, (xxix) our plans for our people to return to our offices.
(ii) trends in or growth opportunities for our businesses, including the timing, costs, profitability, benefits and other aspects of business and strategic initiatives and their impact on our efficiency ratio, (iii) our level of future compensation expense, including as a percentage of both operating expenses and revenues net of provision for credit losses, (iv) our investment banking transaction backlog and future results, (v) our expected interest income and interest expense, (vi) our expense savings and strategic locations initiatives, (vii) expenses we may incur, including future litigation expense and expenses from investing in our consumer and transaction banking businesses, (viii) the projected growth of our deposits and other funding, asset liability management and funding strategies and related interest expense savings, (ix) our business initiatives, including transaction banking and new consumer financial products, (x) our planned
G-SIB
surcharge, co-branded
Executive Overview
We generated net earnings of $21.64 billion for 2021, significantly higher compared with $9.46 billion for 2020, an increase of 12% compared with $8.47 billion for 2019.2020. Diluted earnings per common share (EPS) was $59.45 for 2021, significantly higher compared with $24.74 for 2020, an increase of 18% compared with $21.03 for 2019.2020. Return on average common shareholders’ equity (ROE) was 23.0% for 2021, compared with 11.1% for 2020, compared with 10.0% for 2019.2020. Book value per common share was $236.15$284.39 as of December 2020, 8.1%2021, 20.4% higher compared with December 2019.2020.
During 2020, we recorded net provisions for litigation and regulatory proceedings of $3.42 billion, which reduced diluted EPS by $9.51 and reduced ROE by 3.9 percentage points. During 2019, we recorded net provisions for litigation and regulatory proceedings of $1.24 billion, which reduced diluted EPS by $3.16 and reduced ROE by 1.5 percentage points.
Net revenues were $44.56$59.34 billion for 2020, 22%2021, 33% higher than 2019. Net revenues were significantly higher in both Fixed Income, Currency and Commodities (FICC) and Equities within Global Markets, driven by strong client activity, and in Investment Banking,2020, reflecting significantly higher net revenues across all segments, including significant increases in both EquityAsset Management, Investment Banking and Debt underwriting. Net revenues in Consumer & Wealth Management were higher, reflecting growth in Wealth management and Consumer banking. These increases were partially offset by lower netManagement. Net revenues in Asset Management due toprimarily reflected significantly lowerhigher net revenues in Equity investments and Lending and debt investments, whichnet revenues in Investment Banking primarily reflected the impact ofsignificantly higher net revenues in Financial advisory and Underwriting, and net revenues in Consumer & Wealth Management reflected growth in both Wealth management and Consumer banking net revenues. Net revenues in Global Markets were slightly higher, reflecting significantly higher net revenues in Equities, partially offset by lower net revenues in Fixed Income, Currency and Commodities (FICC) compared with a challenging environment earlier thisstrong prior year.
Provision for credit losses was $357 million for 2021, compared with $3.10 billion for 2020, compared with $1.07 billion for 2019. This increase was primarily due to significantly higher2020. 2021 included provisions related to portfolio growth (primarily in credit cards, including provisions related to the commitment to acquire the General Motorsindividual impairments and ratings downgrades during the year, as well as deterioration and uncertainty in the broader economic environment (incorporating the accounting for credit losses under the Current Expected Credit Losses (CECL) standard) reflecting the impact of the global outbreak of the coronavirus(COVID-19)COVID-19pandemic. The increase also included higherpandemic, which contributed to significant provisions related to credit card loans, due to growth in the portfolio. See Note 3 to the consolidated financial statements for further information about ASUNo. 2016-13,2020.“Financial Instruments — Credit Losses (Topic 326) — Measurement of Credit Losses on Financial Instruments.”
co-branded
credit card portfolio), largely offset by reserve reductions on wholesale and consumer loans reflecting continued improvement in the broader economic environment. This followed challenging conditions in the prior year as a result of Operating expenses were $28.98$31.94 billion for 2020, 16%2021, 10% higher than 2019,2020, primarily reflecting significantly higher compensation and benefits expenses (reflecting strong performance). In addition, technology expenses and professional fees were significantly higher and transaction based expenses were higher. These increases were partially offset by significantly lower net provisions for litigation and regulatory proceedings higher compensation and benefitslower expenses (reflecting improved financial performance) and higher transaction based expenses (reflecting an increase in activity levels)related to consolidated investments (including impairments). Our efficiency ratio (total operating expenses divided by total net revenues) for 20202021 was 65.0%53.8%, compared with 68.1%65.0% for 2019. Net2020. In 2020, net provisions for litigation and regulatory proceedings increased our efficiency ratio for 2020 by 7.6 percentage points and for 2019 by 3.4 percentage points.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
During 2021, we returned $7.49 billion of capital to common shareholders, including $5.20 billion of common share repurchases and $2.29 billion of common stock dividends. As of December 2021, our CET1 capital ratio was 14.2% under the Standardized Capital Rules and 14.9% under the Advanced Capital Rules. See Note 20 to the consolidated financial statements for further information about our capital ratios.
We announced two strategic acquisitions during 2021, the pending acquisitions of NN Investment Partners in our Asset Management business and GreenSky in our Consumer banking business. We expect these acquisitions to accelerate our strategy to drive more durable returns. The acquisition of NN Investment Partners is expected to close in the second quarter of 2022, and the acquisition of GreenSky is expected to close in the first quarter of 2022.
In the first quarter of 2022, we announced that over the medium-term (approximately 3 years), our target is to achieve (i) ROE within a range of 14% to 16%, (ii) return on average tangible common shareholders’ equity (ROTE) within a range of 15% to 17% and (iii) an efficiency ratio of approximately 60%. In addition, we announced that our target is to maintain capital ratios equal to the regulatory requirements plus a buffer of 50 to 100 basis points.
Business Environment
In 2021, the beginningglobal economy continued to recover from the impact of 2020, the spread ofacrosspandemic, as the globe and the accompanying temporary closuresdistribution ofnon-essentialbusinesses andstay-at-homerequirements caused a sharp contraction vaccines helped facilitate an increase in global economic activity. Economic activity widespread unemployment, high levels of volatility across most financial assetscontinued to benefit from ongoing fiscal stimulus from governments and global markets, an unprecedented decline in global equity prices, and a significant widening of credit spreads. Global central banks responded quickly withcontinued accommodative monetary policy by reducing policy interest rates and increasing large scale asset purchases, and the establishment of a number of facilities to support the functioning of markets and to provide liquidity to markets.from global central banks. In addition, governments globally intervened with fiscal policy to mitigate the impact, including the Coronavirus Aid, Relief, and Economic Security (CARES) Act in the U.S., which provided economic relief to businesses and individuals. These monetary and fiscal interventions, combined with the reopening of businesses and relaxation of earlier lockdowns, contributed to a sharp rebound in global economic activity during the second half of 2020. As a result, investors became more optimistic towards the prospect of a quickeryear, the growth in economic recoveryactivity and a returndemand for goods and services, alongside supply chain complications, contributed topre-pandemiclevels, effecting sharp increases in equity prices and tighter credit spreads. inflationary pressures. Late in the year, medical professionals developed effectiveCOVID-19vaccinesthe surge in Omicron cases sparked renewed concerns globally, contributing to increased market volatility and governments began to distribute them globally, which is expected to reduce virus spread and further aidincreased pressures on labor supply. This may result in a negative impact on economic recovery. Additionally, the U.S. concluded a presidential election, and a secondpandemic-aidactivity.bill was passed that included additional unemployment benefits and direct payments to individuals.
COVID-19
Despite broad improvements in the overall economy since the initial impact of thebegan, there continues to be uncertainty related toremains on the prospects for economic growth,pace of the recovery going forward, reflecting concerns about virus resurgence from the Omicron variant and other possible variants and related concerns regarding vaccine distribution, further fiscal stimulusefficacy and hesitancy, as well as concerns relating to inflation, supply chain complications and geopolitical risks. See “Results of Operations — Segment Assets and Operating Results — Segment Operating Results” for further information about the operating environment for each of our business segments.
COVID-19
pandemic, Critical Accounting Policies
Fair Value
Fair Value Hierarchy.
Trading assets and liabilities, certain investments and loans, and certain other financial assets and liabilities, are included in our consolidated balance sheets at fair value (i.e.,with related gains or losses generally recognized in our consolidated statements of earnings. The use of fair value to measure financial instruments is fundamental to our risk management practices and is our most critical accounting policy.
marked-to-market),
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We measure certain financial assets and liabilities as a portfolio (i.e., based on its net exposure to market and/or credit risks). In determining fair value, the hierarchy under U.S. generally accepted accounting principles (U.S. GAAP) gives (i) the highest priority to unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities (level 1 inputs), (ii) the next priority to inputs other than level 1 inputs that are observable, either directly or indirectly (level 2 inputs), and (iii) the lowest priority to inputs that cannot be observed in market activity (level 3 inputs). In evaluating the significance of a valuation input, we consider, among other factors, a portfolio’s net risk exposure to that input. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.
The fair values for substantially all of our financial assets and liabilities are based on observable prices and inputs and are classified in levels 1 and 2 of the fair value hierarchy. Certain level 2 and level 3 financial assets and liabilities may require appropriate valuation adjustments that a market participant would require to arrive at fair value for factors, such as counterparty and our credit quality, funding risk, transfer restrictions, liquidity and bid/offer spreads.
Instruments classified in level 3 of the fair value hierarchy are those which require one or more significant inputs that are not observable. Level 3 financial assets represented 1.6% as of December 2021 and 2.3% as of both December 2020, and December 2019, of our total assets. See Notes 4 through 10 to the consolidated financial statements for further information about level 3 financial assets, including changes in level 3 financial assets and related fair value measurements. Absent evidence to the contrary, instruments classified in level 3 of the fair value hierarchy are initially valued at transaction price, which is considered to be the best initial estimate of fair value. Subsequent to the transaction date, we use other methodologies to determine fair value, which vary based on the type of instrument. Estimating the fair value of level 3 financial instruments requires judgments to be made. These judgments include:
Determining the appropriate valuation methodology and/or model for each type of level 3 financial instrument;
| 60 | Goldman Sachs 2021 Form 10-K |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Determining model inputs based on an evaluation of all relevant empirical market data, including prices evidenced by market transactions, interest rates, credit spreads, volatilities and correlations; and
Determining appropriate valuation adjustments, including those related to illiquidity or counterparty credit quality.
Regardless of the methodology, valuation inputs and assumptions are only changed when corroborated by substantive evidence.
Controls Over Valuation of Financial Instruments.
Market makers and investment professionals in our revenue-producing units are responsible for pricing our financial instruments. Our control infrastructure is independent of the revenue-producing units and is fundamental to ensuring that all of our financial instruments are appropriately valued at market-clearing levels. In the event that there is a difference of opinion in situations where estimating the fair value of financial instruments requires judgment (e.g., calibration to market comparables or trade comparison, as described below), the final valuation decision is made by senior managers in independent risk oversight and control functions. This independent price verification is critical to ensuring that our financial instruments are properly valued.
Price Verification.
All financial instruments at fair value classified in levels 1, 2 and 3 of the fair value hierarchy are subject to our independent price verification process. The objective of price verification is to have an informed and independent opinion with regard to the valuation of financial instruments under review. Instruments that have one or more significant inputs which cannot be corroborated by external market data are classified in level 3 of the fair value hierarchy. Price verification strategies utilized by our independent risk oversight and control functions include:
Trade Comparison.
External Price Comparison.
Calibration to Market Comparables.
Relative Value Analyses.
Collateral Analyses.
Execution of Trades.
Backtesting.
See Note 4 to the consolidated financial statements for further information about fair value measurements.
Review of Net Revenues.
Independent risk oversight and control functions ensure adherence to our pricing policy through a combination of daily procedures, including the explanation and attribution of net revenues based on the underlying factors. Through this process, we independently validate net revenues, identify and resolve potential fair value or trade booking issues on a timely basis and seek to ensure that risks are being properly categorized and quantified.
Review of Valuation Models.
Our independent model risk management group (Model Risk), consisting of quantitative professionals who are separate from model developers, performs an independent model review and validation process of our valuation models. New or changed models are reviewed and approved prior to implementation. Models are reviewed annually to assess the impact of any changes in the product or market and any market developments in pricing theories. See “Risk Management —
Model Risk Management” for further information about the review and validation of our valuation models.
| Goldman Sachs 2021 Form 10-K | 61 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Allowance for Credit Losses
We estimate and record an allowance for credit losses related to our loans held for investment that are accounted for at amortized cost. We adopted ASUNo. 2016-13in January 2020, which replaced the probable incurred credit loss model for recognizing credit losses with the CECL model. As a result, our allowance for credit losses effective January 2020, reflects our estimate of credit losses over the remaining expected life of such loans and also takes into account forecasts of future economic conditions. See Note 3 to the consolidated financial statements for further information about adoption of ASUNo. 2016-13.To determine the allowance for credit losses, we classify our loans accounted for at amortized cost into wholesale and consumer portfolios. These portfolios represent the level at which we have developed and documented our methodology to determine the allowance for credit losses. The allowance for credit losses is measured on a collective basis for loans that exhibit similar risk characteristics using a modeled approach and asset-specific basis for loans that do not share similar risk characteristics.
The allowance for credit losses also includes qualitative components which allow managementtakes into account the weighted average of a range of forecasts of future economic conditions over the expected life of the loans and lending commitments. The expected life of each loan or lending commitment is determined based on the contractual term adjusted for extension options or demand features, or is modeled in the case of revolving credit card loans. The forecasts include baseline, favorable and adverse economic scenarios over a three-year period. For loans with expected lives beyond three years, the model reverts to reflecthistorical loss information based on auncertain nature of economic forecasting, capture uncertainty regarding model inputs,wholesale and account for model imprecision and concentration risk. The determination of allowance for credit losses entails significant judgment on various risk factors.consumer portfolios. Risk factors for wholesale loans include internal credit ratings, industry default and loss data, expected life, macroeconomic indicators (e.g., unemployment rates and GDP), the borrower’s capacity to meet its financial obligations, the borrower’s country of risk and industry, loan seniority and collateral type. In addition, for loans backed by real estate, risk factors includeratio, debt service ratio and home price index. Risk factors for installment and credit card loans include Fair Isaac Corporation (FICO) credit scores, delinquency status, loan vintage and macroeconomic indicators.
non-linear
modeled approach. We apply judgment in weighting individual scenarios each quarter based on a variety of factors, including our internally derived economic outlook, market consensus, recent macroeconomic conditions and industry trends. The forecasted economic scenarios consider a number of risk factors relevant to the loan-to-value
Our estimate of credit losses entails judgment about collectability at the reporting dates, and there are uncertainties inherent in those judgments. The allowance for credit losses is subject to a governance process that involves review and approval by senior management within our independent risk oversight and control functions. Personnel within our independent risk oversight and control functions are responsible for forecasting the economic variables that underlie the economic scenarios that are used in the modeling of expected credit losses. While we use the best information available to determine this estimate, future adjustments to the allowance may be necessary based on, among other things, changes in the economic environment or variances between actual results and the original assumptions used. Loans are charged off against the allowance for loan losses when deemed to be uncollectible.
We also record an allowance for credit losses on lending commitments which are held for investment that are accounted for at amortized cost. Such allowance is determined using the same methodology as the allowance for loan losses, while also taking into consideration the probability of drawdowns or funding, and whether such commitments are cancellable by us.
To estimate the potential impact of an adverse macroeconomic environment on our allowance for credit losses, we, among other things, compared the expected credit losses under the weighted average forecast used in the calculation of allowance for credit losses as of December 2021 (which was primarily weighted towards the baseline economic scenario) to the expected credit losses under a 100% weighted adverse economic scenario. The adverse macroeconomic model assumes an emergence of new vaccine-resistant strains of
COVID-19
resulting in a resurgence of infections, an economic contraction, high inflation rates in the initial quarters, gradually climbing unemployment rates, decline in GDP growth rates and dislocations in the economy due to shortages in the supply of some goods and services. A 100% weighting to the adverse economic scenario would have resulted in an approximate $1.3 billion increase in our allowance for credit losses as of December 2021. This hypothetical increase does not take into consideration any potential adjustments to qualitative reserves. The forecasts of macroeconomic conditions are inherently uncertain and do not take into account any other offsetting or correlated effects. The actual credit loss in an adverse macroeconomic environment may differ significantly from this estimate. See Note 9 to the consolidated financial statements for further information about the allowance for credit losses.| 62 | Goldman Sachs 2021 Form 10-K |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Use of Estimates
U.S. GAAP requires us to make certain estimates and assumptions. In addition to the estimates we make in connection with fair value measurements and the allowance for credit losses on loans and lending commitments held for investment and accounted for at amortized cost, the use of estimates and assumptions is also important in determining the accounting for goodwill and identifiable intangible assets, provisions for losses that may arise from litigation and regulatory proceedings (including governmental investigations), and provisionsaccounting for losses that may arise from tax audits.income taxes.
Goodwill is assessed for impairment annually in the fourth quarter or more frequently if events occur or circumstances change that indicate an impairment may exist. When assessing goodwill for impairment, first, a qualitative assessment can be made to determine whether it is more likely than not that the estimated fair value of a reporting unit is less than its estimated carrying value. If the results of the qualitative assessment are not conclusive, a quantitative goodwill test is performed. Alternatively, a quantitative goodwill test can be performed without performing a qualitative assessment.
Estimating the fair value of our reporting units requires judgment. Critical inputs to the fair value estimates include projected earnings and allocated equity. There is inherent uncertainty in the projected earnings. The estimated carrying value of each reporting unit reflects an allocation of total shareholders’ equity and represents the estimated amount of total shareholders’ equity required to support the activities of the reporting unit under currently applicable regulatory capital requirements. See Note 12 to the consolidated financial statements for further information about goodwill.
If we experience a prolonged or severe period of weakness in the business environment, financial markets, our performance or our common stock price, or additional increases in capital requirements, our goodwill could be impaired in the future.
Identifiable intangible assets are tested for impairment when events or changes in circumstances suggest that an asset’s or asset group’s carrying value may not be fully recoverable. Judgment is required to evaluate whether indications of potential impairment have occurred, and to test intangible assets for impairment, if required. An impairment is recognized if the estimated undiscounted cash flows relating to the asset or asset group is less than the corresponding carrying value. See Note 12 to the consolidated financial statements for further information about identifiable intangible assets.
We also estimate and provide for potential losses that may arise out of litigation and regulatory proceedings to the extent that such losses are probable and can be reasonably estimated. In addition, we estimate the upper end of the range of reasonably possible aggregate loss in excess of the related reserves for litigation and regulatory proceedings where we believe the risk of loss is more than slight. See Notes 18 and 27 to the consolidated financial statements for information about certain judicial, litigation and regulatory proceedings. Significant judgment is required in making these estimates and our final liabilities may ultimately be materially different. Our total estimated liability in respect of litigation and regulatory proceedings is determined on abasis and represents an estimate of probable losses after considering, among other factors, the progress of each case, proceeding or investigation, our experience and the experience of others in similar cases, proceedings or investigations, and the opinions and views of legal counsel.
case-by-case
In accounting for income taxes, we recognize tax positions in the financial statements only when it is more likely than not that the position will be sustained on examination by the relevant taxing authority based on the technical merits of the position. As of December 2021, our net liability for unrecognized tax benefits was $1.16 billion. We use estimates to recognize current and deferred income taxes in the U.S. federal, state and local and
non-U.S.
jurisdictions in which we operate. The income tax laws in these jurisdictions are complex and can be subject to different interpretations between taxpayers and taxing authorities. Disputes may arise over these interpretations and can be settled by audit, administrative appeals or judicial proceedings. Our interpretations are reevaluated quarterly based on guidance currently available, tax examination experience and the opinions of legal counsel, among other factors. We recognize deferred taxes based on the amount that will more likely than not be realized in the future based on enacted income tax laws. As of December 2021, we had $6.32 billion of deferred tax assets with a related valuation allowance of $895 million. Our estimate for deferred taxes includes estimates for future taxable earnings, including the level and character of those earnings, and various tax planning strategies. See Note 24 to the consolidated financial statements for further information about income taxes.Recent Accounting Developments
See Note 3 to the consolidated financial statements for information about Recent Accounting Developments.
| Goldman Sachs |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Results of Operations
The composition of our net revenues has varied over time as financial markets and the scope of our operations have changed. The composition of net revenues can also vary over the shorter term due to fluctuations in U.S. and global economic and market conditions. See “Risk Factors” in Part I, Item 1A of this20192020 financial results compared with 2018,2019, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on2019.2020.
Form 10-K
for further information about the impact of economic and market conditions on our results of operations. For a discussion of our Form 10-K
for the year ended December 31, Financial Overview
The table below presents an overview of our financial results and selected financial ratios.
| Year Ended December | Year Ended December | |||||||||||||||||||||||
$ in millions, except per share amounts | 2020 | 2019 | 2018 | 2021 | 2020 | 2019 | ||||||||||||||||||
Net revenues | $44,560 | $36,546 | $36,616 | $59,339 | $44,560 | $36,546 | ||||||||||||||||||
Pre-tax earnings | $12,479 | $10,583 | $12,481 | $27,044 | $12,479 | $10,583 | ||||||||||||||||||
Net earnings | $ 9,459 | $ 8,466 | $10,459 | $21,635 | $ 9,459 | $ 8,466 | ||||||||||||||||||
Net earnings to common | $ 8,915 | $ 7,897 | $ 9,860 | $21,151 | $ 8,915 | $ 7,897 | ||||||||||||||||||
Diluted EPS | $ 24.74 | $ 21.03 | $ 25.27 | $ 59.45 | $ 24.74 | $ 21.03 | ||||||||||||||||||
ROE | 11.1% | 10.0% | 13.3% | 23.0% | 11.1% | 10.0% | ||||||||||||||||||
ROTE | 11.8% | 10.6% | 14.1% | 24.3% | 11.8% | 10.6% | ||||||||||||||||||
Net earnings to average total assets | 0.8% | 0.9% | 1.1% | |||||||||||||||||||||
Net earnings to average assets | 1.6% | 0.8% | 0.9% | |||||||||||||||||||||
Return on average shareholders’ equity | 10.3% | 9.4% | 12.3% | 21.3% | 10.3% | 9.4% | ||||||||||||||||||
Average equity to average assets | 8.2% | 9.3% | 8.8% | 7.4% | 8.2% | 9.3% | ||||||||||||||||||
Dividend payout ratio | 20.2% | 19.7% | 12.5% | 10.9% | 20.2% | 19.7% | ||||||||||||||||||
In the table above:
Net earnings to common represents net earnings applicable to common shareholders, which is calculated as net earnings less preferred stock dividends.
Average equity to average assets is calculated by dividing average total shareholders’ equity by average total assets.
Dividend payout ratio is calculated by dividing dividends declared per common share by diluted EPS.
ROE is calculated by dividing net earnings to common by average monthly common shareholders’ equity. Tangible common shareholders’ equity is calculated as total shareholders’ equity less preferred stock, goodwill and identifiable intangible assets. Return on average tangible common shareholders’ equity (ROTE)ROTE is calculated by dividing net earnings to common by average monthly tangible common shareholders’ equity. We believe that tangible common shareholders’ equity is meaningful because it is a measure that we and investors use to assess capital adequacy and that ROTE is meaningful because it measures the performance of businesses consistently, whether they were acquired or developed internally. Tangible common shareholders’ equity and ROTE are
non-GAAP
measures and may not be comparable to similarnon-GAAP
measures used by other companies. Return on average shareholders’ equity is calculated by dividing net earnings by average monthly shareholders’ equity.The table below presents our average equity and the reconciliation of average common shareholders’ equity to average tangible common shareholders’ equity.
| Average for the Year Ended December | Average for the Year Ended December | |||||||||||||||||||||||
$ in millions | 2020 | 2019 | 2018 | 2021 | 2020 | 2019 | ||||||||||||||||||
Total shareholders’ equity | $ 91,779 | $ 90,297 | $ 85,238 | $101,705 | $ 91,779 | $ 90,297 | ||||||||||||||||||
Preferred stock | (11,203 | ) | (11,203 | ) | (11,253 | ) | (9,876 | ) | (11,203 | ) | (11,203 | ) | ||||||||||||
Common shareholders’ equity | 80,576 | 79,094 | 73,985 | 91,829 | 80,576 | 79,094 | ||||||||||||||||||
Goodwill | (4,238 | ) | (3,965 | ) | (3,739 | ) | (4,327 | ) | (4,238 | ) | (3,965 | ) | ||||||||||||
Identifiable intangible assets | (617 | ) | (499 | ) | (351 | ) | (536 | ) | (617 | ) | (499 | ) | ||||||||||||
Tangible common shareholders’ equity | $ 75,721 | $ 74,630 | $ 69,895 | |||||||||||||||||||||
Tangible common shareholders equity | $ 86,966 | $ 75,721 | $ 74,630 | |||||||||||||||||||||
Net Revenues
The table below presents our net revenues by line item.
| Year Ended December | Year Ended December | |||||||||||||||||||||||
$ in millions | 2020 | 2019 | 2018 | 2021 | 2020 | 2019 | ||||||||||||||||||
Investment banking | $ 9,141 | $ 6,798 | $ 7,430 | $14,168 | $ 9,141 | $ 6,798 | ||||||||||||||||||
Investment management | 6,923 | 6,189 | 6,590 | 8,059 | 6,923 | 6,189 | ||||||||||||||||||
Commissions and fees | 3,548 | 2,988 | 3,199 | 3,619 | 3,548 | 2,988 | ||||||||||||||||||
Market making | 15,546 | 10,157 | 9,724 | 15,352 | 15,546 | 10,157 | ||||||||||||||||||
Other principal transactions | 4,651 | 6,052 | 5,906 | 11,671 | 4,651 | 6,052 | ||||||||||||||||||
Total non-interest revenues | 39,809 | 32,184 | 32,849 | 52,869 | 39,809 | 32,184 | ||||||||||||||||||
Interest income | 13,689 | 21,738 | 19,679 | 12,120 | 13,689 | 21,738 | ||||||||||||||||||
Interest expense | 8,938 | 17,376 | 15,912 | 5,650 | 8,938 | 17,376 | ||||||||||||||||||
Net interest income | 4,751 | 4,362 | 3,767 | 6,470 | 4,751 | 4,362 | ||||||||||||||||||
Total net revenues | $44,560 | $36,546 | $36,616 | $59,339 | $44,560 | $36,546 | ||||||||||||||||||
In the table above:
Investment banking consists of revenues (excluding net interest) from financial advisory and underwriting assignments. These activities are included in our Investment Banking segment.
Investment management consists of revenues (excluding net interest) from providing asset management services across all major asset classes to a diverse set of asset management clients (included in our Asset Management segment), as well as asset management services, wealth advisory services and certain transaction services for wealth management clients (included in our Consumer & Wealth Management segment).
Commissions and fees consists of revenues from executing and clearing client transactions on major stock, options and futures exchanges worldwide, as well as(OTC) transactions. These activities are included in our Global Markets and Consumer & Wealth Management segments.
over-the-counter
Market making consists of revenues (excluding net interest) from client execution activities related to making markets in interest rate products, credit products, mortgages, currencies, commodities and equity products. These activities are included in our Global Markets segment.
Other principal transactions consists of revenues (excluding net interest) from our equity investing activities, including revenues related to our consolidated investments (included in our Asset Management segment), and lending activities (included across our four segments).
| Goldman Sachs |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Operating Environment.
During 2020,2021, a general recovery of theCOVID-19pandemic broadly impacted the operating environment, contributing to lower global equity prices and wider credit spreads earlier in the year. The ensuing financial market volatility and negative impact to global economic activity were counteracted, in part, byeconomy, continued monetary and fiscal support from central banks and governments globally, whichand accelerating vaccine distribution provided a favorable market backdrop. These factors contributed to a sharp rebound ingenerally higher global equity prices and tighter credit spreads. Market-makingspreads compared with the end of 2020. In addition, market-making activities benefitted from higher levels of volatility, higherreflected strong client activity levels, although activity declined from a very strong prior year which reflected heightened volatility and widerbid-askspreads. Investment banking activities benefitted from high levels of industry-wide underwriting volumes, while industry-wide completed mergers and acquisitions volumes decreased, reflecting the impactsignificant market dislocations as a result of theon announcements in the first half of 2020.and investment banking activity levels across mergers and acquisitions and underwriting were elevated.
COVID-19
pandemic, If concerns about the economic outlook, including those on inflation and supply chain issues, grow or the ongoing efforts to mitigate the impact of theturn outare ineffective (including due to be ineffective,new variants or complications with vaccine distribution, efficacy and hesitancy), it may lead to a decline in market-makingglobal equity markets, a decline in investment banking activity levels, and a continued decline in industry-wide completed mergers and acquisitions volumes, or a decline in industry-wide underwriting volumes, and declines in global equity markets or widening of credit spreads,market-making activity levels, and net revenues and the provision for credit losses would likely be negatively impacted. See “Segment Assets and Operating Results — Segment Operating Results” for information about the operating environment and material trends and uncertainties that may impact our results of operations.
COVID-19
pandemic Net revenues in the consolidated statements of earnings were $44.56$59.34 billion for 2020, 22%2021, 33% higher than 2019,2020, reflecting significantly higher market making andother principal transactions revenues, investment banking revenues and net interest income, and higher investment management revenues, commissions and fees and net interest income, partially offset by significantly lower other principal transactions revenues.
Non-Interest
Revenues.Investment banking revenues in the consolidated statements of earnings were $9.14$14.17 billion for 2020, 34%2021, 55% higher than 2019,2020, due to significantly higher revenues in both equity and debt underwriting, reflecting an increase in industry-wide volumes. These increases were partially offset by slightly lower revenues in financial advisory, reflecting a decreasesignificant increase in industry-wide completed mergermergers and acquisitions transactions.volumes, in equity underwriting, primarily driven by strong industry-wide initial public offerings activity, and in debt underwriting, primarily reflecting elevated industry-wide leveraged finance activity.
Investment management revenues in the consolidated statements of earnings were $6.92$8.06 billion for 2020, 12%2021, 16% higher than 2019,2020, primarily due to higher management and other fees, reflecting the impact of higher average assets under supervision (AUS) and the impact of the full-year consolidation of GS Personal Financial Management,AUS, partially offset by a lower average effective managementhigher fee due to shifts in the mix of client assets and strategies.waivers on money market funds. In addition, incentive fees were significantly higher, primarily driven by performance.harvesting.
Commissions and fees in the consolidated statements of earnings were $3.55$3.62 billion for 2020, 19%2021, slightly higher than 2019, reflecting an increase in our listed cash equity volumes, generally consistent with market volumes.2020.
Market making revenues in the consolidated statements of earnings were $15.55$15.35 billion for 2021, essentially unchanged compared with 2020, 53% higher than 2019, primarily due toas significantly lower revenues in interest rate products and credit products were largely offset by significantly higher revenues in equity products (both derivatives(primarily in derivatives) and cash products), credit products, interest rate products, commodities, and currencies.improved results in mortgages.
Other principal transactions revenues in the consolidated statements of earnings were $11.67 billion for 2021, compared with $4.65 billion for 2020, 23% lower than 2019,primarily reflecting significantly lowerhigher net gains from investments in private equities and net losses fromin debt investments,instruments, partially offset by significantly higher net gainslosses from investments in public equities.equities compared with significant net gains in 2020.
Net Interest Income.
Net interest income in the consolidated statements of earnings was $4.75$6.47 billion for 2020, 9%2021, 36% higher than 2019,2020, reflecting a decrease in interest expense, partially offset by a decrease in interest income. The decrease in interest expense is primarily related to other interest-bearing liabilities, collateralized financings,deposits and long-term borrowings, each reflecting the impact of lower interest rates. The decrease in interest income primarily related to collateralized agreements and deposits, eachtrading assets, both reflecting the impact of lower interest rates, partially offset by the impact of higher average balances for deposits. The decrease in interest expense was largely offset by a decrease in interest income primarily related to collateralized agreements, other interest-earning assets and deposits with banks, each reflecting the impact of lower interest rates.loans. See “Statistical“Supplemental Financial Information — Statistical Disclosures — Distribution of Assets, Liabilities and Shareholders’ Equity” for further information about our sources of net interest income.
| Goldman Sachs 2021 Form 10-K | 65 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Provision for Credit Losses
Provision for credit losses consists of provision for credit losses on loans and lending commitments held for investment and accounted for at amortized cost. See Note 9 to the consolidated financial statements for further information about the provision for credit losses.
The table below presents our provision for credit losses.
| Year Ended December | ||||||||||||
$ in millions | 2020 | 2019 | 2018 | |||||||||
Provision for credit losses | $3,098 | $1,065 | $674 | |||||||||
| Year Ended December | ||||||||||||
$ in millions | 2021 | 2020 | 2019 | |||||||||
Provision for credit losses | $357 | $3,098 | $1,065 | |||||||||
Provision for credit losses in the consolidated statements of earnings was $357 million for 2021, compared with $3.10 billion for 2020, compared with $1.07 billion for 2019. This increase was primarily due to significantly higher2020. 2021 included provisions related to portfolio growth (primarily in credit cards, including approximately $185 million of provisions related to the commitment to acquire the General Motorsindividual impairments (approximately $1.15 billion primarily related to borrowers in the diversified industrials, technology, media & telecommunications and natural resources industries) and ratings downgrades during the year, as well as deterioration and uncertainty in the broader economic environment (incorporating the accounting for credit losses under the CECL standard) reflecting the impact of thepandemic. The increase also included higherpandemic, which contributed to significant provisions related to credit card loans, due to growth in the portfolio. See Note 3 to the consolidated financial statements for further information about ASUNo. 2016-13.2020.
co-branded
credit card portfolio), largely offset by reserve reductions on wholesale and consumer loans reflecting continued improvement in the broader economic environment. This followed challenging conditions in the prior year as a result of COVID-19
Operating Expenses
Our operating expenses are primarily influenced by compensation, headcount and levels of business activity. Compensation and benefits includes salaries,
year-end
discretionary compensation, amortization of equity awards and other items such as benefits. Discretionary compensation is significantly impacted by, among other factors, the level of net revenues net of provision for credit losses, overall financial performance, prevailing labor markets, business mix, the structure of our share-based compensation programs and the external environment.The table below presents our operating expenses by line item and headcount.
| Year Ended December | Year Ended December | |||||||||||||||||||||||
$ in millions | 2020 | 2019 | 2018 | 2021 | 2020 | 2019 | ||||||||||||||||||
Compensation and benefits | $13,309 | $12,353 | $12,328 | $17,719 | $13,309 | $12,353 | ||||||||||||||||||
Transaction based | 4,141 | 3,513 | 3,492 | 4,710 | 4,141 | 3,513 | ||||||||||||||||||
Market development | 401 | 739 | 740 | 553 | 401 | 739 | ||||||||||||||||||
Communications and technology | 1,347 | 1,167 | 1,023 | 1,573 | 1,347 | 1,167 | ||||||||||||||||||
Depreciation and amortization | 1,902 | 1,704 | 1,328 | 2,015 | 1,902 | 1,704 | ||||||||||||||||||
Occupancy | 960 | 1,029 | 809 | 981 | 960 | 1,029 | ||||||||||||||||||
Professional fees | 1,306 | 1,316 | 1,214 | 1,648 | 1,306 | 1,316 | ||||||||||||||||||
Other expenses | 5,617 | 3,077 | 2,527 | 2,739 | 5,617 | 3,077 | ||||||||||||||||||
Total operating expenses | $28,983 | $24,898 | $23,461 | $31,938 | $28,983 | $24,898 | ||||||||||||||||||
Headcount at period-end | 40,500 | 38,300 | 36,600 | 43,900 | 40,500 | 38,300 | ||||||||||||||||||
Operating expenses in the consolidated statements of earnings were $28.98$31.94 billion for 2020, 16%2021, 10% higher than 2019.2020. Our efficiency ratio (total operating expenses divided by total net revenues) for 20202021 was 65.0%53.8%, compared with 68.1%65.0% for 2019. Net2020. In 2020, net provisions for litigation and regulatory proceedings increased our efficiency ratio for 2020 by 7.6 percentage points and for 2019 by 3.4 percentage points.
The increase in operating expenses compared with 20192020 primarily reflected significantly higher compensation and benefits expenses (reflecting strong performance). In addition, technology expenses and professional fees were significantly higher and transaction based expenses were higher. These increases were partially offset by significantly lower net provisions for litigation and regulatory proceedings and higher compensation and benefits expenses (reflecting improved financial performance). In addition, transaction based expenses were higher (reflecting an increase in activity levels), technology expenses were higher andlower expenses related to consolidated investments including impairments, were also higher (increase was primarily in depreciation and amortization and occupancy expenses)(including impairments). The increase also reflected higher charitable contributions (included in other expenses), which included approximately $300 million to Goldman Sachs Gives and approximately $125 million to The Goldman Sachs Foundation during 2020. These increases were partially offset by significantly lower travel and entertainment expenses (included in market development expenses) and lower occupancy-related expenses.
Net provisions for litigation and regulatory proceedings for 20202021 were $534 million compared with $3.42 billion compared with $1.24 billion for 2019.2020.
As of December 2021, headcount increased 6%8% compared with December 2019,2020, reflecting investments in new business initiatives and an increase in technology professionals.
Provision for Taxes
The effective income tax rate for 20202021 was 24.2%20.0%, updown from the full year income tax rate of 20.0%24.2% for 2019,2020, primarily due to an increasea decrease in provisions forlitigation.litigation, partially offset by a decrease in the impact of tax benefits in 2021 compared with 2020.
non-deductible
In March 2021, the American Rescue Plan Act of 2021 (Rescue Plan) was signed into law. The CARES Act was enacted in March 2020. The CARES Act includes retroactive and prospective provisionsRescue Plan is a $1.9 trillion stimulus package enacted to provide income tax reliefhelp address the economic and liquidity to businesses affected byhealth impacts of thelegislationRescue Plan includes corporate income tax provisions that temporarily allow for the carrybacka repeal of net operating losses and remove limitations on the usea provision under which U.S. affiliated groups could elect a worldwide allocation of loss carryforwards, increase interest expense deduction limitationsfor foreign tax credit limitation purposes for one year beginning in January 2021. Additionally, beginning in 2027, the limitation on corporate tax deductions for compensation payable to the CEO, CFO and allow accelerated depreciation deductions on certain asset improvements.the top three highest paid employees will be expanded to include the next five highest paid employees. The CARES Actlegislation did not have a material impact on our 2021 annual effective tax rate and is not expected to have a material impact on our 2022 annual effective tax rate.
COVID-19
pandemic. The In April 2021, the New York State (NYS) FY 2022 budget was enacted. The legislation temporarily increased the NYS corporate income tax rate from 6.5% to 7.25% for 2020.calendar years 2021 through 2023. The legislation did not have a material impact on our 2021 annual effective tax rate and is not expected to have a material impact on our 2022 annual effective tax rate.
| Goldman Sachs |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
2021-22,
issued in November 2021, includes a five percent reduction in the We expect our 2021 income tax rate for 2022 to be approximatelybetween 20% and 21%, excluding the impact of income tax benefits on employee share-based awards and any potential changes in current income tax rates.
Segment Assets and Operating Results
Segment Assets.
The table below presents assets by segment.
| As of December | As of December | |||||||||||||||
$ in millions | 2020 | 2019 | 2021 | 2020 | ||||||||||||
Investment Banking | $ 116,242 | $ 92,009 | $ | $ | ||||||||||||
Global Markets | 844,606 | 725,060 | 1,082,378 | 844,606 | ||||||||||||
Asset Management | 95,751 | 92,102 | 91,115 | 95,751 | ||||||||||||
Consumer & Wealth Management | 106,429 | 83,797 | 146,338 | 106,429 | ||||||||||||
Total | $1,163,028 | $992,968 | $1,463,988 | $1,163,028 | ||||||||||||
The allocation process for segment assets is based on the activities of these segments. The allocation of assets includes allocation of global core liquid assets (GCLA)GCLA (which consists of unencumbered, highly liquid securities and cash), which is generally included within cash and cash equivalents, collateralized agreements and trading assets on our balance sheet. Due to the integrated nature of these segments, estimates and judgments are made in allocating these assets. See “Risk Management — Liquidity Risk Management” for further information about our GCLA.
Segment Operating Results.
The table below presents our segment operating results.
| Year Ended December | Year Ended December | |||||||||||||||||||||||
$ in millions | 2020 | 2019 | 2018 | 2021 | 2020 | 2019 | ||||||||||||||||||
Investment Banking | ||||||||||||||||||||||||
Net revenues | $ 9,423 | $ 7,599 | $ 8,178 | $14,876 | $ 9,423 | $ 7,599 | ||||||||||||||||||
Provision for credit losses | 1,624 | 333 | 124 | (298 | ) | 1,624 | 333 | |||||||||||||||||
Operating expenses | 6,134 | 4,685 | 4,473 | 6,705 | 6,134 | 4,685 | ||||||||||||||||||
Pre-tax earnings | $ 1,665 | $ 2,581 | $ 3,581 | $ 8,469 | $ 1,665 | $ 2,581 | ||||||||||||||||||
Net earnings to common | $ 1,193 | $ 1,996 | $ 2,924 | $ 6,705 | $ 1,193 | $ 1,996 | ||||||||||||||||||
Average common equity | $11,313 | $11,167 | $ 8,737 | $10,341 | $11,313 | $11,167 | ||||||||||||||||||
Return on average common equity | 10.5% | 17.9% | 33.5% | 64.8% | 10.5% | 17.9% | ||||||||||||||||||
Global Markets | ||||||||||||||||||||||||
Net revenues | $21,157 | $14,779 | $14,438 | $22,077 | $21,157 | $14,779 | ||||||||||||||||||
Provision for credit losses | 274 | 35 | 52 | 45 | 274 | 35 | ||||||||||||||||||
Operating expenses | 12,806 | 10,851 | 10,585 | 12,969 | 12,806 | 10,851 | ||||||||||||||||||
Pre-tax earnings | $ 8,077 | $ 3,893 | $ 3,801 | $ 9,063 | $ 8,077 | $ 3,893 | ||||||||||||||||||
Net earnings to common | $ 5,766 | $ 2,729 | $ 2,796 | $ 6,973 | $ 5,766 | $ 2,729 | ||||||||||||||||||
Average common equity | $40,760 | $40,060 | $41,237 | $45,497 | $40,760 | $40,060 | ||||||||||||||||||
Return on average common equity | 14.1% | 6.8% | 6.8% | 15.3% | 14.1% | 6.8% | ||||||||||||||||||
Asset Management | ||||||||||||||||||||||||
Net revenues | $ 7,984 | $ 8,965 | $ 8,835 | $14,916 | $ 7,984 | $ 8,965 | ||||||||||||||||||
Provision for credit losses | 442 | 274 | 160 | 18 | 442 | 274 | ||||||||||||||||||
Operating expenses | 5,142 | 4,817 | 4,179 | 5,970 | 5,142 | 4,817 | ||||||||||||||||||
Pre-tax earnings | $ 2,400 | $ 3,874 | $ 4,496 | $ 8,928 | $ 2,400 | $ 3,874 | ||||||||||||||||||
Net earnings to common | $ 1,740 | $ 3,013 | $ 3,668 | $ 7,046 | $ 1,740 | $ 3,013 | ||||||||||||||||||
Average common equity | $20,491 | $21,575 | $19,061 | $25,195 | $20,491 | $21,575 | ||||||||||||||||||
Return on average common equity | 8.5% | 14.0% | 19.2% | 28.0% | 8.5% | 14.0% | ||||||||||||||||||
Consumer & Wealth Management | Consumer & Wealth Management | Consumer & Wealth Management | ||||||||||||||||||||||
Net revenues | $ 5,996 | $ 5,203 | $ 5,165 | $ 7,470 | $ 5,996 | $ 5,203 | ||||||||||||||||||
Provision for credit losses | 758 | 423 | 338 | 592 | 758 | 423 | ||||||||||||||||||
Operating expenses | 4,901 | 4,545 | 4,224 | 6,294 | 4,901 | 4,545 | ||||||||||||||||||
Pre-tax earnings | $ 337 | $ 235 | $ 603 | $ | $ | $ | ||||||||||||||||||
Net earnings to common | $ 216 | $ 159 | $ 472 | $ | $ | $ | ||||||||||||||||||
Average common equity | $ 8,012 | $ 6,292 | $ 4,950 | $10,796 | $ 8,012 | $ 6,292 | ||||||||||||||||||
Return on average common equity | 2.7% | 2.5% | 9.5% | 4.0% | 2.7% | 2.5% | ||||||||||||||||||
Total net revenues | $44,560 | $36,546 | $36,616 | $59,339 | $44,560 | $36,546 | ||||||||||||||||||
Total provision for credit losses | 3,098 | 1,065 | 674 | 357 | 3,098 | 1,065 | ||||||||||||||||||
Total operating expenses | 28,983 | 24,898 | 23,461 | 31,938 | 28,983 | 24,898 | ||||||||||||||||||
Total pre-tax earnings | $12,479 | $10,583 | $12,481 | $27,044 | $12,479 | $10,583 | ||||||||||||||||||
Net earnings to common | $ 8,915 | $ 7,897 | $ 9,860 | $21,151 | $ 8,915 | $ 7,897 | ||||||||||||||||||
Average common equity | $80,576 | $79,094 | $73,985 | $91,829 | $80,576 | $79,094 | ||||||||||||||||||
Return on average common equity | 11.1% | 10.0% | 13.3% | 23.0% | 11.1% | 10.0% | ||||||||||||||||||
Net revenues in our segments include allocations of interest income and expense to specific positions in relation to the cash generated by, or funding requirements of, such positions. See Note 25 to the consolidated financial statements for further information about our business segments.
The allocation of common shareholders’ equity and preferred stock dividends to each segment is based on the estimated amount of equity required to support the activities of the segment under relevant regulatory capital requirements. Net earnings for each segment is calculated by applying the firmwide tax rate to each segment’s
pre-tax
earnings.| Goldman Sachs 2021 Form 10-K | 67 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Effective January 1, 2021, the attributed equity among our segments was updated to reflect the results of our 2020 Comprehensive Capital Analysis and Review (CCAR) process. See “Capital Management and Regulatory Capital — Capital Management” for information about the impact of these updates on the allocation of attributed equity among our segments as of the beginning of the first quarter of 2021. The average common equity balances above incorporate such impact, as well as the changes in the size and composition of assets held in each of our segments that occurred during 2021. See “Capital Management and Regulatory Capital — Capital Management” for information about our 2021 CCAR process and our updated SCB, which became effective on October 1, 2021.
Compensation and benefits expenses within our segments reflect, among other factors, our overall performance, as well as the performance of individual businesses. Consequently,
pre-tax
margins in one segment of our business may be significantly affected by the performance of our other business segments. A description of segment operating results follows.Investment Banking
Investment Banking generates revenues from the following:
Financial advisory.
Underwriting.
Corporate lending.
The table below presents our Investment Banking assets.
| As of December | As of December | |||||||||||||||
$ in millions | 2020 | 2019 | 2021 | 2020 | ||||||||||||
Cash and cash equivalents | $ 34,730 | $25,301 | $ 64,437 | $ 34,730 | ||||||||||||
Collateralized agreements | 20,242 | 13,376 | 21,354 | 20,242 | ||||||||||||
Customer and other receivables | 2,465 | 3,576 | 5,248 | 2,465 | ||||||||||||
Trading assets | 29,493 | 20,737 | 20,338 | 29,493 | ||||||||||||
Investments | 1,078 | 854 | 1,053 | 1,078 | ||||||||||||
Loans | 26,544 | 26,565 | 29,555 | 26,544 | ||||||||||||
Other assets | 1,690 | 1,600 | 2,172 | 1,690 | ||||||||||||
Total | $116,242 | $92,009 | $144,157 | $116,242 | ||||||||||||
The table below presents our Investment Banking operating results.
| Year Ended December | Year Ended December | |||||||||||||||||||||||
$ in millions | 2020 | 2019 | 2018 | 2021 | 2020 | 2019 | ||||||||||||||||||
Financial advisory | $ 3,065 | $ 3,197 | $3,444 | $ 5,653 | $ 3,065 | $ 3,197 | ||||||||||||||||||
Equity underwriting | 3,406 | 1,482 | 1,628 | 5,011 | 3,406 | 1,482 | ||||||||||||||||||
Debt underwriting | 2,670 | 2,119 | 2,358 | 3,504 | 2,670 | 2,119 | ||||||||||||||||||
Underwriting | 6,076 | 3,601 | 3,986 | 8,515 | 6,076 | 3,601 | ||||||||||||||||||
Corporate lending | 282 | 801 | 748 | 708 | 282 | 801 | ||||||||||||||||||
Net revenues | 9,423 | 7,599 | 8,178 | 14,876 | 9,423 | 7,599 | ||||||||||||||||||
Provision for credit losses | 1,624 | 333 | 124 | (298 | ) | 1,624 | 333 | |||||||||||||||||
Operating expenses | 6,134 | 4,685 | 4,473 | 6,705 | 6,134 | 4,685 | ||||||||||||||||||
Pre-tax earnings | 1,665 | 2,581 | 3,581 | 8,469 | 1,665 | 2,581 | ||||||||||||||||||
Provision for taxes | 403 | 516 | 580 | 1,694 | 403 | 516 | ||||||||||||||||||
Net earnings | 1,262 | 2,065 | 3,001 | 6,775 | 1,262 | 2,065 | ||||||||||||||||||
Preferred stock dividends | 69 | 69 | 77 | 70 | 69 | 69 | ||||||||||||||||||
Net earnings to common | $ 1,193 | $ 1,996 | $2,924 | $ 6,705 | $ 1,193 | $ 1,996 | ||||||||||||||||||
Average common equity | $11,313 | $11,167 | $8,737 | $10,341 | $11,313 | $11,167 | ||||||||||||||||||
Return on average common equity | 10.5% | 17.9% | 33.5% | 64.8% | 10.5% | 17.9% | ||||||||||||||||||
The table below presents our financial advisory and underwriting transaction volumes.
| Year Ended December | Year Ended December | |||||||||||||||||||||||
$ in billions | 2020 | 2019 | 2018 | 2021 | 2020 | 2019 | ||||||||||||||||||
Announced mergers and acquisitions | $ 983 | $ 1,354 | $1,272 | $ 1,851 | $ | $ 1,350 | ||||||||||||||||||
Completed mergers and acquisitions | $ 1,018 | $ 1,270 | $1,168 | $ 1,581 | $ 1,033 | $ 1,270 | ||||||||||||||||||
Equity and equity-related offerings | $ 115 | $ 67 | $ 67 | $ | $ | $ | ||||||||||||||||||
Debt offerings | $ 352 | $ 246 | $ 256 | $ | $ | $ | ||||||||||||||||||
In the table above:
Volumes are per Dealogic.
Announced and completed mergers and acquisitions volumes are based on full credit to each of the advisors in a transaction. Equity and equity-related offerings and debt offerings are based on full credit for single book managers and equal credit for joint book managers. Transaction volumes may not be indicative of net revenues in a given period. In addition, transaction volumes for prior periods may vary from amounts previously reported due to the subsequent withdrawal or a change in the value of a transaction.
Equity and equity-related offerings includes Rule 144A and public common stock offerings, convertible offerings and rights offerings.
Debt offerings includes
non-convertible
preferred stock, mortgage-backed securities, asset-backed securities and taxable municipal debt. Includes publicly registered and Rule 144A issues and excludes leveraged loans.| Goldman Sachs |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Operating Environment.
During 2021, Investment Banking operated in an environment characterized by strong industry-wide activity. In mergers and acquisitions, industry-wide completed and announced volumes were at high levels, reflecting supportive market conditions and strong CEO confidence. In underwriting, industry-wide activity levels reflected continued strength in equity underwriting volumes, including strong initial public offerings activity, and solid debt underwriting volumes, including elevated leveraged finance activity.
In the future, if market and economic conditions deteriorate, and industry-wide mergers and acquisitions volumes decline, or if industry-wide equity and debt underwriting volumes decline, or credit spreads related to hedges on our relationship lending portfolio tighten further, net revenues in Investment Banking would likely be negatively impacted. In addition, a deterioration in the creditworthiness of borrowers would negatively impact the provision for credit losses.
2021 versus 2020.
Net revenues in Investment Banking were $14.88 billion for 2021, 58% higher than 2020, primarily reflecting significantly higher net revenues in Financial advisory and Underwriting.
The increase in Financial advisory net revenues reflected a significant increase in completed mergers and acquisitions volumes. The increase in Underwriting net revenues was due to significantly higher net revenues in both Equity underwriting, primarily driven by strong industry-wide initial public offerings activity, and Debt underwriting, primarily reflecting an increase inelevated industry-wide volumes. The decrease inleveraged finance activity. Corporate lending net revenues were significantly higher, primarily reflected net mark-downs on corporate loans in 2020 compared toreflecting net gains in 2019. The decrease in Financial advisoryfrom lending activities compared with net revenues reflected a decrease in industry-wide completed mergers and acquisitions transactions, primarilylosses in the middle of the year.prior year, and significantly higher net interest income.
Provision for credit losses was a net benefit of $298 million for 2021, compared with net provisions of $1.62 billion for 2020, compared with $333 million for 2019,primarily due to reserve reductions in the current year reflecting higher impairments related to relationship lending and middle-market lending and reserve increases as a result of the impact of theCOVID-19pandemic oncontinued improvement in the broader economic environment (incorporatingfollowing challenging conditions in 2020 resulting from the accounting for credit losses under the CECL standard). See Note 3 to the consolidated financial statements for further information about ASUNo. 2016-13.COVID-19pandemic.
Operating expenses were $6.13$6.71 billion for 2020, 31%2021, 9% higher than 2019, primarily2020, due to significantly higher compensation and benefits expenses (reflecting strong performance), partially offset by significantly lower net provisions for litigation and regulatory proceedings.35% lower than 2019. Net(which included the impact of net provisions for litigation and regulatory proceedings that reduced ROE by 11.5 percentage points for 2020.points).
Pre-tax
earnings were $8.47 billion for 2021, compared with $1.67 billion for 2020. ROE was 64.8% for 2021, compared with 10.5% for 2020 As of December 2020,2021, our investment banking transaction backlog increased significantly compared with December 2019,2020, due to significantly higher estimated net revenues from potential equityfinancial advisory transactions and potential debt underwriting transactions primarily(particularly from initial public offerings,leveraged finance transactions), and higher estimated net revenues from potential advisoryequity underwriting transactions. Estimated net revenues from potential debt underwriting transactions were essentially unchanged.
Our backlog represents an estimate of our net revenues from future transactions where we believe that future revenue realization is more likely than not. We believe changes in our backlog may be a useful indicator of client activity levels which, over the long term, impact our net revenues. However, the time frame for completion and corresponding revenue recognition of transactions in our backlog varies based on the nature of the assignment, as certain transactions may remain in our backlog for longer periods of time, which could occur in light of the impact of theCOVID-19pandemic on mergers and acquisitions.time. In addition, our backlog is subject to certain limitations, such as assumptions about the likelihood that individual client transactions will occur in the future. Transactions may be cancelled or modified, and transactions not included in the estimate may also occur, including underwriting transactions for which the time frame from discussion to completion has shortened in the current environment.occur.
Global Markets
Our Global Markets segment consists of:
FICC.
FICC generates revenues from intermediation and financing activities.
FICC intermediation.
Interest Rate Products.
Government bonds (including inflation-linked securities) across maturities, other government-backed securities, and interest rate swaps, options and other derivatives.
Credit Products.
Investment-grade and high-yield corporate securities, credit derivatives, exchange-traded funds (ETFs), bank and bridge loans, municipal securities, emerging market and distressed debt, and trade claims.
Mortgages.
Commercial mortgage-related securities, loans and derivatives, residential mortgage-related securities, loans and derivatives (including U.S. government agency-issued collateralized mortgage obligations and other securities and loans), and other asset-backed securities, loans and derivatives.
Currencies.
Currency options, spot/forwards and other derivatives on
G-10
currencies and emerging-market products.| Goldman Sachs 2021 Form 10-K | 69 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Commodities.
Commodity derivatives and, to a lesser extent, physical commodities, involving crude oil and petroleum products, natural gas, agricultural, base, precious and other metals, electricity, coal, agriculturalincluding renewable power, environmental products and other commodity products.
For further information about market-making activities, see “Market-Making Activities” below.
FICC financing.
Equities.
Equities generates revenues from intermediation and financing activities.
Equities intermediation.
Equities financing.
broker-to-broker
Market-Making Activities
As a market maker, we facilitate transactions in both liquid and less liquid markets, primarily for institutional clients, such as corporations, financial institutions, investment funds and governments, to assist clients in meeting their investment objectives and in managing their risks. In this role, we seek to earn the difference between the price at which a market participant is willing to sell an instrument to us and the price at which another market participant is willing to buy it from us, and vice versa (i.e., bid/offer spread). In addition, we maintain (i) market-making positions, typically for a short period of time, in response to, or in anticipation of, client demand, and (ii) positions to actively manage our risk exposures that arise from these market-making activities (collectively, inventory). Our inventory is recorded in trading assets (long positions) or trading liabilities (short positions) in our consolidated balance sheets.
Our results are influenced by a combination of interconnected drivers, including (i) client activity levels and transactional bid/offer spreads (collectively, client activity), and (ii) changes in the fair value of our inventory and interest income and interest expense related to the holding, hedging and funding of our inventory (collectively, market-making inventory changes). Due to the integrated nature of our market-making activities, disaggregation of net revenues into client activity and market-making inventory changes is judgmental and has inherent complexities and limitations.
The amount and composition of our net revenues vary over time as these drivers are impacted by multiple interrelated factors affecting economic and market conditions, including volatility and liquidity in the market, changes in interest rates, currency exchange rates, credit spreads, equity prices and commodity prices, investor confidence, and other macroeconomic concerns and uncertainties.
In general, assuming all other market-making conditions remain constant, increases in client activity levels or bid/offer spreads tend to result in increases in net revenues, and decreases tend to have the opposite effect. However, changes in market-making conditions can materially impact client activity levels and bid/offer spreads, as well as the fair value of our inventory. For example, a decrease in liquidity in the market could have the impact of (i) increasing our bid/offer spread, (ii) decreasing investor confidence and thereby decreasing client activity levels, and (iii) widening of credit spreads on our inventory positions.
| As of December | ||||||||
$ in millions | 2020 | 2019 | ||||||
Cash and cash equivalents | $ 86,663 | $ 82,819 | ||||||
Collateralized agreements | 212,711 | 196,278 | ||||||
Customer and other receivables | 110,473 | 63,277 | ||||||
Trading assets | 339,349 | 316,242 | ||||||
Investments | 52,929 | 25,937 | ||||||
Loans | 33,214 | 31,111 | ||||||
Other assets | 9,267 | 9,396 | ||||||
Total | $844,606 | $725,060 | ||||||
| Year Ended December | ||||||||||||
$ in millions | 2020 | 2019 | 2018 | |||||||||
FICC intermediation | $ 9,991 | $ 6,009 | $ 5,737 | |||||||||
FICC financing | 1,593 | 1,379 | 1,248 | |||||||||
FICC | 11,584 | 7,388 | 6,985 | |||||||||
Equities intermediation | 6,989 | 4,374 | 4,681 | |||||||||
Equities financing | 2,584 | 3,017 | 2,772 | |||||||||
Equities | 9,573 | 7,391 | 7,453 | |||||||||
Net revenues | 21,157 | 14,779 | 14,438 | |||||||||
Provision for credit losses | 274 | 35 | 52 | |||||||||
Operating expenses | 12,806 | 10,851 | 10,585 | |||||||||
Pre-tax earnings | 8,077 | 3,893 | 3,801 | |||||||||
Provision for taxes | 1,955 | 779 | 616 | |||||||||
Net earnings | 6,122 | 3,114 | 3,185 | |||||||||
Preferred stock dividends | 356 | 385 | 389 | |||||||||
Net earnings to common | $ 5,766 | $ 2,729 | $ 2,796 | |||||||||
Average common equity | $40,760 | $ 40,060 | $ 41,237 | |||||||||
Return on average common equity | 14.1% | 6.8% | 6.8% | |||||||||
| Goldman Sachs |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents our Global Markets assets.
| As of December | ||||||||
$ in millions | 2021 | 2020 | ||||||
Cash and cash equivalents | $ | $ 86,663 | ||||||
Collateralized agreements | 343,535 | 212,711 | ||||||
Customer and other receivables | 142,547 | 110,473 | ||||||
Trading assets | 337,040 | 339,349 | ||||||
Investments | 55,285 | 52,929 | ||||||
Loans | 60,916 | 33,214 | ||||||
Other assets | 11,665 | 9,267 | ||||||
Total | $1,082,378 | $844,606 | ||||||
The table below presents our Global Markets operating results.
| Year Ended December | ||||||||||||
$ in millions | 2021 | 2020 | 2019 | |||||||||
FICC intermediation | $ 8,647 | $ 9,991 | $ 6,009 | |||||||||
FICC financing | 1,937 | 1,593 | 1,379 | |||||||||
FICC | 10,584 | 11,584 | 7,388 | |||||||||
Equities intermediation | 7,574 | 6,989 | 4,374 | |||||||||
Equities financing | 3,919 | 2,584 | 3,017 | |||||||||
Equities | 11,493 | 9,573 | 7,391 | |||||||||
Net revenues | 22,077 | 21,157 | 14,779 | |||||||||
Provision for credit losses | 45 | 274 | 35 | |||||||||
Operating expenses | 12,969 | 12,806 | 10,851 | |||||||||
Pre-tax earnings | 9,063 | 8,077 | 3,893 | |||||||||
Provision for taxes | 1,813 | 1,955 | 779 | |||||||||
Net earnings | 7,250 | 6,122 | 3,114 | |||||||||
Preferred stock dividends | 277 | 356 | 385 | |||||||||
Net earnings to common | $ 6,973 | $ 5,766 | $ 2,729 | |||||||||
Average common equity | $45,497 | $40,760 | $40,060 | |||||||||
Return on average common equity | 15.3% | 14.1% | 6.8% | |||||||||
The table below presents our Global Markets net revenues by line item in the consolidated statements of earnings.
$ in millions | FICC | Equities | | Global Markets | | FICC | Equities | | Global Markets | | ||||||||||||||
Year Ended December 2021 | ||||||||||||||||||||||||
Market making | $ 7,584 | $ 7,768 | $15,352 | |||||||||||||||||||||
Commissions and fees | – | 3,543 | 3,543 | |||||||||||||||||||||
Other principal transactions | 358 | 56 | 414 | |||||||||||||||||||||
Net interest income | 2,642 | 126 | 2,768 | |||||||||||||||||||||
Total | $10,584 | $11,493 | $22,077 | |||||||||||||||||||||
Year Ended December 2020 | Year Ended December 2020 | |||||||||||||||||||||||
Market making | $ 8,972 | $6,574 | $15,546 | $ 8,972 | $ 6,574 | $15,546 | ||||||||||||||||||
Commissions and fees | – | 3,347 | 3,347 | – | 3,347 | 3,347 | ||||||||||||||||||
Other principal transactions | 53 | (18 | ) | 35 | 53 | (18 | ) | 35 | ||||||||||||||||
Net interest income | 2,559 | (330 | ) | 2,229 | 2,559 | (330 | ) | 2,229 | ||||||||||||||||
Total | $11,584 | $9,573 | $21,157 | $11,584 | $ 9,573 | $21,157 | ||||||||||||||||||
Year Ended December 2019 | Year Ended December 2019 | |||||||||||||||||||||||
Market making | $ 5,813 | $4,344 | $10,157 | $ 5,813 | $ 4,344 | $10,157 | ||||||||||||||||||
Commissions and fees | – | 2,900 | 2,900 | – | 2,900 | 2,900 | ||||||||||||||||||
Other principal transactions | 1 | 51 | 52 | 1 | 51 | 52 | ||||||||||||||||||
Net interest income | 1,574 | 96 | 1,670 | 1,574 | 96 | 1,670 | ||||||||||||||||||
Total | $ 7,388 | $7,391 | $14,779 | $ 7,388 | $ 7,391 | $14,779 | ||||||||||||||||||
Year Ended December 2018 | ||||||||||||||||||||||||
Market making | $ 5,531 | $4,193 | $ 9,724 | |||||||||||||||||||||
Commissions and fees | – | 3,055 | 3,055 | |||||||||||||||||||||
Other principal transactions | 19 | 33 | 52 | |||||||||||||||||||||
Net interest income | 1,435 | 172 | 1,607 | |||||||||||||||||||||
Total | $ 6,985 | $7,453 | $14,438 | |||||||||||||||||||||
In the table above:
The difference between commissions and fees and those in the consolidated statements of earnings represents commissions and fees included in our Consumer & Wealth Management segment.
See “Net Revenues” for further information about market making revenues, commissions and fees, other principal transactions revenues and net interest income. See Note 25 to the consolidated financial statements for net interest income by business segment.
The primary driver of net revenues for FICC intermediation was client activity.
Operating Environment.
During 2020,2021, Global Markets operated in an environment characterized by strong client activity, higher volatility,continued economic recovery and widerbid-askspreads compared with 2019, as clients reacted to economic uncertainty amid theCOVID-19pandemic by repositioning investment portfolioscontinued monetary and hedging risks across asset classes. During the initial stages of the pandemic, equity prices decreased sharply and credit spreads widened as global economic activity declined. In response,fiscal support from central banks and governments, globally intervened with monetary easing and fiscal stimulus. This support, in conjunction with improved sentiment regarding the pace of the economic recovery,which contributed to strong client activity levels, although activity declined from a sharp rebound invery strong prior year which reflected heightened volatility and significant market dislocations as a result of theand tighter credit spreads. Atwere generally higher compared with the end of 2020, as the S&P 500 Index was 16% higherincreased by 27% and the MSCI World Index was 14% higher than the end of 2019. U.S. investment-grade credit spreads were approximately 5 basis points tighter compared with the end of 2019. Additionally, marketincreased by 17%. Market volatility wascontinued to moderate from elevated levels last year, as the average daily VIX was 29 for 2020, compared with an average of 15 for 2019.33% lower than 2020. If macroeconomic conditions lead to a continued decline in activity levelsbid-askspreads or continued decline in volatility, net revenues in Global Markets would likely be negatively impacted.
COVID-19
pandemic. In addition, global equity prices Net revenues in Global Markets were $21.16$22.08 billion for 2020, 43%2021, 4% higher than 2019.2020.
Net revenues in FICC were $11.58$10.58 billion, 57% higher9% lower than 2019, primarily2020, due to significantly higherlower net revenues in FICC intermediation, reflecting significantly lower net revenues in interest rate products and credit products and slightly lower net revenues in currencies, partially offset by significantly higher net revenues across all major businesses. In addition,in mortgages and higher net revenues in commodities. Net revenues in FICC financing were significantly higher, drivenreflecting significantly higher net revenues from mortgage lending, partially offset by significantly lower net revenues from resale agreements.
The increasedecrease in FICC intermediation net revenues reflected strong but significantly higherlower client activity.activity compared with very strong activity levels in the prior year due to high volatility amid the20192020 results:
COVID-19
pandemic. This was partially offset by the impact of improved market-making conditions on our inventory compared with challenging conditions in the prior year. The following provides information about our FICC intermediation net revenues by business, compared with Net revenues in credit products, interest rate products currencies and mortgagesprimarily reflected higherlower client activity.
Net revenues in commoditiescredit products and currencies reflected lower client activity, partially offset by the impact of improved market-making conditions on our inventory.
Net revenues in mortgages reflected the impact of improved market-making conditions on our inventory andinventory.
Net revenues in commodities primarily reflected higher client activity.
| Goldman Sachs |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Net revenues in Equities were $11.49 billion, 20% higher than 2020, due to significantly higher net revenues in Equities financing, primarily reflecting increased activity (including higher average client balances), and higher net revenues in Equities intermediation, across both derivatives and cash products.
Provision for credit losses was $45 million for 2021, compared with $274 million for 2020, primarily reflecting reserve reductions in the current year due to continued improvement in the broader economic environment following challenging conditions in 2020 resulting from the
COVID-19
pandemic, partially offset by portfolio growth.Operating expenses were $12.97 billion for 2021, essentially unchanged compared with 2020, as higher compensation and benefits expenses (reflecting strong performance) and higher transaction based expenses were offset by significantly lower net provisions for litigation and regulatory proceedings.
Pre-tax
earnings were $9.06 billion, 12% higher than 2020. ROE was 15.3% for 2021, compared with 14.1% for 2020 (which included the impact of net provisions for litigation and regulatory proceedings that reduced ROE by 4.0 percentage points).Asset Management
We manage client assets across a broad range of investment strategies and asset classes for a diverse set of institutional clients and a network of third-party distributors around the world, including equity, fixed income and alternative investments. We provide investment solutions including those managed on a fiduciary basis by our portfolio managers, as well as those managed by a variety of third-party managers. We offer our investment solutions in a variety of structures, including separately managed accounts, mutual funds, private partnerships and other comingledcommingled vehicles. These solutions begin with identifying clients’ objectives and continue through portfolio construction, ongoing asset allocation and risk management and investment realization.
In addition to managing client assets, we invest in alternative investments across a range of asset classes that seek to deliver long-term accretive risk-adjusted returns. Our investing activities, which are typically longer term, include investments in corporate equity, credit, real estate and infrastructure assets.
Asset Management generates revenues from the following:
Management and other fees.
Incentive fees.
Equity investments.
Lending and debt investments.
The table below presents our Asset Management assets.
| As of December | As of December | |||||||||||||||
$ in millions | 2020 | 2019 | 2021 | 2020 | ||||||||||||
Cash and cash equivalents | $ 8,635 | $ 6,756 | $16,636 | $ 8,635 | ||||||||||||
Collateralized agreements | 4,749 | 3,433 | 5,227 | 4,749 | ||||||||||||
Customer and other receivables | 1,261 | 1,579 | 946 | 1,261 | ||||||||||||
Trading assets | 6,819 | 5,266 | 5,000 | 6,819 | ||||||||||||
Investments | 34,386 | 37,096 | 32,318 | 34,386 | ||||||||||||
Loans | 16,558 | 17,101 | 13,698 | 16,558 | ||||||||||||
Other assets | 23,343 | 20,871 | 17,290 | 23,343 | ||||||||||||
Total | $95,751 | $92,102 | $91,115 | $95,751 | ||||||||||||
The table below presents our Asset Management operating results.
| Year Ended December | Year Ended December | |||||||||||||||||||||||
$ in millions | 2020 | 2019 | 2018 | 2021 | 2020 | 2019 | ||||||||||||||||||
Management and other fees | $ 2,785 | $ 2,600 | $ 2,612 | $ 2,883 | $ 2,785 | $ 2,600 | ||||||||||||||||||
Incentive fees | 287 | 130 | 384 | 438 | 287 | 130 | ||||||||||||||||||
Equity investments | 4,095 | 4,765 | 4,207 | 9,189 | 4,095 | 4,765 | ||||||||||||||||||
Lending and debt investments | 817 | 1,470 | 1,632 | 2,406 | 817 | 1,470 | ||||||||||||||||||
Net revenues | 7,984 | 8,965 | 8,835 | 14,916 | 7,984 | 8,965 | ||||||||||||||||||
Provision for credit losses | 442 | 274 | 160 | 18 | 442 | 274 | ||||||||||||||||||
Operating expenses | 5,142 | 4,817 | 4,179 | 5,970 | 5,142 | 4,817 | ||||||||||||||||||
Pre-tax earnings | 2,400 | 3,874 | 4,496 | 8,928 | 2,400 | 3,874 | ||||||||||||||||||
Provision for taxes | 581 | 775 | 729 | 1,785 | 581 | 775 | ||||||||||||||||||
Net earnings | 1,819 | 3,099 | 3,767 | 7,143 | 1,819 | 3,099 | ||||||||||||||||||
Preferred stock dividends | 79 | 86 | 99 | 97 | 79 | 86 | ||||||||||||||||||
Net earnings to common | $ 1,740 | $ 3,013 | $ 3,668 | $ 7,046 | $ 1,740 | $ 3,013 | ||||||||||||||||||
Average common equity | $20,491 | $21,575 | $19,061 | $25,195 | $20,491 | $21,575 | ||||||||||||||||||
Return on average common equity | 8.5% | 14.0% | 19.2% | 28.0% | 8.5% | 14.0% | ||||||||||||||||||
The table below presents our Equity investments net revenues by equity type and asset class.
| Year Ended December | Year Ended December | |||||||||||||||||||||||
$ in millions | 2020 | 2019 | 2018 | 2021 | 2020 | 2019 | ||||||||||||||||||
Equity Type | ||||||||||||||||||||||||
Private equity | $ 2,417 | $ 4,288 | $ 4,390 | $ 9,266 | $ 2,417 | $ 4,288 | ||||||||||||||||||
Public equity | 1,678 | 477 | (183 | ) | (77 | ) | 1,678 | 477 | ||||||||||||||||
Total | $ 4,095 | $ 4,765 | $ 4,207 | $ 9,189 | $ 4,095 | $ 4,765 | ||||||||||||||||||
Asset Class | ||||||||||||||||||||||||
Real estate | $ 1,621 | $ 2,384 | $ 1,816 | $ 2,489 | $ 1,621 | $ 2,384 | ||||||||||||||||||
Corporate | 2,474 | 2,381 | 2,391 | 6,700 | 2,474 | 2,381 | ||||||||||||||||||
Total | $ 4,095 | $ 4,765 | $ 4,207 | $ 9,189 | $ 4,095 | $ 4,765 | ||||||||||||||||||
| Goldman Sachs |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents details about our Lending and debt investments net revenues.
| Year Ended December | ||||||||||||
$ in millions | 2021 | 2020 | 2019 | |||||||||
Fair value net gains/(losses) | $1,155 | $ (228 | ) | $ | ||||||||
Net interest income | 1,251 | 1,045 | 1,136 | |||||||||
Total | $2,406 | $ | $1,470 | |||||||||
Operating Environment.
During 2021, the operating environment for Asset Management improved, as global equity prices were generally higher and credit spreads tightened, amid economic recovery and continued support from central banks and governments globally. If optimism about the economic outlook declines or the ongoing efforts to mitigate the impact of the
COVID-19
pandemic are ineffective, it may lead to a decline in asset prices, widening of credit spreads, and investors transitioning to asset classes that typically generate lower fees or investors withdrawing their assets, and net revenues in Asset Management would likely be negatively impacted.2021 versus 2019.2020.
Net revenues in Asset Management were $7.98$14.92 billion for 2021, 87% higher than 2020, 11% lower than 2019,primarily reflecting significantly lowerhigher net revenues in Equity investments and Lending and debt investments. Incentive fees were significantly higher, and Management and other fees (from our institutional and third-party distribution asset management clients) were higher.
The decreaseincrease in Equity investments net revenues reflected significantly lowerhigher net gains from investments in private equities, driven by company-specific events and improved corporate performance compared with 2020, partially offset by significantly higher net gainslosses from investments in public equities. Netequities compared with significant net gains from investments in private equities for 2020 were primarily driven by company-specific events, such as sales and capital raises, partially offset by net mark-downs driven by corporate performance.the prior year.
The decreaseincrease in Lending and debt investments primarily reflected net losses from debt investments in 2020 compared with net gains in 2019. Lending and debt investments net revenues included approximately $1.05 billion ofreflected net gains from investments in debt instruments compared with net losses in the prior year, and significantly higher net interest income for 2020.income.
Provision for credit losses was $18 million for 2021, compared with $442 million for 2020, 61% higher than 2019,primarily due to reserve reductions in the current year reflecting higher impairments related to the private credit and real estate portfolios and reserve increases as a result of the impact of theCOVID-19pandemic oncontinued improvement in the broader economic environment (incorporatingfollowing challenging conditions in 2020 resulting from the accounting for credit losses under the CECL standard). See Note 3 to the consolidated financial statements for further information about ASUNo. 2016-13.COVID-19pandemic.
Operating expenses were $5.14$5.97 billion for 2020, 7%2021, 16% higher than 2019,2020, primarily due to significantly higher compensation and benefits expenses and higher(reflecting strong performance), partially offset by lower expenses related to consolidated investments including impairments.(including impairments).2020, 38% lower than 2019.
Pre-tax
earnings were $8.93 billion for 2021, compared with $2.40 billion for Consumer & Wealth Management
Consumer & Wealth Management helps clients achieve their individual financial goals by providing a broad range of wealth advisory and banking services, including financial planning, investment management, deposit taking,deposit-taking and lending. Services are offered through our global network of advisors and via our digital platforms.
Wealth Management.
Wealth management provides tailored wealth advisory services to clients across the wealth spectrum. We operate globally serving individuals, families, family offices, and foundations and endowments. Our relationships are established directly or introduced through corporations that sponsor financial wellness programs for their employees.
We offer personalized financial planning inclusive of income and liability management, compensation and benefits analysis, trust and estate structuring, tax optimization, philanthropic giving, and asset protection. We also provide customized investment advisory solutions, and offer structuring and execution capabilities in security and derivative products across all major global markets. We leverage a broad, open-architecture investment platform and our global execution capabilities to help clients achieve their investment goals. In addition, we offer clients a full range of private banking services, including a variety of deposit alternatives and loans that our clients use to finance investments in both financial and nonfinancial assets, bridge cash flow timing gaps or provide liquidity and flexibility for other needs.
Wealth management generates revenues from the following:
Management and other fees.
Incentive fees.
Private banking and lending.
| Goldman Sachs |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Consumer Banking.
Our Consumer banking business issues unsecured loans, through our digital platform,(Marcus),Goldman Sachs International Bank (GSIB). These deposits include savings and time deposits whichGSIB. Additionally, we provide us with a diversified source of funding.investing services throughto U.S. customers.
Marcus by Goldman Sachs
and credit cards, to finance the purchases of goods or services. We also accept deposits (including savings and time deposits) through Marcus, in Goldman Sachs Bank USA (GS Bank USA) and
Marcus Invest
Consumer banking revenues consist of net interest income earned on unsecured loans issued to consumers through Marcus and credit card lending activities, and net interest income allocatedattributed to consumer deposits.
The table below presents our Consumer & Wealth Management assets.
| As of December | As of December | |||||||||||||||
$ in millions | 2020 | 2019 | 2021 | 2020 | ||||||||||||
Cash and cash equivalents | $ 25,814 | $18,670 | $ 48,573 | $ 25,814 | ||||||||||||
Collateralized agreements | 12,518 | 8,675 | 14,358 | 12,518 | ||||||||||||
Customer and other receivables | 7,132 | 6,173 | 11,932 | 7,132 | ||||||||||||
Trading assets | 17,969 | 13,087 | 13,538 | 17,969 | ||||||||||||
Investments | 52 | 50 | 63 | 52 | ||||||||||||
Loans | 39,799 | 34,127 | 54,393 | 39,799 | ||||||||||||
Other assets | 3,145 | 3,015 | 3,481 | 3,145 | ||||||||||||
Total | $106,429 | $83,797 | $146,338 | $106,429 | ||||||||||||
The table below presents our Consumer & Wealth Management operating results.
| Year Ended December | Year Ended December | |||||||||||||||||||||||
$ in millions | 2020 | 2019 | 2018 | 2021 | 2020 | 2019 | ||||||||||||||||||
Management and other fees | $3,889 | $ 3,475 | $ 3,282 | $ 4,691 | $3,889 | $3,475 | ||||||||||||||||||
Incentive fees | 114 | 81 | 446 | 178 | 114 | 81 | ||||||||||||||||||
Private banking and lending | 780 | 783 | 826 | 1,109 | 780 | 783 | ||||||||||||||||||
Wealth management | 4,783 | 4,339 | 4,554 | 5,978 | 4,783 | 4,339 | ||||||||||||||||||
Consumer banking | 1,213 | 864 | 611 | 1,492 | 1,213 | 864 | ||||||||||||||||||
Net revenues | 5,996 | 5,203 | 5,165 | 7,470 | 5,996 | 5,203 | ||||||||||||||||||
Provision for credit losses | 758 | 423 | 338 | 592 | 758 | 423 | ||||||||||||||||||
Operating expenses | 4,901 | 4,545 | 4,224 | 6,294 | 4,901 | 4,545 | ||||||||||||||||||
Pre-tax earnings | 337 | 235 | 603 | 584 | 337 | 235 | ||||||||||||||||||
Provision for taxes | 81 | 47 | 97 | 117 | 81 | 47 | ||||||||||||||||||
Net earnings | 256 | 188 | 506 | 467 | 256 | 188 | ||||||||||||||||||
Preferred stock dividends | 40 | 29 | 34 | 40 | 40 | 29 | ||||||||||||||||||
Net earnings to common | $ 216 | $ 159 | $ 472 | $ | $ 216 | $ 159 | ||||||||||||||||||
Average common equity | $8,012 | $ 6,292 | $ 4,950 | $10,796 | $8,012 | $6,292 | ||||||||||||||||||
Return on average common equity | 2.7% | 2.5% | 9.5% | 4.0% | 2.7% | 2.5% | ||||||||||||||||||
Operating Environment.
During 2021, improved market and economic conditions contributed to a more favorable backdrop for consumer banking and wealth management activities. Global equity prices were generally higher and, in the U.S., unemployment decreased and consumer spending increased compared with 2020, aided by optimism about theCOVID-19pandemic initially negatively impacted economic activityrecovery and financial markets. In response,continued support from central banks and governments globally intervened with widespread monetary and fiscal stimulus to supportglobally. If optimism about the economy and financial markets. As a result, global equity prices rebounded sharply and finished the year higher than at the end of 2019. In addition, unemployment and retail spending improved throughout the year after the initial effects of the pandemic. Ifeconomic outlook declines or the ongoing efforts to mitigate the impact of theturn out to beare ineffective, it may lead to a decline in asset prices, investors continuing to favorfavoring asset classes that typically generate lower fees, investors withdrawing their assets and consumers withdrawing their deposits or deterioration in consumer credit, and net revenues and the provision for credit losses in Consumer & Wealth Management would likely be negatively impacted.
COVID-19
pandemic Net revenues in Consumer & Wealth Management were $6.00$7.47 billion for 2020, 15%2021, 25% higher than 2019.2020.
Net revenues in Wealth management were $4.78$5.98 billion, 10%25% higher than 2019, primarily reflecting2020, due to significantly higher Management and other fees, primarily reflecting the impact of higher average AUS,assets under supervision, and significantly higher transaction volumesnet revenues in Private banking and the impact of the full-year consolidation of GS Personal Financial Management, partially offset by a lower average effective management feelending, primarily reflecting higher loan balances. In addition, Incentive fees were higher, primarily due to shifts in the mix of client assets and strategies.harvesting.
Net revenues in Consumer banking were $1.21$1.49 billion, 40%23% higher than 2019,2020, reflecting higher credit card loan and deposit balances.
Provision for credit losses was $758$592 million for 2021, 22% lower than 2020, 79% higher than 2019,primarily due to reserve reductions in the current year reflecting continued improvement in the broader economic environment following challenging conditions in 2020, partially offset by growth in credit card loans and the impactbalances, including approximately $185 million of theCOVID-19pandemic on the broader economic environment (incorporating the accounting for credit losses under the CECL standard). See Note 3provisions related to the consolidated financial statements for further information about ASUcommitment to acquire the General MotorsNo. 2016-13.co-brandedcredit card portfolio.
Operating expenses were $4.90$6.29 billion for 2020, 8%2021, 28% higher than 2019,2020, primarily due toreflecting significantly higher compensation and benefits expenses related to the impact of the full-year consolidation of GS Personal Financial Management and our credit card activities.(reflecting strong performance).$337$584 million for 2020, 43%2021, 73% higher than 2019.
Pre-tax
earnings were | Goldman Sachs |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Assets Under Supervision
AUS includes our institutional clients’ assets and assets sourced through third-party distributors (both included in our Asset Management segment), as well asclients’ assets (included in our Consumer & Wealth Management segment), where we earn a fee for managing assets on a discretionary basis. This includes net assets in our mutual funds, hedge funds, credit funds, private equity funds, real estate funds, and separately managed accounts for institutional and individual investors. AUS also includes client assets invested with third-party managers, private bank deposits and advisory relationships where we earn a fee for advisory and other services, but do not have investment discretion. AUS does not include the self-directed brokerage assets of our clients.
high-net-worth
The table below presents information about our firmwide
period-end
AUS by segment, asset class, distribution channel, region and vehicle.| As of December | As of December | |||||||||||||||||||||||
$ in billions | 2020 | 2019 | 2018 | 2021 | 2020 | 2019 | ||||||||||||||||||
Segment | ||||||||||||||||||||||||
Asset Management | $1,530 | $1,298 | $1,087 | $1,719 | $1,530 | $1,298 | ||||||||||||||||||
Consumer & Wealth Management | 615 | 561 | 455 | 751 | 615 | 561 | ||||||||||||||||||
Total AUS | $2,145 | $1,859 | $1,542 | $2,470 | $2,145 | $1,859 | ||||||||||||||||||
Asset Class | ||||||||||||||||||||||||
Alternative investments | $ 191 | $ 185 | $ 167 | $ | $ | $ | ||||||||||||||||||
Equity | 475 | 423 | 301 | 613 | 475 | 423 | ||||||||||||||||||
Fixed income | 896 | 789 | 677 | 940 | 896 | 789 | ||||||||||||||||||
Total long-term AUS | 1,562 | 1,397 | 1,145 | 1,789 | 1,562 | 1,397 | ||||||||||||||||||
Liquidity products | 583 | 462 | 397 | 681 | 583 | 462 | ||||||||||||||||||
Total AUS | $2,145 | $1,859 | $1,542 | $2,470 | $2,145 | $1,859 | ||||||||||||||||||
Distribution Channel | ||||||||||||||||||||||||
Institutional | $ 761 | $ 684 | $ 575 | $ | $ | $ | ||||||||||||||||||
Wealth management | 615 | 561 | 455 | 751 | 615 | 561 | ||||||||||||||||||
Third-party distributed | 769 | 614 | 512 | 895 | 769 | 614 | ||||||||||||||||||
Total AUS | $2,145 | $1,859 | $1,542 | $2,470 | $2,145 | $1,859 | ||||||||||||||||||
Region | ||||||||||||||||||||||||
Americas | $1,656 | $1,408 | $1,151 | $1,930 | $1,656 | $1,408 | ||||||||||||||||||
EMEA | 318 | 279 | 239 | 354 | 318 | 279 | ||||||||||||||||||
Asia | 171 | 172 | 152 | 186 | 171 | 172 | ||||||||||||||||||
Total AUS | $2,145 | $1,859 | $1,542 | $2,470 | $2,145 | $1,859 | ||||||||||||||||||
Vehicle | ||||||||||||||||||||||||
Separate accounts | $1,186 | $1,069 | $ 867 | $1,347 | $1,186 | $1,069 | ||||||||||||||||||
Public funds | 707 | 603 | 506 | 811 | 707 | 603 | ||||||||||||||||||
Private funds and other | 252 | 187 | 169 | 312 | 252 | 187 | ||||||||||||||||||
Total AUS | $2,145 | $1,859 | $1,542 | $2,470 | $2,145 | $1,859 | ||||||||||||||||||
In the table above:
Liquidity products includes money market funds and private bank deposits.
EMEA represents Europe, Middle East and Africa.
The table below presents changes in our AUS.
| Year Ended December | Year Ended December | |||||||||||||||||||||||
$ in billions | 2020 | 2019 | 2018 | 2021 | 2020 | 2019 | ||||||||||||||||||
Asset Management | ||||||||||||||||||||||||
Beginning balance | $1,298 | $1,087 | $1,036 | $1,530 | $1,298 | $1,087 | ||||||||||||||||||
Net inflows/(outflows): | ||||||||||||||||||||||||
Alternative investments | (3 | ) | 2 | 6 | 15 | (3 | ) | 2 | ||||||||||||||||
Equity | (12 | ) | 34 | 6 | 5 | (12 | ) | 34 | ||||||||||||||||
Fixed income | 53 | 35 | 14 | 54 | 53 | 35 | ||||||||||||||||||
Total long-term AUS net inflows/(outflows) | 38 | 71 | 26 | 74 | 38 | 71 | ||||||||||||||||||
Liquidity products | 107 | 52 | 51 | 76 | 107 | 52 | ||||||||||||||||||
Total AUS net inflows/(outflows) | 145 | 123 | 77 | 150 | 145 | 123 | ||||||||||||||||||
Net market appreciation/(depreciation) | 87 | 88 | (26 | ) | 39 | 87 | 88 | |||||||||||||||||
Ending balance | $1,530 | $1,298 | $1,087 | $1,719 | $1,530 | $1,298 | ||||||||||||||||||
Consumer & Wealth Management | ||||||||||||||||||||||||
Beginning balance | $ 561 | $ 455 | $ 458 | $ | $ | $ | ||||||||||||||||||
Net inflows/(outflows): | ||||||||||||||||||||||||
Alternative investments | 2 | 9 | (5 | ) | 18 | 2 | 9 | |||||||||||||||||
Equity | 8 | 11 | 7 | 36 | 8 | 11 | ||||||||||||||||||
Fixed income | (6 | ) | 17 | 9 | 2 | (6 | ) | 17 | ||||||||||||||||
Total long-term AUS net inflows/(outflows) | 4 | 37 | 11 | 56 | 4 | 37 | ||||||||||||||||||
Liquidity products | 14 | 13 | 1 | 22 | 14 | 13 | ||||||||||||||||||
Total AUS net inflows/(outflows) | 18 | 50 | 12 | 78 | 18 | 50 | ||||||||||||||||||
Net market appreciation/(depreciation) | 36 | 56 | (15 | ) | 58 | 36 | 56 | |||||||||||||||||
Ending balance | $ 615 | $ 561 | $ 455 | $ | $ | $ | ||||||||||||||||||
Firmwide | ||||||||||||||||||||||||
Beginning balance | $1,859 | $1,542 | $1,494 | $2,145 | $1,859 | $1,542 | ||||||||||||||||||
Net inflows/(outflows): | ||||||||||||||||||||||||
Alternative investments | (1 | ) | 11 | 1 | 33 | (1 | ) | 11 | ||||||||||||||||
Equity | (4 | ) | 45 | 13 | 41 | (4 | ) | 45 | ||||||||||||||||
Fixed income | 47 | 52 | 23 | 56 | 47 | 52 | ||||||||||||||||||
Total long-term AUS net inflows/(outflows) | 42 | 108 | 37 | 130 | 42 | 108 | ||||||||||||||||||
Liquidity products | 121 | 65 | 52 | 98 | 121 | 65 | ||||||||||||||||||
Total AUS net inflows/(outflows) | 163 | 173 | 89 | 228 | 163 | 173 | ||||||||||||||||||
Net market appreciation/(depreciation) | 123 | 144 | (41 | ) | 97 | 123 | 144 | |||||||||||||||||
Ending balance | $2,145 | $1,859 | $1,542 | $2,470 | $2,145 | $1,859 | ||||||||||||||||||
In the table above, total AUS net inflows/(outflows) for 2019 included $71 billion of inflows (substantially all in equity and fixed income assets) in connection with the acquisitions of Standard & Poor’s Investment Advisory Services (SPIAS), GS Personal Financial Management and Rocaton Investment Advisors (Rocaton). SPIAS and Rocaton were included in the Asset Management segment and GS Personal Financial Management was included in the Consumer & Wealth Management segment.
| Goldman Sachs |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents information about our average monthly firmwide AUS by segment and asset class.
Average for the Year Ended December | Average for the Year Ended December | |||||||||||||||||||||||
$ in billions | 2020 | 2019 | 2018 | 2021 | 2020 | 2019 | ||||||||||||||||||
Segment | ||||||||||||||||||||||||
Asset Management | $1,429 | $1,182 | $1,050 | $1,628 | $1,429 | $1,182 | ||||||||||||||||||
Consumer & Wealth Management | 565 | 505 | 467 | 674 | 565 | 505 | ||||||||||||||||||
Total AUS | $1,994 | $1,687 | $1,517 | $2,302 | $1,994 | $1,687 | ||||||||||||||||||
Asset Class | ||||||||||||||||||||||||
Alternative investments | $ 183 | $ 176 | $ 171 | $ | $ | $ | ||||||||||||||||||
Equity | 409 | 364 | 329 | 547 | 409 | 364 | ||||||||||||||||||
Fixed income | 829 | 746 | 665 | 919 | 829 | 746 | ||||||||||||||||||
Total long-term AUS | 1,421 | 1,286 | 1,165 | 1,677 | 1,421 | 1,286 | ||||||||||||||||||
Liquidity products | 573 | 401 | 352 | 625 | 573 | 401 | ||||||||||||||||||
Total AUS | $1,994 | $1,687 | $1,517 | $2,302 | $1,994 | $1,687 | ||||||||||||||||||
In addition to our AUS, we have discretion over alternative investments where we currently do not earn management feesalternative assets).
(non-fee-earning
We earn management fees on client assets that we manage and also receive incentive fees based on a percentage of a fund’s or a separately managed account’s return, or when the return exceeds a specified benchmark or other performance targets. These incentive fees are recognized when it is probable that a significant reversal of such fees will not occur. Our estimated unrecognized incentive fees were $3.39 billion as of December 2021 and $1.79 billion as of December 2020. Such amounts are based on the completion of the funds’ financial statements, which is generally one quarter in arrears. These fees will be recognized, assuming no decline in fair value, if and when it is probable that a significant reversal of such fees will not occur, which is generally when such fees are no longer subject to fluctuations in the market value of the assets.
Our firmwide management and other fees were $7.57 billion for 2021, $6.67 billion for 2020 and $6.08 billion for 2019. In the first quarter of 2022, we announced that our target is to achieve management and other fees of more than $10 billion (including more than $2 billion from alternative AUS) in 2024.
The table below presents our average effective management fee (which excludes
non-asset-based
fees) earned on our firmwide AUS.| Year Ended December | ||||||||||||
Effective fees (bps) | 2021 | 2020 | 2019 | |||||||||
Asset Class | ||||||||||||
Alternative investments | 63 | 61 | 61 | |||||||||
Equity | 60 | 58 | 61 | |||||||||
Fixed income | 17 | 18 | 19 | |||||||||
Liquidity products | 5 | 14 | 16 | |||||||||
Total average effective fee | 29 | 29 | 32 | |||||||||
The table below presents details about our monthly average AUS for alternative investments and the average effective management fee we earned on such assets.
$ in billions | | Direct Strategies | | | Fund of Funds | | Total | |||||
Year Ended December 2021 | ||||||||||||
Average AUS | ||||||||||||
Corporate equity | $ 20 | $59 | $ 79 | |||||||||
Credit | 19 | 1 | 20 | |||||||||
Real estate | 8 | 7 | 15 | |||||||||
Hedge funds and other | 51 | 11 | 62 | |||||||||
Funds and discretionary accounts | $ 98 | $78 | $176 | |||||||||
Advisory accounts | 35 | |||||||||||
Total average AUS for alternative investments | $211 | |||||||||||
Effective Fees (bps) | ||||||||||||
Corporate equity | 117 | 57 | 72 | |||||||||
Credit | 102 | 54 | 98 | |||||||||
Real estate | 93 | 56 | 76 | |||||||||
Hedge funds and other | 61 | 66 | 62 | |||||||||
Funds and discretionary accounts | 83 | 58 | 72 | |||||||||
Advisory accounts | 17 | |||||||||||
Total average effective fee | 63 | |||||||||||
Year Ended December 2020 | ||||||||||||
Average AUS | ||||||||||||
Corporate equity | $ 15 | $58 | $ 73 | |||||||||
Credit | 13 | 2 | 15 | |||||||||
Real estate | 7 | 6 | 13 | |||||||||
Hedge funds and other | 44 | 10 | 54 | |||||||||
Funds and discretionary accounts | $ 79 | $76 | $155 | |||||||||
Advisory accounts | 28 | |||||||||||
Total average AUS for alternative investments | $183 | |||||||||||
Effective Fees (bps) | ||||||||||||
Corporate equity | 131 | 57 | 73 | |||||||||
Credit | 95 | 53 | 89 | |||||||||
Real estate | 87 | 63 | 75 | |||||||||
Hedge funds and other | 59 | 65 | 60 | |||||||||
Funds and discretionary accounts | 81 | 59 | 70 | |||||||||
Advisory accounts | 13 | |||||||||||
Total average effective fee | 61 | |||||||||||
Year Ended December 2019 | ||||||||||||
Average AUS | ||||||||||||
Corporate equity | $ 16 | $51 | $ 67 | |||||||||
Credit | 10 | 2 | 12 | |||||||||
Real estate | 6 | 4 | 10 | |||||||||
Hedge funds and other | 47 | 11 | 58 | |||||||||
Funds and discretionary accounts | $ 79 | $68 | $147 | |||||||||
Advisory accounts | 29 | |||||||||||
Total average AUS for alternative investments | $176 | |||||||||||
Effective Fees (bps) | ||||||||||||
Corporate equity | 134 | 52 | 73 | |||||||||
Credit | 108 | 48 | 99 | |||||||||
Real estate | 88 | 59 | 76 | |||||||||
Hedge funds and other | 61 | 61 | 61 | |||||||||
Funds and discretionary accounts | 84 | 54 | 70 | |||||||||
Advisory accounts | 13 | |||||||||||
Total average effective fee | 61 | |||||||||||
| 76 | Goldman Sachs 2021 Form 10-K |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents information about ourassets,investments,alternative assetsinvestments and total alternative assets.investments.
period-end
AUS for alternative non-fee-earning
$ in billions | AUS | | Non-fee-earning alternative assets | | | Total alternative assets | | AUS | | Non-fee-earning alternative assets | | | Total alternative assets | | ||||||||||
As of December 2021 | ||||||||||||||||||||||||
Corporate equity | $ 87 | $ 79 | $166 | |||||||||||||||||||||
Credit | 25 | 69 | 94 | |||||||||||||||||||||
Real estate | 16 | 39 | 55 | |||||||||||||||||||||
Hedge funds and other | 70 | 2 | 72 | |||||||||||||||||||||
Funds and discretionary accounts | 198 | 189 | 387 | |||||||||||||||||||||
Advisory accounts | 38 | 1 | 39 | |||||||||||||||||||||
Total alternative investments | $236 | $190 | $426 | |||||||||||||||||||||
As of December 2020 | ||||||||||||||||||||||||
Corporate equity | $ 80 | $ 51 | $131 | $ 74 | $ 51 | $125 | ||||||||||||||||||
Credit | 19 | 72 | 91 | 18 | 72 | 90 | ||||||||||||||||||
Real estate | 18 | 44 | 62 | 13 | 43 | 56 | ||||||||||||||||||
Hedge funds and multi-asset | 74 | 1 | 75 | |||||||||||||||||||||
Other | – | 1 | 1 | |||||||||||||||||||||
Total | $191 | $169 | $360 | |||||||||||||||||||||
Hedge funds and other | 56 | 2 | 58 | |||||||||||||||||||||
Funds and discretionary accounts | 161 | 168 | 329 | |||||||||||||||||||||
Advisory accounts | 30 | 1 | 31 | |||||||||||||||||||||
Total alternative investments | $191 | $169 | $360 | |||||||||||||||||||||
As of December 2019 | ||||||||||||||||||||||||
Corporate equity | $ 81 | $ 38 | $119 | $ 76 | $ 38 | $114 | ||||||||||||||||||
Credit | 14 | 51 | 65 | 14 | 51 | 65 | ||||||||||||||||||
Real estate | 13 | 43 | 56 | 8 | 43 | 51 | ||||||||||||||||||
Hedge funds and multi-asset | 77 | 1 | 78 | |||||||||||||||||||||
Other | – | 1 | 1 | |||||||||||||||||||||
Total | $185 | $134 | $319 | |||||||||||||||||||||
As of December 2018 | ||||||||||||||||||||||||
Corporate equity | $ 72 | $ 35 | $107 | |||||||||||||||||||||
Credit | 11 | 47 | 58 | |||||||||||||||||||||
Real estate | 10 | 38 | 48 | |||||||||||||||||||||
Hedge funds and multi-asset | 74 | 1 | 75 | |||||||||||||||||||||
Other | – | 1 | 1 | |||||||||||||||||||||
Total | $167 | $122 | $289 | |||||||||||||||||||||
Hedge funds and other | 58 | 2 | 60 | |||||||||||||||||||||
Funds and discretionary accounts | 156 | 134 | 290 | |||||||||||||||||||||
Advisory accounts | 29 | – | 29 | |||||||||||||||||||||
Total alternative investments | $185 | $134 | $319 | |||||||||||||||||||||
In the table above:
Total alternative assetsinvestments included uncalled capital that is available for future investing of $42 billion as of December 2021, $44 billion as of December 2020 and $32 billion as of December 2019 and $27 billion as of December 2018.2019.
Non-fee-earning
non-fee-earning
In the beginning of 2020, we announced a strategic objective of growing our third-party alternatives business, and established targetsa target of achieving net inflows of $100 billion and gross inflows of $150 billion for alternative assets over five years. During 2020,investments by the end of 2024. In the first quarter of 2022, we raised approximately $40increased that target to $225 billion inby the end of 2024.
The table below presents information about third-party commitments for alternative assets. As of Decemberraised in our alternatives business during 2020 approximately $13 billion of theseand 2021.
$ in billions | As of December 2021 | |||
Included in AUS | $ 64 | |||
Included in non-fee-earning | 43 | |||
Third-party commitments raised | $107 | |||
In the table above, commitments were included in AUS, as they were generating fees. The remaining approximately $27 billion of such commitments were included inalternative assets in the table above,investments included approximately $20$29 billion of which will begin to earn fees (and become AUS), if and when the commitments are drawn and assets are invested.
non-fee-earning
The table below presents information about alternative investments in our Asset Management segment that we hold on our balance sheet.
$ in billions | Loans | | Debt securities | | | Equity securities | | | CIE investments and other | | Total | Loans | | Debt securities | | | Equity securities | | | CIE investments and other | | Total | ||||||||||||||||||
As of December 2021 | ||||||||||||||||||||||||||||||||||||||||
Corporate equity | $ | $ | $15 | $ | $15 | |||||||||||||||||||||||||||||||||||
Credit | 7 | 11 | – | – | 18 | |||||||||||||||||||||||||||||||||||
Real estate | 7 | 2 | 4 | 14 | 27 | |||||||||||||||||||||||||||||||||||
Other | – | – | – | 1 | 1 | |||||||||||||||||||||||||||||||||||
Total | $14 | $13 | $19 | $15 | $61 | |||||||||||||||||||||||||||||||||||
As of December 2020 | As of December 2020 | |||||||||||||||||||||||||||||||||||||||
Corporate equity | $ – | $ – | $16 | $ – | $16 | $ | $ | $16 | $ | $16 | ||||||||||||||||||||||||||||||
Credit | 8 | 11 | – | – | 19 | 8 | 11 | – | – | 19 | ||||||||||||||||||||||||||||||
Real estate | 9 | 2 | 4 | 19 | 34 | 9 | 2 | 4 | 19 | 34 | ||||||||||||||||||||||||||||||
Other | – | – | – | 1 | 1 | – | – | – | 1 | 1 | ||||||||||||||||||||||||||||||
Total | $17 | $13 | $20 | $20 | $70 | $17 | $13 | $20 | $20 | $70 | ||||||||||||||||||||||||||||||
As of December 2019 | As of December 2019 | |||||||||||||||||||||||||||||||||||||||
Corporate equity | $ | $ | $17 | $ | $17 | $ | $ | $17 | $ | $17 | ||||||||||||||||||||||||||||||
Credit | 8 | 12 | – | – | 20 | 8 | 12 | – | – | 20 | ||||||||||||||||||||||||||||||
Real estate | 9 | 2 | 5 | 17 | 33 | 9 | 2 | 5 | 17 | 33 | ||||||||||||||||||||||||||||||
Other | – | – | – | 1 | 1 | – | – | – | 1 | 1 | ||||||||||||||||||||||||||||||
Total | $17 | $14 | $22 | $18 | $71 | $17 | $14 | $22 | $18 | $71 | ||||||||||||||||||||||||||||||
As of December 2018 | ||||||||||||||||||||||||||||||||||||||||
Corporate equity | $ | $ | $17 | $ | $17 | |||||||||||||||||||||||||||||||||||
Credit | 6 | 8 | – | – | 14 | |||||||||||||||||||||||||||||||||||
Real estate | 8 | 2 | 4 | 13 | 27 | |||||||||||||||||||||||||||||||||||
Other | – | – | – | 1 | 1 | |||||||||||||||||||||||||||||||||||
Total | $14 | $10 | $21 | $14 | $59 | |||||||||||||||||||||||||||||||||||
Loans and Debt Securities.
The table below presents the concentration of loans and debt securities within our alternative investments by accounting classification, region and industry.
| As of December | ||||||||
$ in billions | 2021 | 2020 | ||||||
Loans | $14 | $ 17 | ||||||
Debt securities | 13 | 13 | ||||||
Total | $27 | $ 30 | ||||||
Accounting Classification | ||||||||
Debt securities at fair value | 48% | 44% | ||||||
Loans at amortized cost | 40% | 43% | ||||||
Loans at fair value | 12% | 13% | ||||||
Total | 100% | 100% | ||||||
Region | ||||||||
Americas | 44% | 45% | ||||||
EMEA | 34% | 33% | ||||||
Asia | 22% | 22% | ||||||
Total | 100% | 100% | ||||||
Industry | ||||||||
Consumers | 4% | 5% | ||||||
Financial Institutions | 8% | 7% | ||||||
Healthcare | 11% | 9% | ||||||
Industrials | 14% | 15% | ||||||
Natural Resources & Utilities | 3% | 4% | ||||||
Real Estate | 33% | 36% | ||||||
Technology, Media & Telecommunications | 17% | 14% | ||||||
Other | 10% | 10% | ||||||
Total | 100% | 100% | ||||||
| Goldman Sachs 2021 Form 10-K | 77 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Equity Securities.
The table below presents the concentration of equity securities within our alternative investments by region and industry.
| As of December | ||||||||
$ in billions | 2021 | 2020 | ||||||
Equity securities | $19 | $20 | ||||||
Region | ||||||||
Americas | 57% | 51% | ||||||
EMEA | 23% | 18% | ||||||
Asia | 20% | 31% | ||||||
Total | 100% | 100% | ||||||
Industry | ||||||||
Consumers | 6% | 2% | ||||||
Financial Institutions | 11% | 25% | ||||||
Healthcare | 11% | 8% | ||||||
Industrials | 7% | 5% | ||||||
Natural Resources & Utilities | 10% | 7% | ||||||
Real Estate | 22% | 18% | ||||||
Technology, Media & Telecommunications | 30% | 31% | ||||||
Other | 3% | 4% | ||||||
Total | 100% | 100% | ||||||
In the table above:
Equity securities included $15 billion as of December 2021 and $17 billion as of December 2020 of private equity positions, and $4 billion as of December 2021 and $3 billion as of December 2020 of public equity positions that converted from private equity upon the initial public offerings of the underlying companies.
The concentrations for real estate equity securities as of December 2021 were 5% for multifamily (3% as of December 2020), 5% for office (3% as of December 2020), 6% for mixed use (5% as of December 2020) and 6% for other real estate equity securities (7% as of December 2020).
The table below presents the concentration of equity securities within our alternative investments by vintage.
December 2020 | ||||
Total | 100% | |||
Total | 100% | |||
As we continue to grow our third-party alternatives business, we remain focused on our strategic objective to reduce the capital intensity of the Asset Management segment by reducing our
on-balance
sheet equity investments.The table below presents the concentrationrollforward of our equity securities within our alternative investments by vintage, region and industry.from the beginning of 2020 through the end of 2021.
$ in billions | December 2020 | |||
Beginning balance | $ 22 | |||
Additions | 6 | |||
Dispositions | (18 | ) | ||
Mark-ups | 9 | |||
Ending balance | $ | |||
CIE Investments and Other.
CIE investments and other included assets held by CIEs of $14 billion as of December 2021 and $19 billion as of December 2020, which were funded with liabilities of approximately $7 billion as of December 2021 and $10 billion as of December 2020. Substantially all such liabilities were nonrecourse, thereby reducing our equity at risk.
The table below presents the concentration of CIE assets, net of financings, within our alternative investments by vintage, region and asset class.
| As of December | ||||||||
$ in billions | 2021 | 2020 | ||||||
CIE assets, net of financings | $7 | $9 | ||||||
Region | ||||||||
Americas | 63% | 63% | ||||||
EMEA | 25% | 22% | ||||||
Asia | 12% | 15% | ||||||
Total | 100% | 100% | ||||||
Asset Class | ||||||||
Hospitality | 4% | 4% | ||||||
Industrials | 10% | 10% | ||||||
Multifamily | 23% | 23% | ||||||
Office | 24% | 28% | ||||||
Retail | 5% | 6% | ||||||
Senior Housing | 16% | 13% | ||||||
Student Housing | 6% | 7% | ||||||
Other | 12% | 9% | ||||||
Total | 100% | 100% | ||||||
The table below presents the concentration of CIE assets, net of financings, within our alternative investments by vintage.
December 2020 | |||||
Total | 100% | ||||
Total | 100% | ||||
Geographic Data
See Note 25 to the consolidated financial statements for a summary of our total net revenues,
pre-tax
earnings and net earnings by geographic region.THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Balance Sheet and Funding Sources
Balance Sheet Management
One of our risk management disciplines is our ability to manage the size and composition of our balance sheet. While our asset base changes due to client activity, market fluctuations and business opportunities, the size and composition of our balance sheet also reflects factors, including (i) our overall risk tolerance, (ii) the amount of equity capital we hold and (iii) our funding profile, among other factors. See “Equity Capital“Capital Management and Regulatory Capital — Equity Capital Management” for information about our equity capital management process.
Although our balance sheet fluctuates on abasis, our total assets at
day-to-day
quarter-end
andyear-end
dates are generally not materially different from those occurring within our reporting periods.In order to ensure appropriate risk management, we seek to maintain a sufficiently liquid balance sheet and have processes in place to dynamically manage our assets and liabilities, which include (i) balance sheet planning, (ii) balance sheet limits, (iii) monitoring of key metrics and (iv) scenario analyses.
Balance Sheet Planning.
We prepare a balance sheet plan that combines our projected total assets and composition of assets with our expected funding sources over a three-year time horizon. This plan is reviewed quarterly and may be adjusted in response to changing business needs or market conditions. The objectives of this planning process are:
To develop our balance sheet projections, taking into account the general state of the financial markets and expected business activity levels, as well as regulatory requirements;
To allow Treasury and our independent risk oversight and control functions to objectively evaluate balance sheet limit requests from our revenue-producing units in the context of our overall balance sheet constraints, including our liability profile and equity capital levels, and key metrics; and
To inform the target amount, tenor and type of funding to raise, based on our projected assets and contractual maturities.
Treasury and our independent risk oversight and control functions, along with our revenue-producing units, review current and prior period information and expectations for the year to prepare our balance sheet plan. The specific information reviewed includes asset and liability size and composition, limit utilization, risk and performance measures, and capital usage.
Our consolidated balance sheet plan, including our balance sheets by business, funding projections and projected key metrics, is reviewed and approved by the Firmwide Asset Liability Committee and the Risk Governance Committee. See “Risk Management — Overview and Structure of Risk Management” for an overview of our risk management structure.
Balance Sheet Limits.
The Firmwide Asset Liability Committee and the Risk Governance Committee have the responsibility to review and approve balance sheet limits. These limits are set at levels which are close to actual operating levels, rather than at levels which reflect our maximum risk appetite, in order to ensure prompt escalation and discussion among our revenue-producing units, Treasury and our independent risk oversight and control functions on a routine basis. Requests for changes in limits are evaluated after giving consideration to their impact on our key metrics. Compliance with limits is monitored by our revenue-producing units and Treasury, as well as our independent risk oversight and control functions.
Monitoring of Key Metrics.
We monitor key balance sheet metrics both by business and on a consolidated basis, including asset and liability size and composition, limit utilization and risk measures. We allocateattribute assets to businesses and review and analyze movements resulting from new business activity, as well as market fluctuations.
Scenario Analyses.
We conduct various scenario analyses, including as part of the Comprehensive Capital Analysis and Review (CCAR)CCAR and U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act Stress Tests (DFAST), as well as our resolution and recovery planning. See “Equity Capital“Capital Management and Regulatory Capital — Equity Capital Management” for further information about these scenario analyses. These scenarios cover short- and long-term time horizons using various macroeconomic and firm-specific assumptions, based on a range of economic scenarios. We use these analyses to assist us in developing our longer-term balance sheet management strategy, including the level and composition of assets, funding and equity capital. Additionally, these analyses help us develop approaches for maintaining appropriate funding, liquidity and capital across a variety of situations, including a severely stressed environment.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Balance Sheet Analysis and Metrics
As of December 2020,2021, total assets in our consolidated balance sheets were $1.16$1.46 trillion, an increase of $170.06$300.96 billion from December 2019,2020, primarily reflecting increases in customer and other receivablescollateralized agreements of $46.73$134.25 billion (primarily reflecting higher client activity), trading assets of $38.30 billion (primarily due to increases in derivative instruments reflecting the impact of changes in interest rates and equity prices and increases innon-U.S.government and agency obligations reflecting our and our clients’ activities), collateralized agreements of $28.46 billion (reflecting the impact of our and our clients’ activities), investments of $24.51 billion (primarily reflecting an increase in U.S. government obligations accounted for asavailable-for-sale),and cash and cash equivalents of $22.30$105.19 billion (primarily reflecting the impact of our activity). As, loans of December 2020, approximately 25%$42.45 billion (reflecting increases across the portfolio), and customer and other receivables of our total assets were held in our bank subsidiaries.$39.34 billion (primarily reflecting client activity).
As of December 2020,2021, total liabilities in our consolidated balance sheets were $1.07$1.35 trillion, an increase of $164.39$286.97 billion from December 2019,2020, primarily reflecting increases in deposits of $69.94$104.27 billion (reflecting increases in consumer, transaction bankingacross channels), customer and private bank deposits), trading liabilitiesother payables of $44.89$61.27 billion (primarily due to increases in equities and government obligations reflecting higher client activity and increases in derivative instruments reflecting the impact of changes in interest rate and equity price movements)activity), collateralized financings of $21.93$56.99 billion (reflecting(primarily reflecting the impact of our and our clients’ activities), unsecured borrowings of $34.70 billion (primarily driven by new issuances partially offset by maturities), and customer and other payablestrading liabilities of $15.84$27.70 billion (primarily reflecting higher client activity)the impact of our and our clients’ activities in government obligations, and corporate and other debt obligations, partially offset by the impact of interest rates, currency and commodity price movements on derivative instruments).
Our total securities sold under agreements to repurchase (repurchase agreements), accounted for as collateralized financings, were $165.88 billion as of December 2021 and $126.57 billion as of December 2020, and $117.76 billionwhich were 3% higher as of December 2019, which were2021 and 24% higher as of December 2020 and 32% higher as of December 2019 than the average daily amount of repurchase agreements over the respective quarters, and 14% higher as of December 2021 and 31% higher as of December 2020 and 40% higher as of December 2019 than the average daily amount of repurchase agreements over the respective years. As of December 2020,2021, the increase in our repurchase agreements relative to the average daily amount of repurchase agreements during the quarter and year resulted from higher levels of our and our clients’ activities at the end of the period.
The level of our repurchase agreements fluctuates between and within periods, primarily due to providing clients with access to highly liquid collateral, such as liquidcertain government and agency obligations, through collateralized financing activities.
The table below presents information about our balance sheet and leverage ratios.
| As of December | As of December | |||||||||||||||
$ in millions | 2020 | 2019 | 2021 | 2020 | ||||||||||||
Total assets | $1,163,028 | $992,968 | $1,463,988 | $1,163,028 | ||||||||||||
Unsecured long-term borrowings | $ 213,481 | $207,076 | $ | $ | ||||||||||||
Total shareholders’ equity | $ 95,932 | $ 90,265 | $ | $ | ||||||||||||
Leverage ratio | 12.1x | 11.0x | 13.3x | 12.1x | ||||||||||||
Debt-to-equity | 2.2x | 2.3x | 2.3x | 2.2x | ||||||||||||
In the table above:
The leverage ratio equals total assets divided by total shareholders’ equity and measures the proportion of equity and debt we use to finance assets. This ratio is different from the leverage ratios included in Note 20 to the consolidated financial statements.
Theratio equals unsecured long-term borrowings divided by total shareholders’ equity.
debt-to-equity
The table below presents information about our shareholders’ equity and book value per common share, including the reconciliation of common shareholders’ equity to tangible common shareholders’ equity.
| As of December | As of December | |||||||||||||||
$ in millions, except per share amounts | 2020 | 2019 | 2021 | 2020 | ||||||||||||
Total shareholders’ equity | $ 95,932 | $ 90,265 | $109,926 | $ 95,932 | ||||||||||||
Preferred stock | (11,203 | ) | (11,203 | ) | (10,703 | ) | (11,203 | ) | ||||||||
Common shareholders’ equity | 84,729 | 79,062 | 99,223 | 84,729 | ||||||||||||
Goodwill | (4,332 | ) | (4,196 | ) | (4,285 | ) | (4,332 | ) | ||||||||
Identifiable intangible assets | (630 | ) | (641 | ) | (418 | ) | (630 | ) | ||||||||
Tangible common shareholders’ equity | $ 79,767 | $ 74,225 | $ 94,520 | $ 79,767 | ||||||||||||
Book value per common share | $ 236.15 | $ 218.52 | $ 284.39 | $ 236.15 | ||||||||||||
Tangible book value per common share | $ 222.32 | $ 205.15 | $ 270.91 | $ 222.32 | ||||||||||||
In the table above:
Tangible common shareholders’ equity is calculated as total shareholders’ equity less preferred stock, goodwill and identifiable intangible assets. We believe that tangible common shareholders’ equity is meaningful because it is a measure that we and investors use to assess capital adequacy. Tangible common shareholders’ equity is a
non-GAAP
measure and may not be comparable to similarnon-GAAP
measures used by other companies.Book value per common share and tangible book value per common share are based on common shares outstanding and restricted stock units granted to employees with no future service requirements and not subject to performance or market conditions (collectively, basic shares) of 348.9 million as of December 2021 and 358.8 million as of December 2020 and 361.8 million as of December 2019.2020. We believe that tangible book value per common share (tangible common shareholders’ equity divided by basic shares) is meaningful because it is a measure that we and investors use to assess capital adequacy. Tangible book value per common share is a
non-GAAP
measure and may not be comparable to similarnon-GAAP
measures used by other companies.THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Funding Sources
Our primary sources of funding are deposits, collateralized financings, unsecured short- and long-term borrowings, and shareholders’ equity. We seek to maintain broad and diversified funding sources globally across products, programs, markets, currencies and creditors to avoid funding concentrations.
The table below presents information about our funding sources.
| As of December | As of December | |||||||||||||||||||||||||||||||
$ in millions | 2020 | 2019 | 2021 | 2020 | ||||||||||||||||||||||||||||
Deposits | $259,962 | 33% | $190,019 | 28% | $ | 36% | $259,962 | 33% | ||||||||||||||||||||||||
Collateralized financings | 173,947 | 22% | 152,018 | 22% | 230,932 | 23% | 173,947 | 22% | ||||||||||||||||||||||||
Unsecured short-term borrowings | 52,870 | 6% | 48,287 | 7% | 46,955 | 5% | 52,870 | 6% | ||||||||||||||||||||||||
Unsecured long-term borrowings | 213,481 | 27% | 207,076 | 30% | 254,092 | 25% | 213,481 | 27% | ||||||||||||||||||||||||
Total shareholders’ equity | 95,932 | 12% | 90,265 | 13% | 109,926 | 11% | 95,932 | 12% | ||||||||||||||||||||||||
Total | $796,192 | 100% | $687,665 | 100% | $1,006,132 | 100% | $796,192 | 100% | ||||||||||||||||||||||||
Our funding is primarily raised in U.S. dollar, Euro, British pound and Japanese yen. We generally distribute our funding products through our own sales force and third-party distributors to a large, diverse creditor base in a variety of markets in the Americas, Europe and Asia. We believe that our relationships with our creditors are critical to our liquidity. Our creditors include banks, governments, securities lenders, corporations, pension funds, insurance companies, mutual funds and individuals. We have imposed various internal guidelines to monitor creditor concentration across our funding programs.
Deposits.
Our deposits provide us with a diversified source of funding and reduce our reliance on wholesale funding. We raise deposits, including savings, demand and time deposits, from private bank clients, consumers, transaction banking clients, other institutional clients, and through internal and third-party broker-dealers. Substantially all of our deposits are raised through GS Bank USA and GSIB. See Note 13 to the consolidated financial statements for further information about our deposits, including a maturity profile of our time deposits.
Secured Funding.
We fund a significant amount of inventory and a portion of investments on a secured basis. Secured funding includes collateralized financings in the consolidated balance sheets. See Note 11 to the consolidated financial statements for further information about our collateralized financings, including its maturity profile. We may also pledge our inventory and investments as collateral for securities borrowed under a securities lending agreement. We also use our own inventory and investments to cover transactions in which we or our clients have sold securities that have not yet been purchased. Secured funding is less sensitive to changes in our credit quality than unsecured funding, due to our posting of collateral to our lenders. Nonetheless, we analyze the refinancing risk of our secured funding activities, taking into account trade tenors, maturity profiles, counterparty concentrations, collateral eligibility and counterparty rollover probabilities. We seek to mitigate our refinancing risk by executing term trades with staggered maturities, diversifying counterparties, raising excess secured funding and
pre-funding
residual risk through our GCLA.We seek to raise secured funding with a term appropriate for the liquidity of the assets that are being financed, and we seek longer maturities for secured funding collateralized by asset classes that may be harder to fund on a secured basis, especially during times of market stress. Our secured funding, excluding funding collateralized by liquid government and agency obligations, is primarily executed for tenors of one month or greater and is primarily executed through term repurchase agreements and securities loaned contracts.
Assets that may be harder to fund on a secured basis during times of market stress include certain financial instruments in the following categories: mortgage and other asset-backed loans and securities, Assets that are classified in level 3 of the fair value hierarchy are generally funded on an unsecured basis. See Notes 4 through 10 to the consolidated financial statements for further information about the classification of financial instruments in the fair value hierarchy and “Unsecured Long-Term Borrowings” below for further information about the use of unsecured long-term borrowings as a source of funding.
non-investment-grade
corporate debt securities, equity securities and emerging market securities.We also raise financing through other types of collateralized financings, such as secured loans and notes. GS Bank USA has access to funding from the Federal Home Loan Bank. We had noOur outstanding borrowings against the Federal Home Loan Bank as of December 2020 and $527were $100 million as of December 2019.2021 and we had no outstanding borrowings as of December 2020. Additionally, we have access to funding through the Federal Reserve discount window. However, we do not rely on this funding in our liquidity planning and stress testing.
Unsecured Short-Term Borrowings.
A significant portion of our unsecured short-term borrowings was originally long-term debt that is scheduled to mature within one year of the reporting date. We use unsecured short-term borrowings, including U.S. and
non-U.S.
hybrid financial instruments and commercial paper, to finance liquid assets and for other cash management purposes. In accordance with regulatory requirements, Group Inc. does not issue debt with an original maturity of less than one year, other than to its subsidiaries. See Note 14 to the consolidated financial statements for further information about our unsecured short-term borrowings.THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Unsecured Long-Term Borrowings.
Unsecured long-term borrowings, including structured notes, are raised through syndicated U.S. registered offerings, U.S. registered and Rule 144A medium-term note programs, offshore medium-term note offerings and other debt offerings. We issue in different tenors, currencies and products to maximize the diversification of our investor base.
The table below presents our quarterly unsecured long-term borrowings maturity profile.
$ in millions | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total | ||||||||||||||||||||||||||||||
As of December 2020 | ||||||||||||||||||||||||||||||||||||||||
2022 | $ 8,839 | $6,762 | $6,965 | $6,403 | $ 28,969 | |||||||||||||||||||||||||||||||||||
As of December 2021 | ||||||||||||||||||||||||||||||||||||||||
2023 | $10,344 | $6,860 | $8,638 | $7,451 | 33,293 | $15,373 | $7,271 | $8,939 | $11,628 | $ 43,211 | ||||||||||||||||||||||||||||||
2024 | $ 6,200 | $4,735 | $6,094 | $3,302 | 20,331 | $ 8,622 | $8,948 | $8,869 | $ 7,297 | 33,736 | ||||||||||||||||||||||||||||||
2025 | $ 7,469 | $8,890 | $5,892 | $4,925 | 27,176 | $ 6,855 | $9,732 | $5,671 | $ 6,545 | 28,803 | ||||||||||||||||||||||||||||||
2026 - thereafter | 103,712 | |||||||||||||||||||||||||||||||||||||||
2026 | $ 6,174 | $3,773 | $3,485 | $ 8,725 | 22,157 | |||||||||||||||||||||||||||||||||||
2027 - thereafter | 126,185 | |||||||||||||||||||||||||||||||||||||||
Total | $213,481 | $254,092 | ||||||||||||||||||||||||||||||||||||||
The weighted average maturity of our unsecured long-term borrowings as of December 20202021 was approximately seven years. To mitigate refinancing risk, we seek to limit the principal amount of debt maturing over the course of any monthly, quarterly or annual time horizon. We enter into interest rate swaps to convert a portion of our unsecured long-term borrowings into floating-rate obligations to manage our exposure to interest rates. See Note 14 to the consolidated financial statements for further information about our unsecured long-term borrowings. We issued approximately $60 billion of benchmark debt during 2021 to support the growth in our total assets amid client demand and attractive return opportunities. We intend to issue significantly less benchmark debt in 2022 compared to our benchmark debt issuance in 2021, though actual issuances may differ due to business needs and market opportunities.
Shareholders’ Equity.
Shareholders’ equity is a stable and perpetual source of funding. See Note 19 to the consolidated financial statements for further information about our shareholders’ equity.
Capital adequacy is of critical importance to us. We have in place a comprehensive capital management policy that provides a framework, defines objectives and establishes guidelines to assist us in maintaining the appropriate level and composition of capital in bothand stressed conditions.
business-as-usual
We determine the appropriate amount and composition of our equity capital by considering multiple factors, including our current and future regulatory capital requirements, the results of our capital planning and stress testing process, the results of resolution capital models and other factors, such as rating agency guidelines, subsidiary capital requirements, the business environment and conditions in the financial markets.
We manage our capital requirements and the levels of our capital usage principally by setting limits on the balance sheet and/or limits on risk, in each case at both the firmwide and business levels.
We principally manage the level and composition of our equity capital through issuances and repurchases of our common stock.
We may issue, redeem or repurchase our preferred stock, junior subordinated debt issued to trusts and other subordinated debt or other forms of capital as business conditions warrant. Prior to such redemptions or repurchases, we must receive approval from the Board of Governors of the Federal Reserve System (FRB).FRB. See Notes 14 and 19 to the consolidated financial statements for further information about our preferred stock, junior subordinated debt issued to trusts and other subordinated debt.
Capital Planning and Stress Testing Process.
As part of capital planning, we project sources and uses of capital given a range of business environments, including stressed conditions. Our stress testing process is designed to identify and measure material risks associated with our business activities, including market risk, credit risk, operational risk and operationalliquidity risk, as well as our ability to generate revenues.
Our capital planning process incorporates an internal capital adequacy assessment with the objective of ensuring that we are appropriately capitalized relative to the risks in our businesses. We incorporate stress scenarios into our capital planning process with a goal of holding sufficient capital to ensure we remain adequately capitalized after experiencing a severe stress event. Our assessment of capital adequacy is viewed in tandem with our assessment of liquidity adequacy and is integrated into our overall risk management structure, governance and policy framework.
Our stress tests incorporate our internally designed stress scenarios, including our internally developed severely adverse scenario, and those required by the FRB, and are designed to capture our specific vulnerabilities and risks. We provide further information about our stress test processes and a summary of the results on our website as described in “Business — Available Information” in Part I, Item 1 of this
Form 10-K.
As required by the FRB’s CCAR rules, we submit an annual capital plan for review by the FRB. The purpose of the FRB’s review is to ensure that we have a robust, forward-looking capital planning process that accounts for our unique risks and that permits continued operation during times of economic and financial stress.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The FRB evaluates us based, in part, on whether we have the capital necessary to continue operating under the baseline and severely adverse scenarios provided by the FRB and those developed internally. This evaluation also takes into account our process for identifying risk, our controls and governance for capital planning, and our guidelines for making capital planning decisions. In addition, the FRB evaluates our plan to make capital distributions (i.e., dividend payments and repurchases or redemptions of stock, subordinated debt or other capital securities) and issue capital, across the range of macroeconomic scenarios and firm-specific assumptions. The FRB determines the stress capital buffer (SCB)SCB applicable to us based on its own annual stress test. The SCB under the Standardized approach is calculated as (i) the difference between our starting and minimum projected CET1 capital ratios under the supervisory severely adverse scenario and (ii) our planned common stock dividends for each of the fourth through seventh quarters of the planning horizon, expressed as a percentage of risk-weighted assets (RWAs).
We submitted our 20202021 CCAR capital plan in April 20202021 and published a summary of our annual DFAST results in June 2020.2021. See “Business — Available Information” in Part I, Item 1 of thisWith respect toBased on our 20202021 CCAR submission, the FRB notified us thatreduced our SCB beginning on October 1, 2020 isfrom 6.6% to 6.4%, bringing ourresulting in a Standardized CET1 capital ratio requirement to 13.6%. In light of the impact of theCOVID-19pandemic on the economy, the FRB required all large bank holding companies (BHCs) to suspend stock repurchases through the fourth quarter of 2020 and not to increase common stock dividends or pay common stock dividends in excess of their average net income over the prior four quarters. The FRB also required large BHCs, including us, to resubmit their capital plans in November 2020 under the updated scenarios provided by the FRB, and released the results of the resubmissions in December 2020.
Form 10-K.
GS Bank USA has its own capital planning process but was notand, starting in 2022, will be required to submit its annual stress test results to the FRB in 2020. Based on growth in GS Bank USA’s average balance sheet, it will be required to submit its annual stress test results in 2022. Goldman Sachs International (GSI),FRB. GSI, GSIB and Goldman Sachs Bank Europe SE (GSBE) also have their own capital planning and stress testing process,processes, which incorporatesincorporate internally designed stress tests developed in accordance with the guidelines of their respective regulators.
Contingency Capital Plan.
As part of our comprehensive capital management policy, we maintain a contingency capital plan. Our contingency capital plan provides a framework for analyzing and responding to a perceived or actual capital deficiency, including, but not limited to, identification of drivers of a capital deficiency, as well as mitigants and potential actions. It outlines the appropriate communication procedures to follow during a crisis period, including internal dissemination of information, as well as timely communication with external stakeholders.
Capital Attribution.
We assess each of our businesses’ capital usage based on our internal assessment of risks, which incorporates an attribution of our relevant regulatory capital requirements. These regulatory capital requirements are allocated using our attributed equity framework, which takes into consideration our most binding capital constraints. Our most binding capital constraint is based on the results of the FRB’s annual stress test, which includes the Standardized risk-based capital and leverage ratios.
We review and make any necessary adjustments to our attributed equity in January each year, to reflect, among other things, the results of our latest CCAR process, as well as projected changes in our balance sheet. On January 1, 2021, our allocation of attributed equity changed (relative to the allocation as of December 2020) as follows: attributed equity increased by approximately $3.7 billion for Asset Management and approximately $0.7 billion for Consumer & Wealth Management, while attributed equity decreased by approximately $2.3 billion for Global Markets and approximately $2.1 billion for Investment Banking. On January 1, 2022, our allocation of attributed equity changed (relative to the allocation as of December 2021) as follows: attributed equity increased by approximately $1.0 billion for Consumer & Wealth Management and approximately $0.5 billion for Investment Banking, while attributed equity decreased by approximately $0.8 billion for Global Markets and approximately $0.7 billion for Asset Management. See “Segment Assets and Operating Results — Segment Operating Results” for information about our average quarterly attributed equity by segment. Effective on January 1, 2021, we adjusted the attributed equity framework in line with the impact of the SCB Rule and our SCB of 6.6%, which became effective on October 1, 2020 under the Standardized approach.
Share Repurchase Program.
We use our share repurchase program to help maintain the appropriate level of common equity. The repurchase program is effected primarily through regular open-market purchases (which may include repurchase plans designed to comply with
Rule 10b5-1
and accelerated share repurchases), the amounts and timing of which are determined primarily by our current and projected capital position and our capital plan submitted to the FRB as part of CCAR. The amounts and timing of the repurchases may also be influenced by general market conditions and the prevailing price and trading volumes of our common stock.THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
In the third quarter of 2021, the Board of Directors of Group Inc. (Board) approved an increase in our common stock dividend from $1.25 to $2.00 per share. During the fourth quarter of 2021, we returned a total of $1.20 billion to shareholders, including common stock repurchases of $500 million and approximately $700 million in common stock dividends. We currently expect our common stock repurchases in the first quarter of 2022 to be at or around the levels of common stock repurchases in the fourth quarter of 2021. Consistent with our capital management philosophy, we will continue prioritizing deployment of capital for our clients where returns are attractive and return any excess capital to shareholders through dividends and share repurchases.
As of December 2020,2021, the remaining share authorization under our existing repurchase program was 49.734.4 million shares. See “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” in Part II, Item 5 of this
Form 10-K
and Note 19 to the consolidated financial statements for further information about our share repurchase program, and see above for information about our capital planning and stress testing process.Resolution Capital Models.
In connection with our resolution planning efforts, we have established a Resolution Capital Adequacy and Positioning framework, which is designed to ensure that our major subsidiaries (GS Bank USA, Goldman Sachs & Co. LLC (GS&Co.), GSI, GSIB, GSBE, Goldman Sachs Japan Co., Ltd. (GSJCL), Goldman Sachs Asset Management, L.P., and Goldman Sachs Asset Management International (GSAMI) and GSBE)International) have access to sufficient loss-absorbing capacity (in the form of equity, subordinated debt and unsecured senior debt) so that they are able to wind-down following a Group Inc. bankruptcy filing in accordance with our preferred resolution strategy.
In addition, we have established a triggers and alerts framework, which is designed to provide the Board of Directors of Group Inc. (Board) with information needed to make an informed decision on whether and when to commence bankruptcy proceedings for Group Inc.
Rating Agency Guidelines
The credit rating agencies assign credit ratings to the obligations of Group Inc., which directly issues or guarantees substantially all of our senior unsecured debt obligations. GS&Co. and GSI have been assigned long- and short-term issuer ratings by certain credit rating agencies. GS Bank USA, GSIB and GSBE have also been assigned long- and short-term issuer ratings, as well as ratings on their long- and short-term bank deposits. In addition, credit rating agencies have assigned ratings to debt obligations of certain other subsidiaries of Group Inc.
The level and composition of our equity capital are among the many factors considered in determining our credit ratings. Each agency has its own definition of eligible capital and methodology for evaluating capital adequacy, and assessments are generally based on a combination of factors rather than a single calculation. See “Risk Management — Liquidity Risk Management — Credit Ratings” for further information about credit ratings of Group Inc., GS Bank USA, GSIB, GSBE, GS&Co. and GSI.
Consolidated Regulatory Capital
We are subject to consolidated regulatory capital requirements which are calculated in accordance with the regulations of the FRB (Capital Framework). Under the Capital Framework, we are an “Advanced approach” banking organization and have been designated as a global systemically important bank
(G-SIB).
The capital requirements calculated under the Capital Framework include the capital conservation buffer requirements, which are comprised of a 2.5% buffer (under the Advanced Capital Rules), a stress capital bufferthe SCB (under the Standardized Capital Rules), and a countercyclical capital buffer (under both Capital Rules) and the2020, 2021 and 2022. We expect that our2022 and 3.0% for 2023. Based on financial data for 2021, we are above the threshold for the 3.5%willcould be 3.0% beginning in 2023.effective is January 2024. TheStandardized CET1is to maintain capital ratio overratios equal to the medium term is between 13.0% and 13.5% (including management buffers) based upon the executionregulatory requirements plus a buffer of our previously announced strategic initiatives and achievement of capital efficiencies.50 to 100 basis points.
G-SIB
surcharge (under both Capital Rules). OurG-SIB
surcharge is 2.5% for G-SIB
surcharge. The earliest this surcharge G-SIB
surcharge and countercyclical capital buffer in the future may differ due to additional guidance from our regulators and/or positional changes, and our SCB is likely to change from year to year based on the results of the annual supervisory stress tests. Our target See Note 20 to the consolidated financial statements for further information about our risk-based capital ratios and leverage ratios, and the Capital Framework.
Total Loss-Absorbing Capacity (TLAC)
We are also subject to the FRB’s TLAC and related requirements. Failure to comply with the TLAC and related requirements couldwould result in restrictions being imposed by the FRB and could limit our ability to repurchase shares, pay dividends and make certain discretionary compensation payments.
| 84 | Goldman Sachs 2021 Form 10-K |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents TLAC and external long-term debt requirements.
| As of December | ||||||||
2021 | 2020 | |||||||
TLAC to RWAs | 21.5% | 22.0% | ||||||
TLAC to leverage exposure | 9.5% | 9.5% | ||||||
External long-term debt to RWAs | 8.5% | 8.5% | ||||||
External long-term debt to leverage exposure | 4.5% | 4.5% | ||||||
In the table above:
G-SIB
surcharge (Method 1). TheG-SIB
surcharge (Method 1) was 1.0% as of December 2021 and 1.5% as of December 2020.The TLAC to leverage exposure requirement includes (i) the 7.5% minimum and (ii) the 2.0% leverage exposure buffer.
The external long-term debt to RWAs requirement includes (i) the 6% minimum and (ii) the 2.5%
G-SIB
surcharge (Method 2).The external long-term debt to total leverage exposure is the 4.5% minimum.
The table below presents information about our TLAC and external long-term debt ratios.
| As of December | For the Three Months Ended or as of December | |||||||||||||||
$ in millions | 2020 | 2019 | 2021 | 2020 | ||||||||||||
TLAC | $ 242,730 | $ 236,850 | $ | $ | ||||||||||||
External long-term debt | $ 139,200 | $ 141,770 | $ | $ | ||||||||||||
RWAs | $ 609,750 | $ 563,575 | $ | $ | ||||||||||||
Leverage exposure | $1,332,937 | $1,375,467 | $1,910,521 | $1,332,937 | ||||||||||||
TLAC to RWAs | 39.8% | 42.0% | 44.0% | 39.8% | ||||||||||||
TLAC to leverage exposure | 18.2% | 17.2% | 15.6% | 18.2% | ||||||||||||
External long-term debt to RWAs | 22.8% | 25.2% | 25.8% | 22.8% | ||||||||||||
External long-term debt to leverage exposure | 10.4% | 10.3% | 9.1% | 10.4% | ||||||||||||
In the table above:
TLAC includes common and preferred stock, and eligible long-term debt issued by Group Inc. Eligible long-term debt represents unsecured debt, which has a remaining maturity of at least one year and satisfies additional requirements.
External long-term debt consists of eligible long-term debt subject to a haircut if it is due to be paid between one and two years.
RWAs represent Standardized RWAs as of December 2021 and Advanced RWAs as of December 2020 and Standardized RWAs as of December 2019.2020. In accordance with the TLAC rules, the higher of Advanced or Standardized RWAs are used in the calculation of TLAC and external long-term debt ratios and applicable requirements.
Leverage exposure consists of average adjusted total assets and certainAs ofLeverage exposure for the three months ended December 2020 leverage exposure excluded average holdings of U.S. Treasury securities and average deposits at the Federal Reserveis effective through March 31,had the effect of increasing the TLAC to leverage exposure ratio and the external long-term debt to leverage ratio. The impact of this temporary amendment was an increase to the TLAC to leverage exposure ratio of 2.4 percentage points and the external long-term debt to leverage exposure ratio of 1.3 percentage points for the three months ended December 2020. The amendment permitting this exclusion expired on April 1, 2021.
off-balance
sheet exposures. as permitted by the FRB under a temporary amendment. This temporary amendment
See “Business — Regulation” in Part I, Item 1 of this
Form 10-K
for further information about TLAC.Subsidiary Capital Requirements
Many of our subsidiaries, including our bank and broker-dealer subsidiaries, are subject to separate regulation and capital requirements of the jurisdictions in which they operate.
Bank Subsidiaries.
GS Bank USA is our primary U.S. banking subsidiary and GSIB and GSBE are our primary
non-U.S.
banking subsidiaries. These entities are subject to regulatory capital requirements. See Note 20 to the consolidated financial statements for further information about the regulatory capital requirements of our bank subsidiaries.U.S. Regulated Broker-Dealer Subsidiaries.
GS&Co. is our primary U.S. regulated broker-dealer subsidiary and is subject to regulatory capital requirements, including those imposed by the SEC and the Financial Industry Regulatory Authority, Inc. In addition, GS&Co. is a registered futures commission merchant and a registered swap dealer with the CFTC, and therefore is subject to regulatory capital requirements imposed by the CFTC, the Chicago Mercantile Exchange and the National Futures Association. Beginning in the fourth quarter of 2021, GS&Co. also became a registered security-based swap dealer with the SEC, and therefore became subject to capital requirements for security-based swap dealers which became effective in October 2021.RuleRules 1.17 and Part 23 Subpart E of the CFTC specify uniform minimum net capital requirements, as defined, for their registrants, and also effectively require that a significant part of the registrants’ assets be kept in relatively liquid form. GS&Co. has elected to calculate its minimum capital requirements in accordance with the “Alternative Net Capital Requirement” as permitted by
Rule 15c3-1
of the SEC and Rule 15c3-1.15c3-1
of the SEC.| Goldman Sachs 2021 Form 10-K | 85 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
GS&Co. had regulatory net capital, as defined byand $20.88 billion as of December 2019, which exceeded the amount required by $17.74 billion as of December 2021 and $18.45 billion as of December 2020 and $18.15 billion as of December 2019.2020. In addition to its alternative minimum net capital requirements, GS&Co. is also required to hold tentative net capital in excess of $1$5 billion and net capital in excess of $500 million$1 billion in accordance with the market and credit risk standards of Appendix E of$5$6 billion. As of both December 20202021 and December 2019,2020, GS&Co. had tentative net capital and net capital in excess of both the minimum and the notification requirements.
Rule 15c3-1,
of $22.18 billion as of December 2021 and $22.38 billion as of December 2020, Rule 15c3-1.
GS&Co. is also required to notify the SEC in the event that its tentative net capital is less than Non-U.S.
Regulated Broker-Dealer Subsidiaries.Our principal
non-U.S.
regulated broker-dealer subsidiaries include GSI and GSJCL.GSI, our U.K. broker-dealer, is regulated by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).for E.U.-regulated financial institutionswhich is predominantly aligned with the E.U. capital framework prescribed in the amended E.U. Fourth Capital Requirements Directive (CRD) and the E.U. Capital Requirements Regulation (CRR). These capital regulations are largely based on the Basel Committee on Banking Supervision’s (Basel Committee) capital framework for strengthening international capital standards (Basel III).
GSI is subject to the U.K. capital framework,
The table below presents GSI’s risk-based capital requirements.
| As of December | As of December | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Risk-based capital requirements | ||||||||||||||||
CET1 capital ratio | 8.1% | 8.8% | 8.1% | 8.1% | ||||||||||||
Tier 1 capital ratio | 10.0% | 10.8% | 9.9% | 10.0% | ||||||||||||
Total capital ratio | 12.5% | 13.4% | 12.4% | 12.5% | ||||||||||||
In the table above, the risk-based capital requirements incorporate capital guidance received from the PRA and could change in the future.
The table below presents information about GSI’s risk-based capital ratios.
| As of December | As of December | |||||||||||||||
$ in millions | 2020 | 2019 | 2021 | 2020 | ||||||||||||
Risk-based capital and risk-weighted assets | ||||||||||||||||
CET1 capital | $ 26,394 | $ 24,142 | $ 28,810 | $ 26,962 | ||||||||||||
Tier 1 capital | $ 34,694 | $ 32,442 | $ 37,110 | $ 35,262 | ||||||||||||
Tier 2 capital | $ 5,377 | $ 5,374 | $ 5,377 | $ 5,377 | ||||||||||||
Total capital | $ 40,071 | $ 37,816 | $ 42,487 | $ 40,639 | ||||||||||||
RWAs | $252,355 | $206,669 | $269,762 | $252,355 | ||||||||||||
Risk-based capital ratios | ||||||||||||||||
CET1 capital ratio | 10.5% | 11.7% | 10.7% | 10.7% | ||||||||||||
Tier 1 capital ratio | 13.7% | 15.7% | 13.8% | 14.0% | ||||||||||||
Total capital ratio | 15.9% | 18.3% | 15.7% | 16.1% | ||||||||||||
In the table above, CET1the risk-based capital Tier 1 capital and Total capitalratios as of December 2020 excluded2021 reflected GSI’s undistributed profits from October 2020 throughafter foreseeable charges for the three months ended December 2020, as such2021 (which will not be finalized until verification by GSI’s external auditors and approval by GSI’s Board of Directors for inclusion in risk-based capital). These profits have not yet been approvedcontributed approximately 16 basis points to be included as regulatorythe CET1 capital ratio.
GSI is also subject to the leverage ratio framework established by the PRA.
GSI is a registered swap dealer with the CFTC and, beginning in the fourth quarter of 2021, also became a registered security-based swap dealer with the SEC. As of December 2021, GSI was subject to and in compliance with applicable capital by the PRA. This leverage ratio is based on our current interpretationrequirements for swap dealers and understanding of this rule and may evolve as we discuss the interpretation and application of this rule with GSI’s regulators.security-based swap dealers.
GSI is also subject to a minimum requirement for own funds and eligible liabilities issued to affiliates. This requirement is subject to a transitional period which began to phase in from January 2019 and will becomebecame fully effective beginning in January 2022. As of both December 2021 and December 2020, GSI was in compliance with this requirement.
GSJCL, our Japanese broker-dealer, is regulated by Japan’s Financial Services Agency. GSJCL and certain other20202021 and December 2019,2020, these subsidiaries were in compliance with their local capital requirements.
non-U.S.
subsidiaries are also subject to capital requirements promulgated by authorities of the countries in which they operate. As of both December | 86 | Goldman Sachs 2021 Form 10-K |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Regulatory and Other Matters
Regulatory Matters
Our businesses are subject to extensive regulation and supervision worldwide. Regulations have been adopted or are being considered by regulators and policy makers worldwide. Given that many of the new and proposed rules are highly complex, the full impact of regulatory reform will not be known until the rules are implemented and market practices develop under the final regulations.
See “Business — Regulation” in Part I, Item 1 of this
Form 10-K
for further information about the laws, rules and regulations and proposed laws, rules and regulations that apply to us and our operations.Other Matters
On January 1, 2022, the publication of all EUR, CHF, JPY and GBP LIBORE.U.publication of the most commonly used USD LIBOR settings will cease after June 2023. The FCA has allowed the publication and the U.K. agreeduse of synthetic rates for certain GBP and JPY LIBOR settings in legacy GBP or JPY LIBOR-based derivative contracts through December 2022. The U.S. federal banking agencies’ guidance strongly encourages banking organizations to a withdrawal agreement (the Withdrawal Agreement), which became effective on January 31, 2020. The transition period under the Withdrawal Agreement ended on December 2020, after which E.U. law ceased to apply to the U.K. Effective December 31, 2020, and notwithstanding the Trade and Cooperation Agreement between the E.U. and U.K. reached at the end of 2020, firms established in the U.K., including our U.K. subsidiaries, have lost theirpan-E.U.“passports” and are generally treated as any other entities in countries outside the E.U. whose access to the E.U. is governed by the E.U. and national law.cease using USD LIBOR.
(non-USD
LIBOR) settings along with certain USD LIBOR settings ceased. The The U.K.International Swaps and Derivatives Association (ISDA) 2020 IBOR Fallbacks Protocol (IBOR Protocol) has adopted E.U. financial services legislation that wasprovided derivatives market participants with amended fallbacks for legacy and new derivative contracts to mitigate legal or economic uncertainty. Both counterparties have to adhere to the IBOR Protocol or engage in effect on December 31, 2020, which meansbilateral amendments for the terms to be effective for derivative contracts. ISDA confirmed that the U.K. financial services regimeFCA’s formal announcement in March 2021 fixed the spread adjustment for all LIBOR rates and that fallbacks will remainautomatically occur for outstanding derivative contracts that incorporate the relevant terms. In April 2021, the State of New York approved legislation intended to minimize legal and economic uncertainty for contracts that are governed by New York law and have no fallback provisions or have fallback provisions that are based on USD LIBOR by providing a statutory framework to replace USD LIBOR with a benchmark rate based on the Secured Overnight Financing Rate (SOFR).
We have facilitated an orderly transition from
non-USD
LIBORs to alternative risk-free reference rates for us and our clients and continue to make progress on our transition program as it relates to USD LIBOR.OursameIBOR Protocol in their rulebooks or were under bilateral agreements subject to the IBOR Protocol. The remainder were converted to synthetic rates as permitted by the FCA. The notional amount of derivatives converted to synthetic rates was not material.
non-USD
LIBOR risk exposure was substantially all in connection with derivative contracts. As of December 2021, substantially all of ournon-USD
LIBOR-based derivative contracts were with central clearing counterparties or exchanges which had incorporated fallbacks consistent with the Our risk exposure to USD LIBOR is primarily in connection with our derivative contracts and to a lesser extent our unsecured debt, preferred stock and loan portfolio. As of December 2021, the notional amount of our USD LIBOR-based derivative contracts was approximately $10.0 trillion, of which approximately $5.5 trillion will mature after June 2023 based on their contractual terms. A majority of such derivative contracts are with counterparties under E.U. financial services legislation. However,bilateral agreements subject to the IBOR Protocol, or with central clearing counterparties or exchanges which have incorporated fallbacks consistent with the IBOR Protocol in their rulebooks and have announced that they plan to convert USD LIBOR contracts to alternative risk-free reference rates. Our benchmark unsecured debt and preferred stock with USD LIBOR exposure was approximately $34.5 billion as of December 2021, of which $29.4 billion will contractually mature after June 2023 or is perpetual and has no stated maturity date. A large portion of such debt and preferred stock represents ourrate instruments, currently in the futurefixed-rate period, with call options before the U.K. may diverge from E.U. legislationLIBOR exposure begins. We continue to monitor industry and may decide notlegislative developments as they relate to adopt rules that correspondunsecured debt and preferred stock and will take actions designed to E.U. legislation not already operativefacilitate an orderly transition. In addition, we are also engaging with our clients in order to remediate our loan agreements through bilateral amendments.
fixed-to-floating
We have also issued debt and deposits linked to SOFR and Sterling Overnight Index Average (SONIA) and executed SOFR- and SONIA-based derivative contracts to make markets and facilitate client activities. When appropriate, we continue to execute transactions in the U.K.
| Goldman Sachs |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Evaluating and monitoring the impacts of USD LIBOR settings across our businesses, including transactions and products;
Ensuring that legacy financial instruments and contracts that continue to be impacted by the transition already contain appropriate fallback language or are being amended, either through bilateral negotiation or using industry-wide tools, such as protocols;
Enhancements to infrastructure (for example, models and systems) to prepare for a smooth transition from USD LIBOR to alternative risk-free reference rates;
Ensuring operational readiness to offer and support various alternative risk-free reference rate products;
Active participation in central bank and sector working groups, including responding to industry consultations; and
Client education and communication.
Impact of
COVID-19
Pandemic.We have continued to successfully execute on our Business Continuity Planning (BCP)BCP strategy since initially activating it in the first quarter of 2020 in response to the emergence of theAs a result of our BCP strategy, the majority ofWe remain focused on ensuring that our employees worked remotely during most of 2020 and continueare able to do so in January 2021. In order tore-openour offices to employees after initial restrictions began to ease in the second quarter of 2020, we established policies and protocols to address safety considerations, taking into account the readiness of people, communities and facilities. Over the course of the pandemic, the extent to which our employees have workedsafely work from our offices, has varied based on howwhere circumstances permit. During 2021, we made substantial progress in facilitating the safe return of employees to our offices and employees in a number of our locations around the world returned to the office to varying degrees. Given that the situation regardinghave evolved. We arechange. For instance, in constant dialogue with key stakeholders to assess healthlight of the rapid spread of the Omicron variant late in 2021, we took the step of having the vast majority of employees in the U.S., the U.K. and safety conditions across allin some of our officeother locations and to have robust procedures in place to protectwork remotely at the well-beingoutset of employees, such as controls around building access, strict physical distancing measures, enhanced cleaning regimes andon-siteCOVID-19testing.2022.
COVID-19
pandemic. Our priority has been to safeguard our employees and to seek to ensure continuity of business operations on behalf of our clients. Our business continuity response to theCOVID-19
pandemic is managed by a central team, which is led by our chief administrative officer and chief medical officer, and includes senior management within Risk and the chief operating officers across all regions and businesses. COVID-19
is fluid and varies geographically, our approach to transitioning back to the office is flexible and evolves as the specific conditions and requirements of each location Our systems and infrastructure have been robust throughout theWe continue to maintain regular andCommunication throughout our organization has remained active communication among our senior management,during the rest of our employees and the Board,pandemic and our decision-makingrisk management processes have remainedcontinued to operate in a rigorous and disciplined and rigorous throughout the pandemic. Since the beginning of theCOVID-19pandemic, our Management Committee and other senior leaders have met regularly and our executive officers have provided regular and enhanced communications to promote connectivity with our clients and employees worldwide. In addition, as part of our vendor management processes, we have ongoing dialogues with third-party service providers, which are intended to ensure that they continue to meet our criteria for business continuity.
COVID-19
pandemic, enabling us to conduct our activities without disruption. manner.
| Goldman Sachs |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
In general, the market backdrop continued to be constructive during 2021 and activity levels remained solid. Volatility increased toward the end of the trajectory of theCOVID-19pandemic has significantly diminished visibility into the future operating environment. A sustained period of weak economic conditionsyear as a result of the spike in infections, while accelerating inflation, driven by supply chain disruptions and labor shortages, and more moderated growth expectations, were key macroeconomic considerations heading into 2022. We continued to deploy our balance sheet to intermediate risk and to support the needs of clients. We have maintained our proactive approach to managing market risk levels, which entails ongoing review and monitoring of exposures and focusing on ways to mitigate risk. As the economic recovery progressed in 2021, credit risk continued to abate from the low point of the pandemic. However, we continue to closely monitor those industries that have been most severely challenged by the pandemic.
While the global economy continued on the path to recovery during 2021, it is vulnerable to the risk that the Omicron variant, or other possible variants, could impede the recovery going forward by precipitating adverse economic consequences, such as a softening in consumer and business confidence and spending, a worsening of supply chain constraints, and an intensification of inflationary pressures. If the future effects of the pandemic were to lead to a sustained period of economic weakness, our businesses would be detrimental to our businesses as itnegatively impacted. This would negatively affecthave a negative impact on factors that are important to our operating performance, such as the level of client activity, creditworthiness of counterparties and borrowers, and the amount of our AUS. We are monitoringwill continue to closely monitor the ongoing developmentsrollout of vaccines across regions, as well as theCOVID-19vaccines are being distributed and administered, impact of new variants of the virus, and will take further action that areactions, as necessary, in order to best serve the best interests of our employees, clients and counterparties. For further information about the risks associated with the“Business — Risk“Risk Factors” in Part II,I, Item 1A of this
COVID-19
pandemic, see Form 10-K.
Off-Balance
Sheet ArrangementsIn the ordinary course of business, we enter into various types of
off-balance
sheet arrangements. Our involvement in these arrangements can take many different forms, including:Purchasing or retaining residual and other interests in special purpose entities, such as mortgage-backed and other asset-backed securitization vehicles;
Holding senior and subordinated debt, interests in limited and general partnerships, and preferred and common stock in other nonconsolidated vehicles;
Entering into interest rate, foreign currency, equity, commodity and credit derivatives, including total return swaps; and
Providing guarantees, indemnifications, commitments, letters of credit and representations and warranties.
We enter into these arrangements for a variety of business purposes, including securitizations. The securitization vehicles that purchase mortgages, corporate bonds and other types of financial assets are critical to the functioning of several significant investor markets, including the mortgage-backed and other asset-backed securities markets, since they offer investors access to specific cash flows and risks created through the securitization process.
We also enter into these arrangements to underwrite client securitization transactions; provide secondary market liquidity; make investments in performing and nonperforming debt, distressed loans, power-related assets, equity securities, real estate and other assets; and provide investors with credit-linked and asset-repackaged notes; and receive or provide letters of credit to satisfy margin requirements and to facilitate the clearance and settlement process.notes.
The table below presents where information about our various
off-balance
sheet arrangements may be found in thisForm 10-K.
In addition, see Note 3 to the consolidated financial statements for information about our consolidation policies.Off-Balance Sheet Arrangement | Disclosure in Form 10-K | |||
Variable interests and other obligations, including contingent obligations, arising from variable interests in nonconsolidated variable interest entities (VIEs) | See Note 17 to the consolidated financial statements. | |||
Guarantees, | See Note 18 to the consolidated financial statements. | |||
Derivatives | See “Risk Management — Credit Risk Management — Credit Exposures — OTC Derivatives” and Notes 4, 5, 7 and 18 to the consolidated financial statements. | |||
| As of December | ||||||||
$ in millions | 2020 | 2019 | ||||||
Time deposits | $ 26,433 | $ 32,273 | ||||||
Financings and borrowings: | ||||||||
Secured long-term | $ 12,537 | $ 11,953 | ||||||
Unsecured long-term | $213,481 | $207,076 | ||||||
Interest payments | $ 44,073 | $ 47,649 | ||||||
Operating lease payments | $ 3,268 | $ 3,980 | ||||||
| Goldman Sachs |
